What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2021-02-25 compared with 2020-03-04 · 484 added, 301 removed, 758 unchanged (51% of the section changed)

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If we make any substantive amendments to, or grant any waivers from, the Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.

Section 16(a) Beneficial Ownership Reporting Compliance

Pursuant to Section 16(a) of the Securities Exchange Act, our directors and executive officers are required to file reports with the SEC indicating their holdings of and transactions in our equity securities.

To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that our officers, directors and holders of more than 10% of our common stock complied with all applicable filing requirements during the fiscal year ended December 31, 2019.

Executive Compensation

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The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.

Exhibits, Finan cial Statement Schedules

Exhibits, Financial Statement Schedules

(a) Exhibits.

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Description of Document

Fourth Amended and Restated Certificate of Incorporation dated May 31, 2018.

Amended and Restated Bylaws as amended through August 6, 2019.

Fifth Amended and Restated Certificate of Incorporation dated June 11, 2020.

Amended and Restated Bylaws as amended through January 22, 2021.

Specimen of Common Stock Certificate.

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Exclusive License Agreement dated September 3, 2013 by and between The Indiana University Research and Technology Corporation and Assembly Pharmaceuticals, Inc.

License and Collaboration Agreement dated November 8, 2013, by and between Ventrus Biosciences, Inc.

and Therabiome, LLC.

Research, Development, Collaboration and License Agreement dated January 6, 2017 between Assembly Biosciences, Inc.

and Allergan Pharmaceuticals International Limited.

Description of Document

Amendment No.

1 to Exclusive License Agreement, by and between Assembly Biosciences, Inc.

and the Indiana University Research and Technology Corporation.

Amendment No.

2 to Exclusive License Agreement, by and between Assembly Biosciences, Inc.

and the Indiana University Research and Technology Corporation.

Collaboration Agreement, dated as of July 17, 2020, by and between Assembly Biosciences, Inc.

and BeiGene, Ltd.

Employment Agreement, dated August 6, 2019, between Assembly Biosciences, Inc.

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Russo, effective as of October 28, 2019.

Amendment No.

1 to Employment Agreement, dated February 26, 2020, between Assembly Biosciences, Inc.

and Thomas J.

Employment Agreement, dated October 22, 2019, between Assembly Biosciences, Inc.

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effective as of November 6, 2019.

Employment Agreement, dated December 17, 2015, between Assembly Biosciences, Inc.

and Richard Colonno, Ph.D., effective as of January 5, 2016.

Amendment No.

1 to Employment Agreement, dated October 10, 2018, between Assembly Biosciences, Inc.

and Richard Colonno, Ph.D.

Amended and Restated Employment Agreement, dated October 10, 2018, between Assembly Biosciences, Inc.

and Jackie Papkoff, Ph.D.

1 to Employment Agreement, dated February 26, 2020, between Assembly Biosciences, Inc.

Stamm, M.D., Ph.D.

Employment Agreement, dated March 23, 2020, between Assembly Biosciences, Inc.

Okazaki, effective as of March 26, 2020.

Employment Agreement, dated May 1, 2020, between Assembly Biosciences, Inc.

and William E.

Delaney IV, Ph.D., effective as of May 27, 2020.

2010 Equity Incentive Plan .

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Amended and Restated 2014 Stock Incentive Plan.

Omnibus Amendment to Assembly Biosciences, Inc.

Stock Incentive Plans.

Form of Notice of Stock Option Grant and Stock Option Agreement under Amended and Restated 2014 Stock Incentive Plan.

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Assembly Biosciences, Inc.

2017 Inducement Award Plan (the 2017 Inducement Award Plan).

2017 Inducement Award Plan.

Form of Notice of Stock Option Grant and Stock Option Agreement under the 2017 Inducement Award Plan.

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2018 Stock Incentive Plan .

Description of Document

Amendment No.

3 to Assembly Biosciences, Inc.

2018 Stock Incentive Plan.

Form of Notice of Stock Option Grant and Stock Option Agreement under the 2018 Stock Incentive Plan.

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2018 Employee Stock Purchase Plan.

Description of Document

Assembly Biosciences, Inc.

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Form of Notice of Stock Option Grant and Stock Option Agreement under the 2019 Inducement Award Plan.

Separation Agreement, dated August 6, 2019, between Assembly Biosciences, Inc.

Consulting Agreement, effective January 1, 2020, between Assembly Biosciences, Inc.

Separation Agreement, dated May 6, 2019, between Assembly Biosciences, Inc.

Lopatin, M.D..

Consulting Agreement, effective May 7, 2019, between Assembly Biosciences, Inc.

Lopatin, M.D..

Assembly Biosciences, Inc.

2020 Inducement Award Plan.

Form of Notice of Stock Option Grant and Stock Option Agreement under the 2020 Inducement Award Plan.

Form of Restricted Stock Unit Award Notice and Restricted Stock Unit Award Agreement under the 2020 Inducement Award Plan.

Assembly Biosciences, Inc.

2020 Corporate Bonus Plan.

List of Subsidiaries of Assembly Biosciences, Inc.

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Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

The schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

Portions of this exhibit that are both not material and would likely cause competitive harm to the registrant if publicly disclosed have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

Represents management contracts or compensatory plans or arrangements.

Portions of this exhibit (indicated by asterisks) have been omitted in accordance with the rules of the Securities and Exchange Commission.

The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are to be deemed furnished and shall not be deemed “filed” with the SEC and are not to be incorporated by reference into any filing of Assembly Biosciences, Inc.

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ASSEMBLY BIOSCIENCES, INC.

March 4, 2020

February 25, 2021

McHutchison, A.O., M.D.

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Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints John G.

McHutchison, A.O., M.D., Thomas J.

Russo, CFA and Elizabeth H.

Lacy, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.

Russo, CFA and Jason A.

Okazaki, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

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Chief Executive Officer, President and Director

March 4, 2020

February 25, 2021

McHutchison, A.O., M.D.

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Chief Financial Officer

March 4, 2020

February 25, 2021

(Principal Financial and Principal Accounting Officer)

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Chairman of the Board

March 4, 2020

February 25, 2021

/s/ Anthony E.

March 4, 2020

/s/ Mark Auerbach

March 4, 2020

Mark Auerbach

February 25, 2021

/s/ Gina Consylman

February 25, 2021

Gina Consylman

/s/ Richard D.

DiMarchi, Ph.D.

March 4, 2020

February 25, 2021

DiMarchi, Ph.D.

March 4, 2020

February 25, 2021

/s/ Susan Mahony, Ph.D.

March 4, 2020

February 25, 2021

Susan Mahony, Ph.D.

March 4, 2020

ASSEMBLY BIOSCIENCES, INC.

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generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 4, 2020 expressed an unqualified opinion thereon.

Adoption of New Accounting Standards

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No.

2016-02, Leases (Topic 842), and the related amendments, effective January 1, 2019, using the modified retrospective approach.

As discussed in Note 2 to the consolidated financial statements, the Company changed its method of accounting for revenue in 2018 due to the adoption of Accounting Standards Update (ASU) No.

2014-09, Revenue from Contracts with Customers (Topic 606), and the related amendments, effective January 1, 2018, using the modified retrospective method.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

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

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

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

Accrued clinical trial expenses

Description of the Matter

For the year ended December 31, 2020, the Company incurred $106.8 million of research and development expenses and recorded $4.4 million for accrued clinical trial expenses at December 31, 2020.

As described in Note 2 to the consolidated financial statements, the Company’s expense accruals for clinical trials are based on estimates of the services received and efforts expended pursuant to contracts with multiple contract research organizations (CROs) and manufacturing vendors that conduct and manage these activities on its behalf.

When billing terms under such contracts do not coincide with the timing of when the work is performed, management is required to make estimates of outstanding obligations to those third parties as of period end.

The accrual is based on a number of factors, including the time period over which services will be performed, enrollment of subjects, number of sites activated, and the level of effort to be expended in each period.

At period end, accrued clinical trial expenses are recorded based upon estimates of the proportion of work completed over the term of the individual clinical trial and manufacturing activities in accordance with signed agreements with the third parties.

If possible, the Company obtains information regarding unbilled services directly from these service providers and performs procedures to challenge these estimates based on their internal understanding of the services provided to date.

However, the Company may also be required to estimate these services based on information available to its internal clinical or administrative staff if such information is not able to be obtained timely from its services providers.

Auditing accrued clinical trial expenses is complex because of the judgments applied by management to determine the commencement and completion date of vendor tasks and the cost and extent of work performed during the reporting period for services not yet billed by contracted third-party vendors.

The testing of the Company’s accrued clinical trial expense models also involves a high level of effort to test the high volume of data used to determine the estimated accrual.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s process for estimating the accrued clinical trial expenses including controls over management’s assessment and measurement of clinical trial progress and related estimates of accrued clinical trial costs and the completeness and accuracy of underlying data used in the analysis.

To test the estimate of accrued clinical trial expenses, we performed audit procedures that included, among others, direct confirmation of contract terms and conditions with a sample of the Company’s third-party vendors.

We also confirmed the progress of contracted clinical activities with these third-party vendors and compared such data to the Company’s estimates of progress as reflected in their accrual models.

We further tested the accuracy of the calculations, the completeness of the data utilized, and the reasonableness of the assumptions used in management’s accrual models by testing actual invoices paid to date, agreeing inputs back to contractual terms and holding discussions with clinical or administrative staff outside of the finance function.

Procedures were performed to evaluate the reliability, completeness and relevance of management’s data by testing actual invoices paid and holding discussions with clinical or administrative staff outside of the finance function to corroborate progress and estimated level of expended effort incurred by the Company’s third-party vendors.

Further, we inspected material invoices received from third parties after the balance sheet date and evaluated whether services performed prior to the consolidated balance sheet date had been properly included in the accrual.

Revenue Recognition for the Collaborative Arrangement with BeiGene, Ltd.

Description of the Matter

As described in Note 9 to the consolidated financial statements, in July 2020, the Company entered into a collaboration agreement with BeiGene, Ltd.

(BeiGene) to develop and commercialize the Company’s product candidates in China for the treatment of chronic Hepatitis B virus infection (the BeiGene Agreement).

The BeiGene Agreement includes up-front fees, milestones, royalties, expense reimbursement, and potential cost share and profit sharing.

Management was required to use judgment to determine what part of the BeiGene Agreement was within the scope of the contract with customers guidance and what part of the agreement was within the scope of the collaborative arrangement guidance.

For the year ended December 31, 2020, the Company recognized $31.0 million as collaboration revenue and $9.0 million of long-term deferred revenue from the BeiGene Agreement.

Auditing the Company’s accounting for revenues from its BeiGene Agreement was especially challenging due to the complex and highly judgmental nature of evaluating the terms of the agreement, evaluating whether analogies to the revenue accounting or collaborative arrangements guidance are appropriate, and allocating the transaction price to the performance obligations.

How We Addressed the Matter in Our Audit

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over management’s assessment of the accounting treatment of the BeiGene Agreement and identification of performance obligations and application of the accounting guidance.

To test the accounting for revenue from the BeiGene Agreement, among other procedures, we tested and evaluated, the performance obligations identified and the allocation of transaction price to performance obligations.

We also assessed whether management’s evaluation of the portions of the BeiGene Agreement subject to the scope of the contract with customers accounting standard and collaborative arrangements accounting standard, as well as their analogies to the revenue from contracts with customers accounting standard or the portion of the BeiGene Agreement subject to the collaborative arrangements guidance, was an appropriate application of an accounting policy.

/s/ Ernst & Young LLP

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Redwood City, California

March 4, 2020

February 25, 2021

Report of Independent Registered Public Accounting Firm

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(the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019, and the related notes and our report dated March 4, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 25, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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Redwood City, California

March 4, 2020

February 25, 2021

ASSEMBLY BIOSCIENCES, INC.

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Marketable securities

Accounts receivable from collaboration

Accounts receivable from collaborations

Prepaid expenses and other current assets

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Property and equipment, net

Operating lease right-of-use assets

Operating lease right-of-use (ROU) assets

Indefinite-lived intangible asset

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Total current liabilities

Deferred rent

Deferred tax liabilities

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Loss from operations

Other income (expenses)

Interest and other income

Other income (expense), net

Total other income

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Other comprehensive income

Unrealized gain on marketable securities, net of tax

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

Comprehensive loss

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Issuance of common stock upon exercise of stock options

Unrealized gain on marketable securities, net of tax

Stock-based compensation

Balance as of December 31, 2017

Sale of common stock, net of underwriters' discount and costs

Issuance of common stock upon exercise of stock options

Issuance of common stock under Employee Stock Purchase Plan (ESPP)

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Balance as of December 31, 2019

Sale of common stock, net of commissions and fees

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 loss on marketable securities

Stock-based compensation

Balance as of December 31, 2020

See Accompanying Notes to the Consolidated Financial Statements

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Depreciation and amortization

Non-cash IPR&D expense

Stock-based compensation

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Changes in operating assets and liabilities:

Accounts receivable from collaboration

Accounts receivable from collaborations

Prepaid expenses and other current assets

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Operating lease liabilities

Net cash (used in) provided by operating activities

Net cash used in operating activities

Cash flows from investing activities

Purchases of property and equipment

Purchase of IPR&D

Purchases of marketable securities

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Proceeds from sale of marketable securities

Net cash used in investing activities

Net cash provided by (used in) investing activities

Cash flows from financing activities

Proceeds from common stock and pre-funded warrants sold, net of underwriters' discount and costs

Proceeds from common stock and pre-funded warrants sold, net of underwriters' discount, commissions and costs

Proceeds from the issuance of common stock under ESPP

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Note 1 - Nature of Business

Assembly Biosciences, Inc., together with its subsidiaries (Assembly or the Company), incorporated in Delaware in October 2005, is a clinical-stage biotechnology company advancing two innovative programs:

a novel class of oral therapeutic candidates for the treatment of hepatitis B virus (HBV) infection and a novel class of oral live microbial biotherapeutic candidates, which are designed to treat disorders associated with the microbiome.

The Company operates in one segment and, as of December 31, 2019, was headquartered in Carmel, Indiana with operations in South San Francisco, California and Groton, Connecticut.

Effective January 1, 2020, the Company changed its corporate headquarters to its South San Francisco, California facility.

The Company expects to continue maintaining its office in Carmel, Indiana for a period of time.

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

The Company’s research and development programs are pursuing multiple drug candidates that inhibit the HBV replication cycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of discovering and developing finite and curative therapies for patients with HBV.

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

The Company’s Microbiome program consists of a fully integrated platform that includes a disease-targeted strain isolation, identification, characterization and selection process, methods for strain purification and growth under current Good Manufacturing Practice (cGMP) conditions, and 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 capabilities, the Company is exploring product candidates for multiple disease indications, including ulcerative colitis (UC), Crohn’s disease and irritable bowel syndrome (IBS) with Allergan Pharmaceuticals International Limited (Allergan) in connection with its Research, Development, Collaboration, and License Agreement (the Collaboration Agreement), as well as immune-mediated and metabolic disorders and oncology, which indications the Company will pursue either internally or in collaboration with other parties.

In December 2020, the Company and its Board of Directors approved a plan to wind down its Microbiome program in order to prioritize and focus its resources entirely on discovering and developing finite and curative therapies for HBV.

The Microbiome program had been developing a novel class of oral live microbial biotherapeutics candidates designed to treat disorders associated with the microbiome.

The Company has not derived any revenue from product sales to date and currently has no approved products.

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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, the proceeds from the exercise of warrants and stock options, the issuance of debt, an upfront payment related to the Collaboration Agreement, and research and development cost reimbursements from the Collaboration Agreement.

Since inception, the Company’s operations have been financed primarily through the sale of equity securities, the proceeds from the exercise of warrants and stock options, the issuance of debt, and upfront payments related to collaboration agreements.

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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The Company cannot assure such funding will be available on reasonable terms, if at all.

If the Company is unable to generate enough revenue from the Collaboration Agreement when needed or to secure additional sources of funding and receive related 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.

Market volatility resulting from the 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 enough 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.

Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements

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Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying 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 under the 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 consolidated financial statements include estimates for the cost-based input of revenue recognition and standalone selling price estimates for allocation of transaction price to performance obligations revenue recognition, estimates of costs incurred but not yet invoiced for clinical trial accruals, recoverability and useful lives of our long-lived assets, the estimated fair value of our indefinite-lived intangible assets, the estimated fair value of our reporting unit for purposes of evaluating goodwill impairment, provisions for income taxes, amounts receivable under collaboration agreements, measurement of operating lease liabilities, and the fair value of stock options, stock appreciation rights, and 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.

It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

Other Risks and Uncertainties

In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.

To date, the Company’s operations have not been significantly impacted by the COVID-19 pandemic.

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 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.

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less at the time of purchase are considered to be cash equivalents.

All highly liquid investments, including money market funds, with original maturities of three months or less at the time of purchase are considered to be cash equivalents.

All of the Company’s cash equivalents have liquid markets and high credit ratings.

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Investments in Marketable Securities

The Company invests its excess cash in debt securities with high credit ratings including but not limited to money market funds, asset backed securities, securities issued by the U.S.

The Company invests its excess cash in debt securities with high credit ratings including but not limited to money market funds classified as cash equivalents, asset backed securities, securities issued by the U.S.

government and its agencies, corporate debt securities and commercial paper.

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Goodwill is evaluated for impairment on an annual basis as of October 1, and more frequently if indicators are present or changes in circumstances suggest that impairment may exist.

In performing each annual impairment assessment and any interim impairment assessment, the Company determines if it should qualitatively assess whether it is more likely than not that the fair value of goodwill is less than its carrying amount (the qualitative impairment test).

If the Company concludes it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or elect not to use the qualitative impairment test, a quantitative impairment test is performed The Company annual or interim quantitative impairment testing is performed by comparing the estimated fair value of the reporting unit to its carrying value.

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.

As of October 1, 2020 the Company has determined through its quantitative impairment test that the fair value of its goodwill significantly exceeded the carrying value of its single reporting unit and concluded that goodwill was not impaired.

In November 2020, after the Company’s public announcement that it became clear that patients who stopped therapy in Study 211 had not achieved meaningful sustained virologic response rates most of the patients had relapsed, the Company’s stock price declined significantly.

Due to a sustained decline in the Company’s stock price during the remainder of the fourth quarter of 2020, the Company determined these factors were an indication of a triggering event of impairment and an interim goodwill impairment test was performed as of December 31, 2020.

However, the interim quantitative impairment test still determined the fair value, when considering a control premium based on a range of recent acquisitions of entities similar to the Company which were made on a non-minority basis, exceeded the carrying value of its single reporting unit, and concluded that goodwill was still not impaired.

The Company has not recognized any goodwill impairment in any of the periods presented.

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The Company classifies IPR&D acquired in a business combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts.

Upon completion of the associated research and development efforts, the Company performed a final test for impairment and will determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives.

Upon completion of the associated research and development efforts, the Company performed a final test for impairment and will determine the useful

life of the technology and begin amortizing the assets to reflect their use over their remaining lives.

Upon permanent abandonment, the Company would write-off the remaining carrying amount of the associated IPR&D intangible asset.

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If it is more likely than not that the IPR&D asset is impaired, the Company proceeds with quantitatively determining the fair value of the IPR&D asset.

For 2019 , the Company elected to bypass the quantitative assessment and performed a qualitative impairment during the fourth quarter and concluded it is more likely than not the fair value of its IPR&D asset exceeded its carrying value and no further testing was required.

For the Company’s 2020 impairment test, the Company performed a qualitative test and concluded it was more-likely-than-not that the fair value of its IPR&D asset exceeded its carrying value and no further testing was required.

This was based on a decrease in the probability of success based on the impact of the Study 211 and dual combination VBR and NrtI therapy’s ability to serve as a finite and curative therapy for chronic HBV infection offset by an increase in the probability of success of 2158 and 3733 based on their advancement into Phase 2 and Phase 1 trials during 2020, respectively and the significance of the future net cash flows from potential drug sales for a finite and curative therapy for chronic HBV infection as primarily driven by the number of patients who will be diagnosed and treated and the Company’s competitive position in the marketplace.

The Company did not recognize any IPR&D impairment in any of the periods presented .

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The Company determines whether an arrangement is or contains a lease at contract inception.

Operating leases with a duration greater than one year are included in operating lease right-of-use assets, operating lease liabilities - short-term, and operating lease liabilities - long-term in the Company’s consolidated balance sheet at December 31, 2019.

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

In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date.

In determining the net present value of lease payments, the Company uses its incremental borrowing

rate based on the information available at the lease commencement date.

The incremental borrowing rate represents 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.

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The Company has elected not to separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.

Long-lived Assets

The Company monitors the carrying value of long-lived assets, including right-of-use operating lease assets, for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

Impairment of Long-Lived Assets

The Company monitors the carrying value of long-lived assets, including ROU operating lease assets, for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.

If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows.

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If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value.

There were no indicators of impairment of long-lived assets for any periods presented.

In conjunction with the decision to wind down the Microbiome program in December 2020, the Company evaluated its ROU assets and property and equipment used in the Microbiome program for impairment.

The Company determined the carrying value was no longer recoverable and, based on a fair value of the assets determined from market quotes, recorded an impairment loss of $ 0.7 million included in research and development expenses.

The Company did no t recognize any impairment on its long-lived assets in 2019 or 2018.

Property and Equipment, Net

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Money market funds

and foreign corporate debt securities

and foreign commercial paper

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Money market fund

and foreign corporate debt securities

and foreign commercial paper

Total cash equivalents

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Total assets measured at fair value

Money market funds are highly liquid and actively traded marketable securities that generally transact at a stable $1.00 net asset value representing its estimated fair value.

The Company estimates the fair value of its U.S.

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See Note 3 for further information regarding the carrying value of our investments in marketable securities.

Revenue Recognition and Accounts Receivable from Collaboration

At the inception of an arrangement, we evaluate if a counterparty to a contract is a customer, if the arrangement is within the scope of revenue from contracts with customers guidance, and the term of the contract.

We recognize revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services.

For contracts with customers, we apply 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) we satisfy each performance obligation.

Our performance obligations under these arrangements may include licenses of intellectual property, options to license additional intellectual property, research and development services, delivery of manufactured product, and/or participation on joint steering committees.

Allergan can select additional and/or back-up target indications to add to the licenses granted and also has the ability to enter into a contract manufacturing agreement with us for compound supply, and we have concluded that these rights are options.

We evaluated whether such options contained material rights and concluded they 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 will be accounted for as separate contracts when they occur.

We have provided standard indemnification and protection of licensed intellectual property for our customer.

Revenue Recognition and Accounts Receivable from Collaborations

The Company analyzes its 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, the Company considers whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement accounting standard and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers accounting standard.

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

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

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 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 accounting standard, 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:

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

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

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

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

and (5) 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.

We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer.

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

We then allocate the total transaction price to each performance obligation based on the estimated standalone selling prices of each performance obligation.

For the Allergan agreement, we estimated standalone selling prices of our performance obligations using income-based valuation approach for the estimated value a licensor of the compounds would receive.

We recognize 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 .

For our contract with Allergan, we recognize revenues for each of our distinct performance obligations as the related research and development services are performed because Allergan consumes the benefit of research and development work simultaneously as we perform these 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 our intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, we recognize revenues from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement.

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, we utilize 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, we apply an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees.

We evaluate the measure of progress each reporting period and, if necessary, adjust the measure of performance and related revenue recognition.

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, we may record revenues from certain milestones in a reporting period before the milestone is achieved if we conclude that achievement of the milestone is probable and that recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods.

We record a corresponding contract asset when this conclusion is reached.

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.

We re-evaluate the probability of achievement of such milestones and any related constraint each reporting period.

We adjust our estimate of the overall transaction price, including the amount of collaborative revenue that was recorded, if necessary.

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.

Research and Development Service Payments

We are reimbursed at a certain percentage for performing research and development services based on hours worked by our employees, at a fixed contractual rate per hour, and third-party pass-through costs we incur on a quarterly basis.

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

Accounts receivable are recorded when the right to the research and development service payment consideration becomes unconditional.

We record the full reimbursed portion of these expenses as collaboration revenue in our consolidated statements of operations as we consider performing research and development services to be a part of our ongoing and central operations.

Under the Research, Development, Collaboration and License Agreement (Allergan Agreement) with Allergan Pharmaecuticals International Limited (Allergan), the Company was reimbursed at a certain percentage for performing research and development services based on hours worked by the Company’s employees, at a fixed contractual rate per hour, and third-party pass-through costs the Company incurred on a quarterly basis.

Research and development service payments were included in the transaction price in the reporting period the Company concluded it was probable that recording revenue in the period would not result in a significant reversal in amounts recognized in future periods.

Accounts receivable were recorded when the right to the research and development service payment consideration became unconditional.

The Company recorded the full reimbursed portion of these expenses as collaboration revenue associated with the Allergan Agreement in its consolidated statements of operations as the Company consider performing research and development services to be a part of its ongoing and central operations.

Sales-based Milestone and Royalty Payments

Our customer may be required to pay us sales-based milestone payments or royalties on future sales of commercial products.

We recognize 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 our licensed intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

We receive payments from our customer based on billing schedules established in each contract.

Upfront payments and fees are recorded as deferred revenue upon receipt or when due until we perform our obligations under the arrangement.

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.

We recognize a contract asset relating to our conditional right to consideration that is not subject to a constraint.

Amounts are recorded as accounts receivable when our right to consideration is unconditional.

At December 31, 2019 and 2018 , the accounts receivable recorded on the consolidated balance sheet relates to the Collaboration Agreement.

All accounts receivable are deemed collectible.

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.

We do 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.

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.

At December 31, 2020 and 2019, all accounts receivable are deemed collectible.

Stock-Based Compensation

The Company measures stock-based compensation to employees, consultants, and Board members at fair value on the grant date of the award.

The fair value of restricted stock units (RSUs) is determined based on the number of shares granted and the quoted market price of the Company’s common stock on the date of grant.

The fair value of RSUs is determined based on the number of shares granted and the quoted market price of the Company’s common stock on the date of grant.

Compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award.

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For awards that have a performance condition, compensation cost is measured based on the fair value of the award on the grant date, the date performance targets are established, and is expensed over the requisite service period for each separately vesting tranche when achievement of the performance condition becomes probable.

We assess the probability of the performance conditions being met on a continuous basis.

The Company assesses the probability of the performance conditions being met on a continuous basis.

Forfeitures are recognized when they occur.

The Company estimates the fair value of stock option grants that do not contain market-based vesting conditions using the Black-Scholes option pricing model .

The assumptions used in estimating the fair value of these awards, such as expected term, expected dividend yield, volatility and risk-free interest rate, represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

T he assumptions used in estimating the fair value of these awards, such as expected term, expected dividend yield , volatility and risk-free interest rate, represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment.

The Company is also required to make estimates as to the probability of achieving the specific performance conditions.

If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s consolidated results of operations.

Prior to the adoption of Accounting Standards Update (ASU) 2018-07 (ASU 2018-07) on January 1, 2019, the Company remeasured the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award.

Prior to January 1, 2019, the Company remeasured the fair value of the non-employee awards at each reporting period prior to vesting and finally at the vesting date of the award.

Changes in the estimated fair value of these non-employee awards were recognized as compensation expense in the period of change.

Subsequent to the adoption of ASU 2018-07, the Company recognizes non-employee compensation costs over the requisite service period based on a measurement of fair value for each stock award.

After January 1, 2019, the Company recognizes non-employee compensation costs over the requisite service period based on a measurement of fair value for each stock award.

Research and Development Expense and Accruals

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To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.

The Company has entered and may continue to enter into license agreements to access and utilize certain technology.

In each case, the Company evaluates if the license agreement results in the acquisition of an asset or a business.

To date, none of the Company’s license agreements have been considered to be acquisitions of businesses.

For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments, are immediately recognized as research and development expense when paid, provided there is no alternative future use of the rights in other research and development projects.

These license agreements may also include contingent consideration in the form of cash payments to be made for future milestone events.

The Company assesses whether such contingent consideration meets the definition of a derivative and to date the Company has determined that such contingent consideration are not derivatives.

Restructuring Charges

The Company recognizes restructuring charges related to reorganization plans that have been committed to by management and when liabilities have been incurred.

In connection with these activities, the Company records restructuring charges at fair value for (1) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, (2) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and (3) contract termination costs when a contract is terminated before the end of its term.

One-time employee termination benefits are recognized in their entirety when communication has occurred, and future services are not required.

If future services are required, the costs are recorded ratably over the remaining period of service.

Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.

The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of costs associated with the planned reorganization plan.

To the extent the Company’s actual results differ from its estimates and assumptions, the Company may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued restructuring liabilities already recognized.

Such changes to previously estimated amounts may be material to the consolidated financial statements.

Changes in the estimates of the restructuring charges are recorded in the period the change is determined.

At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure that no excess accruals are retained, and the utilization of t he provisions are for their intended purpose in accordance with developed restructuring plans.

Variable Interest Entities

The Company reviews agreements it enters into with third party entities, pursuant to which we may have a variable interest in the entity, in order to determine if the entity is a variable interest entity (VIE).

If the entity is a VIE, the Company assesses whether or not it is the primary beneficiary of that entity.

In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right receive benefits from, the entity that could potentially be significant to that entity.

If the Company were to determine it is the primary beneficiary of a VIE, the Company would consolidate the statements of operations and financial condition of the VIE into its consolidated financial statements.

The Company’s determination about whether it should consolidate such VIEs is made continuously as changes to existing relationships or future transactions may result in a consolidation event.

As of December 31, 2020, the Company did not consolidate any entities it had determined to be VIEs.

The Company records income taxes using the asset and liability method.

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No interest or penalties related to uncertain tax positions has been incurred or accrued for any periods presented.

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.

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

85) was signed into California law.

85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year.

85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more.

The carryover period for any net operating losses that are suspended under this provision will be extended.

85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022.

In December 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law.

The CAA included additional funding through tax credits as part of its economic package for 2021.

The FFCR Act, CARES Act, A.B.

85 did and CAA not have a material impact on the Company’s consolidated financial statements;

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

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

Net Loss per Share

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Since the Company has only incurred losses, basic and diluted net loss per share is the same.

The following table presents the potential common stock equivalents that were excluded from the computation of diluted loss from per share of common stock for the periods presented because including them would have been antidilutive:

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 7).

The pre-funded warrants are exercisable for shares of common stock at a 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, they are fully vested, and are exercisable after the original issuance date.

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

Year Ended December 31,

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Unvested RSUs

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

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

Comprehensive Loss

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Adoption of Recent Accounting Pronouncements

On January 1, 2018, the Company adopted ASU No.

2014-09, Revenue from Contracts with Customers , as amended (Accounting Standards Codification Topic 6060) (ASC 606) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018.

The Company also elected to use the practical expedient that allows an entity to expense the incremental cost of obtaining a contract as an expense when incurred if the amortization period of the asset that an entity otherwise would have recognized is less than one year.

Results for the year ended December 31, 2019 and 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with historic accounting under previous revenue recognition guidance.

As of the adoption date of ASC 606, the Company had only one contract with a customer, Allergan, that had not been completed.

Based on the Company’s analysis, the Company concluded there was no significant change in applying ASC 606 to the Collaboration Agreement and no amounts have been recognized within “accumulated deficit” in the consolidated balance sheet related to the adoption of the new standard.

In February 2016, the Financial Accounting Standards Board (FASB) issued ASU 2016-02, Leases (ASU 2016-02).

Under this standard, which applies to both lessors and lessees, lessees will be required to recognize all leases (except for short-term leases) as a lease liability, which is a lessee’s obligation to make lease payments arising from a lease measured on a discounted basis, and as a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.

Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognition in the income statement.

In January, July and December 2018 and March 2019, the FASB issued additional amendments to the new lease guidance related to transition and clarification.

The Company adopted ASU 2016-02 on January 1, 2019 using the modified retrospective approach and elected the package of practical expedients permitted under transition guidance, which allowed the Company to carry forward its historical assessments of:

(1) whether contracts are or contain leases, (2) lease classification and (3) initial direct costs.

The Company did not elect the use-of-hindsight practical expedient, which would require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date, and the Company did not elect the practical expedient pertaining to land easements as this is not applicable to the Company’s current contract portfolio.

The Company elected the post-transition practical expedient to not separate lease components from nonlease components for all existing lease classes.

The Company also elected a policy of not recording leases on its consolidated balance sheets when the leases have a term of 12 months or less and the Company is not reasonably certain to elect an option to purchase the leased asset.

The adoption of this standard resulted in the recognition of right of use (ROU) assets and lease liabilities of $ 13.8 million and $ 14.0 million, respectively, and the derecognition of the deferred rent balance of $ 0.1 million as of January 1, 2019.

The adoption of the standard had no impact on the Company’s consolidated statements of operations and comprehensive loss or to its cash flows from or used in operating, financing, or investing activities on its consolidated statements of cash flows.

No cumulative-effect adjustment within accumulated deficit was required to be recorded as a result of adopting this standard.

On January 1, 2019, the Company adopted ASU 2018-02, Income Statement - Reporting Comprehensive Income, (Topic 220):

Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the federal corporate income tax rate enacted under the Tax Cuts and Jobs Act (the Tax Act).

The amount of the reclassification would be the difference between the historical corporate income tax rate and the Tax Act’s 21 % corporate income tax rate.

The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.

On January 1, 2019, the Company adopted ASU 2018-07, Compensation-Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07), which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from expanding the scope of Topic 718, Compensation – Stock Compensation to include share-based payment transactions for acquiring goods and services from nonemployees.

The Company’s adoption of this standard did not have a material impact on its consolidated financial statements.

Accounting Pronouncements to Be Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses.

ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and also requires the reversal of previously recognized credit losses if fair value increases.

In April, May and November 2019, the FASB issued additional amendments to the new guidance related to transition and clarification.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Effective Dates (ASU 2019-10), which deferred the effective date of this standard for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

Early adoption is permitted.

The Company is currently evaluating the timing and impact of adopting this new accounting standard on its consolidated financial statements and related disclosures.

In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

In January 2017, the Financial Accounting Standards Board (FASB) issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (ASU 2017-04), which simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

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however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

The updated guidance requires a prospective adoption.

In November 2019, the FASB issued ASU 2019-10, which deferred the effective date of this standard for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

The updated accounting standard requires a prospective adoption.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Early adoption is permitted for goodwill impairment tests performed on testing dates after January 1, 2017.

The Company plans to adopt the standard on January 1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820):

The Company early adopted ASU 2017-04 effective January 1, 2020 .

The adoption of this standard had no material impact on the Company’s consolidated financial statements.

On January 1, 2020 , the Company adopted ASU 2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.

The Company will adopt this ASU on January 1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18), which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under the contract with customer guidance (Topic 606) when the collaborative arrangement participant is a customer in the context of a unit of account.

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

On January 1, 2020 , the Company adopted ASU 2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 , which clarifies that certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

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.

The standard is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted, including adoption in any interim period for public business entities for periods in which financial statements have not been issued.

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.

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 Company is still finalizing its analysis and evaluating the impact adopting this new accounting standard will have on its consolidated financial statements and related disclosures.

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

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes .

The ASU 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.

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.

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 accounting standard 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.

The standard is effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years.

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Entities that elect to early adopt the amendments in an interim period should reflect any adjustments as of the beginning of the annual period that includes that interim period.

Additionally, entities that elect early adopting must adopt all the amendments in the same period.

Entities will apply the guidance prospectively, except for certain amendments.

The Company plans to early adopt the standard effective January 1, 2020 and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements and related disclosures.

Additionally, entities that elect early adoption must adopt all the amendments in the same period.

Entities will apply the accounting standard prospectively, except for certain amendments.

The Company early adopted ASU 2019-12 effective January 1, 2020 .

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

Accounting Pronouncements to Be Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses:

In April, May and November 2019, the FASB issued additional amendments to the new accounting standard related to transition and clarification.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842):

Early adoption is permitted.

The Company is currently evaluating the timing and impact of adopting this new accounting standard on its 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 consolidated financial statements and related disclosures.

In October 2020, the FASB issued ASU 2020-10, Codification Improvements – Disclosures.

This ASU improves consistency by amending the codification to include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions in the Codification by amending and adding new headings, cross referencing to other accounting standards, and refining or correcting termination.

This ASU is effective for fiscal years beginning after December 15, 2020.

The adoption of the ASU will not impact the Company’s consolidated financial statements or related disclosures.

Note 3 - Investments in Marketable Securities

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Money market funds

and foreign corporate debt securities

and foreign commercial paper

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Money market funds

and foreign corporate debt securities

and foreign commercial paper

Total cash equivalents

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As of December 31,

Computer hardware and software

Lab equipment

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Accumulated depreciation

Construction in progress

Property and equipment, net

Depreciation expense for the years ended December 31, 2019, 2018 and 2017 was approximately $ 0.5 million, $ 0.6 million, and $ 0.2 million, respectively, and was recorded in both research and development expense and general and administrative expense in the consolidated statements of operations and comprehensive loss.

Depreciation expense for the years ended December 31, 2020, 2019 and 2018 was $ 0.7 million, $ 0.5 million, and $ 0.6 million, respectively, and was recorded in both research and development expense and general and administrative expense in the consolidated statements of operations and comprehensive loss.

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

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Total other accrued expenses

Note 6 – Restructurings

2019 Restructuring

In November 2019, the Company’s Board of Directors approved the relocation of the Company corporate headquarters to South San Francisco, California which became effective January 1, 2020.

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

This represents the total amount expected to be incurred in connection with the relocation and is expected to be fully paid in 2020 .

Costs related to this relocation of $ 0.4 million are recorded in research and development expenses and $ 1.7 million in general and administrative expenses in the consolidated statement of operations and comprehensive loss at December 31, 2019.

This represents the total amount expected to be incurred in connection with the relocation.

2020 Restructuring

In December 2020, the Company and its Board of Directors determined that it was in the Company’s best interest to wind down its Microbiome program, enabling the Company to prioritize resources and focus on the advancement of its pipeline of novel core inhibitors for chronic HBV infection.

The Company expects to complete the wind-down of the Microbiome program in early 2021.

The following table summarizes the Company’s estimates of costs incurred and expected to be incurred (in thousands):

Total Restructuring Cost

Employee Severance and Related Benefits

Asset Impairment and Other Costs

Total estimated restructuring costs to be incurred

Restructuring costs incurred during the period:

Total restructuring costs incurred for the year ended December 31, 2019

Total restructuring costs incurred for the year ended December 31, 2020

Cumulative restructuring costs incurred through December 31, 2020

The following table presents the activity in the accrued restructuring charges during the period, all of which are related to employee severance and related benefits (in thousands):

Accrued balance as of January 1, 2019

Costs incurred

Accrued balance as of December 31, 2019

Costs incurred

Reductions for cash payments

Accrued balance as of December 31, 2020

The Company also recognized $ 0.3 million of accelerated vesting for stock-based compensation for employees subject to the restructuring activities during 2020.

The Company expects the accrued restructuring liability to be fully paid in 2021 .

The following table presents where the restructuring charges were recognized (in thousands):

Year Ended December 31,

Research and development

General and administrative

Note 7 - Stockholders’ Equity

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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 December 31, 2019, $ 21.4 million remains available for sale under this Registration Statement.

In November 2017, the Company sold to various investors an aggregate of 2,541,000 shares of common stock in a public offering at $ 27.25 per share, which included the exercise in full by the underwriters of their option to purchase 331,500 additional shares of common stock.

The Company received aggregate net proceeds of $ 64.8 million from the offering and option exercise, after deducting underwriting discounts and commissions and offering expenses.

In December 2017, the Company filed a 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.

In July 2018, the Company sold to various investors an aggregate of 4,600,000 shares of common stock in a public offering at $ 36.00 per share, which included the exercise in full by the underwriters of their option to purchase 600,000 additional shares of common stock.

The Company received aggregate net proceeds of approximately $ 155.4 million from the offering and the option exercise, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The Company received aggregate net proceeds of $ 155.4 million from the offering and the option exercise, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

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 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 .

The Company received aggregate net proceeds of approximately $ 134.7 million from the offering and the option exercise, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The pre-funded warrants are exercisable immediately upon issuance at an exercise price of $ 0.001 per share.

Per their terms, the outstanding pre-funded warrants to purchase shares of the Company’s common stock generally may not be exercised if the holder’s ownership of the Company’s common stock would exceed 19.99 % following such exercise.

The Company received aggregate net proceeds of $ 134.7 million from the offering and the option exercise, after deducting underwriting discounts and commissions and offering expenses payable by the Company.

The pre-funded warrants became immediately exercisable upon issuance at an exercise price of $ 0.001 per share, but under their terms, the outstanding pre-funded warrants to purchase shares of the Company’s common stock generally may not be exercised if the holder’s ownership of the Company’s common stock would exceed 19.99 % following such exercise.

The exercise price and number of shares of common stock issuable upon the exercise of the pre-funded warrants (Warrant Shares) are subject to adjustment in the event of any stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in the pre-funded warrant agreements.

Under certain circumstances, the pre-funded warrants may be exercisable on a “cashless” basis.

In connection with the issuance and sale of the common stock and pre-funded warrants, the Company granted the pre-funded warrant holders certain registration rights with respect to the pre-funded warrants and the Warrant Shares.

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

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 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.

During the year ended December 31, 2020, the Company issued and sold 892,840 shares of common stock under the 2020 Registration Statement, for which the Company received net proceeds of $ 5.5 million, after deducting commissions, fees and expenses.

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

Exercise Price

December 31, 2020

December 31, 2019

September 10, 2010

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During the year ended December 31, 2020, 15,296 warrants to purchase common stock expired unexercised.

During the year ended December 31, 2018, 1,613 warrants to purchase common stock expired unexercised.

Note 8 - Stock-Based Compensation

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2018 Stock Incentive Plan (the 2018 Plan) pursuant to which the Company reserved 1,900,000 shares of its common stock for issuance in connection with equity incentive awards and (2) the Assembly Biosciences, Inc.

Employee Stock Purchase Plan (the 2018 ESPP).

Employee Stock Purchase Plan (the 2018 ESPP) pursuant to which the Company reserved 400,000 shares of its common stock for issuance in connection with purchases by employees pursuant to this plan.

In May 2019, the Company’s stockholders approved an amendment to the 2018 Plan that increased the aggregate shares of common stock reserved under the 2018 Plan to 3,000,000 .

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 December 31, 2020, the Company had awards outstanding under the following shareholder approved plans:

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As of December 31, 2020, the Company also had awards outstanding under the Assembly Biosciences, Inc.

2017 Inducement Award Plan and the 2019 Inducement Award Plan.

The Company issues new shares of common stock to settle options exercised or vested restricted stock units.

2017 Inducement Award Plan (the 2017 Plan), the 2019 Inducement Award Plan (the 2019 Plan) and the Assembly Biosciences, Inc.

2020 Inducement Award Plan (the 2020 Plan).

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

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.

Stock Plan Activity

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Includes 140,000 RSUs that have vested but are subject to deferred settlement, which have a weighted average remaining contractual term of 2.2 years.

The total fair value of RSUs vested and settled during 2019 and 2018 was $ 5.7 million and $ 5.3 million, respectively.

The total intrinsic value of RSUs vested and settled during 2019 was $ 2.9 million.

The total fair value of RSUs vested and settled during 2020, 2019 and 2018 was $ 7.8 million, $ 5.7 million, and $5.3 million, respectively.

The total intrinsic value of RSUs vested and settled during 2020 and 2019 was $ 4.4 million and $ 2.9 million, respectively.

The total intrinsic value of RSUs vested and settled during 2018 was nominal.

There were no RSUs vested and settled in 2017.

As of December 31, 2019, RSUs outstanding include 45,000 granted in December 2017 and 100,000 granted in September 2019, each with performance-based conditions to executives of the Company.

As of December 31, 2020, RSUs outstanding include 100,000 RSUs granted in September 2019 to the Company’s chief executive officer with performance-based 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 December 31, 2020.

In July 2020, the performance condition for 45,000 RSUs granted in December 2017 to a former executive officer was met associated with the execution of an HBV business development transaction.

The Company recognized $ 0.7 million as a cumulative catch-up adjustment of stock-based compensation expense for this award for the year ended December 31, 2020.

In the second quarter of 2019, 100,000 RSUs granted to a former officer were forfeited due to his departure.

These RSUs had a grant date fair value of $ 2.4 million and were vesting over time but would have accelerated upon the achievement of certain performance-based conditions.

The Company reversed the previously recognized expense of $ 0.5 million related to these forfeited awards upon the departure of the former officer.

The Company reversed the previously recognized expense of $ 0.5 million related to these forfeited awards upon the departure of the former officer in 2019.

Employee Stock Purchase Plan

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In May and November 2019, employees purchased 36,804 and 22,566 shares of common stock, respectively, under the 2018 ESPP.

In May and November 2020, employees purchased 42,266 and 44,546 shares of common stock, respectively, under the 2018 ESPP.

As of December 31, 2020, 232,335 shares of common stock are available for future sale under the Company’s 2018 ESPP.

Stock-based compensation expense recorded in connection with the 2018 ESPP was approximately $ 0.4 million and $ 0.2 million for the years December 31, 2019 and 2018, respectively.

Stock-based compensation expense recorded in connection with the 2018 ESPP was $ 0.5 million, $ 0.4 million and $ 0.2 million for the years December 31, 2020, 2019 and 2018, respectively.

Valuation Assumptions

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Includes the reversal of previously recognized expense of $ 1.7 million related to forfeited awards resulting from the departure of one of our former executive officers during the year.

As of December 31, 2019, there was approximately $ 27.5 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 1.7 years.

Note 8 - Collaboration Agreement

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

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

Includes the reversal of previously recognized expense of $ 3.6 million related to forfeited awards resulting from the departure of one of our former executive officers during the year.

As of December 31, 2020 , there was $ 20.4 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 9 - Collaboration Agreements

Allergan Agreement

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

Pursuant to the Allergan Agreement, the Company granted Allergan an exclusive worldwide license to certain of its intellectual property, including its intellectual property arising under the Allergan Agreement, to develop and commercialize licensed compounds for ulcerative colitis (UC), Crohn’s disease, and two compounds for irritable bowel syndrome (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 Collaboration Agreement, Allergan can select backups and additional target indications to add to the licenses granted for additional consideration and also have 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 will participate on a Joint Development Committee (JDC) and Joint Patent Committee (JPC).

The Company provided to Allergan standard indemnification and protection of licensed intellectual property, which is part of assurance that the license meets the contract’s specifications and is not an obligation to provide goods or services.

Per the terms of the Allergan 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 on a Joint Development Committee (JDC) and Joint Patent Committee (JPC).

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

In June 2020, following its acquisition of Allergan, AbbVie Inc.

(AbbVie), on behalf of Allergan, gave written notice of termination of the Allergan 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 reverted to the Company.

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

Upon effectiveness of the termination, such reimbursements ceased.

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 2020.

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 approximately $ 631.0 million related to seven development milestones and up to approximately $ 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 is 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 have 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 has 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 may elect 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 has an option to co-promote the licensed programs in the U.S.

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

Allergan may terminate the Collaboration Agreement at any time upon either 90 days’ (prior to the initiation of the first POC trial of a licensed product) or 120 days’ (after the initiation of the first POC trial of a licensed product), as applicable, advance written notice to the Company.

Unless terminated early, the Collaboration Agreement has a term that ends on the earlier of the (i) the period when POC studies have been completed and no further licensed compounds are in development (ii) expiration of the last to exist valid claim covering the manufacture, use and sale of the licensed compounds.

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

Upon termination for convenience, the license and know how all revert to the Company.

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

Additionally, the Company was 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 would have exceeded $ 75.0 million in the aggregate, the Company may 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 Agreement.

The Company concluded that Allegan 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 agreed to perform 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 Collaboration Agreement:

1) transfer of a licenses to intellectual property for the four initial indications, inclusive of the related technology know-how (Licenses);

2) the obligation to perform research development services through POC (Development Services).

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

(1) grant of a 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.

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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 will be accounted for as separate contracts when they occur.

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

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.

The Company concluded the Licenses each were considered to be functional as they had 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 is dependent on the Company to execute the Development Services, that it is only uniquely able to perform, in order for Allergan to benefit from the Licenses.

As such, The Company determined that it has four performance obligations under the Collaboration Agreement associated with the transfer 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 will be performed over the duration of the contract, which began in February 2017 and ends upon completion of the Development Services which is currently estimated to occur in 202 5 .

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

The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Allegan.

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

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

Revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations.

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

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

The transaction price at the inception of the agreement, was limited to $ 50.0 million upfront payment.

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

As such, t he Company determined that it had four performance obligations under the Allergan 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 be en performed over the duration of the contract, which began in February 2017 and ends 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 wa s the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Allegan.

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 will be 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 the $ 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.

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 December 31, 2019.

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 license granted to Allergan.

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

Research and development cost reimbursement payments were included in the transaction price in the reporting period that the Company concludes that it was probable that recording revenue in the period would not have resulted in a significant reversal in amounts recognized.

The variable consideration related to the remaining development and commercialization milestone payments was not included in the transaction price as these were fully constrained.

As part of the Company’s evaluation of the development and commercialization milestones constraint, the Company determined the achievement of such milestones was contingent upon success in future clinical trials and regulatory approvals which was 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 occurred.

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

For the year ended December 31, 2019 and 2018, the Company recorded approximately $ 16.0 million and $ 14.8 million, respectively, in revenue associated with the Collaboration Agreement.

Short-term and long-term deferred revenue contract liabilities related to the Collaboration Agreement were approximately $ 6.4 million and approximately $ 30.6 million at December 31, 2019 and approximately $ 5.1 million and approximately $ 35.6 million at December 31, 2018.

On the consolidated balance sheets, contract asset balances of approximately $ 3.4 million and approximately $ 2.4 million were recorded as accounts receivable from collaboration as of December 31, 2019 and 2018, respectively.

The following tables present changes in the Company’s contract liabilities and sources of collaboration revenue recognized during each period (in thousands):

For the year ended December 31, 2020, 2019, and 2018 the Company recognized $ 48.1 million , $ 16.0 million and $ 14.8 million respectively, in collaboration revenue associated with the Allergan Agreement.

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

There were no deferred revenue contract liabilities as of December 31, 2020 due to the Company recognizing a cumulative catch-up adjustment of the remaining deferred revenue balance during the year ended December 31, 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 $ 1.0 million and $ 3.4 million were recorded as of December 31, 2020 and 2019, respectively.

BeiGene Agreement

In July 2020, the Company and BeiGene, Ltd.

(BeiGene) entered into a Collaboration Agreement (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 know-how 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.

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.

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

During the year ended December 31, 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 consolidated balance sheet as of December 31, 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 year ended December 31, 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 December 31, 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 consolidated statements of operations, as the Company does not consider performing research and development services for reimbursement to be a part of its ongoing major or central operations.

During the year ended December 31 , 2020, the Company recognized a reduction of research and development expense of $ 0.2 million under the Arbutus Agreement.

Contract Liabilities

The following tables present changes in the Company’s contract liabilities (in thousands):

Year Ended December 31, 2020

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Performance obligations satisfied in previous periods

Note 9 - Milestones and Research Agreements

Note 10 – Strategic License Agreements

HBV Research Agreement with Indiana University

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The license agreement requires the Company to make milestone payments based upon the successful accomplishment of clinical and regulatory milestones.

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

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

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

The Company made approximately $ 0.1 million in milestone payments for the year ended December 31, 2018.

No milestone payments were incurred or accrued for under this agreement as of and for the years ended December 31, 2019 or 2017.

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 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 the diligence maintenance fee for that year.

A performance milestone totaling $ 0.1 million was determined to have occurred under this agreement and was paid during the year ended December 31, 2020.

Additionally, the Company paid IURTC $ 0.7 million as a sublicensing fee during the year ended December 31, 2020.

The Company made $ 0.1 million in milestone payments for the year ended December 31, 2018.

No milestone payments were incurred or accrued for under this agreement as of and for the year ended December 31, 2019.

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

Microbiome Targeted Colonic Delivery Platform

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No amounts were incurred or accrued for this agreement as of and for the years ended December 31, 2020 and 2018.

In connection with the wind-down of the Microbiome program, the License and Collaboration Agreement with Therabiome was terminated in January 2021.

Door Agreement

In November 2020, the Company and Door Pharmaceuticals, LLC (Door) entered into an exclusive, two-year Collaboration Agreement and Sublicense Agreement (collectively, Door Agreement) focused on the development of a novel class of HBV inhibitors.

Under the terms of the agreement, Door will build upon its previous efforts to lead and conduct new discovery research, which Assembly will fund.

In return for an up-front payment of $ 1.8 million, success-based milestones up to $ 35.0 million, exercise and annual fees ranging from $ 0.1 million to $ 2.0 million and royalties in the low to mid-single digits, the Company will be granted an exclusive option to license compounds arising from the collaboration and will be responsible for the continued development and commercialization of optioned compounds.

For the period ended December 31, 2020, the Company incurred $ 0.3 million of research and development funding in addition to the $ 1.8 million up-front payment.

Under the consolidation accounting standard, the Company determined that Door is a VIE.

The Company does not have the power to direct the activities that most significantly affect the economic performance of Door and as such the Company is not the primary beneficiary and consolidation is not required.

As of December 31, 2020, the Company has not provided financial or other support to Door that was not contractually required.

Note 11 - Income Taxes

There was no current income tax provision for the years ended December 31, 2020, 2019 and 2018.

The Company recognized deferred income tax benefit of $ 0.8 million and $ 9.1 million for the years ended December 31, 2019 and 2017, respectively, and deferred income tax expense of $ 1.1 million for the year ended December 31, 2018.

The deferred income tax expense for the year ended December 31, 2020 was no t material.

The Company recognized deferred income tax benefit of $ 0.8 million for the year ended December 31, 2019 and a deferred income tax expense of $ 1.1 million for the year ended December 31, 2018.

The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:

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Research and development tax credits

Effective change in enacted tax rates

State rate change

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The Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding the ability to utilize these deferred tax assets in the future.

The increase in the valuation allowance for both the years ended December 31, 2020 and 2019 is primarily due to an increase in the Company’s federal and state-operating loss carryforwards.

The in-process research and development deferred tax liability was recorded in connection with the merger with Assembly Pharmaceuticals, Inc.

in 2014 and relates to the difference between the carrying amount of in-process research and development for financial statement purposes relative to the amount used for income tax purposes.

On December 22, 2017, the Tax Act, was signed into law.

Among other items, the Tax Act reduces the federal corporate tax rate to 21 % from the existing applicable rate of 34 %, effective January 1, 2018.

As a result, in 2017 the Company recorded a decrease to its deferred tax assets of $ 24.7 million and to valuation allowance of $ 28.4 million, resulting in a net tax benefit of $ 3.7 million.

The Tax Act also permits an indefinite carry forward of net operating losses generated in taxable years ending after December 31, 2017, subject to a utilization limitation of 80% of taxable income.

Due to the change in the carryforward period for post-2017 net operating losses, the Company determined that it would be able to use the deferred tax liability associated with certain in-process research and development as a source of income in determining the realizability of its deferred tax assets.

As a result, in 2017 the Company recorded a $ 4.9 million income tax benefit from the reduction of its valuation allowance.

On December 22, 2017, Staff Accounting Bulletin No.

118, or SAB 118, was issued to address the application of GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act.

The Company was able to provide a reasonable estimate for the revaluation of deferred taxes.

The Company completed its review in December 2018 with no material adjustments to the provisional amount previously recorded.

The Company’s income tax benefit for the year ended December 31, 2017 of $ 9.1 million includes a tax benefit of $ 8.6 million related to the Tax Act.

As of December 31, 2019, the Company had potentially utilizable gross federal net operating loss carryforwards of approximately $ 297.6 million with $ 182.9 million of net operating losses that carry forward indefinitely and $ 114.7 million of net operating losses which begin to expire in 2027 .

As of December 31, 2020, the Company had potentially utilizable gross federal net operating loss carryforwards of $ 378.8 million with $ 264.1 million of net operating losses that carry forward indefinitely and $ 114.7 million of net operating losses which begin to expire in 2027 if not utilized.

There are state net operating loss carryforwards of $ 446.8 million with $ 0.7 million carrying forward indefinitely and $ 446.1 million beginning to expire in 2031 .

In addition, the Company has federal research and development credit carryforwards of approximately $ 9.0 million which begin to expire in 2028 if not utilized and California research and development credit carryforwards of $ 5.3 million, which will carryforward indefinitely.

In addition, the Company has federal research and development credit carryforwards of $ 8.5 million which begin to expire in 2028 if not utilized and California research and development credit carryforwards of $ 3.6 million, which will carryforward indefinitely.

Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S.

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The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):

Balances as of December 31, 2017

Increases related to prior year tax positions

Increases related to 2018 tax positions

Balances as of December 31, 2018

As of December 31,

Balances as of beginning of year

Increases related to prior year tax positions

Decreases related to prior year tax positions

Increases related to 2019 tax positions

Balances as of December 31, 2019

Increases related to current year tax positions

Balances as of end of year

The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate assuming the Company continues to maintain a full valuation allowance position.

3 unchanged sentences

The Company files income tax returns in the U.S.

federal and other state jurisdictions and is not currently under examination by federal, state, or local taxing authorities for any open tax years.

federal, California and other state jurisdictions and is not currently under examination by federal, state, or local taxing authorities for any open tax years.

Due to net operating loss carryforwards, all years effectively remain open for income tax examination by tax authorities in the U.S.

3 unchanged sentences

The Company leases corporate office and laboratory space in South San Francisco, California under a sub-sublease that expires in December 2023.

The Company also leases office space for administrative functions in Carmel, Indiana under a lease agreement that expires in August 2023.

The sub-sublease contains scheduled rent increases over the lease term.

Prior to moving into the South San Francisco office and laboratory space in February 2019, the Company leased office and laboratory space in San Francisco, California, under a sublease that expired in February 2019.

The Company also leases office and laboratory space in Groton, Connecticut under a lease that expires in March 2021.

The Company’s China subsidiary leases office space and lab space in Shanghai that expires in December 2020.

The Company also leases office space for administrative functions in Carmel, Indiana under a lease agreement that expires in August 2023.

In February 2021, the Company subleased substantially all of the office space under the Carmel, Indiana lease.

The Company also leases office and laboratory space in Groton, Connecticut that supports the Microbiome program under a lease that expires in March 2021.

Due to the wind-down of the Microbiome program, the lease will not be renewed.

The Company’s China subsidiary leases office space and lab space in Shanghai.

The lab space expired in December 2020 and the office space expires March 2021, neither of which are being renewed.

Additionally, the Company’s China subsidiary leases office space in Beijing under a lease agreement that expires in December 2021.

Certain lease contracts contain renewal clauses that the Company assesses on a case by case basis.

The Company also leases certain laboratory equipment accounted for as operating leases.

These equipment leases began to expire in 2017, with the final lease expiring in 2022.

The Company also leases certain laboratory equipment accounted for as operating leases expiring at various dates, with the final lease expiring in 2023.

In February 2021, the Company purchased substantially all of the leased equipment used for the Microbiome program from its leasing agency and sold them to a third party.

The loss on the sale is equal to the impairment loss the Company recognized on these assets for the year ended December 31, 2020 of $ 0.7 million.

When the Company cannot determine the implicit rate in its leasing arrangements, the Company uses its incremental borrowing rate as the discount rate when measuring operating lease liabilities.

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 December 31, 2019, the Company had operating lease liabilities of $ 12.3 million and right-of-use assets of $ 12.0 million, which were included in the consolidated balance sheet.

The following summarizes quantitative information about the Company’s operating leases for the year ended December 31, 2019 (in thousands):

At December 31, 2020, the Company had operating lease liabilities of $ 10.1 million and right-of-use assets of $ 9.1 million.

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

Year Ended December 31,

Operating lease cost

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Total lease cost

Year Ended December 31,

Operating cash flows from operating leases

Right-of-use assets exchanged for new operating lease liabilities

As of December 31, 2019, the weighted-average remaining lease term for operating leases was approximately 2.7 years and the weighted-average discount rate for operating leases was approximately 9.4 %.

As of December 31, 2020, the weighted-average remaining lease term for operating leases was 2.7 years and the weighted-average discount rate for operating leases was 9.2 %.

As of December 31, 2020, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

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Operating lease liabilities

Operating lease costs were approximately $ 6.3 million, $ 4.2 million and $ 2.1 million for the years ended December 31, 2019, 2018 and 2017, respectively.

Operating lease costs were $ 7.1 million, $ 6.3 million and $ 4.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Note 13 - Employee Benefit Plan

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The Plan also permits the Company to make discretionary matching contributions.

In 2019 and 2018, the Company made discretionary matching contributions of $ 0.7 million and $ 0.7 million, respectively.

In 2017, the Company participated in a professional employer organization sponsored 401(k) plan.

The Company did no t make any discretionary matching contributions in 2017.

In 2020, 2019 and 2018, the Company made discretionary matching contributions of $ 0.9 million, $ 0.7 million and $ 0.7 million, respectively.

Note 14 - Selected Quarterly Financial Data (Unaudited)

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Interest and other income

Net income (loss)

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

Basic and diluted net loss per common share

Basic net income (loss) per common share

Diluted net income (loss) per common share

2019 Quarter Ended

5 unchanged sentences

Basic and diluted net loss per common share

Note 15 – Subsequent Events

Subsequent to December 31, 2020, the Company sold 4,177,080 shares of common stock through its 2020 ATM resulting in net proceeds of $ 25.5 million.

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

What changed 10-K

Item 9A. Controls and Procedures