What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-05 · 254 added, 205 removed, 410 unchanged (53% of the section changed)

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(In thousands except for share amounts and par value)

September 30,

Current assets

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Common stock, $ 0.001 par value;

100,000,000 shares authorized as of June 30, 2020 and December 31, 2019;

32,807,519 and 32,558,307 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively

100,000,000 shares authorized as of September 30, 2020 and December 31, 2019;

32,924,536 and 32,558,307 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

Additional paid-in capital

Accumulated other comprehensive income (loss)

Accumulated other comprehensive loss

Accumulated deficit

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ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands except for share and per share amounts)

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Collaboration revenue

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Total operating expenses

Income (loss) from operations

Loss from operations

Interest and other income, net

Total other income

Income (loss) before income taxes

Loss before income taxes

Income tax benefit

Net income (loss)

Other comprehensive income

Unrealized gain on marketable securities, net of tax

Comprehensive income (loss)

Net income (loss) per share, basic

Weighted average common shares outstanding, basic

Net income (loss) per share, diluted

Weighted average common shares outstanding, diluted

Other comprehensive (loss) income

Unrealized (loss) gain on marketable securities, net of tax

Comprehensive loss

Net loss per share, basic and diluted

Weighted average common shares outstanding, basic and diluted

See Accompanying Notes to Condensed Consolidated Financial Statements

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(In thousands)

Six Months Ended June 30,

Nine Months Ended September 30,

Cash flows from operating activities

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Stockholders'

Balance as of March 31, 2020

Balance as of June 30, 2020

Issuance of common stock upon exercise of stock options

Issuance of common stock under ESPP

Issuance of shares of common stock for settlement of restricted stock units (RSUs)

Unrealized gain on marketable debt securities

Unrealized loss on marketable debt securities

Stock-based compensation

Balance as of June 30, 2020

Balance as of September 30, 2020

Comprehensive

Stockholders'

Balance as of March 31, 2019

Balance as of June 30, 2019

Issuance of common stock upon exercise of stock options

Issuance of common stock under ESPP

Issuance of shares of common stock for settlement of RSUs

Unrealized gain on marketable debt securities, net of tax

Unrealized loss on marketable debt securities, net of tax

Stock-based compensation

Balance as of June 30, 2019

For the Six Month Period

Balance as of September 30, 2019

For the Nine Month Period

Comprehensive

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Issuance of shares of common stock for settlement of RSUs

Reclassification of stock-based awards from equity to accrued expenses

Unrealized gain on marketable debt securities

Stock-based compensation

Balance as of June 30, 2020

Balance as of September 30, 2020

Comprehensive

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Stock-based compensation

Balance as of June 30, 2019

Balance as of September 30, 2019

See Accompanying Notes to Condensed Consolidated Financial Statements

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The Company operates in one segment and is headquartered in South San Francisco, California, with operations in California, Connecticut and China.

The Company’s HBV Cure program is pursuing multiple drug candidates that inhibit the HBV lifecycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing the current low cure rates for patients with chronic HBV infection.

The Company’s HBV Cure program is pursuing multiple drug candidates that inhibit the HBV replication cycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of increasing the current low cure rates for patients with chronic HBV infection.

Assembly has discovered several novel core inhibitors, which are small molecules that directly target and allosterically modify the HBV core protein.

The Company’s Microbiome program is centered on a fully integrated platform that includes a biological function-based strain isolation, identification, characterization and selection process, methods for strain purification and growth under conditions compliant with current Good Manufacturing Practice (cGMP) requirements.

That platform is complemented by a licensed patented delivery system that the Company calls GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal (GI) tract.

Using the Company’s microbiome platform, the Company is exploring product candidates for multiple disease indications, including ulcerative colitis (UC), Crohn’s disease and irritable bowel syndrome (IBS) in connection with its Research, Development, Collaboration and License Agreement (the Allergan Collaboration Agreement) with Allergan Pharmaceuticals International Limited (Allergan), which was acquired by AbbVie Inc.

(AbbVie) in May 2020.

In June 2020, AbbVie made a strategic portfolio decision to terminate the Allergan Collaboration Agreement effective on October 10, 2020 (see Note 8).

That platform is complemented by a licensed patented delivery system, GEMICEL®, which is designed to allow for targeted oral delivery of live biologic and conventional therapies to the lower gastrointestinal (GI) tract.

Using the Company’s microbiome platform, the Company is exploring product candidates for multiple disease indications, including ulcerative colitis (UC), Crohn’s disease and irritable bowel syndrome (IBS) in connection with its Research, Development, Collaboration and License Agreement (the Allergan Agreement) with Allergan Pharmaceuticals International Limited (Allergan), which was acquired by AbbVie Inc.

In June 2020, AbbVie made a strategic portfolio decision to terminate the Allergan Agreement effective on October 10, 2020 (see Note 8).

Assembly is also exploring the microbiome in connection with immune-mediated and metabolic disorders and oncology.

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Food and Drug Administration (FDA) or an applicable foreign regulatory agency.

Since inception, the Company’s operations have been financed primarily through the sale of equity securities, proceeds from the exercise of warrants and stock options, issuance of debt and an upfront payment related to the Allergan Collaboration Agreement.

Since inception, the Company’s operations have been financed primarily through the sale of equity securities, proceeds from the exercise of warrants and stock options, issuance of debt, an upfront payment related to the Allergan Agreement and an upfront payment related to the Company’s Collaboration Agreement (the BeiGene Agreement) with BeiGene, Ltd.

The Company has incurred losses from operations since inception and expects to continue to incur substantial losses for the next several years as it continues its product development efforts.

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Market volatility resulting from the global novel coronavirus disease (COVID-19) pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed.

If the Company is unable to generate sufficient revenue from its collaborations, secure additional sources of funding or receive full and timely collections of amounts due, it may be necessary to significantly reduce the current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs, including more costly clinical trials.

If the Company is unable to generate sufficient revenue from its collaborations, secure additional sources of funding or receive full and timely collections of amounts due, it may be necessary to significantly reduce its current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs, including more costly clinical trials.

ASSEMBLY BIOSCIENCES, INC.

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GAAP and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2019, which are contained in the Company’s Annual Report on Form 10-K as filed with the SEC on March 4, 2020.

The results for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020 or future operating periods.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of results to be expected for the entire year ending December 31, 2020 or future operating periods.

Use of Estimates

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Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include revenue recognition, clinical trial accruals, recoverability and useful lives (indefinite or finite) of intangible assets, assessment of impairment of goodwill, provisions for income taxes, amounts receivable and recognized as revenue under the Allergan Collaboration Agreement, measurement of operating lease liabilities, and the fair value of stock options, stock appreciation rights, and restricted stock units (RSUs) granted to employees, directors and consultants.

Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include revenue recognition, clinical trial accruals, recoverability and useful lives (indefinite or finite) of intangible assets, assessment of impairment of goodwill, provisions for income taxes, amounts receivable and recognized as revenue under the Company’s collaboration agreements, measurement of operating lease liabilities, and the fair value of stock options, stock appreciation rights, and restricted stock units (RSUs) granted to employees, directors and consultants.

The Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions.

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However, the Company cannot at this time predict the specific extent, duration, or full impact the COVID-19 pandemic will have on its business, operations, strategy, prospects and financial condition and results.

The impact of the COVID-19 pandemic on the financial performance of the Company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

These developments and the impact of the COVID-19 pandemic on the financial markets and the overall economy are highly uncertain.

If the financial markets and/or the overall economy are impacted for an extended period, the Company’s results may be adversely affected.

In March 2020, the Families First Coronavirus Response Act (FFCR Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic.

The FFCR Act and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property.

Revenue Recognition and Accounts Receivable from Collaboration

We analyze our collaboration arrangements to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship.

In making this evaluation, we consider whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement guidance and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers guidance.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For elements of collaboration arrangements that are not accounted for pursuant to the revenue from contracts with customers guidance, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers guidance.

Amounts related to transactions with a counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and on a separate line item from revenue recognized from contracts with customers, if any, in the Company’s consolidated statements of operations and comprehensive loss .

Under certain collaborative arrangements, the Company has been reimbursed for a portion of its research and development expenses or participates in the cost-sharing of such research and development expenses.

Such reimbursements and cost-sharing arrangements are reflected as a reduction of research and development expense in the Company’s condensed consolidated statements of operations and comprehensive loss, as the Company does not consider performing these activities for reimbursement to be a part of its ongoing major or central operations.

For arrangements or transactions between arrangement participants determined to be within the scope of the contracts with customers guidance, the Company evaluates the term of the arrangement and recognizes revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects the consideration the Company expects to receive in exchange for those goods or services.

For contracts with customers, the Company applies the following five-step model in order to determine this amount:

(i) identification of the promised goods or services in the contract;

(ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract;

(iii) measurement of the transaction price, including the constraint on variable consideration;

(iv) allocation of the transaction price to the performance obligations;

and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company has provided standard indemnification and protection of licensed intellectual property for its customer.

These provisions are part of assurance that the licenses meet the agreements, representations and are not obligations to provide goods or services.

The Company only applies the five-step model to contracts when it is probable the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer.

As part of the accounting for contracts with customers, the Company must develop assumptions that require judgment to determine the standalone selling price of each performance obligation identified in the contract.

The Company then allocates the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation.

The Company recognizes the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied as revenue.

Upfront License Fees

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement.

The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license.

For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments

Depending on facts and circumstances, the Company may record revenues from certain milestones in a reporting period before the milestone is achieved if the Company concludes achievement of the milestone is probable and recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods.

The Company records a corresponding contract asset when this conclusion is reached.

Milestone payments that have not been included in the transaction price to date are fully constrained.

The Company re-evaluates the probability of achievement of such milestones and any related constraint each reporting period.

The Company adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that was recorded, if necessary.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sales-based Milestone and Royalty Payments

The Company’s customer may be required to pay the Company sales-based milestone payments or royalties on future sales of commercial products.

The Company recognizes revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the Company’s licensed intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

The Company receives payments from its customer based on billing schedules established in each contract.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under the arrangement.

If the related performance obligation is expected to be satisfied within the next twelve months, these amounts will be classified in current liabilities.

The Company recognizes a contract asset relating to its conditional right to consideration that is not subject to a constraint.

Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

A net contract asset or liability is presented for each contract with a customer.

The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

In March 2020, the Families First Coronavirus Response Act (FFCR Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic.

In June 2020, Assembly Bill 85 (A.B.

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The FFCR Act, CARES Act and A.B.

85 did not have a material impact on the Company’s condensed consolidated financial statements as of June 30, 2020;

85 did not have a material impact on the Company’s condensed consolidated financial statements as of September 30, 2020;

however, the Company continues to examine the impacts the FFCR Act, CARES Act and A.B.

85 may have on its business, results of operations, financial condition and liquidity.

Net Income (Loss) per Share

Basic net income (loss) per common share excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding during the period.

Diluted net income (loss) per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive.

Net Loss per Share

Basic net loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period.

Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive.

In December 2019, the Company sold 6,287,878 shares of common stock as well as pre-funded warrants to purchase up to 2,424,242 shares of common stock (see Note 6).

The pre-funded warrants are exercisable for shares of common stock at a price of $ 0.001 per share.

The pre-funded warrants are exercisable for shares of common stock at an exercise price of $ 0.001 per share.

The shares of common stock into which the pre-funded warrants may be exercised are considered outstanding for the purposes of computing earnings per share, because the shares may be issued for little or no consideration, are fully vested, and are exercisable after the original issuance date.

A reconciliation of the numerators and the denominators of the basic and diluted net income (loss) per common share computations is as follows (in thousands, except per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

Net income (loss)

Shares used in per share calculation - basic

Dilutive effect of securities

Shares used in per share calculation - diluted

Net income (loss) per share:

Securities excluded from the computation of diluted income (loss) per share because including them would have been antidilutive are as follows:

Three Months Ended June 30,

Six Months Ended June 30,

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A reconciliation of the numerators and the denominators of the basic and diluted net loss per common share computations is as follows (in thousands, except per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

Weighted average common shares and

pre-funded warrants outstanding -

basic and diluted

Net loss per share - basic and diluted

Securities excluded from the computation of diluted loss per share because including them would have been antidilutive are as follows:

September 30,

Warrants to purchase common stock

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Unvested RSUs

As of June 30, 2020, 145,000 performance-based RSUs granted by the Company were excluded from the table above because they are subject to contingencies that were not achieved as of this date.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Adoption of Recent Accounting Pronouncements

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In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements.

The standard adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606 and requires that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

collaborative arrangement participant is not a customer.

Amendments in the standard should be applied retrospectively to the date of initial application of Topic 606, but entities may elect to apply the amendments in Topic 808 retrospectively either to all contracts or only to contracts that are not completed at the date of initial application of Topic 606, and should disclose the election.

An entity may also elect to apply the practical expedient for contract modifications that is permitted for entities using the modified retrospective transition method in Topic 606.

The adoption of this standard had no impact on the Company’s condensed consolidated financial statements and related disclosures.

T he adoption of this standard had no impact on the Company’s condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

2019-12, Simplifying the Accounting for Income Taxes (ASU 2019-12), which eliminates certain exceptions to the guidance in Income Taxes (Topic 740) related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The new guidance also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.

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The adoption of this standard did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

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The Company is evaluating this new accounting standard but currently does not expect the adoption of this standard to have a material impact on its condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity.

Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models in ASC 470-20 that require separate accounting for embedded conversion features.

The ASU also removes certain settlement conditions in ASC 815-40 that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the scope exception and simplifies the diluted EPS calculation in certain areas.

The ASU is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted after December 15, 2020.

Adoption of the ASU can either be on a modified retrospective or full retrospective basis.

The Company is currently evaluating the impacts of ASU 2020-06 on its condensed consolidated financial statements and related disclosures.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities

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Investments in marketable securities consisted of the following (in thousands):

June 30, 2020

September 30, 2020

Cash equivalents

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Total cash equivalents and investments

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

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Gross unrealized gain (loss) is pre-tax.

The contractual term to maturity of short-term marketable securities held by the Company as of June 30, 2020 is less than one year .

There were no long-term marketable securities held by the Company as of June 30, 2020.

Realized gains and losses for the three and six months ended June 30, 2020 and 2019 were not significant.

None of the Company’s investments have been in a continuous unrealized loss position for more than 12 months as of June 30, 2020.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The contractual term to maturity of short-term marketable securities held by the Company as of September 30, 2020 is less than one year .

There were no long-term marketable securities held by the Company as of September 30, 2020.

Realized gains and losses for the three and nine months ended September 30, 2020 and 2019 were not significant.

None of the Company’s investments have been in a continuous unrealized loss position for more than 12 months as of September 30, 2020.

The following tables present the fair value of the Company’s financial assets measured at fair value on a recurring basis (in thousands):

June 30, 2020

September 30, 2020

Cash equivalents

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Total assets measured at fair value

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2019

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There were no transfers between Level 1, Level 2 or Level 3 during the periods presented.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Property and Equipment, Net

Property and equipment consist of the following (in thousands):

September 30,

Lab equipment

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Accumulated depreciation and amortization

Construction in progress

Property and equipment, net

Depreciation expense was $ 0.1 million and $ 0.2 million for the three and six months ended June 30, 2020, respectively and $ 0.1 million and $ 0.3 million for the three and six months ended June 30, 2019, respectively and was recorded in both research and development expense and general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

Primarily all of property and equipment of the Company is located in the U.S.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Depreciation expense was $ 0.1 million and $ 0.4 million for the three and nine months ended September 30, 2020 and 2019, respectively and was recorded in both research and development expense and general and administrative expense in the unaudited condensed consolidated statements of operations and comprehensive loss.

Substantially all of the Company’s property and equipment is located in the U.S.

Note 5 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

September 30,

Accrued expenses:

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Total accrued expenses

Accrued restructuring charges relate to the Company’s decision to relocate its headquarters to South San Francisco, California as approved by the Board of Directors in November 2019 and effective January 1, 2020.

Accrued restructuring charges relate to the Company’s decision to relocate its headquarters to South San Francisco, California, which was approved by the Board of Directors in November 2019 and effective January 1, 2020.

The Company accrued restructuring charges of $ 2.1 million in 2019 related to one-time severance payments and other employee-related costs associated with the relocation plan.

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Note 6 – Stockholders’ Equity

The Company is authorized to issue 5,000,000 shares of preferred stock as of June 30, 2020 and December 31, 2019, respectively.

As of June 30, 2020 and December 31, 2019, no shares of preferred stock were issued and outstanding.

The Company is authorized to issue 100,000,000 shares of common stock as of June 30, 2020 and December 31, 2019, respectively.

The Company is authorized to issue 5,000,000 shares of preferred stock as of September 30, 2020 and December 31, 2019, respectively.

As of September 30, 2020 and December 31, 2019, no shares of preferred stock were issued and outstanding.

The Company is authorized to issue 100,000,000 shares of common stock as of September 30, 2020 and December 31, 2019, respectively.

Sale of Common Stock and Pre-Funded Warrants

In December 2017, the Company filed a registration statement on Form S-3 with the SEC using a “shelf” registration statement, file No.

333-222366, which became effective January 10, 2018 (the Registration Statement).

Under this shelf registration process, the Company may from time to time sell any combination of the securities described in the Registration Statement in one or more offerings up to an aggregate offering price of $ 250.0 million.

In connection with the filing of this Registration Statement, the Company entered into a sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 75.0 million through “at the market offerings” (ATM).

As of June 30, 2020, no shares have been sold under the ATM program and $ 21.4 million remains available for sale under this Registration Statement.

In December 2017, the Company filed a shelf registration statement on Form S-3 with the SEC, File No.

333-222366, that became effective January 10, 2018 (the 2018 Registration Statement).

The 2018 Registration Statement gave the Company the ability to sell any combination of the securities described in the 2018 Registration Statement in one or more offerings up to an aggregate offering price of $ 250.0 million.

In connection with the filing of the 2018 Registration Statement, the Company entered into a sales agreement that gave the Company the ability to sell shares of its common stock having an aggregate offering price of up to $ 75.0 million through “at the market offerings” (the 2017 ATM).

The 2017 ATM was terminated effective September 6, 2020, and no shares were sold under the 2017 ATM prior to the termination.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

In December 2019, the Company sold to various investors an aggregate of 6,287,878 shares of common stock at a public offering price of $ 16.50 per share, which included the exercise in full by the underwriters of their option to purchase 1,136,363 additional shares of common stock, and pre-funded warrants to purchase 2,424,242 shares of common stock at a public offering price of $ 16.499 per warrant.

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Both the pre-funded warrants and the Warrant Shares are registered securities.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-in-capital and were recorded at the issuance date using a relative fair value allocation method.

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The Company valued the pre-funded warrants at issuance, concluding their sales price approximated their fair value, and allocated net proceeds from the sale proportionately to the common stock and pre-funded warrants of which $ 37.5 million was allocated to the pre-funded warrants and recorded as a component of additional paid-in-capital.

In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, File No.

333-248469, that became effective on September 4, 2020 (the 2020 Registration Statement).

The Company may from time to time sell any combination of the securities described in the 2020 Registration Statement in one or more offerings up to an aggregate offering price of $ 300.0 million.

In connection with the filing of the 2020 Registration Statement, the Company entered into a sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $ 100.0 million through “at-the-market” offerings (2020 ATM), which shares are included in the $ 300.0 million of securities registered pursuant to the 2020 Registration Statement.

As of September 30, 2020, no shares have been sold under the 2020 Registration Statement.

The Company carried forward registration fees paid with respect to $ 21.4 million of securities that remained available under the 2018 Registration Statement.

As such, as of the effectiveness of the 2020 Registration Statement, the 2018 Registration Statement was deemed terminated.

Common Stock Warrants

As of June 30, 2020 and December 31, 2019 the following warrants to purchase shares of the Company’s common stock were issued and outstanding:

The following warrants to purchase shares of the Company’s common stock were issued and outstanding:

Exercise Price

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September 10, 2010

September 10, 2020

December 16, 2019

There were no warrants exercised during the three and six months ended June 30, 2020 or 2019.

There were no warrants exercised during the three and nine months ended September 30, 2020 or 2019.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 7 – Stock Plans and Stock-Based Compensation

5 unchanged sentences

In June 2020, the Company’s stockholders approved an amendment to the 2018 Plan that increased the aggregate number of shares of common stock reserved under the 2018 Plan to 4,600,000 .

As of June 30, 2020, the Company had awards outstanding under the following shareholder-approved plans:

As of September 30, 2020, the Company had awards outstanding under the following shareholder-approved plans:

2010 Equity Incentive Plan (the 2010 Plan), which has been frozen;

2 unchanged sentences

Shares of common stock underlying awards that are forfeited under the 2010 Plan on or after June 2, 2016 will become available for issuance under the 2014 Plan.

As of June 30, 2020, the Company also had awards outstanding under the Assembly Biosciences, Inc.

As of September 30, 2020, the Company also had awards outstanding under the Assembly Biosciences, Inc.

2017 Inducement Award Plan (the 2017 Plan), the Assembly Biosciences, Inc.

3 unchanged sentences

The Company also issues new shares of common stock in connection with purchases of shares of common stock by eligible employees under the Company’s 2018 ESPP.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Plan Activity

Stock Options

A summary of the Company’s option activity and related information for the six months ended June 30, 2020 is as follows:

A summary of the Company’s option activity and related information for the nine months ended September 30, 2020 is as follows:

Outstanding as of December 31, 2019

Outstanding as of June 30, 2020

Options vested and exercisable as of June 30, 2020

The weighted-average grant-date fair value of options granted was $ 10.52 and $ 12.68 during the six months ended June 30, 2020 and 2019, respectively.

The total intrinsic value of options exercised during the six months ended June 30, 2020 and 2019 was $ 1.0 million and $ 0.7 million, respectively.

A summary of the Company’s RSUs and related information for the six months ended June 30, 2020 is as follows:

Outstanding as of September 30, 2020

Options vested and exercisable as of September 30, 2020

The weighted-average grant-date fair value of options granted was $ 11.01 and $ 10.79 during the nine months ended September 30, 2020 and 2019, respectively.

The total intrinsic value of options exercised during the nine months ended September 30, 2020 and 2019 was $ 2.0 million and $ 1.6 million, respectively.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

A summary of the Company’s RSUs and related information for the nine months ended September 30, 2020 is as follows:

Value Per RSU

1 unchanged sentence

Nonvested as of December 31, 2019

Nonvested as of June 30, 2020

Nonvested as of September 30, 2020

Includes 140,000 RSUs that have vested but are subject to deferred settlement, which have a weighted average remaining contractual term of 2.4 years.

The total fair value of RSUs vested and settled during the six months ended June 30, 2020 and 2019 was $ 3.1 million and $ 2.9 million, respectively.

The total intrinsic value of RSUs vested and settled during the six months ended June 30, 2020 and 2019 was $ 1.6 million and $ 1.3 million, respectively.

As of June 30, 2020, RSUs outstanding include 45,000 RSUs granted in December 2017 and 100,000 RSUs granted in September 2019 to executives of the Company with performance-based conditions vesting conditions.

As of June 30, 2020, the performance condition for the 45,000 RSUs granted in December 2017 was deemed probable of being met and was subsequently achieved in July 2020.

The Company recognized $ 0.7 million as a cumulative catch-up adjustment of stock-based compensation expense for this award for the three and six months ended June 30, 2020.

The remaining 100,000 awards with an aggregate fair value of $ 1.2 million vest upon performance conditions not yet deemed probable and accordingly no stock-based compensation expense has been recognized as of June 30, 2020.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Employees purchased 42,266 and 36,804 shares of common stock under the 2018 ESPP during the six months ended June 30, 2020 and 2019, respectively.

The total fair value of RSUs vested and settled during the nine months ended September 30, 2020 and 2019 was $ 6.2 million and $ 3.6 million, respectively.

The total intrinsic value of RSUs vested and settled during the nine months ended September 30, 2020 and 2019 was $ 3.9 million and $ 1.8 million, respectively.

As of September 30, 2020, RSUs outstanding include 100,000 RSUs granted in September 2019 to the Company’s chief executive officer with performance-based conditions vesting conditions.

The 100,000 awards with an aggregate fair value of $ 1.2 million vest upon performance conditions not yet deemed probable and accordingly no stock-based compensation expense has been recognized as of September 30, 2020.

In July 2020, the performance condition for 45,000 RSUs granted in December 2017 to an executive officer was met.

The Company recognized $ 0.7 million as a cumulative catch-up adjustment of stock-based compensation expense for this award for the nine months ended September 30, 2020.

Employees purchased 42,266 and 36,804 shares of common stock under the 2018 ESPP during the nine months ended September 30, 2020 and 2019, respectively.

Valuation Assumptions

The fair value of the stock options granted or modified during the periods indicated was estimated using the Black-Scholes option pricing model, based on the following assumptions:

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Exercise price

17 unchanged sentences

The fair value of ESPP purchase rights were not material for any period presented.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Expense

The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Research and development

2 unchanged sentences

Includes the reversal of previously recognized stock-based compensation expense of $ 3.6 million related to forfeited awards resulting from the departure of one of the Company’s former officers during the period.

As of June 30, 2020, there was $ 32.2 million of total unrecognized stock-based compensation related to outstanding equity awards which is expected to be recognized over a weighted average remaining amortization period of 1.8 years.

As of September 30, 2020, there was $ 27.8 million of total unrecognized stock-based compensation related to outstanding equity awards which is expected to be recognized over a weighted average remaining amortization period of 1.8 years.

Note 8 - Collaboration Agreements

Allergan Agreement

In January 2017, the Company entered into the Allergan Agreement with Allergan to develop and commercialize select microbiome gastrointestinal disease therapies.

The terms and conditions as well as the accounting analysis for the Allergan Agreement are described in Note 8 “Collaboration Agreement” to the consolidated financial statements in the Company’s Annual Report on Form 10-K.

In June 2020, following its acquisition of Allergan, AbbVie, on behalf of Allergan, gave written notice of termination of the Allergan Agreement, which subsequently became effective on October 10, 2020.

Upon termination, the licenses granted by the Company and its know-how reverted to the Company.

Under the terms of the Allergan Agreement, AbbVie is obligated to continue to reimburse the Company for certain research and development costs through October 10, 2020.

Upon effectiveness of the termination, such reimbursements will cease.

Due to the delivery of the termination notice, the Company determined there were no further enforceable rights and obligations under the Allergan Agreement beyond June 2020 and the remaining $ 36.0 million of deferred revenue was recognized in the period.

For the three months ended September 30, 2020, the Company recognized $ 3.6 million in collaboration revenue associated with the Allergan Agreement, none of which had been included in deferred revenue at the beginning of the period.

For the nine months ended September 30, 2020, the Company recognized $ 47.1 million in collaboration revenue associated with the Allergan Agreement, of which $ 37.0 million was included in deferred revenue as of the beginning of the period.

For the three and nine months ended September 30, 2019, the Company recognized $ 4.2 million and $ 11.2 million in revenue, respectively, of which $ 1.2 million and $ 2.2 million, respectively, had been included in deferred revenue at the beginning of the period.

Short-term and long-term deferred revenue contract liabilities related to the Allergan Agreement were $ 6.4 million and $ 30.6 million as of December 31, 2019.

There were no deferred revenue contract liabilities as of September 30, 2020 due to the Company recognizing a cumulative catch-up adjustment of the remaining deferred revenue balance during the nine months ended September 30, 2020 for the determined completion of the Company’s performance obligations under the Allergan Agreement upon receipt of the notice of termination from AbbVie.

Contract asset balances of $ 3.6 million and $ 3.4 million were recorded as accounts receivable from collaboration on the condensed consolidated balance sheets as of September 30, 2020 and December 31, 2019, respectively.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 8 - Collaboration Agreement

Termination of Allergan Collaboration Agreement

In January 2017, the Company entered into the Allergan Collaboration Agreement with Allergan to develop and commercialize select microbiome gastrointestinal disease therapies.

Pursuant to the Allergan Collaboration Agreement, the Company granted to Allergan an exclusive worldwide license to certain of its intellectual property, including its intellectual property arising under the Allergan Collaboration Agreement, to develop and commercialize licensed compounds for UC, Crohn’s disease, and two compounds for IBS.

Allergan and the Company also agreed to collaborate on research and development activities with respect to the licensed compounds in accordance with a mutually agreed upon research and development plan.

Per the terms of the Allergan Collaboration Agreement, Allergan could select backups and additional target indications to add to the licenses granted for additional consideration and also had the ability to enter into a contract manufacturing agreement with the Company for compound supply at cost plus an agreed upon margin.

In addition, the Company participated in a Joint Development Committee (JDC) and Joint Patent Committee (JPC).

Allergan had the right to terminate the Allergan Collaboration Agreement at any time upon advance written notice.

In June 2020, following its acquisition of Allergan, AbbVie, on behalf of Allergan, gave written notice of termination of the Allergan Collaboration Agreement, effective 120 days following the delivery of notice, on October 10, 2020.

Upon termination, the licenses granted by the Company and its know-how will revert to the Company.

Under the terms of the Allergan Collaboration Agreement, AbbVie is obligated to continue to reimburse the Company for certain research and development costs through October 10, 2020.

Upon effectiveness of the termination, such reimbursements will cease.

Due to the delivery of the termination notice, the Company determined that there were no further enforceable rights and obligations under the Allergan Collaboration Agreement beyond June 2020 and the remaining $ 36.0 million of deferred revenue was recognized in the period.

History of the Allergan Collaboration Agreement

Allergan paid the Company an upfront non-refundable payment of $ 50.0 million, which was received in 2017.

Additionally, the Company is eligible to receive variable consideration in the form of research and development cost reimbursements, up to $ 631.0 million related to seven development milestones and up to $ 2.14 billion related to 12 commercial development and sales milestones in connection with the successful development and commercialization of licensed compounds.

In addition, the Company was eligible to receive tiered royalties at rates ranging from the mid-single digits to the mid-teens based on net sales.

Allergan and the Company agreed to share research and development costs up to an aggregate of $ 75.0 million through proof-of-concept (POC) studies on a ⅔, ⅓ basis, respectively, and Allergan agreed to assume all post-POC development costs.

In the event any pre-POC development costs exceed $ 75.0 million in the aggregate, the Company could have elected either (a) to fund ⅓ of such costs in excess of $ 75.0 million or (b) to allow Allergan to deduct from future development milestone payments ⅓ of the development costs funded by Allergan in excess of $ 75.0 million plus a premium of 25 %.

The Company had an option to co-promote the licensed programs in the U.S.

and China, subject to certain conditions set forth in the Allergan Collaboration Agreement.

The Company concluded that Allergan was a customer, and the contract was not subject to accounting literature on collaborative arrangements.

This is because the Company granted to Allergan licenses to its intellectual property and research and development services, all of which are outputs of the Company’s ongoing activities, in exchange for consideration.

The Company identified the following material promises under the Allergan Collaboration Agreement:

(1) grant of licenses to intellectual property for the four initial indications, inclusive of the related technology know-how (Licenses) and (2) the obligation to perform research development services through POC (Development Services).

The Company’s participation on the JDC and JPC were considered to be immaterial in the context of the contract.

The Company’s co-promotion option was not considered to be a performance obligation.

Allergan’s selection of backups or additional target indications to add to the licenses granted for additional consideration and ability to enter into a contract manufacturing agreement with the Company for compound supply at cost plus an agreed upon margin were not considered to be performance obligations as the Company concluded the options were not offered at a discount that exceeds discounts available to other customers, and therefore were not material rights.

The grant of additional licensing rights upon option exercises and contract manufacturing agreements were to be accounted for as separate contracts when or if they occurred.

BeiGene Agreement

In July 2020, the Company and BeiGene entered into the BeiGene Agreement to develop and commercialize the Company’s novel core inhibitor product candidates VBR, ABI-H2158 and ABI-H3733 for chronic HBV infection (the Licensed Product Candidates) in the People’s Republic of China, Hong Kong, Taiwan and Macau (the Territory).

Under the agreement, the Company and BeiGene are collaborating on certain global clinical studies and both the Company and BeiGene will independently conduct other clinical studies in their own respective territories.

BeiGene agreed to pay all development and regulatory costs for the Licensed Product Candidates in the Territory up to an aggregate of $ 45.0 million.

Development and regulatory costs for the Licensed Product Candidates for the Territory in excess of $ 45.0 million will be shared equally by the Company and BeiGene.

If the Company conducts certain ancillary trials outside of the plan to develop these candidates in the Territory, BeiGene may elect to obtain access to the know-how and clinical data resulting for such ancillary trials and shall reimburse the Company proportionally for the Territory of the costs of such trials.

Activities under the BeiGene Agreement will be governed by a joint steering committee (JSC) consisting of equal representatives from each party to the agreement.

All decisions of the JSC are to be made by consensus with final decision-making authority granted to each party based on key areas of the collaboration for which they are responsible.

During the term of the BeiGene Agreement, neither party will commercialize any competing products in the Territory.

The Company will be responsible for manufacturing and supply of the candidates to be used in and outside of the Territory, although the parties may approve BeiGene to take on some or all of the commercial supply activities of the applicable Licensed Products in the Territory.

The Company is not obligated to perform pre-phase 3 clinical trial development work outside the Territory on ABI-H2158 and ABI-H3733 but must provide BeiGene pre-Phase 3 clinical trial knowhow and development results if and when such development efforts are completed.

If, after ABI-H2158 and ABI-H3733 reach the end of Phase 2 clinical trials, the Company and BeiGene are unable to mutually agree on the terms of a Phase 3 global study, BeiGene may elect to terminate the BeiGene Agreement solely as it relates to that compound, as applicable.

Such a termination would result in the Company regaining all rights to the applicable compound in the Territory.

In addition, BeiGene may terminate the BeiGene Agreement for convenience at any time upon 90 days’ advance written notice to us.

The BeiGene Agreement also contains customary provisions for termination by either party, including in the event of breach of the BeiGene Agreement, subject to cure.

Pursuant to the terms of the BeiGene Agreement, the Company received an upfront cash payment of $ 40.0 million from BeiGene for the delivery of exclusive, royalty-bearing licenses to develop and commercialize the Licensed Product Candidates in the Territory, and the Company is eligible to receive up to approximately $ 500.0 million in cash milestone payments, comprised of up to $ 113.8 million for development and regulatory milestones and up to $ 385.0 million in net sales milestones.

In addition, the Company is eligible to receive tiered royalties at percentages ranging from the mid-teens to the low thirties of net sales.

The BeiGene Agreement is within the scope of the collaborative arrangements guidance as both parties are active participants and are exposed to significant risks and rewards dependent on the success of commercializing the Licensed Product Candidates in the Territory but that the unit of account related to the delivery of Licensed Product Candidates is within the scope of the contract with customers guidance.

The remaining units of account related to participation on the JSC and subcommittees, clinical supply and other in Territory and global development activities (the Collaboration Activities) are within the scope of the collaborative arrangements guidance.

Commercial supply will be evaluated as a separate contract when the agreement is executed and a purchase order is received from BeiGene.

The Company identified the following material promises related to the contract with customers unit of account under the BeiGene Agreement :

1) the transfer of the VBR License, 2) the transfer of the ABI-H2158 License , and 3) the transfer of the ABI-H3733 License.

The Company concluded each of these licenses to be functional as they have significant standalone functionality and grants BeiGene the right to use the Company’s intellectual property as it exists on the effective date of the license .

The ABI-H2158 and ABI-H3733 Licenses have a continuing technology transfer obligation that is considered to be an attribute of these licenses.

The agreed upon prices for the clinical and commercial supply of the Licensed Product Candidates to BeiGene do not represent material rights, and therefore are not performance obligations, and such pricing on an aggregate basis represents the standalone selling price an entity would typically pay for such a product in that region or market.

There are also no minimum purchase commitments.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The Company concluded the Licenses each were considered to be functional as they ha d significant standalone functionality and were capable of being distinct.

However, the Company determined that each of the Licenses individually were not distinct from the Development Services within the context of the agreement.

This is because Allergan wa s dependent on the Company to execute the Development Services, which it wa s uniquely able to perform, in order for Allergan to benefit from the Licenses.

As such, the Company determined that it ha d four performance obligations under the Allergan Collaboration Agreement associated with the grant of the four compound Licenses combined with the performance of the Development Services for each of the four compound indications.

The Company determined that the four performance obligations would have been performed over the duration of the contract, which began in February 2017 and ended upon receipt of the termination notice .

The Company used a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize.

The Company believe d this was the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Allergan.

In applying the cost-based input method of revenue recognition, the Company measure d costs incurred relative to budgeted costs to fulfill the four performance obligations.

These costs consist ed primarily of third-party contract costs and internal labor costs.

Revenue was recognized based on actual costs incurred as a percentage of total budgeted costs as the Company complete d its performance obligations.

To allocate transaction price among the four performance obligations, the Company estimated their standalone selling price (SSP) using an income-based valuation approach for the estimated value a licensor of the compounds would receive considering the stage of the compounds’ development.

A change in the assumptions used to determine its best estimate of selling price for the four performance obligations would not have had a significant effect on the allocation of consideration received to the four performance obligations.

The transaction price at the inception of the agreement and upon adoption of the revenue from contracts with customers guidance was limited to $ 50.0 million upfront payment.

Of this amount, the Company allocated $ 12.5 million to each of the four performance obligations.

Research and development cost reimbursement payments are included in the transaction price in the reporting period that the Company concludes that it is probable that recording revenue in the period will not result in a significant reversal in amounts recognized in future periods.

The variable consideration related to the remaining development and commercialization milestone payments has not been included in the transaction price as these were fully constrained at June 30, 2020.

As part of the Company’s evaluation of the development and commercialization milestones constraint, the Company determined that the achievement of such milestones is contingent upon success in future clinical trials and regulatory approvals which are not within its control and uncertain at this stage.

Any variable consideration related to sales-based milestones (including royalties) would have been recognized when the related sales occur as they were determined to relate predominantly to the license granted to Allergan.

The Company re-evaluated the transaction price in each reporting period and as uncertain events were resolved or other changes in circumstances occur.

The Company did not incur any significant incremental costs of obtaining the Allergan contract.

For the six months ended June 30, 2020 and 2019, the Company recognized $ 43.5 million and $ 7.0 million, respectively, in revenue associated with the Allergan Collaboration Agreement.

Short-term and long-term deferred revenue contract liabilities related to the Allergan Collaboration Agreement were $ 6.4 million and $ 30.6 million at December 31, 2019.

There were no deferred revenue contract liabilities as of June 30, 2020 due to the Company recognizing a cumulative catch-up adjustment of the remaining deferred revenue balance during the three months ended June 30, 2020 for the determined completion of the Company’s performance obligations under the Allergan Collaboration Agreement upon receipt of the notice of termination from AbbVie.

On the unaudited condensed consolidated balance sheets, contract asset balances of $ 3.3 million and $ 3.4 million were recorded as accounts receivable from collaboration as of June 30, 2020 and December 31, 2019, respectively.

The Company estimated the standalone selling price (SSP) of the Licenses using an income-based valuation approach for the estimated value a licensor of the compounds would receive considering the stage of the compound’s development.

The Company believes a change in the assumptions used to determine its best estimate of SSP would not have a significant value on the allocation of consideration received.

The transaction price at the inception of the agreement was limited to the $ 40.0 million upfront payment.

As part of the Company’s evaluation of the development and commercialization milestones constraint, the Company determined the achievement of such milestones are contingent upon success in future clinical trials and regulatory approvals which are not within its control and uncertain at this stage.

Any variable consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the Licensed Product Candidates granted to BeiGene.

The Company will reevaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.

During the three and nine months ended September 30, 2020, the Company recognized $ 31.0 million as collaboration revenue for the amount allocated to the VBR License as substantial completion of the license technology transfer has occurred.

The remaining transaction price allocated to the ABI-H2158 and ABI-H3733 Licenses of $ 9.0 million was recorded as a long-term deferred revenue contract liability on the unaudited condensed consolidated balance sheet as of September 30, 2020.

Revenue for these performance obligations will be recognized when the Company provides pre-Phase 3 clinical trial know-how and development results for these compounds to BeiGene or a termination of the BeiGene Agreement for the respective compound.

Payments to, or reimbursements from, BeiGene related to the Collaboration Activities will be accounted for as an increase to or reduction of research and development expenses when incurred or realized, respectively.

During the three and nine months ended September 30, 2020, the Company did no t recognize any increase or reduction of research and development expense under the BeiGene Agreement.

The Company incurred $ 3.5 million in incremental costs of obtaining the BeiGene Agreement.

These contract costs have been capitalized and are being recognized consistent with the pattern of recognition of revenue associated with the Licensed Product Candidates.

As of September 30, 2020, $ 2.7 million has been amortized to general and administrative expenses and $ 0.8 million is included in other assets on the condensed consolidated balance sheet.

Arbutus Agreement

In August 2020, the Company and Arbutus Biopharma Corporation (Arbutus) entered into a Collaboration Agreement (Arbutus Agreement) to conduct a randomized, multi-center, open-label Phase 2 clinical trial to explore the safety, PK and antiviral activity of the triple combination of VBR, AB-729 and an NrtI compared to the double combinations of VBR with an NrtI and AB-729 with an NrtI.

Assembly and Arbutus will share responsibility for the costs of the trial equally, excluding manufacturing supply which will be the burden of each company to supply their respective drugs VBR and AB-729.

The Arbutus Agreement is within the scope of the collaborative arrangements guidance as both parties are active participants and are exposed to significant risks and rewards dependent on the success of the collaborative activity.

Arbutus is not a customer as it does not obtain an output from the collaborative activities as they were not provided an exclusive license to VBR or the ability to manufacture VBR, and the Company does not consider performing such collaborative activities to be a part of its ongoing activities.

The revenue from contracts with customers guidance was considered by analogy in determining the unit of account, and the recognition and measurement of such unit of account for collaborative activities under the Arbutus Agreement and concluded there is one activity, to run an open-label Phase 2 clinical trial, which is akin to performance obligation related to collaborative activities.

Reimbursements and cost-sharing portions of this performance obligation will be reflected as a reduction of research and development expense when realized in the Company’s condensed consolidated statements of operations, as the Company does no t consider performing research and development services for reimbursement to be a part of its ongoing major or central operations

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contract Liabilities

The following table presents changes in the Company’s contract liabilities (in thousands):

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Contract liabilities:

Deferred revenue

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Contract liabilities:

Deferred revenue

Three Months Ended June 30,

Six Months Ended June 30,

Collaboration revenue recognized in the period from

Amounts included in deferred revenue at the beginning of the period

Performance obligations satisfied in previous period

Note 9 - Milestones and Research Agreements

3 unchanged sentences

The aggregate amount of all performance milestone payments under the IURTC license agreement, should all milestones through development be met, is $ 0.8 million, with a portion related to the first performance milestone having been paid.

The Company is obligated to pay IURTC royalty payments based on net sales of the licensed technology.

The Company is obligated to pay IURTC royalty payments based on net sales of the licensed technology as well as a portion of any sublicensing revenue Assembly receives.

The Company is also required to pay diligence maintenance fees each year to the extent that the royalty, sublicensing, and milestone payments to IURTC are less than such fees for that year.

Amounts paid in the six months ended June 30, 2020 and 2019 were insignificant.

A performance milestone totaling $ 0.1 million was determined to have occurred under this agreement and was paid during the three and nine months ended September 30, 2020.

Additionally, the Company paid IURTC $ 0.7 million as a sublicensing fee during the three and nine months ended September 30, 2020.

The milestone and license fees are included in research and development expenses in the condensed consolidated statements of operations and comprehensive loss.

Amounts paid in the nine months ended September 30, 2019 were insignificant.

Microbiome Targeted Colonic Delivery Platform

6 unchanged sentences

Therabiome must pay the Company royalties on annual net sales of any product Therabiome is permitted to develop using the intellectual property in the low double to mid-double-digit percentages, depending on the level of development or involvement the Company had in the product.

No amounts were accrued for this agreement as of and for the nine months ended September 30, 2020.

Two regulatory milestones totaling $ 0.3 million were determined to have occurred under this agreement and were paid during the nine months ended September 30, 2019.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

No amounts were accrued for this agreement as of and for the six months ended June 30, 2020.

Two regulatory milestones were determined to have occurred under this agreement and $ 0.3 million was accrued and included in accrued expenses during the six months ended June 30, 2019.

Note 10 - Leases

10 unchanged sentences

The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease within a particular currency environment.

At June 30, 2020, the Company had operating lease liabilities of $ 11.1 million and ROU assets of $ 10.8 million, which were included in the condensed consolidated balance sheet.

At September 30, 2020, the Company had operating lease liabilities of $ 10.8 million and ROU assets of $ 10.4 million, which were included in the condensed consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases (in thousands):

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

Operating lease cost

2 unchanged sentences

Total lease cost

Six Months Ended June 30,

Nine Months Ended September 30,

Operating cash flows from operating leases

ROU assets exchanged for new operating lease liabilities

As of June 30, 2020 and December 31, 2019, the weighted-average remaining lease term for operating leases was 3.3 years and 2.7 years, respectively.

As of June 30, 2020 and December 31, 2019, the weighted-average discount rate for operating leases was 9.5 % and 9.4 %, respectively.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of June 30, 2020, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

Six months ending December 31, 2020

As of September 30, 2020 and December 31, 2019, the weighted-average remaining lease term for operating leases was 3.0 years and 2.7 years, respectively.

As of September 30, 2020 and December 31, 2019, the weighted-average discount rate for operating leases was 9.3 % and 9.4 %, respectively.

As of September 30, 2020, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

Three months ending December 31, 2020

Year Ending December 31, 2021

3 unchanged sentences

Operating lease liabilities

Note 11 – Subsequent Events

On July 17, 2020, the Company entered into a Collaboration Agreement (China Collaboration Agreement) with BeiGene, Ltd.

(BeiGene), granting BeiGene an exclusive, royalty-bearing license to develop and commercialize the Company’s novel core inhibitor product candidates ABI-H0731, ABI-H2158 and ABI-H3733 for chronic HBV infection (the Licensed Product Candidates) in the People’s Republic of China, Hong Kong, Taiwan and Macau (the Territory).

Pursuant to the terms of the China Collaboration Agreement, the Company received an upfront cash payment of $ 40.0 million from BeiGene, and the Company is eligible to receive up to approximately $ 500.0 million in cash milestone payments, comprised of up to $ 113.8 million for development and regulatory milestones and up to $ 385.0 million in net sales milestones.

In addition, the Company is eligible to receive tiered royalties at percentages ranging from the mid-teens to the low thirties of net sales.

BeiGene also agreed to pay all development and regulatory costs for the Licensed Product Candidates in the Territory up to an aggregate of $ 45.0 million.

Development and regulatory costs for the Licensed Product Candidates for the Territory in excess of $ 45.0 million will be shared equally by the Company and BeiGene.

The China Collaboration Agreement also contains provisions such as representations and warranties of the parties, terms as to governance of the collaboration, commercialization and regulatory responsibilities of the parties, and manufacturing and supply, including potential adjustments in the event supply costs exceed certain levels.

In addition, during the term of the China Collaboration Agreement, neither party will commercialize any competing products in the Territory.

If, after ABI-H2158 and ABI-H3733 reach the end of Phase 2 clinical trials, the Company and BeiGene are unable to mutually agree on the terms of a Phase 3 global study, BeiGene may elect to terminate the China Collaboration Agreement solely as it relates to that compound, as applicable.

Such a termination would result in the Company regaining all rights to the applicable compound in the Territory.

In addition, BeiGene may terminate the China Collaboration Agreement for convenience at any time upon 90 days’ advance written notice to us.

The China Collaboration Agreement also contains customary provisions for termination by either party, including in the event of breach of the China Collaboration Agreement, subject to cure.

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