Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Arbutus Biopharma Corporation (“Arbutus”, the “Company”, “we”, “us”, and “our”) is a clinical-stage biopharmaceutical company focused on infectious disease. We are currently developing imdusiran (AB-729), our proprietary, conjugated GalNAc, subcutaneously-delivered RNAi therapeutic, and AB-101, our proprietary oral PD-L1 inhibitor, for the treatment of chronic hepatitis B (cHBV). Through our ownership stake in and our license to Genevant Sciences, Ltd (Genevant), we are also focused on maximizing opportunity for our in-house developed Lipid Nanoparticle (LNP) delivery technology.
We continue to protect and defend our intellectual property, which is the subject of our ongoing lawsuits against Moderna Therapeutics, Inc. (Moderna) and against Pfizer Inc. and BioNTech SE (collectively, Pfizer/BioNTech) for their use of our patented LNP delivery technology in their COVID-19 mRNA-LNP vaccines. With respect to the Moderna lawsuit in the United States, a trial date has been set for September 24, 2025. On March 3, 2025, we announced that, along with Genevant, we have filed five international lawsuits against Moderna in connection with their use of our LNP technology in their COVID-19 mRNA-LNP and RSV vaccines. With respect to the Pfizer/BioNTech lawsuit, the claim construction hearing occurred in December 2024. The court is expected to provide its ruling on the claim construction and issue a further scheduling order, including the date for trial, in 2025.
During 2024, we streamlined the organization to focus our efforts on advancing the clinical development of imdusiran and AB-101, and therefore ceased all discovery efforts, discontinued our IM-PROVE III clinical trial and reduced our workforce by 40%. In the first quarter of 2025, we announced the appointment of five new members of our Board of Directors (our Board) to replace all of the former directors, as well as the appointment of a new President, Chief Executive Officer and Chairperson of our Board and a new Chief Financial Officer. Additionally, our Board took action to reduce our workforce by an additional 57% resulting in a total workforce after reductions of 19 employees. Our Board also decided to exit our corporate headquarters in Warminster, PA and to discontinue in-house scientific research. In connection with these actions, we expect to incur a one-time restructuring charge in the first quarter of 2025 of approximately $11 million to $13 million.
With these organizational changes and our ongoing cost management efforts, we expect to significantly reduce our net cash burn in 2025 when compared to 2024. Our new Board and management team are reviewing our pipeline and development plans for our hepatitis B programs. To assist with this review, we are currently retaining experts in virology, hepatitis B, and in the clinical development and approval of antiviral treatments. We expect to provide a further update once our review is complete.
Our strategy is focused on maximizing opportunities for our cHBV development programs and our in-house developed LNP delivery technology.
LNP delivery technology
On February 28, 2022 and April 4, 2023, we filed patent infringement lawsuits in the United States against Moderna and Pfizer/BioNTech, respectively, seeking compensation for their unlicensed use of our patented technologies in their COVID-19 mRNA-LNP vaccines. It is well established in the scientific literature that the most significant technological hurdle to developing and deploying medicines using mRNA is engineering a safe and effective way to deliver the mRNA to human cells. Scientists at Arbutus and Genevant have spent years developing and refining LNP delivery technology, which has been licensed for various applications to many different third parties. Our and Genevant’s LNP technology relies on microscopic particles built from four carefully selected types of fat-like molecules to shelter and protect RNA molecules. With this technology, the RNA can travel through the human body to a target cell and through the target cell’s membrane before releasing the RNA. Without this crucial delivery technology, the RNA would quickly degrade in the body and be ineffective. We remain committed to taking all legal actions necessary to defend and protect our intellectual property.
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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 our position on most of the disputed claim terms. A trial date for the Moderna lawsuit in the United States has been set for September 24, 2025. On March 3, 2025, we announced that, along with Genevant, we have filed five international lawsuits against Moderna in connection with their use of our LNP technology in their COVID-19 mRNA-LNP and RSV vaccines. With respect to the Pfizer/BioNTech lawsuit, the claim construction hearing occurred in December 2024. The court is expected to provide its ruling on the claim construction and issue a further scheduling order, including the date for trial, in 2025.
cHBV programs
Our current HBV strategy is to develop a functional cure for patients with cHBV infection with imdusiran as a potential cornerstone in a combination therapy. We believe that a combination of compounds that can suppress hepatitis B virus deoxyribonucleic acid (HBV DNA) replication and hepatitis B surface antigen (HBsAg) expression as well as boost patients’ HBV-specific immune response could address the most important elements to achieving a functional cure. Functional cure is defined as sustained HBsAg loss and HBV DNA less than the lower limit of quantification 24 weeks off treatment, with or without anti-hepatitis B surface antibodies (anti-HBs). By providing a functional cure for patients with cHBV, we aim to prevent complications of disease progression, to decrease HBV burden by minimizing patient stigma and address the need for finite and more efficacious HBV treatments that further improve long-term outcomes and reduce associated healthcare costs.
Our product pipeline consists of the following programs:
Over 250 patients with cHBV infection have been dosed with imdusiran in our Phase 1 and Phase 2a clinical trials. Data from our IM-PROVE I Phase 2a clinical trial showed that six doses of imdusiran and 24 weeks of pegylated interferon alfa-2α (IFN), a standard-of-care immunomodulator, added to ongoing nucleoside analogue (NA) therapy led to a functional cure rate of 50% (3/6) in HBeAg-negative patients with baseline HBsAg levels less than 1000 IU/mL, and an overall functional cure rate of 25% (3/12). Those patients that achieved a functional cure also seroconverted with high anti-HB levels. These data from the IM-PROVE I trial suggest that the combination of imdusiran, 24 weeks of IFN and ongoing NA therapy was generally safe and well-tolerated. We are reviewing our pipeline and development plans for our hepatitis B programs.
AB-101 is our proprietary oral PD-L1 inhibitor that has the potential to reawaken patients’ HBV-specific immune response by inhibiting PD-L1. AB-101 is currently in a Phase 1a/1b clinical trial (AB-101-001) evaluating the safety, tolerability, pharmacokinetics, and pharmacodynamics of single- and multiple-ascending oral doses in healthy subjects and patients with cHBV infection. Parts 1 and 2 of this clinical trial enrolled sequential cohorts of healthy subjects receiving single and multiple doses, respectively, of AB-101 at increasing dose levels. The data showed that AB-101 was generally well-tolerated with evidence of dose-dependent receptor occupancy. We have moved into Part 3 of this clinical trial which evaluates repeat doses of AB-101 for 28 days in patients with cHBV. Next steps for AB-101 will be determined after we complete our review of our pipeline and development plans for our hepatitis B programs.
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Collaborations and Royalty Entitlements
Qilu Pharmaceutical Co., Ltd. (Qilu)
In December 2021, we entered into a technology transfer and license agreement (the License Agreement) with Qilu, pursuant to which we granted Qilu a sublicensable, royalty-bearing license, under certain intellectual property owned by us, which is non-exclusive as to development and manufacturing and exclusive with respect to commercialization of imdusiran, including pharmaceutical products that include imdusiran, for the treatment or prevention of hepatitis B in China, Hong Kong, Macau and Taiwan (Greater China and Taiwan).
In partial consideration for the rights granted by us, Qilu paid us a one-time upfront cash payment of $40 million on January 5, 2022 and agreed to pay us up to $245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and commercialization milestones. Qilu also agreed to pay us double-digit royalties into the low twenties percent based upon annual net sales of imdusiran in Greater China and Taiwan. The royalties are payable on a product-by-product and region-by-region basis, subject to certain limitations.
Qilu is responsible for all costs related to developing, obtaining regulatory approval for, and commercializing imdusiran for the treatment or prevention of hepatitis B in Greater China and Taiwan. Qilu is required to use commercially reasonable efforts to develop, seek regulatory approval for, and commercialize at least one imdusiran product candidate in Greater China and Taiwan. A joint development committee has been established between us and Qilu to coordinate and review the development, manufacturing and commercialization plans. Both parties also have entered into a supply agreement and related quality agreement pursuant to which we will manufacture or have manufactured and supply Qilu with all quantities of imdusiran necessary for Qilu to develop and commercialize in Greater China and Taiwan until we have completed manufacturing technology transfer to Qilu and Qilu has received all approvals required for it or its designated contract manufacturing organization to manufacture imdusiran in Greater China and Taiwan.
Concurrent with the execution of the License Agreement, we entered into a Share Purchase Agreement (the Share Purchase Agreement) with Anchor Life Limited, a company established pursuant to the applicable laws and regulations of Hong Kong and an affiliate of Qilu (the Investor), pursuant to which the Investor purchased 3,579,952 of our common shares at a purchase price of USD $4.19 per share, which was a 15% premium on the thirty-day average closing price of our common shares as of the close of trading on December 10, 2021 (the Share Transaction). We received $15.0 million of gross proceeds from the Share Transaction on January 6, 2022. The common shares sold to the Investor in the Share Transaction represented approximately 2.5% of our common shares outstanding immediately prior to the execution of the Share Purchase Agreement.
Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc
We have a royalty entitlement on ONPATTRO ® (Patisiran) (ONPATTRO), a drug developed by Alnylam Pharmaceuticals, Inc. (Alnylam) under a license agreement with us that incorporates our lipid nanoparticle delivery (LNP) technology. In July 2019, we received $20 million in gross proceeds before advisory fees from the sale of this royalty interest to Ontario Municipal Employees Retirement System (OMERS), effective as of January 1, 2019. The royalty interest will revert back to us after OMERS receives $30 million in royalty payments from Alnylam. We also have rights to a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc. (Acuitas). The royalty entitlement from Acuitas has been retained by us and was not part of the royalty entitlement sale to OMERS.
Genevant Sciences, Ltd.
As of December 31, 2024, we owned approximately 16% of the common equity of Genevant Sciences Ltd. (Genevant), a company we launched with Roivant Sciences, Ltd. and to which we licensed rights to our lipid nanoparticle (LNP) and ligand conjugate delivery platforms outside of HBV, except to the extent certain rights had already been licensed to other third parties (the Genevant License). We retained all rights to our LNP and conjugate delivery platforms for HBV. Under the Genevant License, as amended, if a third-party sublicensee of intellectual property licensed by Genevant from us commercializes a
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sublicensed product, we become entitled to receive a specified percentage of certain revenue that may be received by Genevant for such sublicense, including royalties, commercial milestones and other sales-related revenue, or, if less, tiered low single-digit royalties on net sales of the sublicensed product. The specified percentage is 20% in the case of a mere sublicense (i.e., naked sublicense) by Genevant without additional contribution and 14% in the case of a bona fide collaboration with Genevant.
Additionally, if Genevant receives proceeds from an action for infringement by any third parties of our intellectual property licensed to Genevant, we would be entitled to receive, after deduction of litigation costs, 20% of the proceeds received by Genevant or, if less, tiered low single-digit royalties on net sales of the infringing product (inclusive of the proceeds from litigation or settlement, which would be treated as net sales).
Refer to “Item 1. Business.” and Note 11 of the Consolidated Financial Statements for a discussion of our clinical collaborations and other royalty entitlements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The accounting for our contingent consideration is a significant accounting policy that we believe is critical in fully understanding and evaluating our financial results. This accounting policy requires us to make certain estimates and assumptions. We believe that the estimates and assumptions upon which we rely are reasonable, based upon information available to us at the time that these estimates and assumptions are made. Actual results may differ from our estimates. Our critical accounting estimates affect the calculation of our net income or loss.
Contingent Consideration
In connection with the acquisition of Enantigen Therapeutics, Inc. (Enantigen) in October 2014, we have obligations to make potential future payments of up to $102.5 million upon the achievement of certain commercial milestones. The sales milestones are tied to the first commercial sales by us of a product indicated for the treatment of cHBV infection. These potential contingent payments are recorded as a liability and remeasured to fair value as of each reporting date. In assessing the fair value of the liability, significant judgments are required to be made by management to estimate the probability of program success, the timing and extent of future product sales, appropriate discount rates, and other estimates and assumptions that could materially affect the determination of fair value.
In order to estimate the probability of program success, we evaluate the status and progress of our clinical trials with our lead product candidate, imdusiran, in comparison to actual historical success rates for other clinical trials. We update our assumptions related to probability of success as imdusiran advances through clinical trials. For the timing and extent of future product sales, we also consider the status and progress of imdusiran, future revenue forecasts and other macroeconomic indicators that forecast market conditions. The discount rate at which we calculate the present value of our potential future liability is based on consideration of market-comparative data, market-based discount rates, and company-specific risk premiums.
As assumptions related to the probability of program success and timing and amount of potential future product sales are highly uncertain due to the unpredictable nature of product development, we assessed the sensitivity of the fair value measurement to changes in assumptions, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.
Revenue from collaborations and licenses
We generate revenue primarily through collaboration agreements and license agreements. Such agreements may require us to deliver various rights and/or services, including intellectual property rights or licenses and development and manufacturing services. Under such agreements, we are generally eligible to receive non-refundable upfront payments, funding for development and manufacturing services, milestone payments, and royalties.
Our 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
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under the scope of ASC 808, we analogize 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: (i) identify contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied.
In contracts where we have more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices. The estimated stand-alone selling price of each deliverable reflects our best estimate of what the selling price would be if the deliverable was regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.
The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.
Prior to recognizing revenue, we make estimates of the transaction price, including variable consideration that is subject to a constraint. Amounts of variable consideration are included in the transaction price to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur and when the uncertainty associated with the variable consideration is subsequently resolved. These estimates are re-assessed each reporting period as required.
For performance obligations satisfied over time, we estimate the efforts needed to complete the performance obligation and recognize revenue by measuring the progress towards complete satisfaction of the performance obligation using an input measure.
Management may be required to exercise considerable judgment in estimating revenue to be recognized. Judgment is required in identifying performance obligations, estimating the transaction price, estimating the stand-alone selling price of identified performance obligations, and estimating the progress towards satisfaction of performance obligations.
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RESULTS OF OPERATIONS
The following summarizes our results of operations for the year ended December 31, 2024 compared to the year ended December 31, 2023:
Year Ended December 31,
2024 2023
(in thousands)
Revenue $ 6,171 $ 18,141
Operating expenses 82,490 96,244
Loss from operations (76,319) (78,103)
Other income 6,399 5,254
Loss before income taxes (69,920) (72,849)
Income tax expense — —
Net loss $ (69,920) $ (72,849)
For the fiscal year ended December 31, 2024, our net loss attributable to common shares was $69.9 million, or a loss of $0.38 per basic and diluted common share, as compared to a net loss of $72.8 million, or a loss of $0.44 per basic and diluted common share, for the year ended December 31, 2023.
Revenue
Revenue for the years ended December 31, 2024 and 2023 is summarized in the following table:
Year ended December 31,
2024 2023
(in thousands, except percentages)
Revenue from collaborations and licenses
Royalties from sales of Onpattro $ 2,562 41 % $ 3,608 20 %
Qilu Pharmaceutical Co., Ltd. 1,357 22 % 10,666 59 %
Non-cash royalty revenue
Royalties from sales of Onpattro 2,252 36 % 3,867 21 %
Total revenue $ 6,171 100 % $ 18,141 100 %
Revenue consists mainly of license revenue and royalties received from other companies for sales of products that utilize our licensed technologies.
Total revenue decreased $12.0 million for the year ended December 31, 2024 compared to 2023, due primarily to: i) a $9.3 million decrease in revenue recognition of the upfront license fee we received from Qilu in 2022 as less effort was required from us in 2024 compared to 2023 to support Qilu’s progress towards achieving their own imdusiran manufacturing capability; and ii) a $2.7 million decrease in license royalty revenue from Alnylam and Acuitas due to lower sales of Alnylam’s ONPATTRO in 2024 compared to 2023 primarily due to Alnylam’s next generation RNAi product AMVUTTRA (vutrisiran) cannibalizing sales of ONPATTRO . We anticipate that the license royalty revenue from Alnylam and Acuitas will continue to decrease due to such cannibalization of sales of ONPATTRO.
The royalty interest for ONPATTRO from Alnylam was sold to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert back to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and we are not obligated to reimburse OMERS if they fail to collect any such future royalties. During the term of this agreement, we recognize non-cash royalty revenue related
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to the sales of ONPATTRO. From the inception of the royalty sale through December 31, 2024, we have recorded an aggregate of $25.0 million of non-cash royalty revenue for royalties earned by OMERS. The royalty interest for ONPATTRO from Acuitas was not part of the royalty sale to OMERS and we have retained the rights to receive those royalties. Revenue contracts are described in more detail in “Item 1. Business.”
Operating expenses
Operating expenses for the years ended December 31, 2024 and 2023 are summarized in the following table:
Year ended December 31,
2024 2023
(in thousands, except percentages)
Research and development $ 54,037 66 % $ 73,700 77 %
General and administrative 22,108 27 % 22,475 23 %
Change in fair value of contingent consideration 2,625 3 % 69 — %
Restructuring costs 3,720 5 % — — %
Total operating expenses $ 82,490 100 % $ 96,244 100 %
Research and development
Research and development expenses consist primarily of personnel expenses, fees paid to clinical research organizations and contract manufacturers, consumables and materials, consulting, and other third-party expenses to support our clinical development activities, as well as a portion of stock-based compensation and general overhead costs.
Research and development expenses decreased $19.7 million in 2024 compared to 2023 due primarily to: i) a decrease in clinical expenses related to the discontinuation of our coronavirus and AB-161 programs during the fourth quarter of 2023; ii) a decrease in research activities and preclinical study costs for AB-101 which is now in a Phase 1a/1b clinical trial; and iii) cost savings from our decision in August 2024 to streamline the organization to focus our efforts on advancing the clinical development of imdusiran and AB-101, which included ceasing all discovery efforts, discontinuing our IM-PROVE III clinical trial and reducing our workforce by 40%.
A significant portion of our research and development expenses are not tracked by project, as they benefit multiple projects or our overall technology platform.
General and administrative
General and administrative expenses decreased $0.4 million in 2024 compared to 2023, due primarily to decreases in employee compensation-related expenses, partially offset by an increase in litigation-related legal fees.
Change in fair value of contingent consideration
In October 2014, Arbutus Inc., our wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen pursuant to a stock purchase agreement. 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 us 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.
In general, increases in the fair value of the contingent consideration are related to the progress of our programs as they get closer to triggering these contingent payments. The change in the fair value of our Contingent Consideration is driven by fair value adjustments for the passage of time, the discount rate, the progression of our programs through clinical trials and our assessment of the probability, timing and extent of future product sales, resulting in an increase of $2.6 million and $0.1 million, in 2024 and 2023, respectively. The increase in the fair value of the contingent consideration in 2024 was due primarily
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to an increase in our assessment of the probability of success of future product sales based on the positive clinical data we reported in November 2024 from our IM-PROVE I clinical trial with imdusiran, IFN and NA therapy.
Restructuring
Effective August 1, 2024, we ceased all discovery efforts and discontinued our IM-PROVE III clinical trial to streamline the organization to focus our efforts on advancing the clinical development of imdusiran and AB-101. In taking these steps, we implemented a 40% reduction in our workforce, primarily affecting the discovery and general and administrative functions. As a result, we incurred a one-time restructuring charge in the third quarter of 2024 of approximately $3.7 million, which includes approximately $2.9 million of cash severance and continued benefits payments, a non-cash impairment charge for laboratory equipment of approximately $0.2 million and approximately $0.6 million of cash payments to vendors for close-out activities in connection with the cessation of discovery efforts and the discontinuation of our IM-PROVE III clinical trial.
Other income (losses)
Other income (losses) for the years ended December 31, 2024 and 2023 are summarized in the following table:
Year ended December 31,
2024 2023
(in thousands, except percentages)
Interest income $ 6,585 103 % $ 5,688 108 %
Interest expense (137) (2) % (459) (9) %
Foreign exchange (loss) / gain (49) (1) % 25 — %
Total other income $ 6,399 100 % $ 5,254 100 %
Interest income
Interest income increased $0.9 million in 2024 compared to 2023 due primarily to a general increase in market interest rates related to our investments in marketable securities.
Interest expense
Interest expense decreased $0.3 million in 2024 compared to 2023 due primarily to a decrease in the non-cash amortization of the discount and issuance costs related to the sale of a portion of our ONPATTRO royalty interest to OMERS in July 2019.
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LIQUIDITY AND CAPITAL RESOURCES
Since our incorporation, we have financed our operations through the sales of equity, debt, revenues from development collaborations and licenses with corporate partners, a royalty monetization, interest income on funds available for investment, and government contracts, grants and tax credits.
As of December 31, 2024, we had total cash, cash equivalents and investments in marketable securities of $122.6 million, of which $36.3 million was cash and cash equivalents and $86.3 million was investments in marketable securities. We had no outstanding debt as of December 31, 2024.
Sources of Liquidity
Sale Agreement
Effective March 26, 2025, we terminated our Open Market Sale Agreement SM with Jefferies dated December 20, 2018, as amended by Amendment No. 1, dated December 20, 2019, Amendment No. 2, dated August 7, 2020 and Amendment No. 3, dated March 4, 2021 (as amended, the Sale Agreement), under which we could offer and sell common shares, from time to time.
Previously, on November 6, 2024, we had filed: i) a shelf registration statement on Form S-3 with the SEC (File No. 333-283038) with an accompanying base prospectus, declared effective by the SEC on December 5, 2024 (the December 2024 Registration Statement), for the offer and sale of up to $300.0 million of our securities; and ii) a prospectus supplement with the SEC in connection with the offering of up to $100.0 million of our common shares pursuant to the Sale Agreement under the December 2024 Registration Statement (the December 2024 Prospectus Supplement). We did not utilize any of the December 2024 prospectus supplement pursuant to the Sale Agreement prior to the termination of the Sale Agreement.
During the years ended December 31, 2024 and 2023, we issued 16,499,999 and 12,020,257 common shares, respectively, under the Sale Agreement resulting in net proceeds of approximately $44.1 million and $29.9 million, respectively.
Royalty Entitlements
Additionally, we have a royalty entitlement on ONPATTRO, a drug developed by Alnylam that incorporates our LNP technology and was approved by the FDA and the EMA during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. In July 2019, we sold a portion of this royalty interest to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert to us. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and 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, 2024, we have recorded an aggregate of $25.0 million of non-cash royalty revenue for royalties earned by OMERS. If this royalty entitlement reverts to us, it has the potential to provide an active royalty stream or to be otherwise monetized again in full or in part. In addition to the royalty from the Alnylam LNP license agreement, we are also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas. The royalty from Acuitas has been retained by us and was not part of the royalty sale to OMERS.
In December 2021, we entered into a technology transfer and exclusive licensing agreement with Qilu pursuant to which we granted Qilu an exclusive (with certain exceptions), sublicensable, royalty-bearing license, under certain intellectual property owned by us, to develop, manufacture and commercialize imdusiran for the treatment or prevention of cHBV infection in Greater China and Taiwan. In partial consideration for the rights granted by us, Qilu paid us a one-time upfront cash payment of $40 million and made an equity investment of $15.0 million, both received in January 2022, and agreed to pay us up to $245 million, net of withholding taxes, upon the achievement of certain technology transfer, development, regulatory and
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commercialization milestones. Qilu also agreed to pay us double digit royalties into the low twenties percent based upon annual net sales of imdusiran in Greater China and Taiwan.
Cash requirements
With the organizational changes announced during the first quarter of 2025, and our ongoing cost management efforts, we expect to significantly reduce our net cash burn in 2025 when compared to 2024. In the future and subject to the completion of our review of our pipeline and development plans for our hepatitis B programs, substantial additional funds would be required to continue with the active development of our pipeline products and technologies. In particular, our funding needs may vary depending on a number of factors including:
• the results of the review of our pipeline and development plans for our hepatitis B programs;
• costs associated with prosecuting and enforcing our patent claims and other intellectual property rights, including our ongoing patent infringement matters against Moderna and Pfizer/BioNTech;
• revenue earned from our legacy collaborative partnerships and licensing agreements, including potential royalty payments from Alnylam’s ONPATTRO;
• revenue earned from ongoing collaborative partnerships, including milestone and royalty payments;
• the potential requirement to make milestone payments related to our legacy agreements;
• the extent to which we continue the development of our product candidates, add new product candidates to our pipeline, or form collaborative relationships or licensing arrangements to advance our product candidates;
• delays in the development of our product candidates due to preclinical and clinical findings;
• our decisions to in-license or acquire additional products, product candidates or technology for development;
• our ability to attract and retain development or commercialization partners, and their effectiveness in carrying out the development and ultimate commercialization of one or more of our product candidates;
• whether batches of product candidates that we manufacture fail to meet specifications resulting in clinical trial delays and investigational and remanufacturing costs;
• the decisions, and the timing of decisions, made by health regulatory agencies regarding our technology and product candidates; and
• competing products, product candidates and technological and market developments.
We may seek funding to maintain and advance our business from a variety of sources including public or private equity or debt financing, potential monetization transactions, collaborative or licensing arrangements with pharmaceutical companies and government grants and contracts. If we seek additional funding, there can be no assurance that funding will be available at all or on acceptable terms to maintain and advance our business.
If we decide to seek funding and such adequate funding is not available, we may be required to delay, reduce or eliminate one or more of our development programs or reduce expenses associated with our non-core activities. We may need to obtain funds through arrangements with collaborators or others that may require us to relinquish most or all of our rights to product candidates at an earlier stage of development or on less favorable terms than we would otherwise seek if we were better funded. Insufficient financing may also mean failing to prosecute our patents or relinquishing rights to some of our technologies that we would otherwise develop or commercialize.
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Cash Flows
The following table summarizes our cash flow activities for the periods indicated:
Year ended December 31,
2024 2023
(in thousands)
Net loss $ (69,920) $ (72,849)
Non-cash items 7,899 5,146
Change in deferred license revenue (1,357) (10,664)
Net change in operating items (1,472) (7,569)
Net cash used in operating activities $ (64,850) $ (85,936)
Net cash provided by investing activities 22,948 50,773
Issuance of common shares pursuant to the Open Market Sale Agreement 44,123 29,852
Other financing activities 7,873 795
Net cash provided by financing activities $ 51,996 $ 30,647
Effect of foreign exchange rate changes on cash and cash equivalents (49) 25
Increase / (decrease) in cash and cash equivalents $ 10,045 $ (4,491)
Cash and cash equivalents, beginning of period 26,285 30,776
Cash and cash equivalents, end of period $ 36,330 $ 26,285
Net cash used in operating activities in 2024 decreased $21.1 million compared to 2023 due primarily to a decrease in research and development expenses related to our HBV pipeline prioritization and the timing of payments to vendors.
Net cash provided by investing activities in 2024 decreased $27.8 million compared to 2023, due primarily to the timing of acquisitions and maturities of investments in marketable securities.
Net cash provided by financing activities in 2024 increased $21.3 million compared to 2023 due primarily to a $14.2 million increase in proceeds from sales of common shares under the Sale Agreement and an increase in proceeds from employee stock option exercises.
RECENT ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that we adopt as of the specified effective date. Please refer to note 2 to our consolidated financial statements included in Part II, Item 8, “Financial Statements and Supplementary Data,” of this Annual Report on Form 10-K for a description of recent accounting pronouncements applicable to our business.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
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