What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-02 compared with 2022-03-03 · 213 added, 210 removed, 608 unchanged (41% of the section changed)

27 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that:

(1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of critical audit matters do not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation of contingent consideration liability

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We also compared the significant assumptions to current industry, market and economic trends to corroborate the Company’s estimates and performed sensitivity analyses of significant assumptions to evaluate the changes in the contingent consideration liability that would result from changes in the significant assumptions.

We also involved our valuation specialists to assist us in testing the discount rate.

Collaboration and License Agreement with Qilu

Description of the Matter As discussed in Note 11 to the consolidated financial statements, in December 2021, the Company entered into a technology transfer and license agreement with Qilu Pharmaceuticals Co., Ltd.

Under the agreement, the Company granted Qilu an exclusive right to develop and commercialize AB-729 for the treatment and prevention of hepatitis B in the People's Republic of China, Hong Kong, Macau, and Taiwan.

The Company agreed to provide clinical supply of the licensed product to Qilu until the Company has completed the manufacturing technology transfer to Qilu.

The Company received a $40.0 million up-front payment, net of withholding taxes, during 2022 in connection with this arrangement and is also eligible to receive additional development and regulatory milestone payments, sales-based milestones and royalties as well as additional payments for clinical supply under the arrangement.

The Company identified two commitments under the arrangement:

(i) rights to develop, use, sell, have sold, offer for sale and import any product comprised of Licensed Product (the “Qilu License”) and (ii) drug supply obligations and manufacturing technology transfer (the “Manufacturing Obligations”).

The Company determined that these two commitments are not distinct performance obligations for purposes of recognizing revenue as the manufacturing process is highly specialized and Qilu would not be able to benefit from the Qilu License without the Company’s involvement in the manufacturing activities until the transfer of the manufacturing know-how is complete.

As such, the Company combined these commitments into one performance obligation to which the transaction price is allocated and recognized over time using an inputs method based on labor hours expended by the Company on its Manufacturing Obligations.

Auditing the Company's revenue recognition for the Qilu collaboration and license agreement was challenging, as significant judgment was required to apply the authoritative accounting guidance to the arrangement.

The Company exercised significant judgment in determining the revenue recognition for this arrangement, including as it relates to the identification of performance obligations, as well as estimating the total number of labor hours that will be expended to complete the Manufacturing Obligations.

How We Addressed the Matter in Our Audit Our audit procedures to test the Company's determination of revenue recognition for the Qilu collaboration and license agreement included, among others, reading the contractual agreement, testing management's identification of significant terms for completeness, including identification of performance obligations, and evaluating the appropriateness of management's application of authoritative guidance and existing accounting policies.

We also discussed the judgments inherent in the Company's determination of revenue recognition, including the identification of the performance obligations and estimating the total number of expected hours required to complete the Manufacturing Obligations, with research and development personnel responsible for overseeing the satisfaction of the Company's Manufacturing Obligations.

We also tested a sample of actual hours expended during 2022 on the Manufacturing Obligations and performed a lookback analysis, comparing the total actual hours expended throughout the year to the total number of future expected hours as of December 31, 2022, based on the progress to date and the nature of the future activities to be performed.

/s/ Ernst & Young LLP

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Accounts payable and accrued liabilities $ 16,029 $ 10,838

Deferred license revenue, current 16,456 —

Lease liability, current 372 383

1 unchanged sentence

Liability related to sale of future royalties 10,365 16,296

Deferred license revenue, non-current 5,999 —

Contingent consideration 7,531 5,298

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Stockholders’ equity

Preferred shares

unlimited number without par value

Issued and outstanding:

0 (December 31, 2020:

Common shares

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144,987,736 )

1,318,737 1,286,636

Additional paid-in capital 72,406 65,485

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Change in fair value of contingent consideration 2,233 1,872

Site consolidation — 64

Total operating expenses 104,475 84,510

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Interest expense ( 1,726 ) ( 2,857 )

Equity investment loss — ( 2,545 )

Foreign exchange gain (loss) 5 ( 124 )

Total other loss ( 2,725 ) ( 5,939 )

Foreign exchange (loss) gain ( 22 ) 5

Total other income (loss) 444 ( 2,725 )

Loss before income taxes ( 65,012 ) ( 76,247 )

Income tax expense ( 4,444 ) —

Net loss $ ( 69,456 ) $ ( 76,247 )

6 unchanged sentences

Basic and diluted 150,939,337 106,242,452

Comprehensive income (loss)

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

Currency translation adjustments — 44

Comprehensive loss

Unrealized loss on available-for-sale securities $ ( 2,153 ) $ ( 164 )

Comprehensive loss $ ( 71,609 ) $ ( 76,411 )

See accompanying notes to the consolidated financial statements.

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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

1 unchanged sentence

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 options — — 170,040 1,107 ( 658 ) — — 449

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

Currency translation adjustment — — — — — — 44 44

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

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

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

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

Balance at December 31, 2021 — $ — 144,987,736 $ 1,286,636 $ 65,485 $ ( 1,134,347 ) $ ( 48,335 ) $ 169,439

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 — — — — 7,182 — — 7,182

1 unchanged sentence

Issuance of common shares pursuant to the Open Market Sales Agreement — — 8,645,426 20,324 — — — 20,324

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

Issuance of common shares pursuant to exercise of ESPP — — 171,224 588 ( 193 ) — — 395

Issuance of common shares pursuant to Share Purchase Agreement — — 3,579,952 10,973 — — — 10,973

Issuance of common shares pursuant to exercise of stock options — — 71,025 216 ( 94 ) — — 122

Unrealized loss on available-for-sale securities — — — — — — ( 2,153 ) ( 2,153 )

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Stock-based compensation expense 7,182 6,424

Unrealized foreign exchange gains ( 5 ) ( 56 )

Change in fair value of contingent consideration 2,233 1,872

Net equity investment loss — 2,545

Non-cash royalty revenue ( 7,653 ) ( 6,108 )

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Accounts payable and accrued liabilities 5,216 1,911

Lease liabilities ( 369 ) ( 375 )

Deferred license revenue 22,455 —

Other liabilities ( 405 ) ( 374 )

Net cash used in operating activities ( 35,356 ) ( 67,532 )

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Disposition of investments in marketable securities 56,000 70,350

Investment in Genevant — ( 2,500 )

Acquisition of property and equipment ( 512 ) ( 809 )

1 unchanged sentence

FINANCING ACTIVITIES

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

Issuance of common shares pursuant to Share Purchase Agreement 10,973 —

Issuance of common shares pursuant to the ATM 20,324 134,665

Issuance of common shares pursuant to exercise of stock options 122 2,110

Issuance of common shares pursuant to exercise of ESPP 395 461

Net cash provided by financing activities 31,814 137,236

Effect of foreign exchange rate changes on cash and cash equivalents ( 22 ) 5

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

(Decrease) increase in cash and cash equivalents $ ( 78,506 ) $ 57,031

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

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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.

To address HBV, the Company is 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.

The Company believes its lead compound, AB-729, is the only RNAi therapeutic with evidence of immune re-awakening.

AB-729 is currently being evaluated in multiple phase 2 clinical trials.

The Company also has an ongoing drug discovery and development program directed to identifying novel, orally active agents for treating coronaviruses, including SARS-CoV-2, where the Company has nominated a compound and has begun IND-enabling pre-clinical studies.

In addition, the Company is also exploring oncology applications for its internal PD-L1 portfolio.

At December 31, 2022, the Company had an aggregate of $ 184.3 million in cash, cash equivalents and investments in marketable securities.

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, 2022.

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COVID-19 Impact

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.

The Company continues to monitor the effects of COVID-19, which has caused significant disruptions around the world.

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.

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These consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) and include the accounts of Arbutus Biopharma Corporation and its two wholly-owned subsidiaries, Arbutus Biopharma, Inc.

and Arbutus Biopharma U.S.

Holdings, Inc.

generally accepted accounting principles (“GAAP”) and include the accounts of Arbutus Biopharma Corporation and its one wholly-owned subsidiary, Arbutus Biopharma, Inc.

All intercompany balances and transactions have been eliminated.

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.

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

In February 2021, Arbutus Biopharma US Holdings, Inc., which was another wholly-owned subsidiary, merged into Arbutus Biopharma, Inc.

with Arbutus Biopharma, Inc.

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The Company reviews its available-for-sale securities at each period end to determine if they remain available-for-sale based on the Company’s current intent and ability to sell the security if it is required to do so.

Declines in value judged to be other-than-temporary are included in interest income or expense in the Company’s statements of operations and comprehensive loss.

Declines in value judged to be other-than-temporary are included in interest expense in the Company’s statements of operations and comprehensive loss.

As of December 31, 2022, the recorded value of the Company’s investments in marketable securities was deemed to be recoverable in all respects.

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Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction.

Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.

Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains or losses.

Investment in Genevant

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.

Ownership interests that do not confer the ability to exercise significant influence are accounted for at fair value, except when the investment does not have a readily-determinable fair value.

In that case, the investment is carried at cost, less any impairment.

The carrying value is subsequently adjusted to fair value based on any observable price changes.

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

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 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.

As of December 31, 2022, Arbutus owned approximately 16 % of the common equity of Genevant and the carrying value of Arbutus’ investment in Genevant was zero .

See note 5 for more information.

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

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.

(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.

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

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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.

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.

The Company accounts for its lease 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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For the year ended December 31, 2022, potential common shares of 15.5 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.

A total of approximately 11.4 million outstanding stock options were excluded from the calculation for the year ended December 31, 2021.

On October 18, 2021, the Company’s outstanding Series A participating convertible preferred shares (“ 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.

1 unchanged sentence

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:

For the year ended December 31,

(in thousands, except share and per share amounts)

Allocation of distributable earnings $ — $ —

Allocation of undistributable loss ( 88,386 ) ( 75,868 )

Allocation of net loss attributed to common shareholders $ ( 88,386 ) $ ( 75,868 )

Weighted average number of common shares - basic and diluted 106,242,452 75,835,378

Basic and diluted net loss attributable to common shareholders per share $ ( 0.83 ) $ ( 1.00 )

See note 12 and note 13 for more information about the Company’s common shares.

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Segment information

The Company operates in a single reporting segment.

Substantially all of the Company’s revenues to date were earned from customers or collaborators based in the United States.

As of December 31, 2022, the Company viewed its operations and managed its business as one operating segment consistent with how its chief operating decision-maker, the Chief Executive Officer, makes decisions regarding resource allocation and assessing performance.

Substantially all of the Company’s premises, property and equipment are located in the United States.

Comprehensive loss

Comprehensive loss is comprised of net loss, the impact of foreign currency translation adjustments and adjustments for the change in unrealized gains and losses on investments in available-for-sale marketable securities.

The Company displays comprehensive loss and its components in the consolidated statements of operations and comprehensive loss, net of tax effects if any.

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on investments in available-for-sale marketable securities.

The Company includes comprehensive loss and its components in the consolidated statements of operations and comprehensive loss, net of tax effects if any.

Concentrations of Credit Risk

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The guidance is effective for the Company beginning January 1, 2023 and it changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities.

The Company is currently evaluating the impact of the new standard on its consolidated financial statements.

The Company does not anticipate that the new guidance will have a material impact on its results of operations or financial position.

Fair value measurements

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Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources.

Unobservable inputs are inputs based on assumptions about the

factors market participants would use to value an asset or liability.

Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability.

The three levels of inputs that may be used to measure fair value are as follows:

• Level 1 inputs are quoted market prices for identical instruments available in active markets.

The Company’s cash and cash equivalents are measured using Level 1 inputs.

• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly.

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An example includes quoted market prices for similar assets or liabilities in active markets.

The Company’s investments in marketable securities are measured using Level 2 inputs.

• Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assumptions about market assumptions that would be used to price the asset or liability.

The Company’s liability-classified options and contingent consideration are measured using Level 3 inputs.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements.

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To determine the fair value of the contingent consideration (note 10), the Company uses a probability weighted assessment of the likelihood the milestones would be met and the estimated timing of such payments, and then the potential contingent payments were discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, time to complete the program development, and overall biotech indices.

The Company determined the fair value of the contingent consideration was $ 5.3 million as of December 31, 2021 and the increase of $ 1.9 million has been recorded within operating expenses in the statement of operations and comprehensive loss for the year ended December 31, 2021.

The Company determined that the fair value of the contingent consideration was $ 7.5 million as of December 31, 2022 and the increase of $ 2.2 million has been recorded within operating expenses in the statement of operations and comprehensive loss for the year ended December 31, 2022.

The assumptions used in the discounted cash flow model are level 3 inputs as defined above.

The Company assessed the sensitivity of the fair value measurement to changes in these unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.

Company assessed the sensitivity of the fair value measurement to changes in these unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.

The following tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value:

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Cash and cash equivalents $ 30,776 $ — $ — $ 30,776

Investments in marketable securities — 81,723 — 81,723

Investments in marketable securities, current — 116,137 — 116,137

Investments in marketable securities, non-current — 37,363 — 37,363

Total $ 30,776 $ 153,500 $ — $ 184,276

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Cash and cash equivalents $ 109,282 $ — $ — $ 109,282

Investments in marketable securities — 71,017 — 71,017

Investments in marketable securities, current — 46,035 — 46,035

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

Total $ 109,282 $ 81,723 $ — $ 191,005

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Investments in marketable securities

Investments in marketable securities consisted of the following:

Investments in marketable securities and cash equivalents consisted of the following:

Amortized Cost Gross Unrealized Gain (1)

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Total $ 23,218 $ — $ — $ 23,218

Investments in marketable securities

Investments in marketable short-term securities

US government agency bonds $ 26,686 $ — $ ( 424 ) $ 26,262

US corporate bonds 27,144 — ( 303 ) 26,841

US treasury bills 8,483 — ( 16 ) 8,467

US government bonds 55,361 — ( 794 ) 54,567

Total $ 117,674 $ — $ ( 1,537 ) $ 116,137

(1) Gross unrealized gain (loss) is pre-tax.

Investments in marketable long-term securities

US government agency bonds $ 3,724 $ — $ ( 130 ) $ 3,594

US corporate bonds 25,433 — ( 336 ) 25,097

US government bonds 8,972 — ( 300 ) 8,672

Total $ 38,129 $ — $ ( 766 ) $ 37,363

(1) Gross unrealized gain (loss) is pre-tax and is reported in accumulated other comprehensive loss.

Amortized Cost Gross Unrealized Gain (1)

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Money market fund $ 93,211 $ — $ — $ 93,211

US treasury bills 2,000 — — 2,000

Total $ 93,211 $ — $ — $ 93,211

Investments in marketable securities

Investments in marketable short-term securities

US government agency bonds $ 8,131 $ — $ ( 11 ) $ 8,120

US treasury bills 21,990 2 — 21,992

US government bonds 37,968 — ( 53 ) 37,915

Total $ 46,099 $ — $ ( 64 ) $ 46,035

(1) Gross unrealized gain (loss) is pre-tax.

There were no realized gains or losses for the year ended December 31, 2021 or 2020.

Investments in marketable long-term securities

US government agency bonds $ 13,068 $ — $ ( 29 ) $ 13,039

US treasury bills 22,707 — ( 58 ) 22,649

Total $ 35,775 $ — $ ( 87 ) $ 35,688

(1) Gross unrealized gain (loss) is pre-tax and is reported in accumulated other comprehensive loss.

The contractual maturity of the $ 116.1 million of short-term marketable securities held by the Company as of December 31, 2022 is less than one year.

As of December 31, 2022, the Company held $ 37.4 million of long-term marketable securities with contractual maturities of more than one year, but less than five years.

As of December 31, 2021, the Company’s $ 46.0 million of short-term marketable securities had contractual maturities of less than one year, while the Company’s $ 35.7 million of long-term marketable securities had maturities of more than one year, but less than five years.

The Company had realized gains on investments of less than $ 0.1 million and zero for the years ended December 31, 2022 and 2021, respectively.

Investment in Genevant

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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.

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

The Company 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.

Following the recapitalization, the Company owned approximately 16 % of the common equity of Genevant.

In connection with the recapitalization, Genevant, the Company and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant.

The Company has a non-voting observer seat on Genevant’s Board of Directors.

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

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

The Company accounts for its interest in Genevant as equity securities without readily determinable fair values.

The Company’s entitlement to receive future royalties or sublicensing revenue under the Genevant License was not impacted by the recapitalization.

As of December 31, 2022, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16 % of the common equity of Genevant.

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

The Company had one operating lease for its office and laboratory space as of December 31, 2022.

The Company’s corporate headquarters is located at 701 Veterans Circle, Warminster, Pennsylvania.

The lease expires on April 30, 2027, and the Company has the option of extending the lease for two further five-year terms.

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.

The Company also previously leased office space located at 626 Jacksonville Road, Warminster, Pennsylvania under a lease that terminated on August 31, 2022.

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

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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 and 7.6 % for the 626 Jacksonville Rd.

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

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(in thousands)

Thereafter 134

Total lease payments $ 2,637

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Professional fee accruals 512 983

Liability options 26 250

Other accrued liabilities 6 31

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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.

From the inception of the royalty sale through December 31, 2022, an aggregate of $ 18.9 million of royalties have been collected 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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As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability is effectively repaid over the life of the Agreement.

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

There are a number of factors that could materially affect the amount and timing of royalty payments from Alnylam, none of which are within the Company’s control.

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Net liability related to sale of future royalties - ending balance $ 10,365 $ 16,296

In addition to the royalty from the Alnylam LNP License Agreement, the Company is also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc.

In addition to the royalty from the LNP License Agreement, the Company is also receiving 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.

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

Contingencies and commitments

Product development partnership with the Canadian Government

The Company entered into a Technology Partnerships Canada (“TPC”) agreement with the Canadian Federal Government on November 12, 1999.

Under this agreement, TPC agreed to fund 27 % of the costs incurred by the Company, prior to March 31, 2004, in the development of certain oligonucleotide product candidates up to a maximum contribution from TPC of $ 7.2 million (C$ 9.3 million).

The Company received a cumulative contribution of $ 2.7 million (C$ 3.7 million).

In return for the funding provided by TPC, the Company agreed to pay royalties on the share of future licensing and product revenue, if any, that is received by the Company on certain non-RNAi oligonucleotide product candidates covered by the funding under the agreement.

These royalties are payable until a certain cumulative payment amount is achieved or until a pre-specified date.

In addition, until a cumulative amount equal to the funding actually received under the agreement has been paid to TPC, the Company agreed to pay 2.5 % royalties on any royalties the Company receives for Marqibo, a chemotherapy product sold by Acrotech Biopharma LLC (“Acrotech”).

For the years ended December 31, 2021 and 2020, the Company earned royalties on Marqibo sales in the amount of $ 0.2 million in each period.

The resulting royalties payable by the Company to TPC were not material in either period.

The cumulative amount paid or accrued up to December 31, 2021 was less than $ 0.1 million, resulting in the contingent amount due to TPC being $ 2.7 million (C$ 3.7 million).

Arbitration with the University of British Columbia

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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.

On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it was 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 were held in April 2022 and, on July 11, 2022, the arbitrator issued his decision fully dismissing UBC’s claim for royalties.

As a result, no payments are owed to UBC.

In September 2022, the arbitrator awarded the Company $ 0.5 million for reimbursement of costs and attorneys’ fees, which the Company received from UBC in October 2022.

This matter is now fully resolved.

Stock Purchase Agreement with Enantigen

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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.

Qilu paid $ 4.4 million of withholding taxes to the Chinese taxing authority on the Company’s behalf, related to the upfront cash payment.

In addition, 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.

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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.

A joint development committee has been established between the Company and Qilu to coordinate and review the development, manufacturing and commercialization plans.

Both parties also have entered into 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 Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture AB-729 in the Territory.

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”).

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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.

The License Agreement falls under the scope of ASC 808 as both parties are active participants in the arrangement and 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.

In accordance with the guidance, the Company identified the following commitments under the arrangement:

(i) rights to develop, use, sell, have sold, offer for sale and import any product comprised of Licensed Product (the “Qilu License”);

and (ii) drug supply obligations and manufacturing technology transfer (the “Manufacturing Obligations”).

As such, the Company will combine these commitments into one performance obligation to which the transaction price will be allocated to and will recognize this transaction price associated with the bundled performance obligation over time using an inputs method based on labor hours expended by the Company on its Manufacturing Obligations.

The Company determined the initial transaction price of the combined performance obligation to be $ 49.3 million, which includes the $ 40.0 million upfront fee, $ 4.4 million of withholding taxes paid by Qilu on behalf of the Company, the premium

paid for the Share Transaction of $ 4.1 million, and $ 0.8 million associated with certain manufacturing costs expected to be reimbursed by Qilu.

The Company determined the Milestone Payments to be variable consideration subject to constraint at inception.

At the end of each subsequent reporting period, the Company will reevaluate the probability of achievement of the future development, regulatory, and sales milestones subject to constraint and, if necessary, will adjust its estimate of the overall transaction price.

Any such adjustments will be recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

The following table outlines the transaction price and the changes to the related asset and liability balances during the twelve months ended December 31, 2022:

Twelve Months Ended December 31, 2022

Transaction Price Cumulative Collaboration Revenue Recognized Deferred License Revenue

(in thousands)

Combined performance obligation $ 49,270 $ 26,015 $ 23,255

Less contract asset ( 800 )

Total deferred license revenue 22,455

Less current portion of deferred license revenue 16,456

Non-current deferred license revenue $ 5,999

The Company recognized $ 26.0 million of revenue based on labor hours expended by the Company on its Manufacturing Obligations during the twelve months ended December 31, 2022.

As of December 31, 2022, the balance of the deferred license revenue was $ 23.3 million, which, in accordance with ASC 210-20, was partially offset by the contract asset associated with the manufacturing cost reimbursement of $ 0.8 million, resulting in a net deferred license revenue liability of $ 22.5 million.

The $ 4.4 million of withholding taxes paid by Qilu on behalf of the Company was recorded as income tax expense during the twelve months ended December 31, 2022.

The Company incurred $ 0.6 million of incremental costs in obtaining the Qilu License, which the Company capitalized in other current assets and other assets and amortizes as a component of general and administrative expense commensurate with the recognition of the combined performance obligation.

The Company recognized $ 0.3 million of related amortization expense for the twelve months ended December 31, 2022.

The Company reevaluates the transaction price and the total estimated labor hours expected to be incurred to satisfy the performance obligations and adjusts the deferred revenue at the end of each reporting period.

Such changes will result in a change to the amount of collaboration revenue recognized and deferred revenue.

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 HBV infection.

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

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

Assembly has completed enrollment in the clinical trial.

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

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

Preliminary data from 65 patients indicated that adding VBR to AB-729 and NA therapy does not positively or negatively impact the reduction of HBsAg compared to AB-729 and NA therapy alone.

Accordingly, the Company and Assembly mutually agreed to discontinue the clinical trial following completion of the final, on-treatment visit at week 48.

The Company and Assembly shared in the costs of the collaboration.

The Company incurred $ 2.8 million and $ 2.6 million of costs related to the collaboration during the years ended December 31, 2022 and 2021, 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.

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 the Company’s AB-729 compound.

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.

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 antigen-specific immunotherapeutic, 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.

The Company incurred $ 0.8 million and $ 0.5 million of costs related to the collaboration, net of Vaccitech’s 50 % share, during the years ended December 31, 2022 and 2021, respectively, and reflected those net costs in research and development in the statements of operations and comprehensive loss.

and Proteros biostructures GmbH

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

In March 2021, the Company entered into a discovery research and license agreement, as amended, 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 ).

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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.

In the fourth quarter of 2022, the Company nominated AB-343 as its lead candidate that inhibits M pro and the Company is also continuing lead optimization activities for an nsp12 viral polymerase candidate.

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.

The agreement with X-Chem and Proteros was amended effective March 31, 2022 primarily to extend the term of the collaboration and update the funding and fee structure.

The Company incurred $ 1.3 million and $ 1.9 million of costs related to the collaboration during the years ended December 31, 2022 and 2021, respectively, and reflected those costs in research and development in the statements of operations and comprehensive loss.

Royalty Entitlements

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See note 9 for further details.

The Company also has rights to a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas.

The Company also has 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.

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

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The Company did not receive any payments from Gritstone during the years ended December 31, 2022 or 2021.

Acrotech Biopharma LLC

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

(“Talon,” formerly Hana Biosciences, Inc.) that granted Talon worldwide licenses to certain of its LNP technology (the “Talon License Agreement”) for three of Talon’s chemotherapy products, Marqibo®, Alocrest ™ (Optisomal Vinorelbine) and Brakiva ™ (Optisomal Topotecan).

In 2012, Talon received approval for Marqibo from the FDA for the treatment of adult patients with Philadelphia chromosome negative acute lymphoblastic leukemia in second or greater relapse or whose disease has progressed following two or more anti-leukemia therapies.

Marqibo is a liposomal formulation of the chemotherapy drug, vincristine.

In 2012, the Company received a milestone payment of $ 1.0 million based on the FDA’s approval of Marqibo and receives royalty payments based on Marqibo’s commercial sales.

There are no further milestones related to Marqibo but the Company is eligible to receive total milestone payments of up to $ 18.0 million on Alocrest and Brakiva.

Talon was acquired by Spectrum Pharmaceuticals, Inc.

in July 2013, who subsequently sold the license of Marqibo to Acrotech in January 2019.

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

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

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Revenue from collaborations and licenses

Acuitas Therapeutics, Inc.

$ 4,675 $ 3,259

Acrotech Biopharma, LLC 205 269

Royalties from sales of Onpattro $ 5,316 $ 4,675

Qilu Pharmaceutical Co., Ltd.

Other milestone and royalty payments 35 205

Non-cash royalty revenue

Alnylam Pharmaceuticals, Inc.

Royalties from sales of Onpattro 7,653 6,108

Total revenue $ 39,019 $ 10,988

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Authorized share capital

The Company’s authorized share capital consists of an unlimited number of common shares and 1,164,000 preferred shares without par value.

The Company’s authorized share capital consists of an unlimited number of common shares and preferred shares, without par value, and 1,164,000 Series A participating convertible preferred shares, without par value.

Open Market Sale Agreement

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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.

3, dated March 4, 2021 (as amended, the “Sale Agreement”), under which the Company may issue and sell common shares, from time to time.

On December 23, 2019, the Company 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, which was 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 the Company’s securities.

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

This prospectus supplement was fully utilized during 2020.

On August 7, 2020, the Company filed a prospectus supplement with the SEC (the “August 2020 Prospectus Supplement”) in connection with the offering of up to an additional $ 75.0 million of its common shares pursuant to the Sale Agreement under the January 2020 Registration Statement.

The August 2020 Prospectus Supplement was fully utilized during 2020.

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

333-248467) and accompanying base prospectus, which was declared effective by the SEC on October 22, 2020 (the “October 2020 Registration Statement”), for the offer and sale of up to $ 200.0 million of the Company’s securities.

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 its common shares pursuant to the Sale Agreement under October 2020 Registration Statement.

The March 2021 Prospectus Supplement was 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 its common shares pursuant to the Sale Agreement under the October 2020 Registration Statement.

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

333-260782) and accompanying base prospectus, declared effective by the SEC on November 18, 2021 (the “November 2021 Registration Statement”), for the offer and sale of up to $ 250.0 million of the Company’s securities.

On March 3, 2022, the Company filed a prospectus supplement with the SEC (the “March 2022 Prospectus Supplement”) in connection with the offering of up to an additional $ 100.0 million of its common shares pursuant to the Sale Agreement under:

(i) the January 2020 Registration Statement;

(ii) the October 2020 Registration Statement;

and (iii) the November 2021 Registration Statement.

During the years ended December 31, 2022 and 2021, the Company issued 8,645,426 and 31,571,036 common shares, respectively, under the Sale Agreement, resulting in net proceeds of approximately $ 20.3 million and $ 134.7 million, respectively.

As of December 31, 2022, there was approximately $ 131.1 million remaining available in aggregate under the October 2021 Prospectus Supplement and the March 2022 Prospectus Supplement.

Series A Preferred Shares

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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.

As of December 31, 2022, Roivant owned approximately 25 % of the Company’s outstanding common shares.

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).

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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These options were awarded in a separate plan as non-qualified awards and are governed by the substantially the same terms as the 2016 Plan.

Hereafter, information on options governed by the 2016 Plan, the 2011 Plan and inducement grant (the “Arbutus Plans”) is presented on a consolidated basis as the terms of the plans are similar.

Hereafter, information on options governed by the 2016 Plan, the 2011 Plan and the 2019 inducement grant (the “Arbutus Plans”) is presented on a consolidated basis as the terms of the plans are similar.

Information on the OnCore Option Plan is presented separately.

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

Liability-classified stock options under the Arbutus Plans

Due to the change in the Company’s functional currency as of January 1, 2016, certain stock option awards with exercise prices denominated in Canadian dollars changed from equity classification to liability classification (see note 2).

The following table summarizes activity related to the Company’s liability-classified stock options for the year ended December 31, 2021:

Stock Options Vested and Outstanding

Number Weighted-Average Exercise Price

Balance as of December 31, 2020 197,500 $ 6.00

Options exercised ( 70,000 ) $ 1.62

Options forfeit, canceled or expired ( 107,500 ) $ 7.65

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

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.

OnCore Option Plan

The Company has reserved shares for the future exercises of OnCore stock options that were granted prior to the merger in 2015.

The Company is not permitted to grant any further options under the OnCore Option Plan.

The following table summarizes activity related to the OnCore stock options for the year ended December 31, 2021:

Stock Options Vested and Outstanding

Number of OnCore Options Number of Equivalent Company Common Shares Weighted-Average Exercise Price

Balance as of December 31, 2020 80,035 80,600 $ 0.56

Options exercised — — $ —

Options forfeit, canceled or expired — — $ —

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

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

As of December 31, 2021

Vested stock options

Intrinsic value (in $000s) $ 183

Weighted-average term remaining 2.8 years

Stock options under the other plans

As of December 31, 2022, the Company also has 20,000 liability option awards outstanding with a weighted average exercise price of $ 12.10 and 80,600 stock option awards outstanding under the OnCore Option Plan with a weighted average exercise price of $ 0.56 .

Employee Stock Purchase Plan

In May 2020, the Company’s stockholders approved the 2020 Employee Stock Purchase Plan (ESPP) which became effective on May 28, 2020.

In May 2020, the Company’s stockholders approved the 2020 Employee Stock Purchase Plan (the “ESPP”) which became effective on May 28, 2020.

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

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.

The Company issued 171,224 and 196,335 shares under its ESPP for the years ended December 31, 2022 and 2021, respectively.

As of December 31, 2022, there were 1,132,441 shares remaining for issuance under the ESPP.

For the years ended December 31, 2022 and 2021, the Company recognized $ 0.2 million and $ 0.3 million, respectively, of stock-based compensation expense related to the ESPP.

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The Company recognizes forfeitures as they occur, and the effects of forfeitures are reflected in stock-based compensation expense.

Stock-based compensation has been recorded in the consolidated statement of operations and comprehensive income (loss) as follows:

Stock-based compensation has been recorded in the consolidated statement of operations and comprehensive loss as follows:

Year Ended December 31,

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Total $ 7,182 $ 6,424

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.

At December 31, 2022, there remained $ 13.2 million of unrecognized compensation expense related to unvested equity employee stock options to be recognized as expense over a weighted-average period of approximately 2.4 years .

For each of the years ended December 31, 2022 and 2021, the Company had zero performance based stock compensation expense.

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 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.

If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income tax in the period such resolution occurs.

Income tax (benefit) expense varies from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 27 % (2020 - 27 %) to the loss before income taxes as shown in the following tables:

In December 2022, the United States Internal Revenue service completed its examination of the Company’s federal tax return for 2018.

In May 2022, The Canada Revenue Agency completed its examination of the Company’s Canadian tax returns for 2018 and 2019, with no adjustments proposed.

Income tax expense varies from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of 27 % (2021 - 27 %) to the loss before income taxes as shown in the following tables:

Year ended December 31,

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Computed taxes (benefits) at Canadian federal and provincial tax rates $ ( 17,554 ) $ ( 23,864 )

Adjustment to prior year ( 1,041 ) 390

Withholding taxes 4,444 —

Other 761 ( 1,041 )

Permanent and other differences 869 4,292

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

Foreign tax credit applied ( 4,444 ) —

Federal and Provincial ITCs applied ( 324 ) ( 611 )

Change in valuation allowance 14,563 15,928

Difference due to income taxed at foreign rates 5,625 4,840

Stock-based compensation 504 456

Income tax expense (recovery) $ — $ —

Income tax expense $ 4,444 $ —

As of December 31, 2022, the Company had investment tax credits available to reduce Canadian federal income taxes of $ 7.2 million, versus $ 7.4 million as of December 31, 2021, which expire between 2030 and 2037, and provincial income taxes of $ 2.0 million, versus $ 2.1 million as of December 31, 2021, which expire between 2024 and 2027.

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In addition, the Company had research and development credits of $ 3.7 million as of December 31, 2022, and $ 3.8 million as of December 31, 2021, 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.

As of December 31, 2022, the Company had scientific research and experimental development expenditures of $ 62.2 million available for indefinite carry-forward, versus $ 62.8 million as of December 31, 2021.

The Company also had net operating losses of $ 148.1 million as of December 31, 2022 and $ 177.7 million as of December 31, 2021, which are due to expire between 2028 and 2038 and which can be used to offset future taxable income in Canada.

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The Company generated $ 7.7 million and $ 80.7 million in pre-tax domestic and foreign losses, respectively, for the year ended December 31, 2021.

As required by the 2017 Tax Cuts and Jobs Act and effective in 2022, the deferred tax asset as of December 31, 2022 included $ 16.5 million related to the mandatory capitalization and amortization of research and development expenses.

Significant components of the Company’s deferred tax assets and liabilities are shown below:

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Non-capital losses carryforwards $ 83,564 $ 90,255

Research and development deductions 16,968 15,812

Canadian research and development deductions 16,791 16,968

Book amortization in excess of tax ( 461 ) ( 634 )

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Tax value in excess of accounting value in lease inducements 93 549

Federal investment tax credits 5,301 5,872

Provincial investment tax credits 2,119 2,644

Deferred revenue 6,063 —

Canadian Federal investment tax credits 5,278 5,301

Canadian Provincial investment tax credits 1,953 2,119

Equity accounted for investment 3,375 3,375

Federal R&E credits 3,741 3,897

Federal research and development credits 3,633 3,741

Deductible stock options 3,681 3,309

research and experimental expenditures capitalization 16,471 —

Accrued interest payable 1,507 —

Amortization 387 —

Other 153 1,341

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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.

As of December 31, 2022, Roivant owned approximately 25 % 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 Consolidated Statements of Operations and Comprehensive Loss in 2020.

As of December 31, 2022, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16 % of the common equity of Genevant.

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data