What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2023-11-07 compared with 2023-08-03 · 108 added, 127 removed, 387 unchanged (38% 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 and six months ended June 30, 2023.

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

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• obtaining adequate financing through a combination of financing activities and operations;

• the potential for us to discover and/or develop new molecular entities for treating coronaviruses, including COVID-19;

• the expected returns and benefits from strategic alliances, licensing agreements, and research collaborations with third parties, and the timing thereof;

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as well as other statements relating to our future operations, financial performance or financial condition, prospects or other future events.

Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Part I, Item 1-Financial Statements (Unaudited),” and “Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements appear primarily in the sections of this Form 10-Q entitled “Part I, Item 1-Financial

Statements (Unaudited),” and “Part I, Item 2-Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements are based upon current expectations and assumptions and are subject to a number of known and unknown risks, uncertainties and other factors that could cause actual results to differ materially and adversely from those expressed or implied by such statements.

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Unless otherwise expressly stated, we obtained this industry, business, market and other data from reports, research surveys, studies and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources.

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

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, 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, AB-343, and have begun IND-enabling preclinical studies.

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

Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage biopharmaceutical company leveraging its extensive virology expertise to develop a functional cure for patients with chronic hepatitis B virus (“cHBV”).

We believe the key to success in developing a functional cure involves suppressing HBV DNA, reducing surface antigen and boosting HBV-specific immune responses.

Our pipeline of internally developed, proprietary compounds includes an RNAi therapeutic, imdusiran (AB-729), and an oral PD-L1 inhibitor, AB-101.

Imdusiran has generated meaningful clinical data demonstrating an impact on both surface antigen reduction and reawakening of the HBV-specific immune response.

Imdusiran is currently in two Phase 2a combination clinical trials.

AB-101 is currently being evaluated in a Phase 1a/1b clinical trial.

Additionally, we have identified compounds in our internal PD-L1 portfolio that could be used in oncology indications.

The core elements of our strategy include:

• Developing a broad portfolio of compounds that target cHBV.

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 could address the most important elements to achieving a functional cure.

Our HBV product pipeline includes a subcutaneously-delivered RNAi therapeutic 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 boost 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.

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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.

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 .

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.

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

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

In April 2023, we received verbal communication from the U.S.

Food and Drug Administration (“FDA”) that the AB-101 Investigational New Drug (“IND”) application has 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.

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.

In July 2023, the New Zealand Medicine Safety Authority (“Medsafe”) approved our CTA application for a Phase 1 clinical trial in New Zealand for AB-101.

We recently dosed the first subject in our Phase 1a/1b clinical trial for AB-101.

Additionally, we have identified compounds in our internal PD-L1 portfolio that could be used in oncology indications.

• 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 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:

We believe that our proprietary product candidates, imdusiran and AB-101, 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 with compounds from our proprietary HBV portfolio or with other agents with potentially complementary mechanisms of action, we are currently evaluating imdusiran in combination with other agents as follows:

• 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.

This program is focused on the discovery and development of new molecular entities for treating coronaviruses, including COVID-19, that address specific viral targets including the nsp5 viral protease (“Mpro”) and the nsp12 viral polymerase.

• In the fourth quarter of 2022, we nominated AB-343 as our lead coronavirus drug candidate that inhibits the SARS-CoV-2 Mpro, a validated target for the treatment of COVID-19 and potential future coronavirus outbreaks.

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 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.

• Imdusiran in combination with Barinthus Biotherapeutics plc’s (“Barinthus Bio”), formerly Vaccitech plc, VTP-300, an HBV antigen specific immunotherapy, and NA therapy for the treatment of patients with cHBV in a Phase 2a proof-of-concept clinical trial (“AB-729-202”).

We are dosing patients in an additional treatment arm of this clinical trial that includes an approved PD-1 monoclonal antibody inhibitor, nivolumab (Opdivo®).

Our Product Candidates

Our product pipeline includes multiple product candidates that target various steps in the HBV viral lifecycle and pan-coronavirus compounds that target essential viral targets for replication.

Our product pipeline consists of the following programs:

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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 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.

We are continuing to follow these patients and expect to provide updates from this clinical trial in 2024.

Collaboration with Barinthus (AB-729-202)

Through a clinical collaboration agreement with Barinthus, formerly 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 Barinthus’ VTP-300, an HBV antigen specific immunotherapy, 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.

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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 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®).

Preliminary data from patients who received the combination of imdusiran, NA therapy and VTP-300 will be presented as a late-breaking poster presentation at AASLD in the fourth quarter of 2023.

We 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 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.

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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 Barinthus 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.

Oral HBV RNA Destabilizer (AB-161)

HBV RNA destabilizers are small molecule orally available agents that cause the destabilization and ultimate degradation of HBV RNAs.

Mechanistically, RNA destabilizers target the host proteins PAPD5/7, which are involved in regulating the stability of HBV RNA transcripts.

In doing so, RNA destabilizers lead to the selective degradation of HBV RNAs, thus reducing HBsAg levels and inhibiting viral replication.

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 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.

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)

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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.

We have dosed our first group of healthy subjects in our Phase 1a/1b clinical trial for AB-101 (AB-101-001).

The AB-101-001 clinical trial is designed to investigate the safety, tolerability, pharmacokinetics (PK), and pharmacodynamics (PD) of single and multiple oral doses of AB-101 for up to 28 days in healthy subjects and patients with cHBV.

The trial will be conducted in three parts starting with single ascending doses in healthy subjects, followed by multiple ascending doses in healthy subjects and culminating with multiple doses in patients with cHBV.

Safety and PK/PD assessments will be performed prior to dose escalation in all parts of the clinical trial.

Initial data from part one of the clinical trial are expected in the first half of 2024.

Additionally, we have identified compounds in our internal PD-L1 portfolio that could also be used in oncology indication.

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.

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The data is published in the Journal of Clinical Oncology.

Oral HBV RNA Destabilizer (AB-161)

HBV RNA destabilizers are small molecule orally available agents that cause the destabilization and ultimate degradation of HBV RNAs.

AB-161, our oral small molecule RNA destabilizer, was specifically designed to target the liver.

We had conducted extensive non-clinical safety evaluations with AB-161 that provided 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.

During the third quarter of 2023, we discontinued development of AB-161 due to a pre-clinical male reproductive toxicity finding.

Our Phase 1 clinical trial with single doses of AB-161 in healthy subjects (AB-161-001) was terminated and there were no safety issues reported in the healthy subjects.

Coronavirus Program

Given our scientific team’s proven expertise in discovering, developing and commercializing new antiviral therapies, in 2020 we initiated a drug discovery effort for treating COVID-19, pan-coronaviruses and potential future outbreaks.

To that end, we have assembled an internal team of expert scientists under the direction of our Chief Scientific Officer, Dr.

Michael Sofia, to identify novel small molecule therapies to treat COVID-19 and future coronavirus outbreaks.

Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this program.

As we strive to identify and develop new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks, we have focused our research efforts on two essential targets critical for replication across all coronaviruses – nsp5 protease and nsp12 polymerase.

These targets are essential viral proteins that our science team has experience in targeting.

Oral Mpro Inhibitor (AB-343)

AB-343 is our lead coronavirus drug candidate that inhibits Mpro.

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.

and Proteros biostructures GmbH

In March 2021, we 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 (Mpro).

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 our 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 Mpro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize Mpro inhibitors to progress to clinical candidates.

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

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

Our efforts to identify and develop new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks were focused on two essential targets critical for replication across all coronaviruses – nsp5 protease and nsp12 polymerase.

We were exploring whether a combination therapy of our nsp5 protease Mpro candidate, AB-343, and an nsp12 viral polymerase inhibitor could potentially achieve better patient treatment outcomes.

During the third quarter of 2023, we discontinued our efforts to identify and develop a coronavirus combination therapy due to an unfavorable pharmacokinetic (PK) profile noted in the IND-enabling studies for AB-343.

We also terminated our discovery research and license agreement with X-Chem, Inc.

and Proteros biostructures GmbH, which was focused on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (“Mpro”).

Other Collaborations, Royalty Entitlements and Intellectual Property Litigation

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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 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.

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”).

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Under the terms of this license agreement, we are 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 the Ontario Municipal Employees Retirement System (“OMERS”), effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees.

This royalty interest was sold to the Ontario Municipal

Employees Retirement System (“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 to us.

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

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

From the inception of the royalty sale through September 30, 2023, an aggregate of $21.5 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.

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

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.

As of September 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.

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

However this decision was vacated and sent back (remanded) to the PTAB for a rehearing, pending the Supreme Court’s decision whether to grant certiorari in a different case, United States v.

However this decision was vacated and sent back (remanded) to the PTAB for a rehearing, pending the U.S.

Supreme Court’s (“Supreme Court”) decision whether to grant certiorari in a different case, United States v.

Athrex”), the holding of which could impact the findings in the ‘127 Patent matter.

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The Supreme Court decided on the US v.

Athrex case on June 21, 2021, following which the Federal Circuit reinstated the appeal sua sponte, requiring the parties to brief how the case should proceed in light of the Supreme Court’s opinion or for the Appellant to waive the challenge.

Athrex case on June 21, 2021, following which the Federal Circuit reinstated the appeal

sua sponte, requiring the parties to brief how the case should proceed in light of the Supreme Court’s opinion or for the Appellant to waive the challenge.

We elected to waive the challenge and proceed with the appeal at the Federal Circuit.

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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.

The hearing in this matter before the Board of Appeals has subsequently been cancelled and has been resubmitted to the Opposition Division (i.e.

lower board) of the EPO.

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.

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District Court for the District of Delaware against Moderna, Inc.

and a Moderna affiliate seeking damages for infringement of U.S.

and a Moderna affiliate (collectively, “Moderna”) seeking damages for infringement of U.S.

8,058,069, 8,492,359, 8,822,668, 9,364,435, 9,504,651, and 11,141,378 in the manufacture and sale of MRNA-1273, Moderna’s vaccine for COVID-19.

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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.

On June 9, 2023, the Court granted the parties’ request to extend the time for claim construction briefing and set the claim construction hearing for February 7, 2024.

Document and written discovery in the action is currently ongoing.

Patent Infringement Litigation vs.

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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.

We and Genevant filed our answer to these counterclaims on August 14, 2023.

A scheduling conference was held on August 28, 2023 and the Court

issued a Letter Order on September 7, 2023 setting dates up to but not including the date for a claim construction hearing.

Scheduling of the claim construction hearing and subsequent case dates, including the date for trial, will be set at a later time that is yet to be determined.

Document and written discovery in the action is ongoing.

Acuitas Declaratory Judgment Lawsuit

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

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

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

No case schedule is yet in place.

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 at which point the motion was fully briefed.

A status conference for the action was set for August 9, 2023, however on August 4, 2023, Acuitas voluntarily dismissed its complaint in the Southern District of New York and refiled a virtually identical complaint in the District Court of New Jersey (D.

N.J.) where the Pfizer/BioNTech matter is currently pending, except that the 9,404,127 patent is not at issue in the New Jersey action, and Acuitas also added two additional patents to its New Jersey declaratory judgment action ((U.S.

11,298,320 and 11,318,098) that were not at issue in its New York action.

On September 15, 2023, we and Genevant filed a letter with the Court seeking a premotion conference for a motion to dismiss and subsequently filed our and Genevant’s motion to dismiss on October 13, 2023.

A hearing is scheduled for November 20, 2023.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES

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

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

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

2023 2022 2023 2022

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Revenues are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

2023 % of Total 2022 % of Total

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Total revenue $ 4,658 100 % $ 5,952 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2023 % of Total 2022 % of Total

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Total revenue $ 15,996 100 % $ 32,774 100 %

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.

Total revenue decreased $1.3 million and $16.8 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.

Royalty revenue from Alnylam’s sales of ONPATTRO decreased for both comparative periods due to lower ONPATTRO sales and for the nine months ended, there was also 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.

Operating expenses

Operating expenses are summarized in the following table:

Three Months Ended June 30,

Three Months Ended September 30,

2023 % of Total 2022 % of Total

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Total operating expenses $ 26,216 100 % $ 23,763 100 %

Six Months Ended June 30,

Nine Months Ended September 30,

2023 % of Total 2022 % of Total

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

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.

Research and development expenses increased $0.1 million and decreased $5.3 million for the three and nine months ended September 30, 2023, respectively, compared to the same periods in 2022.

The decrease for the nine months ended September 2023 compared to the same period in 2022 was due primarily to a decrease in drug supply manufacturing costs for imdusiran and a decrease related to 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 our AB-101 Phase 1a/1b clinical trial.

During the third quarter of 2023, we discontinued development of AB-161 due to a pre-clinical male reproductive toxicity finding, including terminating our AB-161-001 Phase 1a/1b clinical trial.

Also during the third quarter of 2023, we discontinued our efforts to identify and develop a coronavirus combination therapy due to an unfavorable pharmacokinetic (PK) profile noted in the IND-enabling studies for AB-343.

On November 6, 2023, we reduced our workforce by 24% primarily affecting our research function.

As a result, we will incur a one-time restructuring charge of approximately $1.1 million that will be recorded in the fourth quarter of 2023.

We have maintained a group of research scientists as we remain committed to continuing discovery research in HBV.

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 $0.8 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.

General and administrative expenses increased $2.3 million and $3.8 million for the three and nine months ended September 30, 2023 respectively, as compared to the same periods in 2022, due primarily to legal fees in support of our ongoing lawsuits against Moderna and Pfizer/BioNTech, a severance payment to our former General Counsel in the third quarter of 2023 and an increase in non-cash stock-based compensation expense.

Change in fair value of contingent consideration

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

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

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

2023 2022 2023 2022

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Interest income

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.

The increase in interest income for the three and nine months ended September 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 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.

Interest expense for both the three and nine months ended September 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 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.

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

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

LIQUIDITY AND CAPITAL RESOURCES

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

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Net change in operating items (9,371) 266

Net cash (used in) provided by operating activities (46,860) 326

Net cash used in operating activities (68,644) (18,366)

Net cash provided by (used in) investing activities 28,548 (87,624)

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

For the six months ended June 30, 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.

For the nine months ended September 30, 2023, $68.6 million of cash was used in operating activities compared to $18.4 million used in operating activities for the nine months ended September 30, 2022, a change of $50.3 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.

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.

These cash inflows from Qilu for the nine months ended September 30, 2022 were offset by $62.4 million of cash used in operations.

For the nine months ended September 30, 2023, net cash provided by investing activities was $28.5 million, resulting primarily from maturities of investments in marketable securities of $86.0 million, partially offset by additional investments in marketable securities of $56.5 million.

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

For the nine months ended September 30, 2023, net cash provided by financing activities was $26.8 million, which was primarily related to $26.0 million in proceeds from sales of common shares under the Sale Agreement.

For the nine months ended September 30, 2022, net cash provided by financing activities was $20.7 million, which included $11.0 million for the fair value of the shares purchased by Qilu as part of their $15.0 million equity investment 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, as well as $9.2 million in proceeds from sales of common shares under the Sale Agreement.

Sources of Liquidity

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.

As of September 30, 2023, we had cash, cash equivalents and investments in marketable securities of $144.7 million.

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

Open Market Sale Agreement

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The August 2020 Prospectus Supplement was fully utilized during 2020.

The January 2020 Registration Statement expired in January 2023.

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

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On October 8, 2021, we filed a prospectus supplement with the SEC (the “October 2021 Prospectus Supplement”) for the offer and sale of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the October 2020 Registration Statement.

The October 2020 Registration Statement expired in October 2023 with $29.3 million that was not utilized under the October 2021 Prospectus Supplement.

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

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(ii) the October 2020 Registration Statement;

and (iii) the November 2021 Registration Statement.

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.

and (iii) the November 2021 Registration Statement, of which only the November 2021 Registration Statement remains active.

During the nine months ended September 30, 2023, we issued 9,848,090 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $26.0 million.

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

As of September 30, 2023, there was approximately $104.3 million available in aggregate under the October 2021 Prospectus Supplement and March 2022 Prospectus Supplement.

In October 2023, the October 2020 Registration Statement expired with $29.3 million that was not utilized under the October 2021 Prospectus Supplement, leaving $75.0 million remaining available under the March 2022 Prospectus Supplement pursuant to the November 2021 Registration Statement.

Royalty Entitlements

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OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and we are 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, we have recorded an aggregate of $18.9 million of non-cash royalty revenue for royalties earned by OMERS.

From the inception of the royalty sale through September 30, 2023, we have recorded an aggregate of $21.5 million of non-cash royalty revenue for royalties earned by OMERS.

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.

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Cash requirements

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.

We believe that our $144.7 million of cash, cash equivalents and investments in marketable securities as of September 30, 2023 will be sufficient to fund our operations into the first quarter of 2026.

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis