What changed in this filing

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Item 1. Financial Statements

2021-05-06 compared with 2020-11-05 · 190 added, 324 removed, 340 unchanged (60% of the section changed)

3 unchanged sentences

(In thousands except for share amounts and par value)

September 30,

Current assets

1 unchanged sentence

Marketable securities

Accounts receivable from collaboration

Accounts receivable from collaborations

Prepaid expenses and other current assets

8 unchanged sentences

Other accrued expenses

Deferred revenue - short-term

Operating lease liabilities - short-term

1 unchanged sentence

Deferred tax liabilities

Deferred revenue - long-term

Deferred revenue

Operating lease liabilities - long-term

6 unchanged sentences

Common stock, $ 0.001 par value;

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

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

100,000,000 shares authorized as of March 31, 2021 and December 31, 2020;

40,104,684 and 34,026,680 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively

Additional paid-in capital

7 unchanged sentences

(In thousands except for share and per share amounts)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Collaboration revenue

4 unchanged sentences

Loss from operations

Other income:

Interest and other income, net

Total other income

Loss before income taxes

Income tax benefit

Other comprehensive (loss) income

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

Unrealized (loss) gain on marketable securities

Comprehensive loss

5 unchanged sentences

(In thousands)

Nine Months Ended September 30,

Three Months Ended March 31,

Cash flows from operating activities

4 unchanged sentences

Non-cash rent expense

Deferred income tax benefit

Loss on disposal of fixed assets

10 unchanged sentences

Purchases of property and equipment

Proceeds from sale of property and equipment

Purchases of marketable securities

4 unchanged sentences

Proceeds from the exercise of stock options

Proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP)

Proceeds from sale of common stock, net of issuance costs

Net cash provided by financing activities

4 unchanged sentences

Operating lease liabilities arising from obtaining ROU assets

Remeasurement of lease liabilities arising from modification of ROU assets

See Accompanying Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

(In thousands except for share amounts)

For the Three Month Period

Comprehensive

1 unchanged sentence

Stockholders'

Balance as of June 30, 2020

Issuance of common stock upon exercise of stock options

Balance as of December 31, 2020

Issuance of common stock under at-the-market (ATM) equity offering program, net of issuance costs

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

1 unchanged sentence

Stock-based compensation

Balance as of September 30, 2020

Comprehensive

Stockholders'

Balance as of June 30, 2019

Issuance of common stock upon exercise of stock options

Issuance of shares of common stock for settlement of RSUs

Unrealized loss on marketable debt securities, net of tax

Stock-based compensation

Balance as of September 30, 2019

For the Nine Month Period

Comprehensive

Income (Loss)

Stockholders'

Balance as of December 31, 2019

Issuance of common stock upon exercise of stock options

Issuance of common stock under ESPP

Issuance of shares of common stock for settlement of RSUs

Unrealized gain on marketable debt securities

Stock-based compensation

Balance as of September 30, 2020

Balance as of March 31, 2021

Comprehensive

2 unchanged sentences

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

Settlement of RSUs for cash

Unrealized gain on marketable debt securities, net of tax

Unrealized gain on marketable securities

Stock-based compensation

Balance as of September 30, 2019

Balance as of March 31, 2020

See Accompanying Notes to Condensed Consolidated Financial Statements

2 unchanged sentences

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 targeting chronic 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 is headquartered in South San Francisco, California, with operations in California, Connecticut and China.

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

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

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

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

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

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

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

Assembly Biosciences, Inc.

(together with its subsidiaries, Assembly or the Company), incorporated in Delaware in October 2005, is a clinical-stage biotechnology company advancing a novel class of oral therapeutic candidates for the treatment of chronic hepatitis B virus (HBV) infection.

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

Prior to the Company’s wind-down of its Microbiome program on January 31, 2021, the Company also had operations in Connecticut.

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 several novel core inhibitors, which are small molecules that directly target and allosterically modify the HBV core (HBc) protein in a way that affects assembly and stability of HBV nucleocapsids.

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, proceeds from the exercise of warrants and stock options, issuance of debt, an upfront payment related to the Allergan Agreement and an upfront payment related to the Company’s Collaboration Agreement (the BeiGene Agreement) with BeiGene, Ltd.

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

Management believes the Company currently has sufficient funds to meet its operating requirements for at least the next 12 months following the date that these unaudited condensed consolidated interim financial statements are issued.

Management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months following the date these unaudited condensed consolidated interim financial statements are issued.

If the Company cannot generate significant cash from its operations, it intends to obtain any additional funding it requires through strategic relationships, public or private equity or debt financings, grants or other arrangements (see Note 6 for recent sales of common stock).

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

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

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.

ASSEMBLY BIOSCIENCES, INC.

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The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S.

GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the U.S.

Securities and Exchange Commission (SEC).

GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC.

In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented.

These statements do not include all disclosures required by U.S.

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

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

GAAP and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2020, which are contained in the 2020 Annual Report.

The results for the three months ended March 31, 2021 are not necessarily indicative of results to be expected for the entire year ending December 31, 2021 or future operating periods.

Use of Estimates

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Actual results could differ from those estimates.

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

Estimates inherent in the preparation of the accompanying unaudited condensed 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 restricted stock units (RSUs) granted to employees, directors, and consultants.

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

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

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

Other Risks and Uncertainties

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

Revenue Recognition and Accounts Receivable from Collaboration

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

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

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Upfront License Fees

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

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

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

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

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

Development and Regulatory Milestone Payments

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

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

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

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

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

In March 2021, the American Rescue Plan (H.R.

1319) was signed into law.

This legislation extends and enhances a number of current-law tax incentives for businesses, but also expands the definition of a “covered employee” as defined by Section 162(m)(1) of the Internal Revenue Code.

The corporate tax provisions included within the bill are not expected to have a material impact on the Company.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Sales-based Milestone and Royalty Payments

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

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

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

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

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

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

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

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

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

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

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.

The FFCR Act, CARES Act and A.B.

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

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

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

Net Loss per Share

1 unchanged sentence

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

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

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

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.

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

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Weighted average common shares and

3 unchanged sentences

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

September 30,

Warrants to purchase common stock

3 unchanged sentences

Adoption of Recent Accounting Pronouncements

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.

Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill.

Under the amendments in ASU 2017-04, an entity should recognize an impairment charge for the amount by which the carrying amount of a reporting unit exceeds its fair value;

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, 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 for goodwill impairment tests performed on testing dates after January 1, 2017.

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

The adoption of this standard had no material impact on the Company’s condensed 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.

On January 1, 2021 , the Company adopted 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.

The adoption of this standard had no material impact on the Company’s condensed 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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

collaborative arrangement participant is not a customer.

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

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

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

In December 2019, the FASB issued ASU No.

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

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

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

Early adoption is permitted in an interim or annual period.

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 adoption must adopt all the amendments in the same period.

Entities will apply the guidance 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 condensed consolidated financial statements and related disclosures.

Recent Accounting Pronouncements

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

In June 2016, the Financial Accounting Standards Board (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.

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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, 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.

In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

and Hedging (Topic 815), and Leases (Topic 842):

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

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

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

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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.

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

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

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 3 – Investments in Marketable Securities

Note 3 – Fair Value Measurements and Investments in Marketable Securities

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices.

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

September 30, 2020

March 31, 2021

Cash equivalents

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Asset-backed securities

treasury securities

and foreign commercial paper

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Total cash equivalents and investments

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

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Money market funds

and foreign corporate debt securities

and foreign commercial paper

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Total cash equivalents and investments

Gross unrealized gain (loss) is pre-tax.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

The contractual term to maturity of short-term marketable securities held by the Company as of March 31, 2021 is less than one year .

There were no long-term marketable securities held by the Company as of March 31, 2021.

Realized gains and losses for the three months ended March 31, 2021 and 2020 were not significant.

None of the Company’s investments have been in a continuous unrealized loss position for more than 12 months as of March 31, 2021.

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

September 30, 2020

March 31, 2021

Cash equivalents

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Asset-backed securities

treasury securities

and foreign commercial paper

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Total assets measured at fair value

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

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Money market fund

and foreign corporate debt securities

and foreign commercial paper

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Total assets measured at fair value

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

and foreign corporate debt securities, asset-backed securities, U.S.

treasury securities and U.S.

and foreign commercial paper by taking into consideration valuations obtained from third-party pricing services.

The Company estimates the fair value of its investments in marketable securities by taking into consideration valuations obtained from third-party pricing services.

The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value.

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

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 4 - Property and Equipment, Net

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

September 30,

Lab equipment

Office equipment

Leasehold improvement

Total property and equipment

Accumulated depreciation and amortization

Property and equipment, net

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

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

Note 5 – Accrued Expenses

Accrued expenses consist of the following (in thousands):

September 30,

Note 4 – Other Accrued Expenses

Other accrued expenses consist of the following (in thousands):

Accrued expenses:

3 unchanged sentences

Total accrued expenses

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

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

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

Note 6 – Stockholders’ Equity

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

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

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

Sale of Common Stock and Pre-Funded Warrants

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

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

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

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

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

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.

The pre-funded warrants are equity classified because they are freestanding financial instruments that are legally detachable and separately exercisable from the equity instruments, are immediately exercisable, do not embody an obligation for the Company to repurchase its shares, permit the holders to receive a fixed number of common shares upon exercise, are indexed to the Company’s common stock and meet the equity classification criteria.

In addition, such pre-funded warrants do not provide any guarantee of value or return.

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

Note 5 – Restructurings

Restructuring charges relate to the Company’s decision to relocate its headquarters to South San Francisco, California, which was approved by the Board of Directors in November 2019 and effective January 1, 2020 and the wind-down of the Company’s Microbiome program, which the Company and its Board of Directors determined in December 2020 was in the Company’s best interest, enabling the Company to prioritize resources and focus on the advancement of its pipeline of novel core inhibitors for chronic HBV infection.

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

Restructuring

Total estimated restructuring costs to be incurred

Restructuring costs incurred for the three months ended March 31, 2021

Cumulative restructuring costs incurred through March 31, 2021

The reversal of $ 2.7 million in employee severance and related benefits recognized during the three months ended March 31, 2021 reflects the reversal of previously recognized stock-based compensation expense related to forfeited awards based on the Company’s policy of recognizing stock-based awards with graded vesting schedules using an accelerated attribution method on a straight-line basis over the requisite service period for each separately vesting portion of the award and to recognize forfeitures when they occur.

The following table presents where the restructuring charges were recognized during the three months ended March 31, 2021 (in thousands):

Research and development

General and administrative

There were no restructuring costs incurred for the three months ended March 31, 2020.

The following table presents the activity in the accrued restructuring charges during the three months ended March 31, 2021 (in thousands):

Restructuring

Accrued balance as of December 31, 2020

Costs incurred

Reductions for cash payments

Accrued balance as of March 31, 2021

Cash payments are presented net of proceeds received from the sale of assets of $ 0.9 million .

The asset impairment and other costs includes $ 1.4 million for the remaining payment obligations of leased equipment the Company purchased and sold to third parties.

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 6 – Stockholders’ Equity

The Company was authorized to issue 5,000,000 shares of preferred stock as of March 31, 2021 and December 31, 2020, respectively.

As of March 31, 2021 and December 31, 2020, no shares of preferred stock were issued and outstanding.

The Company was authorized to issue 100,000,000 shares of common stock as of March 31, 2021 and December 31, 2020, respectively.

Sale of Common Stock

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

2 unchanged sentences

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

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

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

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

During the three months ended March 31, 2021, the Company sold 5,991,858 shares of common stock under the 2020 ATM, for which the Company received net proceeds of $ 34.1 million, after deducting commissions, fees and expenses.

Common Stock Warrants

1 unchanged sentence

Exercise Price

September 30,

September 10, 2010

September 10, 2020

Number of warrants outstanding

December 16, 2019

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There were no warrants exercised during the three months ended March 31, 2021 or 2020.

Note 7 – Stock Plans and Stock-Based Compensation

5 unchanged sentences

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

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

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

As of March 31, 2021, the Company had awards outstanding under the following shareholder-approved plans:

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

the Amended and Restated 2014 Stock Incentive Plan (the 2014 Plan);

1 unchanged sentence

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

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

As of March 31, 2021, the Company also had awards outstanding under the Assembly Biosciences, Inc.

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

3 unchanged sentences

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock Plan Activity

Stock Options

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

A summary of the Company’s option activity and related information for the three months ended March 31, 2021 is as follows:

Outstanding as of December 31, 2020

Outstanding as of September 30, 2020

Options vested and exercisable as of September 30, 2020

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

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Outstanding as of March 31, 2021

Options vested and exercisable as of March 31, 2021

The weighted-average grant-date fair value of options granted was $ 3.15 and $ 9.74 during the three months ended March 31, 2021 and 2020, respectively.

The total intrinsic value of options exercised during the three months ended March 31, 2020 was $ 0.2 million.

There were no options exercised during the three months ended March 31, 2021.

A summary of the Company’s RSUs and related information for the three months ended March 31, 2021 is as follows:

Value Per RSU

1 unchanged sentence

Nonvested as of December 31, 2020

Nonvested as of September 30, 2020

Nonvested as of March 31, 2021

Includes 140,000 RSUs that have vested but are subject to deferred settlement, which have a weighted average remaining contractual term of 1.9 years.

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

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

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

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

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

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

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

The total fair value of RSUs vested and settled during the three months ended March 31, 2021 and 2020 was $ 2.5 million and $ 2.4 million, respectively.

The total intrinsic value of RSUs vested and settled during the three months ended March 31, 2021 and 2020 was $ 0.6 million and $ 1.5 million, respectively.

In September 2019, the Company granted 100,000 RSUs with performance-based vesting conditions to its chief executive officer.

On March 31, 2021, 25,000 of these awards were forfeited back to the Company due to the time period to complete one of the performance conditions expiring.

The outstanding 75,000 awards with an aggregate fair value of $ 0.8 million vest upon performance conditions not yet deemed probable.

Accordingly, no stock-based compensation expense has been recognized as of March 31, 2021.

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

There were no shares purchased under the 2018 ESPP during the three months ended March 31, 2021 or 2020.

Valuation Assumptions

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Exercise price

1 unchanged sentence

$14.45 - $19.13

$14.45 - $23.30

$10.91 - $57.33

Expected volatility

1 unchanged sentence

66.4% - 82.2%

66.2% - 83.2%

Risk-free rate

1 unchanged sentence

0.46% - 1.44%

0.26% - 1.44%

1.36% - 2.65%

Expected term (years)

2 unchanged sentences

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Expense

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Research and development

1 unchanged sentence

Total stock-based compensation expense

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

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

Includes the reversal of previously recognized stock-based compensation expense of $ 3.6 million related to forfeited awards of terminated employees, $ 2.7 million of which resulted from the wind-down of the Company’s Microbiome program (see Note 5).

As of March 31, 2021, there was $ 18.6 million of total unrecognized stock-based compensation related to outstanding equity awards, which is expected to be recognized over a weighted average remaining amortization period of 1.8 years.

Note 8 - Collaboration Agreements

Allergan Agreement

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

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

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

In January 2017, the Company and Allergan Pharmaceuticals International Limited (Allergan) entered into the Research, Development, Collaboration and License Agreement (the Allergan Agreement) to develop and commercialize select microbiome gastrointestinal disease therapies.

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

(AbbVie), on behalf of Allergan, gave written notice of termination of the Allergan Agreement, which subsequently became effective on October 10, 2020.

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

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

Upon effectiveness of the termination, such reimbursements will cease.

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

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

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

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

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

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

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

For the three months ended March 31, 2020, the Company recognized $ 4.1 million in revenue associated with the Allergan Agreement.

A contract asset balance of $ 1.0 million was recorded as of December 31, 2020.

There were no deferred revenue contract liabilities as of December 31, 2020 and no revenue, contract assets or contract liabilities recognized as of and for the three months ended March 31, 2021 due to the termination of the Allergan Agreement in 2020.

ASSEMBLY BIOSCIENCES, INC.

1 unchanged sentence

BeiGene Agreement

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

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.

1 unchanged sentence

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.

If the Company conducts certain ancillary studies 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 studies and shall reimburse the Company proportionally for the Territory costs of such studies.

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

2 unchanged sentences

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

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

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

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

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

The Company is not obligated to perform pre-Phase 3 clinical study development work outside the Territory on ABI-H2158 and ABI-H3733 but must provide BeiGene pre-Phase 3 clinical study 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 studies, 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 Assembly 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 Assembly.

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.

5 unchanged sentences

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.

(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 agreed upon prices for the clinical and

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

commercial supply of the Licensed Product Candidates to BeiGene do not represent material right s , and therefore are not performance obligation s , 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.

1 unchanged sentence

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

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 as of September 30, 2020.

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.

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 studies and regulatory approvals which are not within its control and uncertain at this stage.

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

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

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

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

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

Upon entering into the BeiGene Agreement in July 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 had occurred.

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

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

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

During the three months ended March 31, 2021, the Company did no t recognize any increase or reduction of research and development expense under the BeiGene Agreement.

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

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

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

As of March 31, 2021 and December 31, 2020, $ 0.8 million remains unamortized and 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.

In August 2020, the Company and Arbutus Biopharma Corporation (Arbutus) entered into a Clinical Trial Collaboration Agreement (the Arbutus Agreement) to conduct a randomized, multi-center, open-label Phase 2 clinical study to explore the safety, PK and antiviral activity of the triple combination of VBR, AB-729 and a nucleos(t)ide reverse transcriptase inhibitor (NrtI) compared to the double combinations of VBR plus NrtI and AB-729 plus NrtI.

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

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

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

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

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

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 study, which is akin to performance obligation related to collaborative activities.

Reimbursements and cost-sharing portions of this

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

performance obligation will be reflected as a reduction of research and development expense when realized in the Company’s condensed consolidated statements of operations, as the Company does not consider performing research and development services for reimbursement to be a part of its ongoing major or central operations .

During the three months ended March 31, 2021 , the Company recognized a reduction of research and development expenses of $ 0.5 million under the Arbutus Agreement.

Contract Liabilities

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

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Contract liabilities:

Deferred revenue

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Contract liabilities:

7 unchanged sentences

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

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

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

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

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

No amounts were paid in the three months ended March 31, 2021.

Amounts paid in the three months ended March 31, 2020 were insignificant.

Microbiome Targeted Colonic Delivery Platform

In November 2013, the Company entered into a License and Collaboration Agreement with Therabiome, LLC (Therabiome), for all intellectual property and know-how owned or controlled by Therabiome relating to the oral delivery of pharmaceutical drugs to specific sites in the intestine, using a pH sensitive controlled release capsule-in-capsule technology.

The Company will be solely responsible for all research and development activities with respect to any product it develops under the license.

The Company must pay Therabiome clinical and regulatory milestones for each product or therapy advanced from the platform for U.S.

The Company was solely responsible for all research and development activities with respect to any product it developed under the license.

The Company was obligated to pay Therabiome clinical and regulatory milestones for each product or therapy advanced from the platform for U.S.

regulatory milestones.

In addition, the Company must pay Therabiome lesser amounts for foreign regulatory milestones, which vary by country and region.

The Company is also required to pay Therabiome royalties on annual net sales of a product in the low to mid-single digit percentages plus, once annual net sales exceed certain thresholds, a one-time cash payment upon reaching such thresholds.

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

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

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

In addition, the Company was obligated to pay Therabiome lesser amounts for foreign regulatory milestones, which varied by country and region.

The Company was also required to pay Therabiome royalties on annual net sales of a product in the low to mid-single digit percentages plus, once annual net sales exceeded certain thresholds, a one-time cash payment upon reaching such thresholds.

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

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

No amounts were accrued for this agreement as of and for the three months ended March 31, 2021 or 2020.

In connection with the wind-down of the Microbiome program, the License and Collaboration Agreement with Therabiome was terminated in January 2021 , and the termination bec ame effective on April 21, 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, the 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 the Company 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 three months ended March 31, 2021, the Company incurred $ 0.4 million of research and development funding.

Under the consolidation accounting standard, the Company determined that Door is a variable interest entity.

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 March 31, 2021, the Company has not provided financial or other support to Door that was not contractually required.

Note 10 - Leases

Operating Leases

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

The Company also leases office space in Carmel, Indiana under a lease agreement that expires in August 2023, which the Company has subleased.

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 in Shanghai that expires in May 2021 and rents lab space in Shanghai under a lease agreement that expires in December 2020.

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

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

The Company also leases office space 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 supported the Microbiome program under a lease that expires in June 2021.

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

The Company’s China subsidiary leased office space and lab space in Shanghai, which the Company let expire in March 2021 and December 2020, respectively.

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.

Certain equipment leases continue to expire in 2020, with the final lease expiring in 2023.

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 third parties (see Note 5).

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

At March 31, 2021, the Company had operating lease liabilities of $ 8.6 million and ROU assets of $ 8.1 million.

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

Operating lease cost

1 unchanged sentence

Variable lease cost

Sublease income

Total lease cost

Nine Months Ended September 30,

ASSEMBLY BIOSCIENCES, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31,

Operating cash flows from operating leases

ROU assets exchanged for new operating lease liabilities

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

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

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

Three months ending December 31, 2020

Year Ending December 31, 2021

As of both March 31, 2021 and December 31, 2020, the weighted-average remaining lease term for operating leases was 2.7 years .

As of March 31, 2021 and December 31, 2020, the weighted-average discount rate for operating leases was 9.7 % and 9.2 %, respectively.

As of March 31, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands):

Nine months ending December 31, 2021

Year Ending December 31, 2022

3 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements