What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-05 compared with 2023-03-02 · 137 added, 192 removed, 629 unchanged (34% of the section changed)

28 unchanged sentences

Critical Audit Matters

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

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

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

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

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

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

Valuation of contingent consideration liability

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Auditing the valuation of the contingent consideration liability was complex and highly judgmental due to the significant estimation required in determining the fair value.

In particular, the fair value estimate was sensitive to significant assumptions such as the probability of successfully commercializing a treatment for the hepatitis B virus, the timing and amount of future revenues related to commercial sales, and the discount rate.

In particular, the fair value estimate was sensitive to significant assumptions such as the probability of successfully commercializing a treatment for the hepatitis B virus, the timing of future revenues related to commercial sales, and the discount rate.

These assumptions are affected by expectations about future industry, regulatory, market or economic conditions and are forward-looking and inherently uncertain.

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

Collaboration and License Agreement with Qilu

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

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

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

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

The Company identified two commitments under the arrangement:

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

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

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

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

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

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

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

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

/s/ Ernst & Young LLP

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Issued and outstanding:

157,455,363 (December 31, 2021:

144,987,736 )

169,867,414 and 157,455,363 as of December 31, 2023 and 2022, respectively.

1,349,821 1,318,737

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Loss from operations ( 78,103 ) ( 65,456 )

Other income (loss)

Interest income 5,688 2,192

1 unchanged sentence

Foreign exchange (loss) gain 25 ( 22 )

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

Total other income 5,254 444

Loss before income taxes ( 72,849 ) ( 65,012 )

1 unchanged sentence

Net loss $ ( 72,849 ) $ ( 69,456 )

Items applicable to preferred shares

Dividend accretion of convertible preferred shares — ( 12,139 )

Net loss attributable to common shares $ ( 69,456 ) $ ( 88,386 )

Loss per share

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Comprehensive loss

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

Unrealized gain/(loss) on available-for-sale securities $ 2,067 $ ( 2,153 )

Comprehensive loss $ ( 70,782 ) $ ( 71,609 )

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(Expressed in thousands of US Dollars, except share and per share amounts)

Convertible Preferred Shares Common Shares

Number of shares Share capital Number of shares Share capital Additional paid-in capital Deficit Accumulated other comprehensive loss Total stockholders' equity

Common Shares

Number of shares Share capital Additional paid-in capital Deficit Accumulated other comprehensive loss Total stockholders' equity

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

Accretion of accumulated dividends on Preferred Shares — 12,139 — — — ( 12,139 ) — —

Conversion of Preferred Shares into Common Shares ( 1,164,000 ) ( 161,547 ) 22,833,922 161,547 — — — —

Stock-based compensation — — 7,182 — — 7,182

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

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

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

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Stock-based compensation — — 9,301 — — 9,301

Certain fair value adjustments to liability stock option awards — — — — 26 — — 26

Issuance of common shares pursuant to the Open Market Sales Agreement 12,020,257 29,852 — — — 29,852

Issuance of common shares pursuant to exercise of ESPP 290,438 774 ( 239 ) — — 535

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

Issuance of common shares pursuant to exercise of stock options 101,356 458 ( 198 ) — — 260

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

Unrealized gain on available-for-sale securities — — — — 2,067 2,067

Net loss — — — ( 72,849 ) — ( 72,849 )

9 unchanged sentences

Depreciation 1,404 1,427

Gain on sale of property and equipment ( 20 ) —

Stock-based compensation expense 9,301 7,182

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Disposition of investments in marketable securities 132,270 56,000

Proceeds from sale of property and equipment 20 —

Acquisition of property and equipment ( 1,008 ) ( 512 )

Net cash used in investing activities ( 74,942 ) ( 12,678 )

Net cash provided by/(used in) investing activities 50,773 ( 74,942 )

FINANCING ACTIVITIES

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

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

Issuance of common shares pursuant to the Open Market Sale Agreement 29,852 20,324

Issuance of common shares pursuant to exercise of stock options 260 122

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Effect of foreign exchange rate changes on cash and cash equivalents 25 ( 22 )

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

Decrease in cash and cash equivalents $ ( 4,491 ) $ ( 78,506 )

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

Cash and cash equivalents, end of period $ 26,285 $ 30,776

Supplemental cash flow information

Preferred shares dividends accrued $ — $ ( 12,139 )

See accompanying notes to the consolidated financial statements.

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Description of the Business

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

The Company’s current focus areas include Hepatitis B virus (“HBV”), SARS-CoV-2 and other coronaviruses.

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

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

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

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

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

Arbutus Biopharma Corporation (“Arbutus” or the “Company”) is a clinical-stage biopharmaceutical company leveraging its extensive virology expertise to identify and develop novel therapeutics with distinct mechanisms of action, which can potentially be combined to provide a functional cure for patients with chronic hepatitis B virus (cHBV) infection.

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

The Company’s 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.

At December 31, 2023, the Company had an aggregate of $ 132.3 million in cash, cash equivalents and investments in marketable securities.

The Company had no outstanding debt as of December 31, 2023.

The Company believes it has sufficient cash resources to fund its operations for at least the next 12 months.

The Company believes it has sufficient cash, cash equivalents and investments in marketable securities to fund its operations for at least the next 12 months.

The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations.

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It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future.

COVID-19 Impact

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

Measures implemented around the world in attempts to slow the spread of COVID-19 have had, and will likely continue to have, a major impact on clinical development, at least in the near-term, including shortages and delays in the supply chain, and prohibitions in certain countries on enrolling patients in new clinical trials.

While the Company has been able to progress with its clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact the Company’s plans and timelines in the future.

Significant accounting policies

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

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

with Arbutus Biopharma, Inc.

continuing its legal existence and Arbutus Biopharma US Holdings, Inc.

ceasing to exist.

Use of estimates

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Actual results could significantly differ from those estimates.

Significant estimates in the accompanying consolidated financial statements impact contingent consideration, income tax recoveries, stock-based compensation, clinical trial accruals and the sale of future royalties liability.

Significant estimates in the accompanying consolidated financial statements impact contingent consideration, stock-based compensation, clinical trial accruals and the sale of future royalties liability.

Cash and cash equivalents

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Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research, development and manufacturing services, milestone payments, and royalties.

The Company’s collaboration agreements fall under the scope of ASC Topic 808, Collaborative Arrangements , (“ASC 808”) when both parties are active participants in the arrangement and are exposed to significant risks and rewards.

For certain arrangements under the scope of ASC 808, the Company analogizes to ASC 606 for some aspects, including for the delivery of a good or service (i.e., a unit of account).

ASC 606, Revenue From Contracts with Customers (“ASC 606”) requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model:

The Company’s collaboration agreements fall under the scope of Accounting Standards Codification (ASC) Topic 808, Collaborative Arrangements (ASC 808), when both parties are active participants in the arrangement and are exposed to significant risks and rewards.

For certain arrangements under the scope of ASC 808, the Company analogizes to ASC Topic 606, Revenue from Contracts with Customers (ASC 606), for some aspects, including for the delivery of a good or service (i.e., a unit of account).

ASC 606 requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model:

(i) identify contract(s) with a customer;

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Research and development costs

Research and development costs include compensation and benefits for research and development employees, an allocation of overhead expenses and costs associated with materials and supplies used in clinical trials and research and development, outside contracted services including clinical and pre-clinical study costs, legal, regulatory compliance and fees paid to consultants or outside parties for research and development activities performed on the Company’s behalf.

Research and development costs include compensation and benefits for research and development employees, an allocation of overhead expenses and costs associated with materials and supplies used in clinical trials and research and development, outside contracted services including clinical and preclinical study costs, legal, regulatory compliance and fees paid to consultants or outside parties for research and development activities performed on the Company’s behalf.

Such costs are charged to expense in the period in which they are incurred.

Research and development costs that are paid in advance of performance or receipt are recorded as prepaid expense and are amortized over the period that the services are performed.

Net loss attributable to common shareholders per share

Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding.

Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share for the years ended December 31, 2022 and 2021, since the effect of including potential common shares would be anti-dilutive.

For the year ended December 31, 2022, potential common shares of 15.5 million pertaining to outstanding stock options were excluded from the calculation of net loss attributable to common shareholders per share.

Net loss per share

Net loss per share is calculated based on the weighted average number of common shares outstanding.

Diluted net loss per share does not differ from basic net loss per share for the years ended December 31, 2023 and 2022, since the effect of including potential common shares would be anti-dilutive.

For the year ended December 31, 2023, potential common shares of 20.4 million pertaining to outstanding stock options and unvested restricted stock units were excluded from the calculation of net loss per share.

A total of approximately 15.5 million outstanding stock options were excluded from the calculation for the year ended December 31, 2022.

On October 18, 2021, the Company’s outstanding Series A participating convertible preferred shares (“ Preferred Shares”) were converted into 22,833,922 common shares.

Prior to that date, the Company followed the two-class method when computing net loss attributable to common shareholders per share as the Preferred Shares, as further described in note 12, met the definition of participating securities.

The Company’s Preferred Shares entitled the holders to participate in dividends but did not require the holders to participate in losses of the Company.

Accordingly, net losses attributable to holders of the Company’s common shares were not allocated to holders of the Preferred Shares.

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

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Assumptions on the dividend yield are based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.

Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards and upon the Company’s determination that the achievement of such performance conditions is probable for performance-based awards.

The restricted stock units granted by the Company are measured at the grant-date price of the Company’s common shares.

Expense is recognized over the vesting period for all awards and commences at the grant date for time-based awards.

Forfeitures are recognized as they occur.

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Expense is recognized over the period the employee contributes to the plan through payroll deductions.

The Company accounts for liability-classified stock option awards (“liability options”) under ASC 718 - Compensation - Stock Compensation (“ASC 718”), under which awards of options that provide for an exercise price that is not denominated in:

(a) the currency of a market in which a substantial portion of the Company’s equity securities trades, (b) the currency in which the employee’s pay is denominated, or (c) the Company’s functional currency, are required to be classified as liabilities.

As of January 1, 2016, the Company changed its functional currency to US dollars, which resulted in certain stock option awards with exercise prices denominated in Canadian dollars having an exercise price that is not denominated in the Company’s functional currency.

As such, the historic equity classification of these stock option awards changed to liability classification effective January 1, 2016.

The change in classification resulted in reclassification of these awards from additional paid-in capital to a liability.

Liability options are re-measured to their fair values at each reporting date with changes in the fair value recognized in share-based compensation expense or additional paid-in capital until settlement or cancellation.

Under ASC 718, when an award is reclassified from equity to liability, if at the reclassification date the original vesting conditions are expected to be satisfied, then the minimum amount of compensation cost to be recognized is based on the grant date fair value of the original award.

Fair value changes below this minimum amount are recorded in additional paid-in capital.

Preferred Shares

The Company accounted for its Preferred Shares under ASC 480 – Distinguishing Liabilities from Equity (“ASC 480”), which provides guidance for equity instruments with conversion features.

The Company classified the Preferred Shares in its consolidated balance sheet wholly as equity, with no bifurcation of conversion feature from the host contract, given that the Preferred Shares could not be cash-settled and the redemption features, which included a fixed conversion ratio with predetermined timing and proceeds, were within the Company’s control.

The Company accrued for the 8.75 % per annum compounding accrual at each reporting period-end date as an increase to share capital, and an increase to deficit.

The Company’s Preferred Shares were converted into 22,833,922 common shares on October 18, 2021.

Segment information

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2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments (ASC 326).

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

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

Measurement of Credit Losses on Financial Instruments (ASC 326), which changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities.

The Company implemented the guidance as of January 1, 2023 and there was not a material impact on its results of operations or financial position.

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures (ASC 2023-07), which requires disclosure of significant segment expenses and other segment items on an annual and interim basis under ASC 280.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods beginning after December 15, 2024.

Early adoption is permitted and the amendments in this ASU should be applied on a retrospective basis to all periods presented.

The Company has not determined the impact ASU 2023-07 may have on the Company’s financial statement disclosures.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures (ASU 2023-09), which improves income tax disclosures by requiring:

(1) consistent categories and greater disaggregation of information in the rate reconciliation, and (2) income taxes paid disaggregated by jurisdiction.

It also includes certain other amendments to improve the effectiveness of income tax disclosures.

ASU 2023-09 is effective for annual periods beginning after December 15, 2024.

Early adoption is permitted.

The ASU indicates that all entities will apply the guidance prospectively with an option for retroactive application to each period presented in the financial statements.

The Company has not determined the impact ASU 2023-09 may have on the Company’s financial statement disclosures.

Fair value measurements

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The carrying values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments.

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

To determine the fair value of the contingent consideration (note 10), the Company uses a probability weighted assessment that considers the likelihood of successfully commercializing a treatment for cHBV, the timing of future revenues related to commercial sales, and a probability adjusted discount rate that reflects the early stage nature of the development program, time to complete the program development, and overall biotech indices.

The Company determined that the fair value of the contingent consideration was $ 7.6 million as of December 31, 2023 and the increase of $ 0.1 million has been recorded within operating expenses in the statement of operations and comprehensive loss for the year ended December 31, 2023.

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

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

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

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

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Total $ 26,285 $ 106,002 $ — $ 132,287

Liability-classified options $ — $ — $ 1 $ 1

Contingent consideration — — 7,600 7,600

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

Liability-classified options $ — $ — $ 26 $ 26

Contingent consideration — — 7,531 7,531

Total $ — $ — $ 7,531 $ 7,531

The following table presents the changes in fair value of the Company’s liability-classified stock option awards:

Liability at beginning of the period Fair value of liability-classified options exercised in the period Decrease in fair value of liability Liability at end of the period

(in thousands)

Year ended December 31, 2022 $ 26 $ — $ ( 25 ) $ 1

Year ended December 31, 2021 $ 250 $ ( 96 ) $ ( 128 ) $ 26

The following table presents the changes in fair value of the Company’s contingent consideration:

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US corporate bonds 71,045 30 ( 189 ) 70,886

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

Yankee bonds 2,000 — ( 17 ) 1,983

US government bonds 9,001 — ( 26 ) 8,975

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Investments in marketable long-term securities

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

US corporate bonds $ 6,273 $ 18 $ ( 7 ) $ 6,284

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

Total $ 6,273 $ 18 $ ( 7 ) $ 6,284

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

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

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

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

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

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

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

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

Total $ 38,129 $ — $ ( 766 ) $ 37,363

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As of December 31, 2022, the Company’s $ 116.1 million of short-term marketable securities had contractual maturities of less than one year, while the Company’s $ 37.4 million of long-term marketable securities had maturities of more than one year, but less than five years.

At December 31, 2023 and December 31, 2022, the Company had 37 and 53 , respectively, available-for-sale investment debt securities in an unrealized loss position without an allowance for credit losses.

Unrealized losses on the Company’s investments in debt securities have not been recognized into income as the issuers’ bonds are of high credit quality and the decline in fair value is largely due to market conditions and/or changes in interest rates.

The Company does not intend to sell and it is more likely than not that the Company will not be required to sell the securities prior to the anticipated recovery of their amortized cost basis.

The issuers continue to make timely interest payments on the bonds.

The fair value is expected to recover as the bonds approach maturity.

Accrued interest receivable on investments in marketable securities of $ 0.6 million at both December 31, 2023 and December 31, 2022 is included in prepaid expenses and other current assets.

The Company had realized gains on investments of less than $ 0.1 million and zero for the years ended December 31, 2023 and 2022, respectively.

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Operating lease right-of-use assets and lease liabilities are recognized based on the present value of lease payments over the lease term.

The leases do not provide an implicit rate so in determining the present value of lease payments, the Company utilized its incremental borrowing rate for the applicable lease, which was 9.0 % for the 701 Veterans Circle lease and 7.6 % for the 626 Jacksonville Road lease.

The leases do not provide an implicit rate so in determining the present

value of lease payments, the Company utilized its incremental borrowing rate for the applicable lease, which was 9.0 % for the 701 Veterans Circle lease and 7.6 % for the 626 Jacksonville Road lease.

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

During each of the years ended December 31, 2022 and 2021, the Company incurred total operating lease expenses of $ 0.7 million, which included lease expenses associated with fixed lease payments of $ 0.6 million, and variable payments associated with common area maintenance and similar expenses of $ 0.1 million.

During the years ended December 31, 2023 and 2022, the Company incurred total operating lease expenses of $ 0.6 million and $ 0.7 million, respectively, which included lease expenses associated with fixed lease payments of $ 0.5 million and $ 0.6 million, respectively, and variable payments associated with common area maintenance and similar expenses were $ 0.1 million in both years.

Weighted average remaining lease term and discount rate were as follows:

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$ 15,871 $ ( 10,801 ) $ 5,070

Depreciation expense for the years ended December 31, 2022 and 2021 was $ 1.4 million and $ 1.8 million, respectively.

Depreciation expense for the years ended December 31, 2023 and 2022 was $ 1.4 million for both years.

Accounts payable and accrued liabilities

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Total $ 10,271 $ 16,029

In connection with the Company’s decision in September 2023 to focus its pipeline on its HBV clinical stage compounds and discontinue certain research programs, the Company took steps to streamline the organization and reduced its workforce by 24 % in November 2023, primarily affecting the research function.

As a result, the Company incurred a one-time restructuring charge of approximately $ 1.1 million in the fourth quarter 2023, of which $ 0.2 million was accrued and included in payroll accruals as of December 31, 2023.

Sale of future royalties

On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with the Ontario Municipal Employees Retirement System (“OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO, an RNA interference therapeutic currently being sold by Alnylam.

On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the Agreement) with the Ontario Municipal Employees Retirement System (OMERS), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO ® (Patisiran) (ONPATTRO), an RNA interference therapeutic currently being sold by Alnylam Pharmaceuticals, Inc.

ONPATTRO utilizes Arbutus’s LNP technology, which was licensed to Alnylam pursuant to the Cross-License Agreement, dated November 12, 2012, by and between the Company and Alnylam (the LNP License Agreement).

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OMERS has assumed the risk of collecting up to $ 30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties.

From the inception of the royalty sale through December 31, 2022, an aggregate of $ 18.9 million of royalties have been collected by OMERS.

The $ 30 million in royalties to be paid to OMERS is accounted for as a liability, with the difference between the liability and the gross proceeds received accounted for as a discount.

The discount, as well as $ 1.5 million of transaction costs, will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period.

Management estimated an effective annual interest rate of approximately 8 %.

As of December 31, 2023, the Company estimated an effective annual interest rate of approximately 2.1 %.

Over the course of the Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of forecasted royalty revenue.

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As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability is effectively repaid over the life of the Agreement.

From the inception of the royalty sale through December 31, 2023, an aggregate of $ 22.7 million of royalties have been collected by OMERS.

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

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Contingencies and commitments

Arbitration with the University of British Columbia

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC.

These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007.

The Company has granted sublicenses under the UBC license to certain third parties, including Alnylam.

In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties.

In August 2019, the arbitrator issued its decision for the second phase of the arbitration, awarding UBC $ 5.9 million, which included interest of approximately $ 2.6 million.

The Company paid the $ 5.9 million award to UBC in September 2019 and paid an additional $ 0.2 million for costs and attorneys’ fees in March 2021, and this matter is now fully resolved.

On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it was due royalties of $ 2.0 million plus interest arising from the Company’s sale to OMERS of part of its royalty interest on future global net sales of ONPATTRO, currently being sold by Alnylam.

Oral hearings for this matter were held in April 2022 and, on July 11, 2022, the arbitrator issued his decision fully dismissing UBC’s claim for royalties.

As a result, no payments are owed to UBC.

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

This matter is now fully resolved.

Stock Purchase Agreement with Enantigen

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The amount paid to Enantigen’s selling shareholders could be up to an additional $ 102.5 million in sales performance milestones in connection with the sale of the first commercialized product by Arbutus for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $ 1.0 million that, if paid, would be offset against Arbutus’ milestone payment obligations.

Certain other development milestones related to the acquisition were tied to programs which are no longer under development by Arbutus, and therefore the contingency related to those development milestones is zero .

Certain other

development milestones related to the acquisition were tied to programs which are no longer under development by Arbutus, and therefore the contingency related to those development milestones is zero .

The contingent consideration is a financial liability and is measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statement of operations and comprehensive loss (note 3).

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Qilu Pharmaceuticals Co, Ltd.

In December 2021, the Company entered into a technology transfer and exclusive licensing agreement (the “License Agreement”) with Qilu, pursuant to which the Company granted Qilu an exclusive (except as to certain retained rights), sublicensable, royalty-bearing license, under certain intellectual property owned by the Company, to develop, manufacture and commercialize AB-729, including pharmaceutical products that include AB-729, for the treatment or prevention of hepatitis B in China, Hong Kong, Macau and Taiwan (the “Territory”).

In December 2021, the Company entered into a technology transfer and exclusive licensing agreement (the License Agreement) with Qilu, pursuant to which the Company granted Qilu an exclusive (except as to certain retained rights), sublicensable, royalty-bearing license, under certain intellectual property owned by the Company, to develop, manufacture and commercialize 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 the Company, Qilu paid the Company a one-time upfront cash payment of $ 40.0 million on January 5, 2022 and agreed to pay the Company milestone payments totaling up to $ 245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and commercialization milestones (the Milestone Payments).

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

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

In addition, Qilu also agreed to pay the Company double digit royalties into the low twenties percent based upon annual net sales of imdusiran in the Territory.

The royalties are payable on a product-by-product and region-by-region basis, subject to certain limitations.

Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing AB-729 for the treatment or prevention of hepatitis B in the Territory.

Qilu is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize at least one AB-729 product candidate in the Territory.

Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing imdusiran for the treatment or prevention of hepatitis B in the Territory.

Qilu is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize at least one imdusiran product candidate in the Territory.

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

Both parties also have entered into a supply agreement and related quality agreement pursuant to which the Company will manufacture or have manufactured and supply Qilu with all quantities of AB-729 necessary for Qilu to develop and commercialize in the Territory until the Company has completed manufacturing technology transfer to Qilu and Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture AB-729 in the Territory.

Both parties also have entered into a supply agreement and related quality agreement pursuant to which the Company will manufacture or have manufactured and supply Qilu with all quantities of imdusiran necessary for Qilu to develop and commercialize in the Territory until the Company has completed manufacturing technology transfer to Qilu and Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture imdusiran in the Territory.

Concurrent with the execution of the license agreement, the Company entered into a Share Purchase Agreement (the Share Purchase Agreement) with Anchor Life Limited, a company established pursuant to the applicable laws and regulations of Hong Kong and an affiliate of Qilu (the Investor), pursuant to which the Investor purchased 3,579,952 of the Company’s common shares, without par value (the Common Shares), at a purchase price of USD $ 4.19 per share, which was a 15 % premium on the thirty-day average closing price of the Common Shares as of the close of trading on December 10, 2021 (the Share Transaction).

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

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

and (ii) drug supply

obligations and manufacturing technology transfer (the Manufacturing Obligations).

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

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

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

The Company determined the initial transaction price of the combined performance obligation to be $ 50.4 million, which includes the $ 40.0 million upfront fee, $ 4.4 million of withholding taxes paid by Qilu on behalf of the Company and the premium paid for the Share Transaction of $ 4.1 million.

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

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

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

Twelve Months Ended December 31, 2022

The following table outlines the transaction price and the changes to the related liability balance:

Transaction Price Cumulative Collaboration Revenue Recognized Deferred License Revenue

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Total deferred license revenue $ 11,791

Less current portion of deferred license revenue 16,456

Non-current deferred license revenue $ 5,999

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

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

The Company recognized $ 10.7 million of revenue based on labor hours expended by the Company on its Manufacturing Obligations during the twelve months ended December 31, 2023, and $ 26.0 million during the twelve months ended December 31, 2022.

As of December 31, 2023, the balance of the deferred license revenue was $ 11.8 million.

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

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In August 2020, the Company entered into a clinical collaboration agreement with Assembly Biosciences, Inc.

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

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

Assembly has completed enrollment in the clinical trial.

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

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

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

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

Accordingly, the Company and Assembly mutually agreed to discontinue the clinical trial following completion of the final, on-

treatment visit at week 48.

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

The Company incurred $ 1.3 million and $ 2.8 million of costs related to the collaboration during the years ended December 31, 2023 and 2022, respectively, and reflected those costs in research and development in the statements of operations and comprehensive loss.

Except to the extent necessary

to carry out Assembly’s responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Assembly for use of the Company’s AB-729 compound.

Vaccitech plc

In July 2021, the Company entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate AB-729 followed by Vaccitech’s VTP-300, a proprietary T-cell stimulating antigen-specific immunotherapeutic, in NrtI-suppressed patients with cHBV.

The Company is responsible for managing this Phase 2a proof-of-concept clinical trial, subject to oversight by a joint development committee comprised of representatives from the Company and Vaccitech.

The Company and Vaccitech retain full rights to their respective product candidates and will split all costs associated with the clinical trial.

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

and Proteros biostructures GmbH

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

(“X-Chem”) and Proteros biostructures GmbH (“Proteros”) to focus on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (M pro ).

The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks.

This collaboration brought together the Company’s expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2.

The collaboration allows for the rapid screening of one of the largest small molecule libraries against M pro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize M pro inhibitors to progress to clinical candidates.

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

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

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

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

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

Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Assembly for use of the Company’s imdusiran compound.

Barinthus Biotherapeutics plc

In July 2021, the Company entered into a clinical collaboration agreement with Barinthus Biotherapeutics plc (Barinthus), formerly Vaccitech plc, to evaluate imdusiran followed by Barinthus’ VTP-300, an HBV antigen specific immunotherapy, and ongoing nucleos(t)ide analogue therapy in patients with cHBV infection.

Recently, the clinical trial was amended and is now dosing patients in an additional treatment arm that includes an approved PD-1 monoclonal antibody inhibitor, nivolumab (Opdivo ® ).

The Company and Barinthus retain full rights to their respective product candidates and will split all costs associated with the clinical trial.

The Company incurred $ 1.8 million and $ 0.8 million of costs related to the collaboration, net of Barinthus’s 50 % share, during the years ended December 31, 2023 and 2022, respectively, and reflected those net costs in research and development in the statements of operations and comprehensive loss.

Royalty Entitlements

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Qilu Pharmaceutical Co., Ltd.

10,666 26,015

Other milestone and royalty payments — 35

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

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

On March 4, 2021, the Company filed a prospectus supplement with the SEC (the “March 2021 Prospectus Supplement”) in connection with the offering of up to an additional $ 75.0 million of its common shares pursuant to the Sale Agreement under October 2020 Registration Statement.

On March 4, 2021, the Company filed a

prospectus supplement with the SEC (the March 2021 Prospectus Supplement) in connection with the offering of up to an additional $ 75.0 million of its common shares pursuant to the Sale Agreement under October 2020 Registration Statement.

The March 2021 Prospectus Supplement was fully utilized during 2021.

On October 8, 2021, the Company filed a prospectus supplement with the SEC (the October 2021 Prospectus Supplement) in connection with the offering of up to an additional $ 75.0 million of its common shares pursuant to the Sale Agreement under the October 2020 Registration Statement.

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, the Company 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.

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

During the years ended December 31, 2023 and 2022, the Company issued 12,020,257 and 8,645,426 common shares, respectively, under the Sale Agreement, resulting in net proceeds of approximately $ 29.9 million and $ 20.3 million, respectively.

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

Series A Preferred Shares

In October 2017, the Company entered into a subscription agreement with Roivant for the sale of Preferred Shares to Roivant for gross proceeds of $ 116.4 million.

The Preferred Shares were non-voting and were convertible into common shares at a conversion price of $ 7.13 per share (which represented a 15 % premium to the closing price of $ 6.20 per share).

The purchase price for the Preferred Shares plus an amount equal to 8.75 % per annum, compounded annually, was subject to mandatory conversion into common shares on October 18, 2021, at which time the Preferred Shares were converted into 22,833,922 common shares and both the lockup and standstill periods that Roivant had previously agreed to expired.

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

The Company recorded the Preferred Shares wholly as equity with no bifurcation of conversion feature from the host contract, given that the Preferred Shares could not be cash settled and the redemption features were within the Company’s control, which included a fixed conversion ratio with predetermined timing and proceeds.

The Company accrued for the 8.75 % per annum

compounding coupon at each reporting period end date as an increase to share capital, and an increase to deficit (see statement of stockholder’s equity).

As of December 31, 2023, there was approximately $ 70.9 million remaining available under the March 2022 Prospectus Supplement, pursuant to the November 2021 Registration Statement.

Stock-based compensation

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the 2016 Omnibus Share and Incentive Plan (the 2016 Plan), the 2011 Omnibus Share Compensation Plan (the 2011 Plan);

the 2019 inducement grant;

the 2023 and 2019 inducement grants;

and the OnCore Option Plan.

During the year ended December 31, 2023, the Company had restricted stock units outstanding under the 2016 Plan.

As of December 31, 2023, the aggregate number of shares authorized for awards under all Plans was 32,290,202 .

As of December 31, 2022, the Company had 15,450,598 options outstanding and 8,842,931 awards available for issuance under the Plans.

As of December 31, 2023, the Company had 19,164,765 options and 1,231,450 restricted stock units outstanding and 7,672,299 awards available for issuance under the Plans.

The Company issues new common shares of stock to settle options exercised.

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

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

In July 2023, the Company provided an inducement grant of 500,000 options to its newly hired General Counsel and Chief Compliance Officer and are governed by substantially the same terms as the 2016 Plan.

Hereafter, information on options governed by the 2016 Plan, the 2011 Plan and the 2023 and 2019 inducement grants (the Arbutus Plans) is presented on a consolidated basis as the terms of the plans are similar.

Information on the OnCore Option Plan is presented separately.

Stock options under the Arbutus Plans

Equity-classified stock options under the Arbutus Plans

The following table summarizes activity related to the Company’s equity-classified stock options, including its performance options, for the year ended December 31, 2023:

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Balance as of December 31, 2023 19,064,165 $ 3.47 12,331,889 6,732,276 $ 2.25

The intrinsic value of options exercised under the Arbutus Plans during 2022 and 2021 are $ 0.1 million and $ 0.2 million, respectively.

The intrinsic value of options exercised under the Arbutus Plans during 2023 and 2022 are less than $ 0.1 million and $ 0.1 million, respectively.

The following table summarizes additional information related to the Company’s equity-classified stock options, including its performance options, as of December 31, 2023:

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As of December 31, 2023, the Company also has 20,000 liability option awards outstanding with a weighted average exercise price of $ 12.10 and 80,600 stock option awards outstanding under the OnCore Option Plan with a weighted average exercise price of $ 0.56 .

Restricted Stock Units under the Arbutus Plans

The following table summarizes activity related to the Company’s restricted stock units, for the year ended December 31, 2023:

Restricted Stock Units Outstanding Vested Restricted Stock Units Non-Vested Restricted Stock Units

Number Weighted-Average Grant-Date Fair Value Number Number Weighted-Average Grant-Date Fair Value

Balance as of December 31, 2022 — $ — — — $ —

Restricted stock units granted 1,344,550 $ 2.90 — 1,344,550 $ 2.90

Restricted stock units vested — $ — — — $ —

Restricted stock units forfeited, canceled or expired ( 113,100 ) $ — — ( 113,100 ) $ 2.90

Restricted stock units vested — $ — — — $ —

Balance as of December 31, 2023 1,231,450 $ 2.90 — 1,231,450 $ 2.90

The restricted stock units vest over three years in equal annual installments beginning one year from the grant date.

Employee Stock Purchase Plan

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As of December 31, 2023, there were 842,001 shares remaining for issuance under the ESPP.

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

For both of the years ended December 31, 2023 and 2022, the Company recognized $ 0.2 million of stock-based compensation expense related to the ESPP.

The fair value of the right to acquire stock at a discounted price under the ESPP is calculated using the Black-Scholes valuation model and recorded as stock-based compensation.

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Stock-based compensation expense

Total stock-based compensation expense was comprised of:

(1) vesting of options awarded to employees under the Arbutus and OnCore Plans calculated in accordance with the fair value method as described above;

(2) fair value adjustments for the Company’s liability-classified stock options;

and (3) amortization of compensation cost related to the ESPP.

Total stock-based compensation expense was comprised of vesting of options and restricted stock units awarded to employees under the Arbutus and OnCore Plans calculated in accordance with the fair value method as described above and amortization of compensation cost related to the ESPP.

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

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Total $ 9,301 $ 7,182

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

At December 31, 2023, there remained $ 10.6 million and $ 1.9 million of unrecognized compensation expense related to unvested equity employee stock options and restricted stock units, respectively, to be recognized as expense over a weighted-average periods of approximately 2.3 years and 2.1 years, respectively.

For each of the years ended December 31, 2023 and 2022, the Company had zero performance-based stock compensation expense.

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Permanent and other differences 198 869

Federal R&D credit ( 1,741 ) —

Foreign tax credit applied — ( 4,444 )

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Income tax expense $ — $ 4,444

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

As of December 31, 2023, the Company had investment tax credits available to reduce Canadian federal income taxes of $ 7.1 million, versus $ 7.2 million as of December 31, 2022, which expire between 2031 and 2037, and provincial income taxes of $ 2.0 million as of both December 31, 2023 and 2022, which expire between 2024 and 2027.

The investment tax credits are accounted for under a flow-through method.

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As of December 31, 2023, the Company had scientific research and experimental development expenditures of $ 61.9 million available for indefinite carry-forward, versus $ 62.2 million as of December 31, 2022.

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

As of December 31, 2022 and December 31, 2021, the Company had $ 11.7 million of net operating losses due to expire in 2035 which can be used to offset future taxable income in the United States.

Future use of a portion of the United States loss carryforwards are subject to limitations under Internal Revenue Code Section 382.

The Company also had net operating

losses of $ 148.1 million as of both December 31, 2023 and 2022, which are due to expire between 2035 and 2038 and which can be used to offset future taxable income in Canada.

As of December 31, 2023 and 2022, the Company had $ 11.7 million of net operating losses due to expire in 2035 which can be used to offset future taxable income in the United States.

United States net operating loss carryforwards arising in 2019 and future periods have an indefinite carryforward period.

As of December 31, 2022 and December 31, 2021, the Company had $ 203.9 million and $ 197.8 million, respectively, of total regular net operating losses which can be used to offset future taxable income in the United States.

As of December 31, 2023, the Company had $ 230.2 million of net operating losses subject to an indefinite carryforward period which can be used to offset future taxable income in the United States.

Future use of a portion of the United States loss carryforwards are subject to limitations under Internal Revenue Code Section 382.

As a result of ownership changes occurring on October 1, 2014 and March 4, 2015, the Company’s ability to use these losses may be limited.

Losses incurred to date may be further limited if a subsequent change in control occurs.

The Company generated $ 28.7 million and $ 93.7 million in pre-tax domestic and foreign losses, respectively, for the year ended December 31, 2022.

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

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

The Company generated $ 14.8 million of pre-tax domestic income and $ 87.7 million in pre-tax foreign losses, respectively, for the year ended December 31, 2023.

The Company generated $ 28.7 million of pre-tax domestic income and $ 93.7 million in pre-tax foreign losses, respectively, for the year ended December 31, 2022.

The Company used accumulated domestic net operating losses to offset the taxable income in both years.

As required by the 2017 Tax Cuts and Jobs Act and effective in 2022, the deferred tax asset as of December 31, 2023 and 2022 included $ 27.3 million and $ 16.5 million, respectively, related to the mandatory capitalization and amortization of research and development expenses.

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

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Deferred tax assets (liabilities):

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

Operating loss carryforwards $ 89,090 $ 83,564

Canadian research and development deductions 16,726 16,791

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Canadian Provincial investment tax credits 1,953 1,953

Equity accounted for investment 3,375 3,375

Equity method investment 3,375 3,375

Federal research and development credits 7,254 3,633

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Net deferred tax assets (liabilities) $ — $ —

Related party transactions

Pursuant to a financing and related subscription agreement, the Company issued Roivant the Preferred Shares in October 2017.

On October 18, 2021, the Preferred Shares were converted into 22,833,922 common shares.

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

See note 12 for further details.

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

See note 5 for further details.

During each of the years ended December 31, 2022 and 2021, Genevant purchased certain administrative and transitional services from the Company totaling less than $ 0.1 million.

These services were billed at agreed hourly rates and reflective of market rates for such services and these costs were netted in research and development in the income statement.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data