Arbutus Biopharma Corp 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Ernst & Young, LLP, Independent Registered Public Accounting Firm - PCAOB ID: 42 72 Consolidated Balance Sheets at December 31, 202 2 and 20 21 76 Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 202 2 and 2021 77 Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 202 2 and 2 021 78 Consolidated Statements of Cash Flows for the Years Ended December 31, 202 2 and 20 21 79 Notes to Consolidated Financial Statements 80 71 Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Arbutus Biopharma Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Arbutus Biopharma Corporation (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations and comprehensive loss, stockholders' equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 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. 72 Valuation of contingent consideration liability Description of the Matter As discussed in Note 10 to the consolidated financial statements, the Company’s contingent consideration liability, which consists of sales-based milestones and royalties, resulting from the acquisition of Enantigen in 2014, is remeasured to its estimated fair value each reporting period. As of December 31, 2022, the contingent consideration liability was $7.5 million. Auditing the valuation of the contingent consideration liability was complex and highly judgmental due to the significant estimation required in determining the fair value. In particular, the fair value estimate was sensitive to significant assumptions such as the probability of successfully commercializing a treatment for the hepatitis B virus, the timing and amount of future revenues related to commercial sales, and the discount rate. These assumptions are affected by expectations about future industry, regulatory, market or economic conditions and are forward-looking and inherently uncertain. How We Addressed the Matter in Our Audit To test the estimated fair value of the contingent consideration liability, we performed audit procedures that included, among others, assessing the terms of the arrangement, evaluating the methodology used, and testing the significant assumptions discussed above used by the Company in its analysis. 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. 73 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. (Qilu). 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 We have served as the Company's auditor since 2019. Philadelphia, Pennsylvania 74 March 2, 2023 75 ARBUTUS BIOPHARMA CORPORATION Consolidated Balance Sheets (Expressed in thousands of US Dollars, except share and per share amounts) December 31, 2022 December 31, 2021 Assets Current assets: Cash and cash equivalents $ 30,776 $ 109,282 Investments in marketable securities, current 116,137 46,035 Accounts receivable 1,352 899 Prepaid expenses and other current assets 2,874 4,445 Total current assets 151,139 160,661 Property and equipment, net of accumulated depreciation 5,070 5,983 Investments in marketable securities, non-current 37,363 35,688 Right of use asset 1,744 2,092 Other non-current assets 103 61 Total assets $ 195,419 $ 204,485 Liabilities and stockholders' equity Current liabilities: Accounts payable and accrued liabilities $ 16,029 $ 10,838 Deferred license revenue, current 16,456 — Lease liability, current 372 383 Total current liabilities 32,857 11,221 Liability related to sale of future royalties 10,365 16,296 Deferred license revenue, non-current 5,999 — Contingent consideration 7,531 5,298 Lease liability, non-current 1,815 2,231 Total liabilities 58,567 35,046 Stockholders’ equity Common shares Authorized: unlimited number without par value Issued and outstanding: 157,455,363 (December 31, 2021: 144,987,736 ) 1,318,737 1,286,636 Additional paid-in capital 72,406 65,485 Deficit ( 1,203,803 ) ( 1,134,347 ) Accumulated other comprehensive loss ( 50,488 ) ( 48,335 ) Total stockholders' equity 136,852 169,439 Total liabilities and stockholders' equity $ 195,419 $ 204,485 See accompanying notes to the consolidated financial statements. 76 ARBUTUS BIOPHARMA CORPORATION Consolidated Statements of Operations and Comprehensive Loss (Expressed in thousands of US Dollars, except share and per share amounts) Year ended December 31, 2022 2021 Revenue Collaborations and licenses $ 31,366 $ 4,880 Non-cash royalty revenue 7,653 6,108 Total revenue 39,019 10,988 Operating expenses Research and development 84,408 65,502 General and administrative 17,834 17,136 Change in fair value of contingent consideration 2,233 1,872 Total operating expenses 104,475 84,510 Loss from operations ( 65,456 ) ( 73,522 ) Other income (loss) Interest income 2,192 127 Interest expense ( 1,726 ) ( 2,857 ) 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 ) Items applicable to preferred shares Dividend accretion of convertible preferred shares — ( 12,139 ) Net loss attributable to common shares $ ( 69,456 ) $ ( 88,386 ) Loss per share Basic and diluted $ ( 0.46 ) $ ( 0.83 ) Weighted average number of common shares Basic and diluted 150,939,337 106,242,452 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. 77 ARBUTUS BIOPHARMA CORPORATION Consolidated Statement of Stockholders’ Equity (Expressed in thousands of US Dollars, except share and per share amounts) Convertible Preferred Shares Common Shares Number of shares Share capital Number of shares Share capital Additional paid-in capital Deficit Accumulated other comprehensive loss Total stockholders' equity Balance at December 31, 2020 1,164,000 $ 149,408 89,678,722 $ 985,939 $ 60,751 $ ( 1,045,961 ) $ ( 48,171 ) $ 101,966 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 Certain fair value adjustments to liability stock option awards — — — — 263 — — 263 Issuance of common shares pursuant to the Open Market Sales Agreement — — 31,571,036 134,665 — — — 134,665 Issuance of common shares pursuant to exercise of ESPP — — 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 Stock-based compensation — — — — 7,182 — — 7,182 Certain fair value adjustments to liability stock option awards — — — — 26 — — 26 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 — — 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 ) Net loss — — — — — ( 69,456 ) — ( 69,456 ) Balance at December 31, 2022 — $ — 157,455,363 $ 1,318,737 $ 72,406 $ ( 1,203,803 ) $ ( 50,488 ) $ 136,852 See accompanying notes to the consolidated financial statements. 78 ARBUTUS BIOPHARMA CORPORATION Consolidated Statements of Cash Flows (Expressed in thousands of US Dollars, except share and per share amounts) Year ended December 31, 2022 2021 OPERATING ACTIVITIES Net loss $ ( 69,456 ) $ ( 76,247 ) Non-cash items: Depreciation 1,427 1,753 Stock-based compensation expense 7,182 6,424 Change in fair value of contingent consideration 2,233 1,872 Non-cash royalty revenue ( 7,653 ) ( 6,108 ) Non-cash interest expense 1,722 2,850 Net accretion and amortization of investments in marketable securities ( 54 ) 999 Net change in operating items: Accounts receivable ( 453 ) 413 Prepaid expenses and other assets 2,430 ( 1,025 ) Accounts payable and accrued liabilities 5,216 1,911 Deferred license revenue 22,455 — Other liabilities ( 405 ) ( 374 ) Net cash used in operating activities ( 35,356 ) ( 67,532 ) INVESTING ACTIVITIES Purchase of investments in marketable securities ( 130,430 ) ( 82,219 ) Disposition of investments in marketable securities 56,000 70,350 Acquisition of property and equipment ( 512 ) ( 809 ) Net cash used in investing activities ( 74,942 ) ( 12,678 ) FINANCING ACTIVITIES 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 (Decrease) increase in cash and cash equivalents $ ( 78,506 ) $ 57,031 Cash and cash equivalents, beginning of period $ 109,282 $ 52,251 Cash and cash equivalents, end of period $ 30,776 $ 109,282 Supplemental cash flow information Preferred shares dividends accrued $ — $ ( 12,139 ) See accompanying notes to the consolidated financial statements. 79 ARBUTUS BIOPHARMA CORPORATION Notes to Consolidated Financial Statements (Tabular amounts in thousands of US Dollars, except share and per share amounts) 1. Organization Description of the Business Arbutus Biopharma Corporation (“Arbutus” or the “Company”) is a clinical-stage biopharmaceutical company leveraging its extensive virology expertise to develop novel therapeutics that target specific viral diseases. The Company’s current focus areas include Hepatitis B virus (“HBV”), SARS-CoV-2 and other coronaviruses. 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. Liquidity At December 31, 2022, the Company had an aggregate of $ 184.3 million in cash, cash equivalents and investments in marketable securities. The Company had no outstanding debt as of December 31, 2022. The Company believes it has sufficient cash resources to fund its operations for at least the next 12 months. The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations. The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and operations. It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future. COVID-19 Impact 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. While the Company has been able to progress with its clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact the Company’s plans and timelines in the future. 2. Significant accounting policies Basis of presentation and principles of consolidation 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 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. In February 2021, Arbutus Biopharma US Holdings, Inc., which was another wholly-owned subsidiary, merged into Arbutus Biopharma, Inc. with Arbutus Biopharma, Inc. continuing its legal existence and Arbutus Biopharma US Holdings, Inc. ceasing to exist. 80 Use of estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses and contingent liabilities as of the end or during the reporting period. Actual results could significantly differ from those estimates. Significant estimates in the accompanying consolidated financial statements impact contingent consideration, income tax recoveries, stock-based compensation, clinical trial accruals and the sale of future royalties liability. Cash and cash equivalents Cash and cash equivalents are all highly liquid instruments with an original maturity of three months or less when purchased. Cash equivalents are recorded at cost plus accrued interest. The carrying value of these cash equivalents approximates their fair value. Investments in marketable securities The Company’s short-term investments consist of marketable securities that have original maturities exceeding three months and remaining maturities of less than one year. The Company classifies investments with remaining maturities of one year or longer as non-current. These investments are accounted for as available-for-sale securities and are reported at fair value, with unrealized gains and losses reported in other comprehensive loss until their disposition. Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method, and are recorded as a component of other income or loss. 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 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. All investments are governed by the Company’s Investment Policy approved by the Company’s board of directors. Foreign currency translation and functional currency conversion The Company’s functional currency is the United States dollar. M onetary assets and liabilities denominated in foreign currencies are translated into United States dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities are translated at the approximate exchange rate prevailing at the date of the transaction. 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 or losses. Investment in Genevant 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, 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. 81 Property and equipment Property and equipment is recorded at cost less impairment losses and accumulated depreciation. The Company records depreciation using the straight-line method over the estimated useful lives of the capital assets as follows: Useful Life (Years) Laboratory equipment 5 Computer and office equipment 2 to 5 Furniture and fixtures 5 Leasehold improvements are depreciated over their estimated useful lives but in no case longer than the lease term, except where lease renewal is reasonably assured. Property and equipment is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. If such a review should indicate that the carrying amount of long-lived assets is not recoverable, then such assets are written down to their fair values. Revenue from collaborations and licenses The Company generates revenue primarily through collaboration agreements and license agreements. Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research, development and manufacturing services. Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research, development and manufacturing services, milestone payments, and royalties. The Company’s collaboration agreements fall under the scope of ASC Topic 808, Collaborative Arrangements , (“ASC 808”) when both parties are active participants in the arrangement and are exposed to significant risks and rewards. For certain arrangements under the scope of ASC 808, the Company analogizes to ASC 606 for some aspects, including for the delivery of a good or service (i.e., a unit of account). ASC 606, Revenue From Contracts with Customers (“ASC 606”) requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; 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. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices. The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available. The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. 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. 82 Leases 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. Research and development costs Research and development costs include compensation and benefits for research and development employees, an allocation of overhead expenses and costs associated with materials and supplies used in clinical trials and research and development, outside contracted services including clinical and pre-clinical study costs, legal, regulatory compliance and fees paid to consultants or outside parties for research and development activities performed on the Company’s behalf. Such costs are charged to expense in the period in which they are incurred. Research and development costs that are paid in advance of performance or receipt are recorded as prepaid expense and are amortized over the period that the services are performed. Net loss attributable to common shareholders per share Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share for the years ended December 31, 2022 and 2021, since the effect of including potential common shares would be anti-dilutive. 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 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. The Company’s Preferred Shares entitled the holders to participate in dividends but did not require the holders to participate in losses of the Company. Accordingly, net losses attributable to holders of the Company’s common shares were not allocated to holders of the Preferred Shares. See note 12 and note 13 for more information about the Company’s common shares. Deferred income taxes Income taxes are accounted for using the asset and liability method of accounting. Deferred income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases and for loss carry-forwards. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax laws or rates is included in earnings in the period that includes the enactment date. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided. 83 Stock-based compensation The Company measures and recognizes compensation expense for all share-based compensation arrangements based on estimated fair values. The Company uses the Black-Scholes option valuation model to estimate the fair value of stock options at the date of grant. The Black-Scholes option valuation model requires the input of subjective assumptions to calculate the value of stock options. For those assumptions, the Company uses historical data and other information to estimate the expected price volatility and risk free interest rate for all awards. The expected life of stock options granted are estimated to be five years for employees and six years for directors and executives, based on the Company’s historical experience. Assumptions on the dividend yield are based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards. Forfeitures are recognized as they occur. For the Company’s Employee Stock Purchase Plan, the fair value of the right to acquire stock at a discounted price under the plan is calculated using the Black-Scholes valuation model. Expense is recognized over the period the employee contributes to the plan through payroll deductions. The Company accounts for liability-classified stock option awards (“liability options”) under ASC 718 - Compensation - Stock Compensation (“ASC 718”), under which awards of options that provide for an exercise price that is not denominated in: (a) the currency of a market in which a substantial portion of the Company’s equity securities trades, (b) the currency in which the employee’s pay is denominated, or (c) the Company’s functional currency, are required to be classified as liabilities. As of January 1, 2016, the Company changed its functional currency to US dollars, which resulted in certain stock option awards with exercise prices denominated in Canadian dollars having an exercise price that is not denominated in the Company’s functional currency. As such, the historic equity classification of these stock option awards changed to liability classification effective January 1, 2016. The change in classification resulted in reclassification of these awards from additional paid-in capital to a liability. Liability options are re-measured to their fair values at each reporting date with changes in the fair value recognized in share-based compensation expense or additional paid-in capital until settlement or cancellation. Under ASC 718, when an award is reclassified from equity to liability, if at the reclassification date the original vesting conditions are expected to be satisfied, then the minimum amount of compensation cost to be recognized is based on the grant date fair value of the original award. Fair value changes below this minimum amount are recorded in additional paid-in capital. Preferred Shares The Company accounted for its Preferred Shares under ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”), which provides guidance for equity instruments with conversion features. The Company classified the Preferred Shares in its consolidated balance sheet wholly as equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares could not be cash-settled and the redemption features, which included a fixed conversion ratio with predetermined timing and proceeds, were within the Company’s control. The Company accrued for the 8.75 % per annum compounding accrual at each reporting period-end date as an increase to share capital, and an increase to deficit. The Company’s Preferred Shares were converted into 22,833,922 common shares on October 18, 2021. Segment information 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 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. 84 Concentrations of Credit Risk Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements. Recent accounting pronouncements In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). 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 does not anticipate that the new guidance will have a material impact on its results of operations or financial position. 3. Fair value measurements The Company measures certain financial instruments and other items at fair value. To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. 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. 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. If the asset or liability has a contractual term, the input must be observable for substantially the full term. 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. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy. The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments. 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 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 85 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: Level 1 Level 2 Level 3 Total As of December 31, 2022 (in thousands) Assets Cash and cash equivalents $ 30,776 $ — $ — $ 30,776 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 Liabilities Liability-classified options $ — $ — $ 1 $ 1 Contingent consideration — — 7,531 7,531 Total $ — $ — $ 7,532 $ 7,532 Level 1 Level 2 Level 3 Total As of December 31, 2021 (in thousands) Assets Cash and cash equivalents $ 109,282 $ — $ — $ 109,282 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 Liabilities Liability-classified options $ — $ — $ 26 $ 26 Contingent consideration — — 5,298 5,298 Total $ — $ — $ 5,324 $ 5,324 86 The following table presents the changes in fair value of the Company’s liability-classified stock option awards: Liability at beginning of the period Fair value of liability-classified options exercised in the period Decrease in fair value of liability Liability at end of the period (in thousands) Year ended December 31, 2022 $ 26 $ — $ ( 25 ) $ 1 Year ended December 31, 2021 $ 250 $ ( 96 ) $ ( 128 ) $ 26 The following table presents the changes in fair value of the Company’s contingent consideration: Liability at beginning of the period Increase in fair value of liability Liability at end of the period (in thousands) Year ended December 31, 2022 $ 5,298 $ 2,233 $ 7,531 Year ended December 31, 2021 $ 3,426 $ 1,872 $ 5,298 87 4. Investments in marketable securities Investments in marketable securities and cash equivalents consisted of the following: Amortized Cost Gross Unrealized Gain (1) Gross Unrealized Loss (1) Fair Value As of December 31, 2022 (in thousands) Cash equivalents Money market fund $ 23,218 $ — $ — $ 23,218 Total $ 23,218 $ — $ — $ 23,218 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 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) Gross Unrealized Loss (1) Fair Value As of December 31, 2021 (in thousands) Cash equivalents Money market fund $ 93,211 $ — $ — $ 93,211 Total $ 93,211 $ — $ — $ 93,211 Investments in marketable short-term securities US government agency bonds $ 8,131 $ — $ ( 11 ) $ 8,120 US government bonds 37,968 — ( 53 ) 37,915 Total $ 46,099 $ — $ ( 64 ) $ 46,035 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. 88 5. Investment in Genevant In April 2018, the Company entered into an agreement with Roivant Sciences Ltd. (“Roivant”), its largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on a broad range of RNA-based therapeutics enabled by the Company’s LNP and ligand conjugate delivery technologies. The Company licensed rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”). The Company retained all rights to its LNP and conjugate delivery platforms for HBV. Under the Genevant License, as amended, if a third party sublicensee of intellectual property licensed by Genevant from the Company commercializes a sublicensed product, the Company becomes entitled to receive a specified percentage of certain revenue that may be received by Genevant for such sublicense, including royalties, commercial milestones and other sales-related revenue, or, if less, tiered low single-digit royalties on net sales of the sublicensed product. The specified percentage is 20 % in the case of a mere sublicense (i.e., naked sublicense) by Genevant without additional contribution and 14 % in the case of a bona fide collaboration with Genevant. Additionally, if Genevant receives proceeds from an action for infringement by any third parties of the Company’s intellectual property licensed to Genevant, the Company would be entitled to receive, after deduction of litigation costs, 20 % of the proceeds received by Genevant or, if less, tiered low single-digit royalties on net sales of the infringing product (inclusive of the proceeds from litigation or settlement, which would be treated as net sales). The Company accounts for its interest in Genevant as equity securities without readily determinable fair values. Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities. As of December 31, 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. 6. Leases 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 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 . Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company determines if an arrangement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. 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 Road lease. The Company recognizes lease expense on a straight-line basis over the remaining lease term. During each of the years ended December 31, 2022 and 2021, the Company incurred total operating lease expenses of $ 0.7 million, which included lease expenses associated with fixed lease payments of $ 0.6 million, and variable payments associated with common area maintenance and similar expenses of $ 0.1 million. 89 Weighted average remaining lease term and discount rate were as follows: As of December 31, 2022 Weighted-average remaining lease term (years) 4.3 Weighted average discount rate 9.0 % The Company did not include options to extend its lease terms as part of its ROU asset and lease liabilities. Supplemental cash flow information related to the Company’s operating leases was as follows: 2022 2021 (in thousands) Cash paid for amounts included in the measurement of lease liabilities $ 641 $ 650 Future minimum lease payments under operating leases that have remaining terms as of December 31, 2022 are as follows: As of December 31, 2022 (in thousands) 2023 $ 598 2024 616 2025 635 2026 654 2027 134 Thereafter — Total lease payments $ 2,637 Less: interest ( 450 ) Present value of lease payments $ 2,187 7. Property and equipment The Company’s property and equipment balances as of the years ended December 31, 2022 and 2021 are as follows: Cost Accumulated depreciation Net book value December 31, 2022 (in thousands) Lab equipment $ 6,890 $ ( 5,679 ) $ 1,211 Leasehold improvements 8,590 ( 4,749 ) 3,841 Computer hardware and software 391 ( 373 ) 18 $ 15,871 $ ( 10,801 ) $ 5,070 Cost Accumulated depreciation Net book value December 31, 2021 (in thousands) Lab equipment $ 6,408 $ ( 5,178 ) $ 1,230 Leasehold improvements 8,563 ( 3,883 ) 4,680 Computer hardware and software 386 ( 313 ) 73 $ 15,357 $ ( 9,374 ) $ 5,983 90 Depreciation expense for the years ended December 31, 2022 and 2021 was $ 1.4 million and $ 1.8 million, respectively. 8. Accounts payable and accrued liabilities Accounts payable and accrued liabilities are comprised of the following: December 31, 2022 December 31, 2021 (in thousands) Trade accounts payable $ 3,520 $ 3,174 Payroll accruals 3,730 4,279 Research and development accruals 8,261 2,371 Professional fee accruals 512 983 Other accrued liabilities 6 31 Total $ 16,029 $ 10,838 9. Sale of future royalties On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with the Ontario Municipal Employees Retirement System (“OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO, an RNA interference therapeutic currently being sold by Alnylam. ONPATTRO utilizes Arbutus’s LNP technology, which was licensed to Alnylam pursuant to the Cross-License Agreement, dated November 12, 2012, by and between the Company and Alnylam (the “LNP License Agreement”). Under the terms of the LNP License Agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % to 2.33 % after offsets, with the highest tier applicable to annual net sales above $ 500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $ 20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $ 30 million in royalties, at which point 100 % of such royalty interest on future global net sales of ONPATTRO will revert to the Company. 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, 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. The discount, as well as $ 1.5 million of transaction costs, will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period. Management estimated an effective annual interest rate of approximately 8 %. Over the course of the Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of forecasted royalty revenue. On a quarterly basis, the Company will reassess the expected timing of the royalty revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed. The Company recognizes non-cash royalty revenue related to the sales of ONPATTRO during the term of the Agreement. As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability is effectively repaid over the life of the Agreement. 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. During the year ended December 31, 2022, the Company recognized non-cash royalty revenue of $ 7.7 million and $ 1.7 million of related non-cash interest expense. During the year ended December 31, 2021, the Company recognized non-cash royalty revenue of $ 6.1 million and related non-cash interest expense of $ 2.9 million. 91 The table below shows the activity related to the net liability for the years ended December 31, 2022 and December 31, 2021: Twelve Months Ended December 31, 2022 2021 (in thousands) Net liability related to sale of future royalties - beginning balance $ 16,296 $ 19,554 Non-cash royalty revenue ( 7,653 ) ( 6,108 ) Non-cash interest expense 1,722 2,850 Net liability related to sale of future royalties - ending balance $ 10,365 $ 16,296 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. (“Acuitas”). The royalty from Acuitas has been retained by the Company and was not part of the royalty sale to OMERS. 10. Contingencies and commitments Arbitration with the University of British Columbia Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC. These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to certain third parties, including Alnylam. In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties. In August 2019, the arbitrator issued its decision for the second phase of the arbitration, awarding UBC $ 5.9 million, which included interest of approximately $ 2.6 million. The Company paid the $ 5.9 million award to UBC in September 2019 and paid an additional $ 0.2 million for costs and attorneys’ fees in March 2021, and this matter is now fully resolved. On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it 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 In October 2014, Arbutus Inc., the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc. (“Enantigen”) pursuant to a stock purchase agreement. The amount paid to Enantigen’s selling shareholders could be up to an additional $ 102.5 million in sales performance milestones in connection with the sale of the first commercialized product by Arbutus for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $ 1.0 million that, if paid, would be offset against Arbutus’ milestone payment obligations. Certain other development milestones related to the acquisition were tied to programs which are no longer under development by Arbutus, and therefore the contingency related to those development milestones is zero . The contingent consideration is a financial liability and is measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statement of operations and comprehensive loss (note 3). The fair value of the contingent consideration was $ 7.5 million as of December 31, 2022. 92 11. Collaborations and royalty entitlements Collaborations Qilu Pharmaceuticals Co, Ltd. In December 2021, the Company entered into a technology transfer and exclusive licensing agreement (the “License Agreement”) with Qilu, pursuant to which the Company granted Qilu an exclusive (except as to certain retained rights), sublicensable, royalty-bearing license, under certain intellectual property owned by the Company, to develop, manufacture and commercialize AB-729, including pharmaceutical products that include AB-729, for the treatment or prevention of hepatitis B in China, Hong Kong, Macau and Taiwan (the “Territory”). In partial consideration for the rights granted by the Company, Qilu paid the Company a one-time upfront cash payment of $ 40.0 million on January 5, 2022 and agreed to pay the Company milestone payments totaling up to $ 245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and commercialization milestones (the “Milestone Payments”). 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. Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing AB-729 for the treatment or prevention of hepatitis B in the Territory. Qilu is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize at least one AB-729 product candidate in the Territory. A joint development committee 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”). The Company received $ 15.0 million of gross proceeds from the Share Transaction on January 6, 2022. The Common Shares sold to the Investor in the Share Transaction represented approximately 2.5 % of the Common Shares outstanding immediately prior to the execution of the Share Purchase Agreement. The License Agreement falls under the scope of ASC 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). 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”). 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 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 93 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 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 94 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 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 $ 0.8 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. X-Chem, Inc. and Proteros biostructures GmbH 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 ). The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks. This collaboration brought together the Company’s expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2. The collaboration allows for the rapid screening of one of the largest small molecule libraries against M pro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize M pro inhibitors to progress to clinical candidates. 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. 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 Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc. The Company has two royalty entitlements to Alnylam’s global net sales of ONPATTRO. 95 In 2012, the Company entered into a license agreement with Alnylam Pharmaceuticals, Inc. (“Alnylam”) that entitles Alnylam to develop and commercialize products with the Company’s LNP technology. Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was launched by Alnylam in 2018. Under the terms of this license agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00 % - 2.33 % after offsets, with the highest tier applicable to annual net sales above $ 500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $ 20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $ 30 million in royalties, at which point 100 % of this royalty entitlement on future global net sales of ONPATTRO will revert back to the Company. OMERS has assumed the risk of collecting up to $ 30.0 million of future royalty payments from Alnylam and the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties. If this royalty entitlement reverts to the Company, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. From the inception of the royalty sale through December 31, 2022, an aggregate of $ 18.9 million of royalties have been earned by OMERS. See note 9 for further details. 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. (“Acuitas”). This royalty entitlement from Acuitas has been retained by the Company and was not part of the royalty entitlement sale to OMERS. Gritstone Oncology, Inc. On October 16, 2017, the Company entered into a license agreement with Gritstone that granted them worldwide access to its portfolio of proprietary and clinically validated LNP technology and associated intellectual property to deliver Gritstone’s self-replicating, non-mRNA, RNA-based neoantigen immunotherapy products. Gritstone paid the Company an upfront payment, and will make payments for achievement of development, regulatory, and commercial milestones and royalties. As a result of the Company’s agreement with Genevant (see note 5 for details), from April 11, 2018 going forward, Genevant is entitled to 50 % of the revenues earned by the Company from Gritstone. The Company is the agent in this arrangement and records revenue on a net basis. Milestone payments that are not within the control of the Company or the licensee, such as those that require regulatory approvals, are not considered probable of being achieved until those approvals are received. The Company did not receive any payments from Gritstone during the years ended December 31, 2022 or 2021. Revenues from the Company’s royalty entitlements are summarized in the following table: Year ended December 31, 2022 2021 (in thousands) Revenue from collaborations and licenses Royalties from sales of Onpattro $ 5,316 $ 4,675 Qilu Pharmaceutical Co., Ltd. 26,015 — Other milestone and royalty payments 35 205 Non-cash royalty revenue Royalties from sales of Onpattro 7,653 6,108 Total revenue $ 39,019 $ 10,988 12. Shareholders’ equity Authorized share capital 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. 96 Open Market Sale Agreement The Company has an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) dated December 20, 2018, as amended by Amendment No. 1, dated December 20, 2019, Amendment No. 2, dated August 7, 2020 and Amendment No. 3, dated March 4, 2021 (as amended, the “Sale Agreement”), under which the Company may issue and sell common shares, from time to time. 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 In October 2017, the Company entered into a subscription agreement with Roivant for the sale of Preferred Shares to Roivant for gross proceeds of $ 116.4 million. The Preferred Shares were non-voting and were convertible into common shares at a conversion price of $ 7.13 per share (which represented a 15 % premium to the closing price of $ 6.20 per share). The purchase price for the Preferred Shares plus an amount equal to 8.75 % per annum, compounded annually, was subject to mandatory conversion into common shares on October 18, 2021, at which time the Preferred Shares were converted into 22,833,922 common shares and both the lockup and standstill periods that Roivant had previously agreed to expired. 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 97 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). 13. Stock-based compensation Awards outstanding and available for issuance During the year ended December 31, 2022, the Company had stock options outstanding under the following plans (collectively, the “Plans”): the 2016 Omnibus Share and Incentive Plan (the “2016 Plan”), the 2011 Omnibus Share Compensation Plan (the “2011 Plan”); the 2019 inducement grant; and the OnCore Option Plan. As of December 31, 2022, the aggregate number of shares authorized for awards under all Plans was 28,290,202 . As of December 31, 2022, the Company had 15,450,598 options outstanding and 8,842,931 awards available for issuance under the Plans. The Company issues new common shares of stock to settle options exercised. The 2011 Plan expired in June 2021. Under the 2016 Plan, the Company’s board of directors may grant options, and other types of awards, to employees, directors and consultants of the Company. The exercise price of the options is determined by the Company’s board of directors but will be at least equal to the closing market price of the common shares on the date of grant and the term may not exceed 10 years. Options granted generally vest over four years for employees and for directors’ initial grants, and immediately for directors’ annual grants. In June 2019, the Company provided an inducement grant of 1,112,000 options to its newly hired Chief Executive Officer. 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 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. 98 Stock options under the Arbutus Plans Equity-classified stock options under the Arbutus Plans The following table summarizes activity related to the Company’s equity-classified stock options, including its performance options, for the year ended December 31, 2022: Stock Options Outstanding Vested Stock Options Non-Vested Stock Options Number Weighted-Average Exercise Price Number Number Weighted-Average Grant-Date Fair Value Balance as of December 31, 2021 11,309,974 $ 4.14 6,544,348 4,765,626 $ 2.71 Options granted 4,808,295 $ 2.77 — 4,808,295 $ 2.09 Options exercised ( 71,025 ) $ 1.70 ( 71,025 ) — $ — Options forfeited, canceled or expired ( 697,246 ) $ 3.31 ( 100,399 ) ( 596,847 ) $ 2.44 Options vested — $ — 3,258,855 ( 3,258,855 ) $ 2.42 Balance as of December 31, 2022 15,349,998 $ 3.76 9,631,779 5,718,219 $ 2.39 The intrinsic value of options exercised under the Arbutus Plans during 2022 and 2021 are $ 0.1 million and $ 0.2 million, respectively. The following table summarizes additional information related to the Company’s equity-classified stock options, including its performance options, as of December 31, 2022: As of December 31, 2022 Options outstanding and expected to vest Number of stock options outstanding 15,349,998 Weighted-average exercise price $ 3.76 Intrinsic value (in $000s) $ 380 Weighted-average term remaining 7.3 years Vested stock options Number of vested stock options 9,631,779 Weighted-average exercise price $ 4.07 Intrinsic value (in $000s) $ 327 Weighted-average term remaining 6.6 years The assumptions used in the Black-Scholes option-pricing for grants made during the years ended December 31, 2022 and 2021 are as follows: December 31, 2022 December 31, 2021 Expected average option term 5.5 years 5.6 years Expected volatility 97.0 % 93.4 % Expected dividends — % — % Risk-free interest rate 1.77 % 0.67 % The Company considers all available information when estimating the fair value of its stock option grants. 99 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 (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 period. 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. 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. The fair value of the right to acquire stock at a discounted price under the ESPP is calculated using the Black-Scholes valuation model and recorded as stock-based compensation. Expense is recognized over the period the employee contributes to the plan through payroll deductions. Stock-based compensation expense Total stock-based compensation expense was comprised of: (1) vesting of options awarded to employees under the Arbutus and OnCore Plans calculated in accordance with the fair value method as described above; (2) fair value adjustments for the Company’s liability-classified stock options; and (3) amortization of compensation cost related to the ESPP. 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 loss as follows: Year Ended December 31, 2022 2021 (in thousands) Research and development $ 2,912 $ 2,777 General and administrative 4,270 3,647 Total $ 7,182 $ 6,424 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. 14. Income taxes The Company is subject to taxation and files income tax returns in Canadian federal and provincial, United States federal and several state jurisdictions. 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. 100 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, 2022 2021 (in thousands) Computed taxes (benefits) at Canadian federal and provincial tax rates $ ( 17,554 ) $ ( 23,864 ) Withholding taxes 4,444 — Other 761 ( 1,041 ) Permanent and other differences 869 4,292 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 $ 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. The investment tax credits are accounted for under a flow-through method. 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, 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. As of December 31, 2022 and December 31, 2021, the Company had $ 11.7 million of net operating losses due to expire in 2035 which can be used to offset future taxable income in the United States. Future use of a portion of the United States loss carryforwards are subject to limitations under Internal Revenue Code Section 382. United States net operating loss carryforwards arising in 2019 and future periods have an indefinite carryforward period. As of December 31, 2022 and December 31, 2021, the Company had $ 203.9 million and $ 197.8 million, respectively, of total regular net operating losses which can be used to offset future taxable income in the United States. As a result of ownership changes occurring on October 1, 2014 and March 4, 2015, the Company’s ability to use these losses may be limited. Losses incurred to date may be further limited if a subsequent change in control occurs. The Company generated $ 28.7 million and $ 93.7 million in pre-tax domestic and foreign losses, respectively, for the year ended December 31, 2022. 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. 101 Significant components of the Company’s deferred tax assets and liabilities are shown below: As of December 31, 2022 2021 (in thousands) Deferred tax assets (liabilities): Non-capital losses carryforwards $ 83,564 $ 90,255 Canadian research and development deductions 16,791 16,968 Book amortization in excess of tax ( 461 ) ( 634 ) Revenue recognized for tax purposes in excess of revenue recognized for accounting purposes 2,799 4,400 Tax value in excess of accounting value in lease inducements 93 549 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 U.S. Federal research and development credits 3,633 3,741 Deductible stock options 3,681 3,309 U.S. research and experimental expenditures capitalization 16,471 — Accrued interest payable 1,507 — Amortization 387 — Other 153 1,341 Total deferred tax assets $ 145,287 $ 130,724 Valuation allowance ( 145,287 ) ( 130,724 ) Net deferred tax assets (liabilities) $ — $ — 15. Related party transactions Pursuant to a financing and related subscription agreement, the Company issued Roivant the Preferred Shares in October 2017. On October 18, 2021, the Preferred Shares were converted into 22,833,922 common shares. As of December 31, 2022, Roivant owned approximately 25 % of the Company’s outstanding common shares. See note 12 for further details. 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. See note 5 for further details. During each of the years ended December 31, 2022 and 2021, Genevant purchased certain administrative and transitional services from the Company totaling less than $ 0.1 million. These services were billed at agreed hourly rates and reflective of market rates for such services and these costs were netted in research and development in the income statement. 102 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None.