ASSEMBLY BIOSCIENCES, INC. 10-Q

Item 1. Financial Statements ASSEMBLY BIOSCIENCES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands except for share amounts and par value) September 30, December 31, 2021 2020 (Unaudited) ASSETS Current assets Cash and cash equivalents $ 70,760 $ 59,444 Marketable securities - short-term 110,142 156,969 Accounts receivable from collaborations 769 1,230 Prepaid expenses and other current assets 6,548 6,850 Total current assets 188,219 224,493 Marketable securities - long-term 9,180 — Property and equipment, net 1,241 1,600 Operating lease right-of-use (ROU) assets 6,773 9,131 Other assets 1,922 6,392 Indefinite-lived intangible asset 29,000 29,000 Goodwill 12,638 12,638 Total assets $ 248,973 $ 283,254 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Accounts payable $ 2,628 $ 4,598 Accrued clinical expenses 3,744 4,444 Other accrued expenses 5,457 11,987 Operating lease liabilities - short-term 3,099 3,404 Total current liabilities 14,928 24,433 Deferred tax liabilities 2,531 2,531 Deferred revenue 2,733 8,987 Operating lease liabilities - long-term 4,136 6,725 Total liabilities 24,328 42,676 Commitments and contingencies Stockholders' equity Preferred stock, $ 0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding — — Common stock, $ 0.001 par value; 100,000,000 shares authorized as of September 30, 2021 and December 31, 2020; 47,077,052 and 34,026,680 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively 47 34 Additional paid-in capital 796,057 742,387 Accumulated other comprehensive loss ( 288 ) ( 270 ) Accumulated deficit ( 571,171 ) ( 501,573 ) Total stockholders' equity 224,645 240,578 Total liabilities and stockholders' equity $ 248,973 $ 283,254 See Accompanying Notes to Condensed Consolidated Financial Statements 2 ASSEMBLY BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (In thousands except for share and per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Collaboration revenue $ 6,254 $ 34,611 $ 6,254 $ 78,068 Operating expenses: Research and development 18,474 26,941 53,777 73,314 General and administrative 6,655 11,689 22,276 29,888 Total operating expenses 25,129 38,630 76,053 103,202 Loss from operations ( 18,875 ) ( 4,019 ) ( 69,799 ) ( 25,134 ) Other income: Interest and other income, net 72 670 201 2,400 Total other income 72 670 201 2,400 Net loss $ ( 18,803 ) $ ( 3,349 ) $ ( 69,598 ) $ ( 22,734 ) Other comprehensive (loss) income Unrealized (loss) gain on marketable securities ( 15 ) ( 262 ) ( 18 ) 43 Comprehensive loss $ ( 18,818 ) $ ( 3,611 ) $ ( 69,616 ) $ ( 22,691 ) Net loss per share, basic and diluted $ ( 0.41 ) $ ( 0.09 ) $ ( 1.63 ) $ ( 0.64 ) Weighted average common shares outstanding, basic and diluted 45,569,276 35,506,042 42,725,109 35,321,393 See Accompanying Notes to Condensed Consolidated Financial Statements 3 ASSEMBLY BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 Cash flows from operating activities Net loss $ ( 69,598 ) $ ( 22,734 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 346 377 Stock-based compensation 3,292 18,106 Net accretion and amortization of investments in marketable debt securities 398 ( 80 ) Non-cash rent expense 2,940 3,463 Loss on disposal of fixed assets 1,625 — Changes in operating assets and liabilities: Accounts receivable from collaboration 461 ( 216 ) Prepaid expenses and other current assets 302 507 Other assets 4,470 ( 4,296 ) Accounts payable ( 1,970 ) ( 120 ) Accrued clinical expenses ( 700 ) ( 375 ) Other accrued expenses ( 6,490 ) ( 877 ) Deferred revenue ( 6,254 ) ( 28,061 ) Operating lease liabilities ( 2,856 ) ( 3,382 ) Net cash used in operating activities ( 74,034 ) ( 37,688 ) Cash flows from investing activities Purchases of property and equipment ( 3,078 ) ( 470 ) Proceeds from sale of property and equipment 857 — Purchases of marketable securities ( 107,480 ) ( 153,022 ) Proceeds from maturities of marketable securities 132,200 165,252 Proceeds from sale of marketable securities 12,500 35,595 Net cash provided by investing activities 34,999 47,355 Cash flows from financing activities Proceeds from the exercise of stock options — 1,445 Proceeds from the issuance of common stock under Employee Stock Purchase Plan (ESPP) 144 467 Proceeds from sale of common stock, net of issuance costs 50,207 — Net cash provided by financing activities 50,351 1,912 Net increase in cash and cash equivalents 11,316 11,579 Cash and cash equivalents at the beginning of the period 59,444 46,732 Cash and cash equivalents at the end of the period $ 70,760 $ 58,311 Supplemental non-cash investing and financing activities Operating lease liabilities arising from obtaining ROU assets $ 126 $ 1,063 Remeasurement of lease liabilities arising from modification of ROU assets $ ( 788 ) $ — See Accompanying Notes to Condensed Consolidated Financial Statements 4 ASSEMBLY BIOSCIENCES, INC. CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (In thousands except for share amounts) (Unaudited) For the Three Month Period Common Stock Additional Accumulated Other Total Shares Amount Paid-in Capital Comprehensive Loss Accumulated Deficit Stockholders' Equity Balance as of June 30, 2021 43,779,059 $ 44 $ 784,391 $ ( 273 ) $ ( 552,368 ) $ 231,794 Issuance of common stock under at-the-market (ATM) equity offering program, net of issuance costs 2,949,647 3 10,052 — — 10,055 Issuance of common stock for settlement of restricted stock units (RSUs) 33,333 — — — — — Issuance of common stock upon cashless exercise of pre-funded warrants 315,013 — — — — — Unrealized loss on marketable debt securities — — — ( 15 ) — ( 15 ) Stock-based compensation — — 1,614 — — 1,614 Net loss — — — — ( 18,803 ) ( 18,803 ) Balance as of September 30, 2021 47,077,052 $ 47 $ 796,057 $ ( 288 ) $ ( 571,171 ) $ 224,645 Common Stock Additional Accumulated Other Total Shares Amount Paid-in Capital Comprehensive Income (Loss) Accumulated Deficit Stockholders' Equity Balance as of June 30, 2020 32,807,519 $ 33 $ 725,784 $ 104 $ ( 458,806 ) $ 267,115 Issuance of common stock upon exercise of stock options 81,066 — 843 — — 843 Issuance of common stock for settlement of RSUs 35,951 — — — — — Unrealized loss on marketable debt securities — — — ( 262 ) — ( 262 ) Stock-based compensation — — 6,202 — — 6,202 Net loss — — — — ( 3,349 ) ( 3,349 ) Balance as of September 30, 2020 32,924,536 $ 33 $ 732,829 $ ( 158 ) $ ( 462,155 ) $ 270,549 5 For the Nine Month Period Common Stock Additional Accumulated Other Total Shares Amount Paid-in Capital Comprehensive Loss Accumulated Deficit Stockholders' Equity Balance as of December 31, 2020 34,026,680 $ 34 $ 742,387 $ ( 270 ) $ ( 501,573 ) $ 240,578 Issuance of common stock under ATM equity offering program, net of issuance costs 10,399,548 11 50,196 — — 50,207 Issuance of common stock under ESPP 42,803 — 144 — — 144 Issuance of common stock for settlement of RSUs 184,387 — — — — — Issuance of common stock upon cashless exercise of pre-funded warrants 2,423,634 2 ( 2 ) — — — Unrealized loss on marketable debt securities — — — ( 18 ) — ( 18 ) Stock-based compensation — — 3,332 — — 3,332 Net loss — — — — ( 69,598 ) ( 69,598 ) Balance as of September 30, 2021 47,077,052 $ 47 $ 796,057 $ ( 288 ) $ ( 571,171 ) $ 224,645 Common Stock Additional Accumulated Other Total Shares Amount Paid-in Capital Comprehensive Income (Loss) Accumulated Deficit Stockholders' Equity Balance as of December 31, 2019 32,558,307 $ 32 $ 712,807 $ ( 201 ) $ ( 439,421 ) $ 273,217 Issuance of common stock upon exercise of stock options 172,779 1 1,444 — — 1,445 Issuance of common stock under ESPP 42,266 — 467 — — 467 Issuance of common stock for settlement of RSUs 151,184 — — — — — Unrealized gain on marketable debt securities — — — 43 — 43 Stock-based compensation — — 18,111 — — 18,111 Net loss — — — — ( 22,734 ) ( 22,734 ) Balance as of September 30, 2020 32,924,536 $ 33 $ 732,829 $ ( 158 ) $ ( 462,155 ) $ 270,549 See Accompanying Notes to Condensed Consolidated Financial Statements 6 ASSEMBLY BIOSCIENCES, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note 1 - Nature of Business Overview 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 in January 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. The Company 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. Liquidity The Company has not derived any revenue from product sales to date and currently has no approved products. Once a product has been developed, it will need to be approved for sale by the U.S. Food and Drug Administration (FDA) or an applicable foreign regulatory agency. Since inception, the Company’s operations have been financed primarily through the sale of equity securities, proceeds from the exercise of warrants and stock options, issuance of debt, and 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. 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 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). The Company cannot assure such funding will be available on reasonable terms, if at all. 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 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 Basis of Presentation The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited 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 SEC. In management’s opinion, the unaudited 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, 2020, which are contained in the 2020 Annual Report. The results for 7 the three and nine months ended September 30, 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 The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates. 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 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 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 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. Income Taxes 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. Net Loss per Share Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock 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. In June 2021, 2,109,140 of the pre-funded warrants were exercised through a cashless exercise, and in July 2021, the remaining 315,102 pre-funded warrants were exercised through a cashless exercise (see Note 6). Prior to these exercises, the pre-funded warrants were exercisable for shares of common stock at an exercise price of $ 0.001 per share. The shares of common stock into which the then-outstanding pre-funded warrants could be exercised were considered outstanding for the purposes of computing earnings per share because the shares were issuable for little or no consideration, were fully vested, and were exercisable after the original issuance date. 8 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, 2021 2020 2021 2020 Numerator: Net loss $ ( 18,803 ) $ ( 3,349 ) $ ( 69,598 ) $ ( 22,734 ) Denominator: Weighted average common shares and pre-funded warrants outstanding - basic and diluted 45,569,276 35,506,042 42,725,109 35,321,393 Net loss per share - basic and diluted $ ( 0.41 ) $ ( 0.09 ) $ ( 1.63 ) $ ( 0.64 ) Securities excluded from the computation of diluted net loss per share because including them would have been antidilutive are as follows: September 30, 2021 2020 Options to purchase common stock 6,306,867 6,660,918 Common stock subject to purchase under our ESPP 49,470 25,192 Unvested RSUs 998,188 851,589 Total 7,354,525 7,537,699 Adoption of Recent Accounting Pronouncements On January 1, 2021 , the Company adopted Accounting Standards Update (ASU) 2020-10, Codification Improvements – Disclosures (ASU 2020-10). ASU 2020-10 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. Recent Accounting Pronouncements 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. 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 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 , 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 ASU 2016-13 on its condensed consolidated financial statements and related disclosures. In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing major separation models in ASC 470-20 that require separate accounting for embedded conversion features. ASU 2020-06 also removes certain settlement conditions in ASC 815-40 that are required for equity contracts to qualify 9 for the derivative scope exception, which will permit more equity contracts to qualify for the scope exception and simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. Adoption of ASU 2020-06 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. In May 2021, the FASB issued ASU 2021-04, Issuer's Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (ASU 2021-04), which requires issuers to account for a modification or exchange of freestanding equity-classified written call options that remain equity classified after the modification or exchange based on the economic substance of the modification or exchange. Specifically, under ASU 2021-04, an issuer determines the accounting for the modification or exchange based on whether the transaction was done to issue equity, issue and or modify debt, or for other reasons. The result is a change in the fair value of the written call option dependent on the reason for the modification. ASU 2021-04 is effective for interim and annual periods beginning after December 15, 2021, with early adoption permitted. Adoption of ASU 2021-04 is applied on a prospective basis. The Company does not expect ASU 2021-04 to impact its condensed consolidated financial statements and related disclosures. 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. Certain of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable, accounts payable, accrued expenses, lease liability-short term and deferred revenue-short term. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments: Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments. Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace. Level 3: Significant unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. Investments in marketable securities consisted of the following (in thousands): September 30, 2021 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Cash equivalents Money market funds $ 67,893 $ — $ — $ 67,893 Total cash equivalents 67,893 — — 67,893 Short-term marketable securities U.S. and foreign corporate debt securities 12,056 — ( 2 ) 12,054 Asset-backed securities 12,143 1 ( 6 ) 12,138 U.S. and foreign commercial paper 85,950 — — 85,950 Total short-term marketable securities 110,149 1 ( 8 ) 110,142 Long-term marketable securities U.S. and foreign corporate debt securities 9,188 — ( 8 ) 9,180 Total long-term marketable securities 9,188 — ( 8 ) 9,180 Total cash equivalents and marketable securities $ 187,230 $ 1 $ ( 16 ) $ 187,215 10 December 31, 2020 Amortized Cost Gross Unrealized Gain Gross Unrealized Loss Fair Value Cash equivalents Money market funds $ 47,553 $ — $ — $ 47,553 U.S. and foreign commercial paper 6,498 — — 6,498 Total cash equivalents 54,051 — — 54,051 Short-term marketable securities U.S. and foreign corporate debt securities 16,939 3 ( 3 ) 16,939 Asset-backed securities 12,674 2 ( 1 ) 12,675 U.S. treasury securities 23,997 2 — 23,999 U.S. and foreign commercial paper 103,356 — — 103,356 Total short-term marketable securities 156,966 7 ( 4 ) 156,969 Total cash equivalents and marketable securities $ 211,017 $ 7 $ ( 4 ) $ 211,020 All marketable securities held as of September 30, 2021 had contractual maturities of less than two years . Realized gains and losses for the three and nine months ended September 30, 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 September 30, 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, 2021 Level 1 Level 2 Level 3 Fair Value Cash equivalents Money market fund $ 67,893 $ — $ — $ 67,893 Total cash equivalents 67,893 — — 67,893 Short-term marketable securities U.S. and foreign corporate debt securities — 12,054 — 12,054 Asset-backed securities — 12,138 — 12,138 U.S. and foreign commercial paper — 85,950 — 85,950 Total short-term marketable securities — 110,142 — 110,142 Long-term marketable securities U.S. and foreign corporate debt securities — 9,180 — 9,180 Total long-term marketable securities — 9,180 — 9,180 Total assets measured at fair value $ 67,893 $ 119,322 $ — $ 187,215 December 31, 2020 Level 1 Level 2 Level 3 Fair Value Cash equivalents Money market fund $ 47,553 $ — $ — $ 47,553 U.S. and foreign commercial paper — 6,498 — 6,498 Total cash equivalents 47,553 6,498 — 54,051 Short-term marketable securities U.S. and foreign corporate debt securities — 16,939 — 16,939 Asset-backed securities — 12,675 — 12,675 U.S. treasury securities — 23,999 — 23,999 U.S. and foreign commercial paper — 103,356 — 103,356 Total short-term marketable securities — 156,969 — 156,969 Total assets measured at fair value $ 47,553 $ 163,467 $ — $ 211,020 11 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. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data, and other observable inputs. There were no transfers between Level 1, Level 2 or Level 3 during the periods presented. Note 4 – Other Accrued Expenses Other accrued expenses consist of the following (in thousands): September 30, December 31, 2021 2020 Accrued expenses: Accrued compensation $ 4,871 $ 7,016 Accrued restructuring charges 232 4,164 Accrued professional fees and other 354 807 Total accrued expenses $ 5,457 $ 11,987 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 costs incurred (in thousands): Total Restructuring Cost Employee Severance and Related Benefits Asset Impairment and Other Costs Restructuring costs incurred for the nine months ended September 30, 2021 $ ( 1,348 ) $ ( 2,959 ) (1) $ 1,611 Cumulative restructuring costs incurred through September 30, 2021 $ 6,430 $ 3,240 $ 3,190 (1) The reversal of $ 3.0 million in employee severance and related benefits recognized during the nine months ended September 30, 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. There were no restructuring costs incurred during the three months ended September 30, 2021. The cumulative restructuring costs incurred through September 30, 2021 represents the total amount expected to be incurred. The following table presents where the restructuring charges were recognized during the nine months ended September 30, 2021 (in thousands): Research and development $ ( 1,625 ) General and administrative 277 Total $ ( 1,348 ) 12 There were no restructuring costs incurred f or the three and nine months ended September 30, 2020. The following table presents the activity in the accrued restructuring charges during the nine months ended September 30, 2021 (in thousands): Total Restructuring Cost Employee Severance and Related Benefits Asset Impairment and Other Costs Accrued balance as of December 31, 2020 $ 4,164 $ 4,164 $ — Costs incurred 1,611 — 1,611 Reductions for cash payments ( 5,543 ) ( 3,932 ) ( 1,611 ) (1) Accrued balance as of September 30, 2021 $ 232 $ 232 $ — (1) 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. Note 6 – Stockholders’ Equity The Company was authorized to issue 5,000,000 shares of preferred stock as of September 30, 2021 and December 31, 2020, respectively. As of September 30, 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 September 30, 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. 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 nine months ended September 30, 2021, the Company sold 10,399,548 shares of common stock under the 2020 ATM, for which the Company received net proceeds of $ 50.2 million, after deducting commissions, fees and expenses. Common Stock Warrants The following warrants to purchase shares of the Company’s common stock were issued and outstanding: Issue date Expiration date Exercise Price per Share September 30, 2021 December 31, 2020 December 16, 2019 None $ 0.001 — 2,424,242 During the three and nine months ended September 30, 2021, 315,102 and 2,424,242 warrants were exercised through a cashless exercise, respectively, resulting in the issuance of 2,423,634 shares of the Company’s common stock. There were no warrants exercised during the three and nine months ended September 30, 2020 . 13 Note 7 – Stock Plans and Stock-Based Compensation Equity Incentive Plans In May 2018, the Company’s stockholders approved (1) the Assembly Biosciences, Inc. 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 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 number of 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 . In May 2021, 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 6,600,000 and an Amended and Restated Assembly Biosciences, Inc. 2018 Employee Stock Purchase Plan (the 2018 ESPP) that, among other things, increased the number of shares of common stock reserved to an aggregate of 1,300,000 . As of September 30, 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); and the 2018 Plan. 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, 2021, the Company also had awards outstanding under the Assembly Biosciences, Inc. 2017 Inducement Award Plan (the 2017 Plan), the Assembly Biosciences, Inc. 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 and 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 Stock Options A summary of the Company’s option activity and related information for the nine months ended September 30, 2021 is as follows: Number of Shares Weighted Average Exercise Price Per Share Weighted Average Remaining Contractual Term (Years) Total Intrinsic Value (in thousands) Outstanding as of December 31, 2020 6,696,592 $ 15.70 6.9 $ 1,856 Granted 1,484,370 4.28 Forfeited ( 1,864,895 ) 18.70 Expired ( 9,200 ) 30.00 Outstanding as of September 30, 2021 6,306,867 $ 12.10 6.7 $ 588 Options vested and exercisable as of September 30, 2021 3,767,464 $ 13.77 5.2 $ 587 The weighted-average grant-date fair value of options granted was $ 3.08 and $ 11.01 during the nine months ended September 30, 2021 and 2020, respectively. The total intrinsic value of options exercised during the nine months ended September 30, 2020 was $ 2.0 million. There were no options exercised during the nine months ended September 30, 2021. 14 RSUs A summary of the Company’s RSUs and related information for the nine months ended September 30, 2021 is as follows: Number of RSUs Weighted Average Fair Value Per RSU at Grant Price Nonvested as of December 31, 2020 886,868 $ 20.36 Granted 721,341 3.78 Vested ( 184,387 ) 18.27 Forfeited ( 285,634 ) 14.51 Nonvested as of September 30, 2021 1,138,188 (1) $ 17.03 (1) Includes 140,000 RSUs that have vested but are subject to deferred settlement, which have a weighted average remaining contractual term of 0.1 years. The total fair value of RSUs vested and settled during the nine months ended September 30, 2021 and 2020 was $ 3.5 million and $ 6.2 million, respectively. The total intrinsic value of RSUs vested and settled during the nine months ended September 30, 2021 and 2020 was $ 0.8 million and $ 3.9 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 expiration of the time period to complete one of the performance conditions. On July 31, 2021, an additional 25,000 of these awards were forfeited back to the Company due to the expiration of the time period to complete one of the performance conditions. The outstanding 50,000 awards with an aggregate fair value of $ 0.4 million vest upon performance conditions not yet deemed probable. Accordingly, no stock-based compensation expense has been recognized as of September 30, 2021. In July 2021, the Company granted a total of 324,214 RSUs with performance-based vesting conditions upon the achievement of clinical milestones to the majority of employees, including our executive officers. The awards had a grant date fair value of $ 1.2 million and vest upon performance conditions not yet deemed probable. Accordingly, no stock-based compensation expense has been recognized as of September 30, 2021. ESPP Employees purchased 42,803 and 42,266 shares of common stock under the 2018 ESPP during the nine months ended September 30, 2021 and 2020, respectively. Valuation Assumptions The fair value of the stock options granted or modified during the periods indicated was estimated using the Black-Scholes option pricing model, based on the following assumptions: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Exercise price $3.47 - $3.90 $20.14 - $23.30 $3.47 - $5.79 $14.45 - $23.30 Expected volatility 79.7% - 88.9% 68.9% - 81.6% 79.7% - 91.2% 66.4% - 82.2% Risk-free rate 0.73% - 1.24% 0.26% - 0.52% 0.50% - 1.37% 0.26% - 1.44% Expected term (years) 5.5 - 7.5 5.5 - 7.0 5.5 - 7.5 5.5 - 7.5 Expected dividend yield 0 % 0 % 0 % 0 % The fair value of RSUs granted is determined based on the price of the Company’s common stock on the date of grant. The fair value of ESPP purchase rights were not material for any period presented. 15 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, 2021 2020 2021 2020 Research and development $ 1,108 $ 2,759 $ ( 240 ) (1) $ 8,310 General and administrative 484 3,289 3,532 9,796 Total stock-based compensation expense $ 1,592 $ 6,048 $ 3,292 $ 18,106 (1) Includes the reversal of previously recognized stock-based compensation expense of $ 4.1 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 September 30, 2021, there was $ 12.0 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 Agreements Allergan Agreement 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. For the three and nine months ended September 30, 2020, the Company recognized $ 3.6 million and $ 47.1 million, respectively, 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 and nine months ended September 30, 2021 due to the termination of the Allergan Agreement in 2020. 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 will collaborate 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 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. 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. 16 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. 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. However, 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 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, 2021. 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. 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. The remaining transaction price allocated to the ABI-H2158 and ABI-H3733 Licenses of $ 9.0 million was recorded as long-term deferred revenue contract liability as of December 31, 2020. In September 2021, the 17 Company discontinued development of ABI-H2158 following the observation of elevated alanine transaminase levels in the Phase 2 clinical stud y consistent with drug-induced hepatotoxicity . The obligation related to the technology transfer associated with the license of ABI-H2158 was considered to be completed upon the Company's discontinuation of the development of this compound. Accordingly, t he Company recognized $ 6.3 million as collaboration revenue for the amount allocated to ABI-H2158 during the three months ended September 30, 2021 . The remaining transaction price allocated to the ABI-H3733 License of $ 2.7 million was recorded as a long-term deferred revenue contract liability on the unaudited condensed consolidated balance sheet as of September 30, 2021 . Revenue for the remaining performance obligation will be recognized when the Company provides pre-Phase 3 clinical study know-how and development results for ABI-H3733 to BeiGene or a termination of the BeiGene Agreement for ABI-H3733 . 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, 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, 2021 and December 31, 2020, the remaining unamortized contract costs are $ 0.2 million and $ 0.8 million, respectively, and are included in other assets on the condensed consolidated balance sheet. Arbutus Biopharma Agreement In August 2020, the Company and Arbutus Biopharma Corporation (Arbutus Biopharma) entered into a Clinical Trial Collaboration Agreement (the Arbutus Biopharma 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 Biopharma will share responsibility for the costs of the study equally, excluding manufacturing supply. Each company will need to supply their respective drugs, VBR and AB-729. The Arbutus Biopharma 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 Biopharma 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 Biopharma Agreement and concluded there is one activity, to run an open-label Phase 2 clinical study, which is akin to a 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 not consider performing research and development services for reimbursement to be a part of its ongoing major or central operations. During the three and nine months ended September 30, 2021, the Company recognized a reduction of research and development expenses of $ 0.5 million and $ 1.3 million, respectively under the Arbutus Biopharma Agreement. 18 Antios Agreement In July 2021, the Company and Antios Therapeutics, Inc. (Antios) entered into a Clinical Trial Collaboration Agreement (the Antios Agreement) to collaborate on a clinical trial of a combination therapy using either or both of the Company’s core inhibitors, VBR and ABI-H2158, and Antios’s active site polymerase inhibitor nucleotide ATI-2173 for the treatment of HBV. Assembly and Antios will share responsibility for the costs of the study equally, excluding manufacturing supply, which each company will need to supply their respective drugs. The Antios Agreement does not bind either party to conducting a collaboration trial or collaboration trial cohort unless and until a Joint Development Committee (the JDC) formed by both parties decides to initiate a collaboration trial or collaboration trial cohort. Due to the discontinuation of development of ABH-H2158 in September 2021, any study under the Antios Agreement would be with VBR. The Antios 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. Antios is not a customer as it does not obtain an output from the collaborative activities as they were not provided an exclusive license to ABI-H2158 or VBR or the ability to manufacture ABI-H2158 or VBR, and the Company does not consider performing such collaborative activities to be a part of its ongoing activities. In October 2021, the JDC agreed to initiate a collaboration trial cohort to evaluate a triple combination treatment in patients with chronic HBV infection. There were no costs incurred during the three and nine months ended September 30, 2021 . Contract Liabilities The following table presents changes in the Company’s contract liabilities (in thousands): Balance at Beginning of Period Additions Deductions Balance at End of Period Nine Months Ended September 30, 2021 Contract liabilities: Deferred revenue $ 8,987 $ — $ ( 6,254 ) $ 2,733 Balance at Beginning of Period Additions Deductions Balance at End of Period Nine Months Ended September 30, 2020 Contract liabilities: Deferred revenue $ 37,048 $ 40,000 $ ( 68,061 ) $ 8,987 Note 9 - Milestones and Research Agreements HBV Research Agreement with Indiana University Since September 2013, the Company has been party to an exclusive License Agreement dated September 3, 2013 with Indiana University Research and Technology Corporation (IURTC) from whom it has licensed aspects of the Company’s HBV program held by IURTC. 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 $ 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 such fees for that year. No amounts were paid in the nine months ended September 30, 2021. Amounts paid in the nine months ended September 30, 2020 were insignificant. 19 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 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 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. No amounts were accrued for this agreement as of and for the nine months ended September 30, 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 became effective on April 21, 2021. Door Pharma Agreement In November 2020, the Company and Door Pharmaceuticals, LLC (Door Pharma) entered into an exclusive, two-year Collaboration Agreement and Sublicense Agreement (collectively, the Door Pharma Agreement) focused on the development of a novel class of HBV inhibitors. Under the terms of the agreement, Door Pharma 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. Door Pharma met a milestone for which the Company paid $ 0.2 million during the three months ended September 30, 2021. For the three and nine months ended September 30, 2021, the Company incurred $ 0.5 million and $ 1.3 million, respectively, of research and development funding. Under the consolidation accounting standard, the Company determined that Door Pharma 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 Pharma and as such the Company is not the primary beneficiary and consolidation is not required. As of September 30, 2021, the Company has not provided financial or other support to Door Pharma that was not contractually required. Note 10 – Leases 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 leased office and laboratory space in Groton, Connecticut that supported the Microbiome program under a lease that expired in June 2021. Due to the wind-down of the Microbiome program, the lease was not 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. The Company’s China subsidiary leases a registrational office in Shanghai under a lease that expires in May 2022. 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 expiring at various dates, with the final lease expiring in 2024. In February 2021, the Company purchased substantially all of the leased equipment used for the Microbiome program from its leasing agency and sold this equipment to third parties (see Note 5). 20 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, 2021, the Company had operating lease liabilities of $ 7.2 million and ROU assets of $ 6.8 million. The following summarizes quantitative information about the Company’s operating leases (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Lease cost Operating lease cost $ 902 $ 1,164 $ 2,940 $ 3,463 Short-term lease cost 32 101 227 301 Variable lease cost 312 409 1,063 1,101 Sublease income ( 38 ) — ( 104 ) — Total lease cost $ 1,208 $ 1,674 $ 4,126 $ 4,865 Nine Months Ended September 30, 2021 2020 Operating cash flows from operating leases $ 2,856 $ 3,382 ROU assets exchanged for new operating lease liabilities $ 126 $ 1,063 As of September 30, 2021 and December 31, 2020, the weighted-average remaining lease term for operating leases was 2.2 years and 2.7 years, respectively. As of September 30, 2021 and December 31, 2020, the weighted-average discount rate for operating leases was 9.7 % and 9.2 %, respectively. As of September 30, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands): Three months ending December 31, 2021 $ 927 Year Ending December 31, 2022 3,643 Year Ending December 31, 2023 3,491 Year Ended December 31, 2024 13 Total 8,074 Less: present value discount ( 839 ) Operating lease liabilities $ 7,235 21