What changed in this filing

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Item 1. Financial Statements

2024-05-02 compared with 2023-11-07 · 95 added, 154 removed, 376 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands of U.S.

Dollars, except share and per share amounts)

September 30, 2023 December 31, 2022

Dollars, except share amounts)

March 31, 2024 December 31, 2023

Current assets:

8 unchanged sentences

Right of use asset 1,327 1,416

Other non-current assets 3 103

Total assets $ 150,290 $ 144,401

6 unchanged sentences

Liability related to sale of future royalties 6,396 6,953

Deferred license revenue, non-current — 5,999

Contingent consideration 7,780 7,600

19 unchanged sentences

Dollars, except share and per share amounts)

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

2023 2022 2023 2022

Three Months Ended March 31,

Collaborations and licenses $ 939 $ 5,509

7 unchanged sentences

Loss from operations ( 19,363 ) ( 17,413 )

Other income (loss)

Interest income 1,545 1,268

Interest expense ( 44 ) ( 198 )

Foreign exchange (gain) loss 6 ( 21 ) 11 ( 18 )

Total 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 )

Foreign exchange gain ( 13 ) 4

Total other income 1,488 1,074

Net loss $ ( 17,875 ) $ ( 16,339 )

4 unchanged sentences

Comprehensive loss

Unrealized gain (loss) on available-for-sale securities $ 584 $ ( 907 ) 1,604 ( 2,669 )

Unrealized gain on available-for-sale securities $ 50 $ 854

Comprehensive loss $ ( 17,825 ) $ ( 15,485 )

3 unchanged sentences

(In thousands of U.S.

Dollars, except share and per share amounts)

Dollars, except share amounts)

Common Shares

5 unchanged sentences

Issuance of common shares pursuant to ESPP 121,563 271 ( 60 ) — — 211

Issuance of common shares upon vesting of RSUs 410,482 1,190 ( 1,190 ) — — —

Unrealized gain on available-for-sale securities — — — — 50 50

1 unchanged sentence

Balance March 31, 2024 180,192,227 $ 1,377,315 $ 80,220 $ ( 1,294,527 ) $ ( 48,371 ) $ 114,637

Stock-based compensation expense — — 2,964 — — 2,964

Issuance of common shares pursuant to the Open Market Sale Agreement 1,790,546 4,742 — — — 4,742

Unrealized gain on available-for-sale securities — — — — 166 166

Net loss — — — ( 17,094 ) — ( 17,094 )

Balance June 30, 2023 166,922,739 $ 1,344,195 $ 77,202 $ ( 1,237,236 ) $ ( 49,468 ) $ 134,693

Stock-based compensation expense — — 2,483 — — 2,483

Issuance of common shares pursuant to the Open Market Sale Agreement 633,922 1,396 — — — 1,396

Issuance of common shares pursuant to ESPP 138,586 424 ( 139 ) — — 285

Unrealized gain on available-for-sale securities — — — — 584 584

Net loss — — — ( 20,104 ) — ( 20,104 )

Balance September 30, 2023 167,695,247 $ 1,346,015 $ 79,546 $ ( 1,257,340 ) $ ( 48,884 ) $ 119,337

See accompanying notes to the condensed consolidated financial statements.

ARBUTUS BIOPHARMA CORPORATION

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands of U.S.

Dollars, except share and per share amounts)

Common Shares

2 unchanged sentences

Stock-based compensation expense — — 2,131 — — 2,131

Certain fair value adjustments to liability stock option awards — — 21 — — 21

Issuance of common shares pursuant to the Open Market Sale Agreement 7,423,622 19,862 — — — 19,862

1 unchanged sentence

Issuance of common shares pursuant to ESPP 151,852 397 ( 101 ) — — 296

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

Unrealized loss on available-for-sale securities — — — — ( 1,071 ) ( 1,071 )

Unrealized gain on available-for-sale securities — — — — 854 854

Net loss — — — ( 16,339 ) — ( 16,339 )

Balance March 31, 2023 165,132,193 $ 1,339,453 $ 74,238 $ ( 1,220,142 ) $ ( 49,634 ) $ 143,915

Stock-based compensation expense — — 2,064 — — 2,064

Certain fair value adjustments to liability stock option awards — — 3 — — 3

Issuance of common shares pursuant to exercise of options 66,025 197 ( 84 ) — — 113

Unrealized loss on available-for-sale securities — — — — ( 691 ) ( 691 )

Net loss — — — ( 14,192 ) — ( 14,192 )

Balance June 30, 2022 148,794,262 $ 1,298,409 $ 69,134 $ ( 1,164,304 ) $ ( 50,097 ) $ 153,142

Stock-based compensation expense — — 1,715 — — 1,715

Certain fair value adjustments to liability stock option awards — — 2 — — 2

Issuance of common shares pursuant to the Open Market Sale Agreement 3,832,717 8,973 — — — 8,973

Issuance of common shares pursuant to ESPP 84,723 272 ( 113 ) — — 159

Unrealized loss on available-for-sale securities — — — — ( 907 ) ( 907 )

Net loss — — — ( 17,567 ) — ( 17,567 )

Balance September 30, 2022 152,711,702 $ 1,307,654 $ 70,738 $ ( 1,181,871 ) $ ( 51,004 ) $ 145,517

See accompanying notes to the condensed consolidated financial statements.

2 unchanged sentences

(In thousands of U.S.

Nine Months Ended September 30,

Three Months Ended March 31,

OPERATING ACTIVITIES

2 unchanged sentences

Depreciation 355 334

Gain on sale of property and equipment ( 20 ) ( 20 )

Stock-based compensation expense 2,014 2,131

13 unchanged sentences

Disposition of investments in marketable securities 37,186 37,000

Proceeds from sale of property and equipment 20 20

Acquisition of property and equipment ( 95 ) ( 117 )

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

Net cash provided by investing activities 11,694 16,678

FINANCING ACTIVITIES

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

Issuance of common shares pursuant to the Open Market Sale Agreement 21,765 19,862

3 unchanged sentences

Effect of foreign exchange rate changes on cash and cash equivalents ( 13 ) 4

Decrease in cash and cash equivalents ( 13,245 ) ( 85,278 )

Increase in cash and cash equivalents 16,816 9,798

Cash and cash equivalents, beginning of period 26,285 30,776

7 unchanged sentences

Description of the Business

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

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

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 hepatitis B virus deoxyribonucleic acid, reducing hepatitis B 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.

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

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

Additionally, the Company has identified compounds in its internal PD-L1 portfolio that could be used in oncology indications.

At September 30, 2023, the Company had an aggregate of $ 144.7 million in cash, cash equivalents and investments in marketable securities.

The Company had no outstanding debt as of September 30, 2023.

The Company continues to protect and defend its intellectual property, which is the subject of the Company’s on-going lawsuits against Moderna and Pfizer/BioNTech for their use of its patented LNP technology in their COVID-19 vaccines.

With respect to the Moderna lawsuit, the claim construction hearing occurred on February 8, 2024.

On April 3, 2024, the Court provided its claim construction ruling, in which it construed the disputed claim terms and agreed with Arbutus’ position on most of the disputed claim terms.

Fact discovery is on-going and next steps include expert reports and depositions.

A trial date has been set for April 21, 2025, and is subject to change.

The lawsuit against Pfizer/BioNTech is ongoing and a date for a claim construction hearing has not been set.

At March 31, 2024, the Company had an aggregate of $ 137.9 million in cash, cash equivalents and investments in marketable securities.

The Company had no outstanding debt as of March 31, 2024.

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

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These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2023 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

These unaudited condensed consolidated financial statements include the accounts of Arbutus Biopharma Corporation and its one wholly-owned subsidiary, Arbutus Biopharma, Inc., and reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of September 30, 2023 and December 31, 2022, the Company’s results of operations for the three and nine months ended September 30, 2023 and 2022, and the Company’s cash flows for the nine months ended September 30, 2023 and 2022.

These unaudited condensed consolidated financial statements include the accounts of Arbutus Biopharma Corporation and its one wholly-owned subsidiary, Arbutus Biopharma, Inc., and reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of March 31, 2024 and December 31, 2023, the Company’s results of operations for the three months ended March 31, 2024 and 2023, and the Company’s cash flows for the three months ended March 31, 2024 and 2023.

Such adjustments are of a normal recurring nature.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results for the full year.

The results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results for the full year.

These unaudited condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2023, except as described below under Recent Accounting Pronouncements.

All intercompany balances and transactions have been eliminated.

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

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 three and nine months ended September 30, 2023 and 2022, since the effect of including potential common shares would be anti-dilutive.

For the nine months ended September 30, 2023, potential common shares of 21.0 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 15.9 million outstanding stock options were excluded from the calculation for the nine months ended September 30, 2022.

Diluted net loss per share does not differ from basic net loss per share for the three months ended March 31, 2024 and 2023, since the effect of including potential common shares would be anti-dilutive.

For the three months ended March 31, 2024, potential common shares of 22.6 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 19.7 million outstanding stock options were excluded from the calculation for the three months ended March 31, 2023.

Revenue from collaborations and licenses

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Recent accounting pronouncements

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments - Credit Losses:

In June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses in 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 the financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities.

The adoption of ASC 326 did not have a material impact on the consolidated financial statements.

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

The adoption of ASC 326 did not have a material impact on the Company’s 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 (ASU 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.

The Company has reviewed all other recently issued standards and has determined that such standards will not have a material impact on the Company’s financial statements or do not otherwise apply to the Company’s operations.

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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 8), 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 are discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, the time to complete the program development, and overall biotech indices.

The Company determined the fair value of the contingent consideration was $ 7.4 million as of September 30, 2023 and the decrease of $ 0.2 million from December 31, 2022 has been recorded as a component of total operating expenses in the statements of operations and comprehensive loss for the nine months ended September 30, 2023.

the development program, the time to complete the program development, and overall biotech indices.

The Company determined the fair value of the contingent consideration was $ 7.8 million as of March 31, 2024 and the increase of $ 0.2 million from December 31, 2023 has been recorded as a component of total operating expenses in the statements of operations and comprehensive loss for the three months ended March 31, 2024.

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

2 unchanged sentences

Level 1 Level 2 Level 3 Total

As of September 30, 2023 (in thousands)

As of March 31, 2024 (in thousands)

Cash and cash equivalents $ 43,101 $ — $ — $ 43,101

15 unchanged sentences

(in thousands)

Nine Months Ended September 30, 2023 $ 7,531 $ ( 158 ) $ 7,373

Nine Months Ended September 30, 2022 $ 5,298 $ 624 $ 5,922

Three Months Ended March 31, 2024 $ 7,600 $ 180 $ 7,780

Three Months Ended March 31, 2023 $ 7,531 $ 273 $ 7,804

See Note 4 for additional information regarding the fair value of the Company’s investments in marketable securities.

3 unchanged sentences

Gross Unrealized Loss (1)

As of September 30, 2023 (in thousands)

As of March 31, 2024 (in thousands)

Cash equivalents

Money market $ 14,365 $ — $ — $ 14,365

US treasury bills $ 23,766 $ — $ ( 1 ) $ 23,765

Total $ 38,131 $ — $ ( 1 ) $ 38,130

4 unchanged sentences

Yankee bonds 2,000 — ( 12 ) 1,988

US government bonds 14,985 — ( 141 ) 14,844

Total $ 86,305 $ 2 $ ( 168 ) $ 86,139

7 unchanged sentences

Cash equivalents

Money market $ 23,218 $ — $ — $ 23,218

Money market fund $ 18,029 $ — $ — $ 18,029

Total $ 18,029 $ — $ — $ 18,029

2 unchanged sentences

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

1 unchanged sentence

Investments in marketable long-term securities

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

US treasury bills 25,433 — ( 336 ) 25,097

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

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

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

(1) Gross unrealized gain (loss) is pre-tax and is reported in accumulated other comprehensive loss.

The contractual term to maturity of the $ 116.6 million of short-term marketable securities held by the Company as of September 30, 2023 is less than one year.

As of September 30, 2023, the Company held $ 10.5 million of long-term marketable securities with contractual maturities of more than one year, but less than five years.

The contractual term to maturity of the $ 86.1 million of short-term marketable securities held by the Company as of March 31, 2024 is less than one year.

As of March 31, 2024, the Company held $ 8.7 million of long-term marketable securities with contractual maturities of more than one year, but less than five years.

As of December 31, 2023, the Company’s $ 99.7 million of short-term marketable securities had contractual maturities of less than one year, while the Company’s $ 6.3 million of long-term marketable securities had maturities of more than one year, but less than five years.

At September 30, 2023 and December 31, 2022, the Company had 40 and 53 , respectively, available-for-sale investment debt securities in an unrealized loss position without an allowance for credit losses.

At March 31, 2024 and December 31, 2023, the Company had 42 and 37 , 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.

2 unchanged sentences

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 September 30, 2023 and December 31, 2022 is included in prepaid expenses and other current assets.

The Company had realized gains of less than $ 0.1 million for both the three and nine months ended September 30, 2023 and 2022.

Accrued interest receivable on investments in marketable securities of $ 0.6 million at both March 31, 2024 and December 31, 2023 is included in prepaid expenses and other current assets.

The Company had realized gains of less than $ 0.1 million for the three months ended March 31, 2024 and no realized gains or losses for the same period in 2023.

See Note 3 for additional information regarding the fair value of the Company’s investments in marketable securities.

Investment in Genevant

In April 2018, the Company entered into an agreement with Roivant Sciences Ltd., its largest shareholder, to launch Genevant Sciences Ltd.

(“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by the Company’s lipid nanoparticle (“LNP”) and ligand conjugate delivery technologies.

The Company licensed exclusive rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the “Genevant License”).

In April 2018, the Company entered into an agreement with Roivant Sciences Ltd.

(Roivant), its largest shareholder, to launch Genevant Sciences Ltd.

(Genevant), a company focused on a broad range of RNA-based therapeutics enabled by the Company’s lipid nanoparticle (LNP) and ligand conjugate delivery technologies.

The Company licensed rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties (the Genevant License).

The Company retained all rights to its LNP and conjugate delivery platforms for HBV.

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Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities.

As of September 30, 2023, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16 % of the common equity of Genevant.

As of March 31, 2024, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16 % of the common equity of Genevant.

Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of the following:

September 30, 2023 December 31, 2022

March 31, 2024 December 31, 2023

(in thousands)

3 unchanged sentences

Payroll accruals 1,391 3,349

Other accrued liabilities — 6

Total accounts payable and accrued liabilities $ 8,247 $ 10,271

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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.

As of September 30, 2023, the Company estimated an effective annual interest rate of approximately 2.3 %.

As of March 31, 2024, the Company estimated an effective annual interest rate of approximately 2.0 %.

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 September 30, 2023, the Company has recorded an aggregate of $ 21.5 million of non-cash royalty revenue for royalties earned by OMERS.

From the inception of the royalty sale through March 31, 2024, the Company has recorded an aggregate of $ 23.3 million of non-cash royalty revenue for royalties earned 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.

During the nine months ended September 30, 2023, the Company recognized non-cash royalty revenue of $ 2.7 million and related non-cash interest expense of $ 0.4 million.

During the nine months ended September 30, 2022, the Company recognized non-cash royalty revenue of $ 5.4 million and related non-cash interest expense of $ 1.4 million.

The table below shows the activity related to the net liability for the nine months ended September 30, 2023 and 2022:

Nine Months Ended September 30,

During the three months ended March 31, 2024, the Company recognized non-cash royalty revenue of $ 0.6 million and related non-cash interest expense of less than $ 0.1 million.

During the three months ended March 31, 2023, the Company recognized non-cash royalty revenue of $ 1.2 million and related non-cash interest expense of $ 0.2 million.

The table below shows the activity related to the net liability for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

(in thousands)

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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 statements of operations and comprehensive loss (see Note 3).

The fair value of the contingent consideration was $ 7.4 million as of September 30, 2023.

The fair value of the contingent consideration was $ 7.8 million as of March 31, 2024.

Collaborations, contracts and licensing agreements

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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, 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 nine months ended September 30, 2023:

Nine Months Ended September 30, 2023

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

Transaction Price Cumulative Collaboration Revenue Recognized Deferred License Revenue

3 unchanged sentences

Total deferred license revenue 11,547

Less current portion of deferred license revenue 12,106

Non-current deferred license revenue $ —

The Company recognized $ 3.2 million and $ 10.3 million of revenue based on labor hours expended by the Company on its Manufacturing Obligations during the three and nine months ended September 30, 2023, respectively, and $ 2.4 million and $ 23.0 million during the three and nine months ended September 30, 2022, respectively.

As of September 30, 2023, the balance of the deferred license revenue was $ 12.9 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 $ 12.1 million.

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

The Company recognized $ 0.2 million of revenue based on labor hours expended by the Company on its Manufacturing Obligations during the three months ended March 31, 2024 and $ 4.1 million during the three months ended March 31, 2023.

As of March 31, 2024, the balance of the deferred license revenue was $ 13.5 million, which, in accordance with ASC 210-20, was partially offset by the contract asset associated with the manufacturing cost reimbursement of $ 2.0 million, resulting in a net deferred license revenue liability of $ 11.5 million.

The Company incurred $ 0.6 million of incremental costs in obtaining the Qilu License, which the Company capitalized in other current assets and other assets and amortizes as a component of general and administrative expense commensurate with the recognition of the combined performance obligation.

The Company recognized amortization expense of less than $ 0.1 million and $ 0.1 million for the three and nine months ended September 30, 2023, respectively, and less than $ 0.1 million and $ 0.3 million for the three and nine months ended September 30, 2022, respectively.

The Company recognized amortization expense of less than $ 0.1 million for both the three months ended March 31, 2024, and 2023.

The Company reevaluates the transaction price and the total estimated labor hours expected to be incurred to satisfy the performance obligations and adjusts the deferred revenue at the end of each reporting period.

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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.

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.

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 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 Barinthus.

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 $ 0.7 million and $ 1.6 million of expenses, net of reimbursements from Barinthus, related to the collaboration during the three and nine months ended September 30, 2023, respectively, and reflected those costs in research and development in the statements of operations and comprehensive loss.

The Company incurred $ 0.3 million and $ 0.7 million of such costs for the same respective periods in 2022.

Assembly Biosciences, Inc.

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

(“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.

After completing enrollment in the Phase 2a proof-of-concept clinical trial, in July 2022, Assembly announced its plan to discontinue development of VBR.

In consultation with Assembly, the Company continued dosing patients in this clinical trial until completion of the final, on-treatment visit at week 48, at which point both parties mutually agreed to discontinue the clinical trial.

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

The Company incurred $ 0.1 million and $ 1.4 million of expenses related to the collaboration during the three and nine months ended September 30, 2023, respectively, and $ 0.6 million and $ 2.1 million during the three and nine months ended September 30, 2022, respectively.

Those costs are reflected 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 its imdusiran compound.

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 (“Mpro”).

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

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

In the fourth quarter of 2022, the Company nominated AB-343 as its lead candidate that inhibits Mpro.

The agreement, as amended, provided 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 Company incurred less than $ 0.1 million and $ 1.0 million of expenses related to the collaboration during the three and nine months ended September 30, 2023, respectively, and $ 0.6 million and $ 0.9 million during the three and nine months ended September 30, 2022, respectively.

Those costs are reflected in research and development in the statements of operations and comprehensive loss.

During the third quarter of 2023, the Company discontinued its 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.

The Company also terminated this discovery research and license agreement with X-Chem and Proteros.

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 $ 0.5 million and $ 0.6 million of expenses, net of Barinthus’s 50% share, during the three months ended March 31, 2024 and 2023, respectively, and reflected those costs in research and development in the statements of operations and comprehensive loss.

Royalty Entitlements

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

From the inception of the royalty sale through September 30, 2023, an aggregate of $ 21.5 million of royalties have been earned by OMERS.

From the inception of the royalty sale through March 31, 2024, an aggregate of $ 23.3 million of royalties have been earned by OMERS.

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

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Revenues are summarized in the following table:

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

2023 2022 2023 2022

(in thousands) (in thousands)

Three Months Ended March 31,

(in thousands)

Revenue from collaborations and licenses

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Qilu Pharmaceutical Co., Ltd.

3,221 2,352 10,349 23,007

Other milestone and royalty payments — — — 35

Non-cash royalty revenue

Alnylam Pharmaceuticals, Inc.

723 2,344 2,667 5,393

Total revenue $ 1,532 $ 6,687

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Open Market Sale Agreement

The Company has an Open Market Sale Agreement with Jefferies LLC dated December 20, 2018, as amended by Amendment No.

The Company has an Open Market Sale Agreement SM with Jefferies LLC (Jefferies) dated December 20, 2018, as amended by Amendment No.

1, dated December 20, 2019, Amendment No.

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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”) for an offering of up to an additional $ 75.0 million of its common shares pursuant to the Sale Agreement under the October 2020 Registration Statement.

On March 4, 2021, the Company filed a prospectus supplement with the SEC (the March 2021 Prospectus Supplement) for an 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 March 2021 Prospectus Supplement was fully utilized during 2021.

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

During the three and nine months ended September 30, 2023, the Company issued 633,922 and 9,848,090 common shares pursuant to the Sale Agreement, respectively, resulting in net proceeds of approximately $ 1.4 million and $ 26.0 million, respectively.

During the three and nine months ended September 30, 2022, the Company issued 3,832,717 common shares pursuant to the Sale Agreement, resulting in net proceeds of $ 9.0 million.

As of September 30, 2023, there was approximately $ 104.3 million of common shares remaining 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.

During the three months ended March 31, 2024, the Company issued 8,666,077 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $ 21.8 million.

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

During April 2024, the Company issued an additional 7,833,922 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $ 22.4 million.

As of April 30, 2024, there was approximately $ 25.4 million of common shares remaining available in aggregate under the March 2022 Prospectus Supplement, pursuant to the November 2021 Registration Statement.

Stock-based compensation

The table below summarizes information about the Company’s stock-based compensation for the three and nine months ended September 30, 2023 and 2022 and the expense recognized in the condensed consolidated statements of operations:

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

2023 2022 2023 2022

The table below summarizes information about the Company’s stock-based compensation for the three months ended March 31, 2024 and 2023 and the expense recognized in the condensed consolidated statements of operations:

Three Months Ended March 31,

(in thousands, except share and per share data)

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Total stock compensation expense $ 2,014 $ 2,131

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

Subsequent events

On November 6, 2023, the Company reduced its workforce by 24 % primarily affecting its research function.

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

The Company has maintained a group of research scientists as it remains committed to continuing discovery research in HBV.

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

What changed 10-Q

Item 1. Financial Statements