What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-08-03 compared with 2023-05-04 · 151 added, 117 removed, 363 unchanged (42% of the section changed)

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

You should read the following discussion and analysis by our management of our financial position and results of operations in conjunction with our audited consolidated financial statements and related notes thereto included as part of our Annual Report on Form 10-K for the year ended December 31, 2022 and our unaudited condensed consolidated financial statements for the three months ended March 31, 2023.

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

18 unchanged sentences

• our expectations regarding current patent disputes and litigation;

• our expectation of a net cash burn between $90 million and $95 million in 2023;

• our expectation of a net cash burn between $90 million and $95 million in 2023, excluding any proceeds from our Open Market Sale Agreement;

• our belief that we have sufficient cash resources to fund our operations into the first quarter of 2025,

14 unchanged sentences

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

To address HBV, we are developing an RNA interference (“RNAi”) therapeutic, AB-729, an oral PD-L1 inhibitor, AB-101, and an oral RNA destabilizer, AB-161, to potentially identify a combination regimen with the aim of providing a functional cure for patients with chronic HBV infection (“cHBV”) by suppressing viral replication, reducing surface antigen and reawakening the immune system.

We believe our lead compound, AB-729, is the only RNAi therapeutic with evidence of immune re-awakening.

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

To address HBV, we are developing an RNA interference (“RNAi”) therapeutic, imdusiran (AB-729), an oral PD-L1 inhibitor, AB-101, and an oral RNA destabilizer, AB-161, to potentially identify a combination regimen with the aim of providing a functional cure for patients with chronic HBV infection (“cHBV”) by suppressing viral replication, reducing surface antigen and reawakening the immune system.

We believe our lead compound, imdusiran, is the only RNAi therapeutic with evidence of immune re-awakening.

Imdusiran is currently being evaluated in multiple phase 2 clinical trials.

In addition, a Phase 1 clinical trial with AB-161 was recently initiated.

We also have an ongoing drug discovery and development program directed to identifying novel, orally active agents for treating coronaviruses, including SARS-CoV-2, where we have nominated a compound and have begun IND-enabling preclinical studies.

In addition, we are also exploring oncology applications for our internal PD-L1 portfolio.

2 unchanged sentences

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

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

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

We define a functional cure as unquantifiable plasma HBV DNA and HBsAg levels more than six months after discontinuation of all treatment, with or without quantifiable anti-HBsAg antibodies.

AB-729 is our proprietary subcutaneously-delivered RNAi therapeutic product candidate that suppresses all HBV antigens, including HBsAg expression, which is thought to be a key prerequisite to enable reawakening of a patient’s immune system to respond to HBV.

AB-729 is currently in two Phase 2a proof-of-concept clinical trials in combination with other agents with potentially complementary mechanisms of action, and we are also continuing to follow patients from our Phase 1a/1b clinical trial (“AB-729-001”).

Preliminary data from AB-729-001 has shown that treatment with AB-729 provided robust and comparable HBsAg declines regardless of dose, dosing interval or patient characteristics and was generally safe and well-tolerated after completing dosing in 41 patients.

Preliminary data also suggests that treatment with AB-729 increased HBV-specific immune responses and, in a small number of patients who discontinued both AB-729 and nucleos(t)ide analogue (“NA”) therapy, a sustained reduction in HBsAg and HBV DNA persisted after stopping AB-729.

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

Imdusiran is our proprietary subcutaneously-delivered RNAi therapeutic product candidate that suppresses all HBV antigens, including HBsAg expression, which is thought to be a key prerequisite to enable reawakening of a patient’s immune system to respond to HBV.

Imdusiran is currently in two Phase 2a proof-of-concept clinical trials in combination with other agents with potentially complementary mechanisms of action, and we are also continuing to follow patients from our Phase 1a/1b clinical trial (“AB-729-001”).

Preliminary data from AB-729-001 has shown that treatment with imdusiran provided robust and comparable HBsAg declines regardless of dose, dosing interval or patient characteristics and was generally safe and well-tolerated after completing dosing in 41 patients.

Preliminary data also suggests that treatment with imdusiran increased HBV-specific immune responses and, in a small number of patients who discontinued both imdusiran and nucleos(t)ide analogue (“NA”) therapy, a sustained reduction in HBsAg and HBV DNA persisted after stopping imdusiran.

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

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

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

Preclinical data presented at the 2022 Discovery on Target Conference showed that AB-161 reduced HBV RNA and HBsAg in multiple preclinical models, with favorable liver centricity and lack of observed peripheral neuropathy.

At the Global Hepatitis Summit in April 2023, we presented preclinical data showing that AB-161 provides robust anti-HBV activity, including suppression of HBV RNA and HBsAg production in vitro and in vivo .

We recently dosed the first healthy subject in our single-ascending Phase 1 clinical trial with AB-161.

Our single-ascending Phase 1 clinical trial with AB-161 in healthy subjects is ongoing.

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

4 unchanged sentences

For purposes of clarity, the Phase 1 clinical trial had not been initiated and we had not dosed any patients with AB-101.

The FDA indicated they will provide an official clinical hold letter to us within thirty days of the verbal communication.

Based on this communication, we no longer intend to report initial data from the single-ascending

dose portion of a Phase 1 clinical trial in the second half of 2023.

In May 2023, we received the clinical hold letter from the FDA, which raised questions about certain preclinical data and aspects of the clinical trial design.

We thus decided to pursue other regulatory pathways outside of the US while evaluating our path forward with the FDA.

Based on the communications from the FDA, we no longer intend to report initial data from the single-ascending dose portion of a Phase 1 clinical trial in the second half of 2023.

In July 2023, the New Zealand Medicine and Medical Device Safety Authority (Medsafe) approved our CTA application for a Phase 1 clinical trial in New Zealand for AB-101, and we believe the protocol approved by Medsafe adequately addresses the clinical trial design and safety

monitoring issues raised by the FDA.

We included the clinical hold letter from the FDA as part of our CTA application with New Zealand.

We are planning to initiate a Phase 1 clinical trial in the third quarter of 2023.

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

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

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

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

• AB-729 in combination with ongoing standard-of-care NA therapy and short courses of Peg-IFNα-2a in patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-201”).

Preliminary data from the lead-in phase of this clinical trial further validated AB-729’s potential to reduce HBsAg in cHBV patients.

• AB-729 in combination with Vaccitech plc’s (“Vaccitech”) VTP-300, a proprietary T-cell stimulating HBV antigen-specific immunotherapeutic, and NA therapy for the treatment of patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-202”).

We recently amended the clinical trial to include an additional arm with an approved PD-1 monoclonal antibody inhibitor, nivolumab (Opdivo®).

We believe that our proprietary product candidates imdusiran, AB-101 and AB-161 may provide our first proprietary combination therapy for patients with cHBV.

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

• Imdusiran in combination with ongoing standard-of-care NA therapy and short courses of Peg-IFNα-2a in patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-201”).

Preliminary data from this clinical trial suggests that the addition of Peg-IFNα-2a to imdusiran treatment was generally well tolerated and appears to result in continued HBsAg declines in some patients.

• Imdusiran in combination with Vaccitech plc’s (“Vaccitech”) VTP-300, a proprietary T-cell stimulating HBV antigen-specific immunotherapeutic, and NA therapy for the treatment of patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-202”).

We recently dosed the first patient in an additional treatment arm of this clinical trial that includes an approved PD-1 monoclonal antibody inhibitor, nivolumab (Opdivo®).

• Advancing small molecule antiviral product candidates to treat COVID-19 and future coronavirus outbreaks.

2 unchanged sentences

At the 36 th International Conference on Antiviral Research in March 2023, we presented preclinical data that demonstrated the antiviral potency, selectivity and favorable pharmacokinetic profile of AB-343, which supports the further development of AB-343 as a potential ritonavir-free oral treatment for COVID-19 and other human coronaviruses.

We are advancing AB-343 into IND-enabling studies.

We are also continuing lead optimization activities for an nsp12 viral polymerase, which could potentially be combined with AB-343 to achieve better patient treatment outcomes and for use in prophylactic settings.

We are conducting IND-enabling studies for AB-343.

We are also continuing lead optimization activities for an nsp12 viral polymerase inhibitor, which could potentially be combined with AB-343 to achieve better patient treatment outcomes and for use in prophylactic settings.

Our Product Candidates

2 unchanged sentences

We continue to explore expansion opportunities for our pipeline through internal discovery and development activities and through potential strategic alliances.

RNAi therapeutic (AB-729)

RNAi therapeutic, imdusiran (AB-729)

RNAi therapeutics represent a significant advancement in drug development.

2 unchanged sentences

Reducing HBsAg is widely believed to be a key prerequisite to enable a patient’s immune system to reawaken and respond against the virus.

AB-729 is a subcutaneously-delivered RNAi single-trigger therapeutic targeted to hepatocytes using our proprietary covalently conjugated GalNAc delivery technology.

AB-729 reduces all HBV antigens and inhibits viral replication.

Imdusiran (AB-729) is a subcutaneously-delivered RNAi single-trigger therapeutic targeted to hepatocytes using our proprietary covalently conjugated GalNAc delivery technology.

Imdusiran reduces all HBV antigens and inhibits viral replication.

Phase 1a/1b single- and multiple-dose clinical trial (AB-729-001)

In this three-part clinical trial, we investigated the safety, tolerability, pharmacokinetics, and pharmacodynamics of single- and multi-doses of AB-729 in healthy subjects and in cHBV patients with the goal of identifying the most appropriate doses and dosing intervals to take forward into Phase 2 clinical development.

The first two parts evaluated single ascending doses of AB-729 in healthy subjects and in patients with cHBV, respectively.

Data showed that a 60mg or 90mg single dose of AB-729 results in robust HBsAg and HBV DNA declines in HBV DNA positive patients.

Part 3 of the trial dosed HBV DNA negative/positive patients with 60mg or 90mg of AB-729 every 4, 8 or twelve weeks.

In this three-part clinical trial, we investigated the safety, tolerability, pharmacokinetics, and pharmacodynamics of single- and multi-doses of imdusiran in healthy subjects and in cHBV patients with the goal of identifying the most appropriate doses and dosing intervals to take forward into Phase 2 clinical development.

The first two parts evaluated single ascending doses of imdusiran in healthy subjects and in patients with cHBV, respectively.

Data showed that a 60mg or 90mg single dose of imdusiran results in robust HBsAg and HBV DNA declines in HBV DNA positive patients.

Part 3 of the trial dosed HBV DNA negative/positive patients with 60mg or 90mg of imdusiran every 4, 8 or twelve weeks.

Dosing of patients in Part 3 has been completed and we are continuing to follow these patients.

Data from Part 3 of the AB-729-001 clinical trial was presented at the 2022 European Association for the Study of the Liver (EASL) International Liver Congress™ (ILC) in June 2022 and showed that repeat dosing of 60mg and 90mg of AB-729 in 41 patients resulted in robust and comparable HBsAg declines in HBeAg positive/negative and HBV DNA positive/negative patients at week 48 (1.89 to 2.15 log 10 decline in HBsAg).

Fifty percent of the patients (16 out of 32) maintained HBsAg levels below 100 IU/mL 24 weeks after their last dose of AB-729.

Patients treated with AB-729 experienced an increase in HBV-specific T-cells activation and a decrease in exhausted T-cells.

In this trial, AB-729 was generally safe and well-tolerated.

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

Data from Part 3 of the AB-729-001 clinical trial was presented at the 2022 European Association for the Study of the Liver (EASL) International Liver Congress™ (ILC) in June 2022 and showed that repeat dosing of 60mg and 90mg of imdusiran in 41 patients resulted in robust and comparable HBsAg declines in HBeAg positive/negative and HBV DNA positive/negative patients at week 48 (1.89 to 2.15 log 10 decline in HBsAg).

Fifty percent of the patients (16 out of 32) maintained HBsAg levels below 100 IU/mL 24 weeks after their last dose of imdusiran.

Patients treated with imdusiran experienced an increase in HBV-specific T-cells activation and a decrease in exhausted T-cells.

In this trial, imdusiran was generally safe and well-tolerated.

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

These nine patients had completed 12 to 44 weeks of follow-up after discontinuing their NA therapy.

None had met the protocol-defined criteria to restart NA therapy and there was no evidence of clinical or biochemical relapse.

HBsAg levels remained at 1.05 log 10 to 2.35 log 10 below pre-trial levels in all

nine patients.

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

HBsAg levels remained at 1.05 log 10 to 2.35 log 10 below pre-trial levels in all nine patients.

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

At the Global Hepatitis Summit in April 2023, we reported in an oral presentation additional off-treatment data from these nine patients who had stopped all treatments.

2 unchanged sentences

Another patient met the protocol-defined HBV DNA criteria to restart NA therapy without evidence of any ALT flare.

The seven remaining patients continue to maintain low HBV DNA levels off all therapy, and HBsAg levels remain below baseline (-0.8 to -1.6 log 10 ) up to one and a half years after the last dose of AB-729.

There were no adverse events reported and no ALT flares were observed in the clinical trial.

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

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

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

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

We have completed enrollment in a randomized, open label, multicenter Phase 2a proof-of-concept clinical trial investigating the safety and antiviral activity of AB-729 in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in 43 stably NA-suppressed, HBeAg negative, non-cirrhotic patients with cHBV.

After 24-weeks of dosing with AB-729 (60mg every 8 weeks), patients are randomized into one of four arms to receive ongoing NA therapy plus Peg-IFNα-2a for either 12 or 24 weeks, with or without additional doses of AB-729.

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

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

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

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

We have completed enrollment in a randomized, open label, multicenter Phase 2a proof-of-concept clinical trial investigating the safety and antiviral activity of imdusiran in combination with ongoing NA therapy and short courses of Peg-IFNα-2a in 43 stably NA-suppressed, HBeAg negative, non-cirrhotic patients with cHBV.

After 24-weeks of dosing with imdusiran (60mg every 8 weeks), patients are randomized into one of four arms to receive ongoing NA therapy plus Peg-IFNα-2a for either 12 or 24 weeks, with or without additional doses of imdusiran.

After completion of the assigned Peg-IFNα-2a treatment period, all patients will remain on NA therapy for the initial 24-week follow-up period, and will then discontinue NA treatment, provided they meet protocol-defined stopping criteria.

Patients who stop NA therapy will enter an intensive follow-up period for 48 weeks.

Preliminary data from the lead-in phase of the trial further validated AB-729’s capacity to reduce HBsAg.

For the first 15 patients who reached week 16 of treatment and received two doses of AB-729 plus NA therapy, the mean HBsAg decline was 1.51 log 10 , comparable to the decline observed at the same timepoint in the Phase 1b clinical trial AB-729-001 (1.56 log 10 ), while continuing to exhibit a generally safe and well-tolerated profile.

We anticipate providing preliminary data from patients who have received the combination of AB-729, NA therapy and Peg-IFNα-2a in the second quarter of 2023.

At the EASL Congress in June 2023, we presented preliminary data from this clinical trial that suggests that the addition of Peg-IFNα-2a to imdusiran treatment was generally well tolerated and appears to result in continued HBsAg declines in some patients.

The mean HBsAg decline from baseline during the lead-in phase was -1.6 log 10 at week 24 of treatment which is comparable to what was previously seen in other clinical trials with imdusiran.

Four patients reached HBsAg below the lower limit of quantitation (LLOQ) during Peg-IFNα-2a treatment.

Collaboration with Vaccitech (AB-729-202)

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

Through a clinical collaboration agreement with Vaccitech that we entered into in July 2021, we have completed enrollment in AB-729-202, a Phase 2a proof-of-concept clinical trial evaluating the safety, antiviral activity and immunogenicity of Vaccitech’s VTP-300, a proprietary T-cell stimulating HBV antigen-specific immunotherapeutic, administered after imdusiran in NA-suppressed patients with cHBV.

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

All patients will receive AB-729 (60mg every 8 weeks) plus NA therapy for 24 weeks.

At week 24, treatment with AB-729 will stop.

All patients will receive imdusiran (60mg every 8 weeks) plus NA therapy for 24 weeks.

At week 24, treatment with imdusiran will stop.

Patients will continue only their NA therapy and will be randomized to receive VTP-300 or placebo at week 26, week 30 and at week 38 (if protocol-defined eligibility is met).

At week 48, all patients will be evaluated for eligibility to discontinue NA therapy and will be followed for an additional 24-48 weeks.

We anticipate providing preliminary data from patients who received the combination of AB-729, NA therapy and VTP-300 in the second half of 2023.

We anticipate providing preliminary data from patients who received the combination of imdusiran, NA therapy and VTP-300 in the second half of 2023.

We recently amended the AB-729-202 protocol to include an additional arm with an approved PD-1 inhibitor, nivolumab (Opdivo®).

In this additional arm, twenty patients will receive AB-729 (60mg every 8 weeks) plus NA therapy for 24 weeks, followed by administration of VTP-300 plus a low dose of nivolumab in conjunction with the booster dose(s) only while remaining on their NA therapy.

In this additional arm, twenty patients will receive imdusiran (60mg every 8 weeks) plus NA therapy for 24 weeks, followed by administration of VTP-300 plus a low dose of nivolumab in conjunction with the booster dose(s) only while remaining on their NA therapy.

At week 48, all patients will be evaluated for eligibility to discontinue NA therapy, and will be followed for an additional 24-48 weeks.

We anticipate dosing the first patient in this amended arm in the second quarter of 2023.

In June 2023, we announced that the first patient received their first dose of imdusiran in this additional arm.

Preliminary data from this additional treatment arm are expected in 2024.

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

We and Vaccitech retain full rights to our respective product candidates and will split

all costs associated with the clinical trial.

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

Pursuant to the agreement, the parties intend to undertake a larger Phase 2b clinical trial depending on the results of the initial Phase 2a clinical trial.

4 unchanged sentences

To provide a proprietary all-oral treatment regimen for patients with cHBV, we believe inclusion of a small molecule RNA destabilizer is key.

HBV RNA destabilizers have the potential to complement or replace subcutaneously delivered RNAi agents, such as AB-729.

HBV RNA destabilizers have the potential to complement or replace subcutaneously delivered RNAi agents, such as imdusiran.

AB-161 is our next-generation oral small molecule RNA destabilizer specifically designed to target the liver.

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

We recently dosed the first healthy subject in our Phase 1 clinical trial with AB-161, with initial single-ascending dose data expected in the second half of 2023.

Our Phase 1 clinical trial with AB-161 is ongoing with initial single-ascending dose data in healthy subjects expected in the second half of 2023.

Oral PD-L1 Inhibitor (AB-101)

14 unchanged sentences

We believe AB-101, when used in combination with other approved and investigational agents, could potentially lead to a functional cure in HBV chronically infected patients.

In April 2023, we received verbal communication from the FDA that the AB-101 IND application has been placed on clinical hold.

In April 2023, we received verbal communication from the FDA that the AB-101 IND application had been placed on clinical hold.

For purposes of clarity, the Phase 1 clinical trial had not been initiated and we had not dosed any patients with AB-101.

The FDA indicated they will provide an official clinical hold letter to us within thirty days of the verbal communication.

Based on this communication, we no longer intend to report initial data from the single-ascending dose portion of a Phase 1 clinical trial in the second half of 2023.

In May 2023, we received the clinical hold letter from the FDA, which raised questions about certain preclinical data and aspects of the clinical trial design.

We thus decided to pursue other regulatory pathways outside of the US while evaluating our path forward with the FDA.

Based on the communications from the FDA, we no longer intend to report initial data from the single-ascending dose portion of a Phase 1 clinical trial in the second half of 2023.

In July 2023, Medsafe approved our CTA application for a Phase 1 clinical trial in New Zealand for AB-101, and we believe the protocol approved by Medsafe adequately addresses the clinical trial design and safety monitoring issues raised by the FDA.

We included the clinical hold letter from the FDA as part of our CTA application with New Zealand.

We are planning to initiate a Phase 1 clinical trial in the third quarter of 2023.

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

Preclinical data was selected for publication at the American Society of Clinical Oncology (ASCO) Annual Meeting in June 2022 showing that our oral small-molecule PD-L1 inhibitors in development, which possess a novel mechanism of action, have the ability to mediate

T-cell activation in primary human immune cells.

The anti-tumor efficacy seen in vivo was comparable to anti-PD-L1 antibodies.

10 unchanged sentences

We are currently conducting IND-enabling studies with AB-343, and on completion, we expect to initiate a Phase 1 clinical trial in the second half of 2023.

We also intend to nominate a nsp12 clinical candidate and initiate IND-enabling studies in the second half of 2023.

An nsp12 viral polymerase could potentially be combined with AB-343 to achieve better patient treatment outcomes and for use in prophylactic settings.

We anticipate completing IND-enabling studies with AB-343 in the second half of 2023.

We also intend to nominate a nsp12 inhibitor clinical candidate and initiate IND-enabling studies in the second half of 2023.

An nsp12 viral polymerase inhibitor could potentially be combined with AB-343 to achieve better patient treatment outcomes and for use in prophylactic settings.

Collaboration with X-Chem, Inc.

9 unchanged sentences

Collaboration with Qilu Pharmaceutical Co., Ltd.

In December 2021, we entered into a technology transfer and license agreement (the “License Agreement”) with Qilu, pursuant to which we granted Qilu a sublicensable, royalty-bearing license, under certain intellectual property owned by us, which is non-exclusive as to development and manufacturing and exclusive with respect to commercialization of 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 December 2021, we entered into a technology transfer and license agreement (the “License Agreement”) with Qilu, pursuant to which we granted Qilu a sublicensable, royalty-bearing license, under certain intellectual property owned by us, which is non-exclusive as to development and manufacturing and exclusive with respect to commercialization of imdusiran, including pharmaceutical products that include imdusiran, for the treatment or prevention of hepatitis B in China, Hong Kong, Macau and Taiwan (the “Territory”).

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

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

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

Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing imdusiran 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 imdusiran product candidate in the Territory.

A joint development committee has been established between us 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 we will manufacture or have manufactured and supply Qilu with all quantities of AB-729 necessary for Qilu to develop and commercialize in the Territory until we have completed manufacturing technology transfer to Qilu and Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture AB-729 in the Territory.

Both parties also have entered into a supply agreement and related quality agreement pursuant to

which we will manufacture or have manufactured and supply Qilu with all quantities of imdusiran necessary for Qilu to develop and commercialize in the Territory until we have completed manufacturing technology transfer to Qilu and Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture imdusiran in the Territory.

Concurrent with the execution of the License Agreement, we entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Anchor Life Limited, a company established pursuant to the applicable laws and regulations of Hong Kong and an affiliate of Qilu (the “Investor”), pursuant to which the Investor purchased 3,579,952 of our common shares at a purchase price of USD $4.19 per share, which was a 15% premium on the thirty-day average closing price of our common shares as of the close of trading on December 10, 2021 (the “Share Transaction”).

11 unchanged sentences

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

From the inception of the royalty sale through March 31, 2023, an aggregate of $20.0 million of royalties have been earned by OMERS.

From the inception of the royalty sale through June 30, 2023, an aggregate of $20.8 million of royalties have been earned by OMERS.

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

13 unchanged sentences

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

As of March 31, 2023, we owned approximately 16% of the common equity of Genevant and the carrying value of our investment in Genevant was zero.

As of June 30, 2023, we owned approximately 16% of the common equity of Genevant and the carrying value of our investment in Genevant was zero.

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

Moderna Inter Partes Review Petitions

On February 21, 2018 and March 5, 2018, Moderna Therapeutics, Inc.

(“Moderna”) filed petitions requesting the United States Patent and Trademark Office to institute an Inter Partes Review of Arbutus United States Patents 9,404,127 (the “’127 Patent”) and 9,364,435 (the “’435 Patent”).

In its petitions, Moderna sought to invalidate all claims of each patent based on Moderna’s allegation that the claims are anticipated and/or obvious.

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

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

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

Moderna Inter Partes Review Petition

On February 21, 2018, Moderna Therapeutics, Inc.

(“Moderna”) filed a petition requesting the United States Patent and Trademark Office to institute an Inter Partes Review of Arbutus United States Patent 9,404,127 (the “’127 Patent”).

In its petition, Moderna sought to invalidate all claims of the patent based on Moderna’s allegation that the claims are anticipated and/or obvious.

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

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

The ‘127 Patent represents only a fraction of our extensive LNP patent portfolio.

With respect to the ‘127 Patent, the PTAB held all claims as invalid on September 10, 2019, by reason of anticipatory prior art.

13 unchanged sentences

On April 11, 2023, the Federal Circuit rendered its opinion, affirming the PTAB’s finding that all claims of the ‘127 Patent are invalid by reason of anticipation.

Moderna and Merck European Oppositions

Moderna and Merck European Opposition

On April 5, 2018, Moderna and Merck, Sharp & Dohme Corporation (“Merck”) filed Notices of Opposition to Arbutus’ European patent EP 2279254 (“the ’254 Patent”) with the European Patent Office (“EPO”), requesting that the ‘254 Patent be revoked in its entirety for all contracting states.

8 unchanged sentences

On April 18, 2023, we and Genevant withdrew our auxiliary request, however, the original (main) request remains in the action.

The date for the oral proceedings has not been set.

While we are the patent holder, the ‘127 Patent, the ‘435 Patent, the ‘069 Patent and the ‘254 Patent have been licensed to Genevant and are included in the rights licensed by us to Genevant under the Genevant License.

We and Moderna informed the Board of Appeals that we would not object to a remittance of the matter without a hearing to the Opposition Division of the EPO.

The hearing in this matter before the Board of Appeals was cancelled and a formal remittance to the Opposition Division (i.e.

lower board) of the EPO is pending.

While we are the patent holder, the ‘127 Patent, the ‘254 Patent, the other patents in our LNP portfolio have been licensed to Genevant and are included in the rights licensed by us to Genevant under the Genevant License.

Patent Infringement Litigation vs.

16 unchanged sentences

On March 16, 2023, the Court held a Rule 16 scheduling conference, and on March 21, 2023, the Court issued a scheduling order in the matter without setting a trial date.

On June 9, 2023, the parties extended the schedule for claim construction proceedings.

The claim construction hearing is currently scheduled for February 7, 2024.

Document discovery in the action is currently ongoing.

Patent Infringement Litigation vs.

7 unchanged sentences

However, we seek fair compensation for Pfizer’s and BioNTech’s use of our patented technology that was developed with great effort and at great expense, without which their COVID-19 mRNA-LNP vaccines would not have been successful.

On July 10, 2023, Pfizer and BioNTech filed their answer to the complaint, affirmative defenses and counterclaims.

We and Genevant have yet to answer these counterclaims and no case schedule is yet in place.

A scheduling conference is set for August 28, 2023.

Acuitas Declaratory Judgment Lawsuit

11 unchanged sentences

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

The motion is now fully briefed.

The motion is now fully briefed and a status conference is set for August 9, 2023.

No case schedule is yet in place.

12 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

7 unchanged sentences

Revenues are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

2023 % of Total 2022 % of Total

8 unchanged sentences

Total revenue $ 4,651 100 % $ 14,241 100 %

Total revenue decreased $5.9 million for the three months ended March 31, 2023 compared to the same period in 2022, primarily due to a decrease in license revenue recognized related to our progress towards the satisfaction of our performance obligations with respect to the technology transfer and licensing agreement with Qilu, which closed in January 2022, as well as a decrease in license royalty revenue from Alnylam and Acuitas due to a decrease in Alnylam’s sales of ONPATTRO.

Six Months Ended June 30,

2023 % of Total 2022 % of Total

(in thousands, except percentages)

Revenue from collaborations and licenses

Royalties from sales of ONPATTRO $ 2,266 20 % $ 3,084 11 %

Qilu Pharmaceutical Co., Ltd.

7,128 63 % 20,655 77 %

Other milestone and royalty payments — — % 35 — %

Non-cash royalty revenue

Royalties from sales of ONPATTRO 1,944 17 % 3,048 11 %

Total revenue $ 11,338 100 % $ 26,822 100 %

Total revenue decreased $9.6 million and $15.5 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022, primarily due to a decrease in license revenue recognized related to our progress towards the satisfaction of our performance obligations with respect to the technology transfer and licensing agreement with Qilu, which closed in January 2022, as well as a decrease in license royalty revenue due to a decrease in Alnylam’s sales of ONPATTRO.

Operating expenses

Operating expenses are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

2023 % of Total 2022 % of Total

4 unchanged sentences

Total operating expenses $ 23,036 100 % $ 28,350 100 %

Six Months Ended June 30,

2023 % of Total 2022 % of Total

(in thousands, except percentages)

Research and development $ 35,967 76 % $ 41,404 80 %

General and administrative 11,532 24 % 10,092 19 %

Change in fair value of contingent consideration (363) (1) % 409 1 %

Total operating expenses $ 47,136 100 % $ 51,905 100 %

Research and development

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

Research and development expenses decreased $0.2 million for the three months ended March 31, 2023, compared to the same period in 2022.

The decrease was due primarily to a decrease in expenses for our AB-836 Phase 1a/1b clinical trial, which was discontinued in the fourth quarter of 2022, partially offset by an increase in expenses for our coronavirus program and other early-stage development programs.

Research and development expenses decreased $5.3 million and $5.4 million for the three and six months ended June 30, 2023, respectively, compared to the same periods in 2022.

The decrease was due primarily to a decrease in expenses for drug supply manufacturing for our imdusiran, AB-101 and AB-161 clinical trials as well as a decrease in expenses for our AB-836 Phase 1a/1b clinical trial, which was discontinued in the fourth quarter of 2022.

These were partially offset by an increase in expenses for our coronavirus program, including drug supply manufacturing.

A significant portion of our research and development expenses are not tracked by project as they benefit multiple projects or our technology platform and because our most-advanced programs are not yet in late-stage clinical development.

General and administrative

General and administrative expenses increased $0.7 million for the three months ended March 31, 2023 as compared to the same period in 2022 due primarily to increases in employee compensation costs and non-cash stock-based compensation expense.

General and administrative expenses increased $0.8 million and $1.4 million for the three and six months ended June 30, 2023 respectively, as compared to the same periods in 2022, due primarily to increases in non-cash stock-based compensation expense and professional fees.

Change in fair value of contingent consideration

2 unchanged sentences

In general, as time passes and assuming no changes to the assumptions related to the contingency, the fair value of the contingent consideration increases as the progress of our programs get closer to triggering contingent payments based on certain sales milestones of our first commercial product for cHBV.

As AB-729 continues to progress through Phase 2a proof-of-concept clinical trials, we will adjust our assumptions regarding probability of success commensurate with the progression of the program, which will increase the fair value of the liability.

As imdusiran continues to progress through Phase 2a proof-of-concept clinical trials, we will adjust our assumptions regarding probability of success commensurate with the progression of the program, which will increase the fair value of the liability.

Other loss (income)

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

Three Months Ended March 31,

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

2023 2022 2023 2022

(in thousands)

1 unchanged sentence

Interest expense (171) (482) (369) (988)

Foreign exchange (gain) loss 1 3 5 3

Total other income (loss) $ 1,291 $ (83) $ 2,365 $ (430)

Interest income

The increase in interest income for the three months ended March 31, 2023 compared to the same period in 2022 was due primarily to higher interest earned on our cash and investment balances due to a general increase in market interest rates.

The increase in interest income for the three and six months ended June 30, 2023 compared to the same periods in 2022 was due primarily to higher interest earned on our cash and investment balances due to a general increase in market interest rates.

Interest expense

Interest expense for both the three months ended March 31, 2023 and 2022 consisted primarily of non-cash amortization of discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS in July 2019.

Interest expense for both the three and six months ended June 30, 2023 and 2022 consisted primarily of non-cash amortization of discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS in July 2019.

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

Income tax expense

During the three months ended March 31, 2022, we recognized income tax expense of $4.4 million for withholding taxes paid to the Chinese taxing authority by Qilu on our behalf in connection with the upfront license fee Qilu paid us.

We did not recognize any income tax expense during the three months ended March 31, 2023.

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

We did not recognize any income tax expense during the six months ended June 30, 2023.

LIQUIDITY AND CAPITAL RESOURCES

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

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

10 unchanged sentences

Effect of foreign exchange rate changes on cash and cash equivalents 3 —

Increase (decrease) in cash and cash equivalents 9,798 (27,952)

Decrease in cash and cash equivalents (3,579) (61,962)

Cash and cash equivalents, beginning of period 30,776 109,282

1 unchanged sentence

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

For the three months ended March 31, 2023, $27.3 million of cash was used in operating activities compared to $20.6 million provided by operating activities for the three months ended March 31, 2022, a change of $47.9 million.

For the six months ended June 30, 2023, $46.9 million of cash was used in operating activities compared to $0.3 million provided by operating activities for the six months ended June 30, 2022, a change of $47.2 million.

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

Also contributing to the change was timing of accruals and payments.

For the three months ended March 31, 2023, net cash provided by investing activities was $16.7 million, resulting primarily from maturities of investments in marketable securities of $37.0 million, partially offset by additional investments in marketable securities of $20.2 million.

For the three months ended March 31, 2022, net cash used in investing activities was $60.1 million, which consisted primarily of additional investments in marketable securities of $62.0 million.

For the three months ended March 31, 2023, net cash provided by financing activities was $20.4 million, which was primarily related to $19.9 million in proceeds from sales of common shares under the Sale Agreement.

For the three months ended March 31, 2022, net cash provided by financing activities was $11.5 million, which included $11.0 million for the fair value of the shares purchased by Qilu as part of their $15.0 million equity investment in us, of which the remaining $4.0 million was a premium paid by Qilu on the equity investment and was allocated to deferred revenue.

For the six months ended June 30, 2023, net cash provided by investing activities was $18.1 million, resulting primarily from maturities of investments in marketable securities of $68.5 million, partially offset by additional investments in marketable securities of $49.4 million.

For the six months ended June 30, 2022, net cash used in investing activities was $73.9 million, which consisted primarily of additional investments in marketable securities of $84.6 million.

For the six months ended June 30, 2023, net cash provided by financing activities was $25.2 million, which was primarily related to $24.6 million in proceeds from sales of common shares under the Sale Agreement.

For the six months ended June 30, 2022, net cash provided by financing activities was $11.6 million, which included $11.0 million for the fair value of the shares purchased by Qilu as part of their $15.0 million equity investment in us, of which the remaining $4.0 million was a premium paid by Qilu on the equity investment and was allocated to deferred revenue.

Sources of Liquidity

As of March 31, 2023, we had cash, cash equivalents and investments in marketable securities of $178.5 million.

We had no outstanding debt as of March 31, 2023.

As of June 30, 2023, we had cash, cash equivalents and investments in marketable securities of $163.5 million.

We had no outstanding debt as of June 30, 2023.

Open Market Sale Agreement

19 unchanged sentences

and (iii) the November 2021 Registration Statement.

During the three months ended March 31, 2023, we issued 7,423,622 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $19.9 million.

For the three months ended March 31, 2022, we issued 69,048 common shares pursuant to the Sale Agreement, resulting in net proceeds of approximately $0.3 million.

As of March 31, 2023, there was approximately $110.7 million available in aggregate under the October 2021 Prospectus Supplement and the March 2022 Prospectus Supplement.

During the six months ended June 30, 2023, we issued 9,214,168 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $24.6 million.

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

As of June 30, 2023, there was approximately $105.8 million available in aggregate under the October 2021 Prospectus Supplement and the March 2022 Prospectus Supplement.

Royalty Entitlements

7 unchanged sentences

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

In December 2021, we entered into a technology transfer and exclusive licensing agreement with Qilu pursuant to which we granted Qilu an exclusive (with certain exceptions), sublicensable, royalty-bearing license, under certain intellectual property owned by us, to develop, manufacture and commercialize AB-729 for the treatment or prevention of cHBV in the Territory.

In December 2021, we entered into a technology transfer and exclusive licensing agreement with Qilu pursuant to which we granted Qilu an exclusive (with certain exceptions), sublicensable, royalty-bearing license, under certain intellectual property owned by us, to develop, manufacture and commercialize imdusiran for the treatment or prevention of cHBV in the Territory.

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

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

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

Cash requirements

We believe that our $178.5 million of cash, cash equivalents and investments in marketable securities as of March 31, 2023 will be sufficient to fund our operations into the first quarter of 2025.

We expect a net cash burn between $90 million and $95 million in 2023.

We believe that our $163.5 million of cash, cash equivalents and investments in marketable securities as of June 30, 2023 will be sufficient to fund our operations into the first quarter of 2025.

We expect a net cash burn between $90 million and $95 million in 2023, excluding any proceeds from our Open Market Sale Agreement.

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

21 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis