Item 2. Management’s Discussion and Analysis
ITEM 2. 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 nine months ended September 30, 2023. Our consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles and are presented in U.S. dollars.
REFERENCES TO ARBUTUS BIOPHARMA CORPORATION
Throughout this Quarterly Report on Form 10-Q (“Form 10-Q”), the “Company,” “Arbutus,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Arbutus Biopharma Corporation and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of Arbutus Biopharma Corporation.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-Q contains “forward-looking statements” or “forward-looking information” within the meaning of applicable United States and Canadian securities laws (we collectively refer to these items as “forward-looking statements”). Forward-looking statements are generally identifiable by use of the words “believes,” “may,” “plans,” “will,” “anticipates,” “intends,” “budgets,” “could,” “estimates,” “expects,” “forecasts,” “projects” and similar expressions that are not based on historical fact or that are predictions of or indicate future events and trends, and the negative of such expressions. Forward-looking statements in this Form 10-Q, including the documents incorporated by reference, include statements about, among other things:
• our strategy, future operations, preclinical research, preclinical studies, clinical trials, prospects and the plans of management;
• the potential for our product candidates to achieve their desired or anticipated outcomes;
• the expected cost, timing and results of our clinical development plans and clinical trials, including our clinical collaborations with third parties;
• the discovery, development and commercialization of a curative combination regimen for chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”);
• the potential of our product candidates to improve upon the standard of care and contribute to a functional curative combination treatment regimen;
• obtaining necessary regulatory approvals;
• obtaining adequate financing through a combination of financing activities and operations;
• the expected returns and benefits from strategic alliances, licensing agreements, and research collaborations with third parties, and the timing thereof;
• our expectations regarding our technology licensed to third parties, and the timing thereof;
• our anticipated revenue and expense fluctuation and guidance;
• our expectations regarding the timing of announcing data from our ongoing clinical trials;
• our expectations regarding current patent disputes and litigation;
• our expectation of a net cash burn between $90 million and $95 million in 2023, excluding any proceeds from our Open Market Sale Agreement; and
• our belief that we have sufficient cash resources to fund our operations into the first quarter of 2026,
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
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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. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Form 10-K”), and in particular the risks and uncertainties discussed under “Item 1A-Risk Factors” of this Form 10-Q and the Form 10-K. As a result, you should not place undue reliance on forward-looking statements.
Additionally, the forward-looking statements contained in this Form 10-Q represent our views only as of the date of this Form 10-Q (or any earlier date indicated in such statement). While we may update certain forward-looking statements from time to time, we specifically disclaim any obligation to do so, even if new information becomes available in the future. However, you are advised to consult any further disclosures we make on related subjects in the periodic and current reports that we file with the Securities and Exchange Commission.
The foregoing cautionary statements are intended to qualify all forward-looking statements wherever they may appear in this Form 10-Q. For all forward-looking statements, we claim protection of the safe harbor for the forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
This Form 10-Q also contains estimates, projections and other information concerning our industry, our business, and the markets for certain diseases, including data regarding the estimated size of those markets, and the incidence and prevalence of certain medical conditions. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances reflected in this information. 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.
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OVERVIEW
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.
Strategy
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 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.
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-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. 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 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 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®).
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Our Product Candidates
Our product pipeline consists of the following programs:
We continue to explore expansion opportunities for our pipeline through internal discovery and development activities and through potential strategic alliances.
RNAi therapeutic, imdusiran (AB-729)
RNAi therapeutics represent a significant advancement in drug development. RNAi therapeutics utilize a natural pathway within cells to silence genes by eliminating the disease-causing proteins that they code for. We are developing RNAi therapeutics that are designed to reduce HBsAg expression and other HBV antigens in people with cHBV. Reducing HBsAg is widely believed to be a key prerequisite to enable a patient’s immune system to reawaken and respond against the virus.
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 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 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.
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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 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. One patient restarted NA therapy at the investigator’s request after the week 20 visit; no alanine transaminase (“ALT”) elevation or safety signals were observed. 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 imdusiran. There were no adverse events reported and no ALT flares were observed in the clinical trial.
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.
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. 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. 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. 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. At week 48, all patients will be evaluated for eligibility to discontinue NA therapy, and will be followed for an additional 24-48 weeks. 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.
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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 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 PD-L1 Inhibitor (AB-101)
PD-L1 inhibitors complement our pipeline of agents and could potentially be an important part of a combination therapy for the treatment of HBV by reawakening the immune system. Highly functional HBV-specific T-cells within our immune system are believed to be required for long-term HBV viral resolution. However, HBV-specific T-cells become functionally defective, and greatly reduced in their frequency during cHBV. One approach to boost HBV-specific T-cells is to prevent PD-L1 proteins from binding to PD-1 and thus inhibiting the HBV-specific immune function of T-cells. Immune checkpoints such as PD-1/PD-L1 play an important role in the induction and maintenance of immune tolerance and in T-cell activation.
AB-101 is our oral PD-L1 inhibitor candidate that we believe will allow for controlled checkpoint blockade while minimizing the systemic safety issues typically seen with checkpoint antibody therapies. Preclinical data generated thus far indicates that AB-101 mediates activation and reinvigoration of HBV-specific T-cells from cHBV patients. In June 2022, we presented a poster at the 2022 EASL ILC highlighting data from a study that was designed to assess the preclinical activity of AB-101 and the compound’s ability to reinvigorate patient HBV-specific T-cells. Studies were conducted using a transgenic MC38 tumor mouse model and peripheral blood mononuclear cells (PBMCs) from cHBV patients. The data presented showed that once daily oral administration of AB-101 resulted in profound tumor reduction that was associated with T-cell activation. In addition, AB-101 activates and reinvigorates HBV-specific T-cells in vitro. Additionally, preclinical data in an HBV mouse model was presented at the 2022 AASLD Liver Meeting showing that monotherapy with AB-101 reduced PD-L1 in liver immune cells, confirming liver target engagement of the compound. Combination treatment with AB-101 and an HBV-targeting GalNAc-siRNA agent resulted in activation and increased frequency of HBV-specific T-cells and greater anti-HBsAg antibody production. This favorable preclinical profile supports further development of AB-101 as a therapeutic modality for cHBV treatment. We 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 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. 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 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. The anti-tumor efficacy seen in vivo was comparable to anti-PD-L1 antibodies. 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
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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
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
Collaboration with Qilu Pharmaceutical Co., Ltd. (“Qilu”)
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 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 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 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”). We received $15.0 million of gross proceeds from the Share Transaction on January 6, 2022. The common shares sold to the Investor in the Share Transaction represented approximately 2.5% of our common shares outstanding immediately prior to the execution of the Share Purchase Agreement.
Alnylam Pharmaceuticals, Inc. (“Alnylam”) and Acuitas Therapeutics, Inc. (“Acuitas”)
We have two royalty entitlements to Alnylam’s global net sales of ONPATTRO.
In 2012, we entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with our lipid nanoparticle (“LNP”) delivery technology. Alnylam’s ONPATTRO, which represents the first approved application of our LNP technology, was approved by the FDA and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. 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
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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. 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. 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 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. This royalty entitlement from Acuitas has been retained by us and was not part of the royalty entitlement sale to OMERS.
Genevant Sciences, Ltd.
In April 2018, we entered into an agreement with Roivant Sciences Ltd. (“Roivant”), our largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on a broad range of RNA-based therapeutics enabled by our LNP and ligand conjugate delivery technologies. We licensed rights to our LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”). We retained all rights to our LNP and conjugate delivery platforms for HBV.
Under the Genevant License, as amended, if a third party sublicensee of intellectual property licensed by Genevant from us commercializes a sublicensed product, we become entitled to receive a specified percentage of certain revenue that may be received by Genevant for such sublicense, including royalties, commercial milestones and other sales-related revenue, or, if less, tiered low single-digit royalties on net sales of the sublicensed product. The specified percentage is 20% in the case of a mere sublicense (i.e., naked sublicense) by Genevant without additional contribution and 14% in the case of a bona fide collaboration with Genevant.
Additionally, if Genevant receives proceeds from an action for infringement by any third parties of our intellectual property licensed to Genevant, we would be entitled to receive, after deduction of litigation costs, 20% of the proceeds received by Genevant or, if less, tiered low single-digit royalties on net sales of the infringing product (inclusive of the proceeds from litigation or settlement, which would be treated as net sales).
In July 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. We participated in the recapitalization of Genevant with an equity investment of $2.5 million. In connection with the recapitalization, the three parties entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. We have a non-voting observer seat on Genevant’s Board of Directors.
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.
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. 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, Inc. (“US v. Athrex”), the holding of which could impact the findings in the ‘127 Patent matter. The Supreme Court granted certiorari in US v. Athrex on October 13, 2020 (i.e. agreed to review the decision appealed from a lower court). Until the Supreme Court rendered its opinion in US v. Athrex, the ‘127 Patent hearing remained in abeyance, with no decision reached as to the validity of its claims. The Supreme Court decided on the US v. Athrex case on June 21, 2021, following which the Federal Circuit reinstated the appeal
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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. The opening brief was filed on October 25, 2021. Moderna’s responsive brief was filed on February 24, 2022 and our reply brief was filed on April 26, 2022. An oral hearing for this matter was held on November 4, 2022. 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 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. We filed a response to Moderna and Merck’s oppositions on September 3, 2018. A hearing was conducted before the Opposition Division of the EPO on October 10, 2019. At the conclusion of the hearing, the EPO upheld an auxiliary request adopting the amendment, as put forth by us, of certain claims of the ‘254 Patent. In February 2020 Moderna and Merck filed Notices of Appeal challenging the EPO’s grant of the auxiliary request. Merck filed its notice of appeal on February 24, 2020 and Moderna on February 27, 2020. Both Merck and Moderna perfected their appeals by filing Grounds of Appeal on April 30, 2020. We filed our responses to the appeals on September 18, 2020. On March 22, 2022, Moderna filed further written submissions to which we and Genevant responded in August 2022. On April 18, 2023, we and Genevant withdrew our auxiliary request, however, the original (main) request remains in the action. 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 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.
Patent Infringement Litigation vs. Moderna
On February 28, 2022, we and Genevant filed a lawsuit in the U.S. District Court for the District of Delaware against Moderna, Inc. and a Moderna affiliate (collectively, “Moderna”) seeking damages for infringement of U.S. Patent Nos. 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. The patents relate to nucleic acid-lipid particles and lipid vesicles, as well as compositions and methods for their use. The lawsuit does not seek an injunction or otherwise seek to impede the sale, manufacture or distribution of MRNA-1273. However, we seek fair compensation for Moderna’s use of our patented technology that was developed with great effort and at great expense, without which Moderna’s COVID-19 vaccine would not have been successful. On May 6, 2022, Moderna filed a partial motion to dismiss the claims “relating to Moderna’s sale and provision of COVID-19 vaccine doses to the U.S. Government.” On November 2, 2022, the Court issued an Order denying Moderna’s motion. On November 30, 2022, Moderna filed its Answer to the Complaint and Counterclaims. We and Genevant filed our Answer to Moderna’s Counterclaims on December 21, 2022. On February 14, 2023, the U.S. Department of Justice filed a Statement of Interest in the action. On February 16, 2023, the Court held an Initial Pretrial Conference after which it issued an Order, dated February 16, 2023, ordering that within 14 days of the issuance of the Order, the parties and the U.S. Government were to submit letters regarding the impact of the Governments’ Statement of Interest on the scheduling of the matter. On March 10, 2023, the Court reaffirmed its denial of Moderna’s motion to dismiss. 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 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. Pfizer and BioNTech
On April 4, 2023, we and Genevant filed a lawsuit in the U.S. District Court for the District of New Jersey against Pfizer Inc. (“Pfizer”) and BioNTech SE (“BioNTech”) seeking damages for infringement of U.S. Patent Nos. 9,504,651; 8,492,359; 11,141,378; 11,298,320; and 11,318,098 in the manufacture and sale of any COVID-19 mRNA-LNP vaccines. The patents relate to nucleic acid-lipid particles and their composition, manufacture, delivery and methods of use. The lawsuit does not seek an injunction or otherwise seek to impede the sale, manufacture or distribution of any COVID-19 mRNA-LNP vaccines. 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 filed our answer to these counterclaims on August 14, 2023. A scheduling conference was held on August 28, 2023 and the Court
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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
On March 18, 2022, Acuitas filed a lawsuit against us and Genevant in the U.S. District Court for the Southern District of New York, asking the court to enter declaratory judgment that Arbutus patent Nos. 8,058,069, 8,492,359, 8,822,668, 9,006,417, 9,364,435, 9,404,127, 9,504,651, 9,518,272, and 11,141,378 do not infringe Pfizer and BioNTech’s COVID-19 vaccine, COMIRNATY, which uses an mRNA lipid provided, under license, by Acuitas. Acuitas also seeks a declaration that each of the listed patents is invalid. On June 24, 2022, we and Genevant sought a pre-motion conference concerning our anticipated motion to dismiss all of Acuitas’ claims due to lack of subject matter jurisdiction. The request for a pre-motion conference was granted, but the case was subsequently re-assigned to a new judge who entered an order directing: (i) Acuitas to inform the court whether it intended to file an amended complaint; (ii) that Acuitas must file any amended complaint by a certain date; and (iii) that if Acuitas did not file an amended complaint, we and Genevant must file our motion to dismiss by a certain date. Acuitas filed its amended complaint on September 6, 2022. On October 4, 2022, we and Genevant filed our motion to dismiss the Acuitas action for lack of subject matter jurisdiction based on the lack of a case or controversy. Acuitas filed its opposition to the motion to dismiss on November 1, 2022, and we and Genevant 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. Patent Nos. 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.
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CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES
This management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe there have been no significant changes in our critical accounting policies and estimates as discussed in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022.
RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that are adopted by us as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
Please refer to Note 2 to our condensed consolidated financial statements included in “Part I, Item 1-Financial Statements (Unaudited)” of this Quarterly Report on Form 10-Q for a description of recent accounting pronouncements applicable to our business.
RESULTS OF OPERATIONS
The following summarizes the results of our operations for the periods shown:
Three Months Ended September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(in thousands)
Total revenue $ 4,658 $ 5,952 $ 15,996 $ 32,774
Operating expenses 26,216 23,763 73,352 75,668
Loss from operations (21,558) (17,811) (57,356) (42,894)
Other income (loss) 1,454 244 3,819 (186)
Loss before income taxes (20,104) (17,567) (53,537) (43,080)
Income tax expense — — — (4,444)
Net loss $ (20,104) $ (17,567) $ (53,537) $ (47,524)
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Revenue
Revenues are summarized in the following table:
Three Months Ended September 30,
2023 % of Total 2022 % of Total
(in thousands, except percentages)
Revenue from collaborations and licenses
Royalties from sales of ONPATTRO $ 714 15 % $ 1,256 21 %
Qilu Pharmaceutical Co., Ltd. 3,221 69 % 2,352 40 %
Other milestone and royalty payments — — % — — %
Non-cash royalty revenue
Royalties from sales of ONPATTRO 723 16 % 2,344 39 %
Total revenue $ 4,658 100 % $ 5,952 100 %
Nine Months Ended September 30,
2023 % of Total 2022 % of Total
(in thousands, except percentages)
Revenue from collaborations and licenses
Royalties from sales of ONPATTRO $ 2,980 19 % $ 4,339 13 %
Qilu Pharmaceutical Co., Ltd. 10,349 65 % 23,007 70 %
Other milestone and royalty payments — — % 35 — %
Non-cash royalty revenue
Royalties from sales of ONPATTRO 2,667 17 % 5,393 16 %
Total revenue $ 15,996 100 % $ 32,774 100 %
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.
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Operating expenses
Operating expenses are summarized in the following table:
Three Months Ended September 30,
2023 % of Total 2022 % of Total
(in thousands, except percentages)
Research and development $ 20,169 77 % $ 20,055 84 %
General and administrative 5,842 22 % 3,493 15 %
Change in fair value of contingent consideration 205 1 % 215 1 %
Total operating expenses $ 26,216 100 % $ 23,763 100 %
Nine Months Ended September 30,
2023 % of Total 2022 % of Total
(in thousands, except percentages)
Research and development $ 56,136 77 % $ 61,459 81 %
General and administrative 17,374 24 % 13,585 18 %
Change in fair value of contingent consideration (158) — % 624 1 %
Total operating expenses $ 73,352 100 % $ 75,668 100 %
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 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 $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.
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Change in fair value of contingent consideration
Contingent consideration is a liability related to our acquisition of Enantigen Therapeutics, Inc. in October 2014. 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 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 September 30, Nine Months Ended September 30,
2023 2022 2023 2022
(in thousands)
Interest income $ 1,494 $ 694 $ 4,223 $ 1,249
Interest expense (46) (429) (415) (1,417)
Foreign exchange (gain) loss 6 (21) 11 (18)
Total other income (loss) $ 1,454 $ 244 $ 3,819 $ (186)
Interest income
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 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 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.
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LIQUIDITY AND CAPITAL RESOURCES
The following table summarizes our cash flow activities for the periods indicated:
Nine Months Ended September 30,
2023 2022
(in thousands)
Net loss $ (53,537) $ (47,524)
Non-cash items 4,613 3,429
Change in deferred license revenue (10,349) 25,463
Net change in operating items (9,371) 266
Net cash used in operating activities (68,644) (18,366)
Net cash provided by (used in) investing activities 28,548 (87,624)
Issuance of common shares pursuant to Share Purchase Agreement — 10,973
Issuance of common shares pursuant to the Open Market Sale Agreement 26,000 9,241
Cash provided by other financing activities 840 516
Net cash provided by financing activities 26,840 20,730
Effect of foreign exchange rate changes on cash and cash equivalents 11 (18,000)
Decrease in cash and cash equivalents (13,245) (85,278)
Cash and cash equivalents, beginning of period 30,776 109,282
Cash and cash equivalents, end of period $ 17,531 $ 24,004
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 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. 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 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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We have an Open Market Sale Agreement SM with Jefferies LLC dated December 20, 2018, as amended by Amendment No. 1, dated December 20, 2019, Amendment No. 2, dated August 7, 2020 and Amendment No. 3, dated March 4, 2021 (as amended, the “Sale Agreement”), under which we may offer and sell common shares, from time to time.
On December 23, 2019, we filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission “the “SEC”) (File No. 333-235674) and accompanying base prospectus, which was declared effective by the SEC on January 10, 2020 (the “January 2020 Registration Statement”), for the offer and sale of up to $150.0 million of our securities. The January 2020 Registration Statement also contained a prospectus supplement for an offering of up to $50.0 million of our common shares pursuant to the Sale Agreement. This prospectus supplement was fully utilized during 2020. On August 7, 2020, we filed a prospectus supplement with the SEC (the “August 2020 Prospectus Supplement”) for an offering of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the January 2020 Registration Statement. 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. 333-248467) and accompanying base prospectus, which was declared effective by the SEC on October 22, 2020 (the “October 2020 Registration Statement”), for the offer and sale of up to $200.0 million of our securities. On March 4, 2021, we filed a prospectus supplement with the SEC for an offering of up to an additional $75.0 million of our common shares pursuant to the Sale Agreement under the October 2020 Registration Statement, which we fully utilized during 2021. 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. 333-260782) and accompanying base prospectus, which was declared effective by the SEC on November 18, 2021 (the “November 2021 Registration Statement”), for the offer and sale of up to $250.0 million of our securities.
On March 3, 2022, we filed a prospectus supplement with the SEC (the “March 2022 Prospectus Supplement”) for the offer and sale of up to an additional $100.0 million of our common shares pursuant to the Sale Agreement under: (i) the January 2020 Registration Statement; (ii) the October 2020 Registration Statement; and (iii) the November 2021 Registration Statement, 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
We have a royalty entitlement on ONPATTRO, a drug developed by Alnylam that incorporates our LNP technology and was approved by the FDA and the EMA during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. In July 2019, we sold a portion of this royalty interest to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert to us. 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 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. In addition to the royalty from the Alnylam LNP license agreement, we are also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. 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 imdusiran for the treatment or prevention of cHBV in the Territory.
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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 imdusiran in the Territory.
Cash requirements
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. In particular, our funding needs may vary depending on a number of factors including:
• revenue earned from our legacy collaborative partnerships and licensing agreements, including potential royalty payments from Alnylam’s ONPATTRO;
• revenue earned from ongoing collaborative partnerships, including milestone and royalty payments;
• the potential requirement to make milestone payments related to our legacy agreements;
• the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships or licensing arrangements to advance our product candidates;
• delays in the development of our product candidates due to preclinical and clinical findings;
• our decisions to in-license or acquire additional products, product candidates or technology for development;
• our ability to attract and retain development or commercialization partners, and their effectiveness in carrying out the development and ultimate commercialization of one or more of our product candidates;
• whether batches of product candidates that we manufacture fail to meet specifications resulting in clinical trial delays and investigational and remanufacturing costs;
• the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and product candidates;
• competing products, product candidates and technological and market developments; and
• costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including litigation and arbitration arising in the course of our business activities.
We intend to seek funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies and government grants and contracts. There can be no assurance that funding will be available at all or on acceptable terms to permit further development of our research and development programs.
If adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our research or development programs or reduce expenses associated with our non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information under this item is not required to be provided by smaller reporting companies.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.