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Item 7. Management’s Discussion and Analysis

2022-03-11 compared with 2021-02-25 · 203 added, 296 removed, 149 unchanged (77% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with “Selected Financial Data”, our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Annual Report on Form 10-K.

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Annual Report on Form 10-K.

The following discussion contains forward-looking statements that involve risks and uncertainties.

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Risk Factors.”

We are a clinical-stage biotechnology company advancing a novel class of oral therapeutic candidates for the treatment of chronic hepatitis B virus (HBV) infection.

According to the World Health Organization (WHO), approximately 270 million people worldwide are chronically infected with HBV.

Our research and development programs are pursuing multiple drug candidates designed to 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.

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

The ongoing COVID-19 pandemic has affected certain aspects of our business.

As further detailed below, those effects have been primarily limited to where and how our employees work in our labs and offices.

To date, our current and future planned clinical trials and pre-clinical studies have not been subject to significant impact as a result of the COVID-19 pandemic.

As previously announced, in January 2021, we wound down our Microbiome program to prioritize and focus our resources on discovering and developing finite and curative therapies for HBV.

We are a clinical-stage biotechnology company focused on discovery and development of innovative therapeutics targeting hepatitis B virus (HBV) and other viral diseases.

The World Health Organization (WHO) estimates that 296 million people worldwide are chronically infected with HBV as of 2019.

Our research and development organizations are pursuing multiple drug candidates designed to 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 chronic HBV infection.

We have discovered several novel core inhibitors, which are small molecules that directly target and allosterically modulate the HBV core protein in a way that affects assembly and stability of HBV nucleocapsids.

In addition, our research organization is working on discovering and developing cccDNA disruptors and small molecules targeting two novel undisclosed HBV targets,

While we continue our efforts to develop finite and curative therapies for patients with chronic HBV infection, our research organization recently launched an exploratory virology discovery program for compounds directed at a number of non-HBV viral targets.

These targets, currently expected to be disclosed in mid-2022, were selected to leverage the deep antiviral expertise and experience of our research and development organizations against diseases with significant unmet medical need.

The ongoing COVID-19 pandemic and its broad, global impacts, including supply chain disruptions, have impacted certain aspects of our business, including where and how our employees work in our labs and offices and how and when our nonclinical and clinical studies are conducted.

Early in the pandemic, our current and future planned clinical trials and preclinical studies were largely unaffected, but as the pandemic has continued, we have experienced enrollment delays for our current clinical studies, particularly our two ongoing multi-drug combination studies.

As previously announced, in January 2021, we wound down our Microbiome program to prioritize and focus our resources on our virology programs.

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

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Targeting HBV Core Protein to Achieve a Cure

HBV is a DNA virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique DNA moiety that resides in the cell nucleus of HBV-infected hepatocytes and is associated with viral persistence and chronic infection.

HBV is a DNA virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique viral DNA moiety that resides in the cell nucleus of HBV-infected hepatocytes and is associated with viral persistence and chronic infection.

No currently approved oral therapies target cccDNA activity directly, which makes molecules that can modulate cccDNA generation or disrupt its function highly sought in the HBV field.

As a result, most of our research and development efforts to date have focused on discovering and developing compounds targeting the core protein, a highly conserved viral structural protein that has no human homologue and is involved in numerous aspects of the HBV replication cycle, including the generation of HBV cccDNA.

As a result, most of our research and development efforts to date have focused on discovering and developing compounds targeting the core protein, a viral protein involved in numerous aspects of the HBV replication cycle, including the generation of HBV cccDNA.

Through our research efforts, we have discovered several chemically distinct series of small molecule core inhibitors that directly target and allosterically inhibit core protein functions.

Vebicorvir (VBR), our lead core inhibitor product candidate, is licensed from Indiana University.

The conduct of the Phase 2 studies, Study 201 and 202 and our open-label extension study, Study 211, are all complete.

We presented interim updates on our clinical studies at a variety of conferences, including at the European Association for the Study of the Liver’s (EASL) Digital International Liver Congress TM in August 2020 and the American Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2020.

Our most recently completed study for VBR, Study 211, involved transitioning patients who met the requisite stopping criteria, as determined with our lead investigators and the U.S.

The conduct of our initial Phase 2 studies, Study 201 and 202, is complete.

In these studies, VBR administered with NrtI therapy demonstrated a favorable safety profile and led to greater viral suppression of both HBV DNA and viral pgRNA than NrtI therapy alone.

Our most recently completed study for VBR, Study 211, involved transitioning patients who met the requisite stopping criteria, as determined in collaboration with our lead investigators and the U.S.

Food and Drug Administration (FDA), off of therapy to test for sustained virologic response (SVR).

SVR refers to sustained viral suppression (more than six months) of HBV DNA below the lower limit of quantification (LLOQ) and would be consistent with a successful finite treatment for HBV.

In November 2020, it became clear that patients who stopped therapy in Study 211 had not achieved meaningful SVR rates as 39 of 41 patients relapsed, meaning they had detectable HBV.

We continue to collect and analyze Study 211 data and intend to submit more detailed findings to a future medical meeting;

however, it is clear that combination therapy of VBR plus nucelos(t)ide analog reverse transcriptase inhibitors (NrtI) alone is not sufficient to cure HBV.

Based on these results, we terminated Study 211 prior to its completion.

SVR refers to sustained viral suppression (more than six months) of HBV DNA below LLOQ and would be consistent with a successful finite treatment for chronic HBV infection.

During the trial, it became clear that patients who stopped therapy in Study 211

had not achieved SVR , as all patients relapsed, meaning they had detectable HBV and the dual combination therapy of VBR + NrtI was insufficient to cure chronic HBV infection in the studied population.

Based on these results, we terminated Study 211 in the fourth quarter of 2020.

We presented follow-up data from Study 211 related to virologic response, safety and resistance following treatment discontinuation, at the European Association for the Study of the Liver’s (EASL) International Liver Congress TM in June 2021 (EASL 2021).

A t the American Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2021 (AASLD 2021) , we presented a dditional follow-up data from Study 211 demonstrat ing that patients ha d increases of HBV DNA and pgRNA after discontinuation of VBR despite continued NrtI treatment , further support ing that core inhibitors deepen viral suppression in combination with NrtIs .

Based on discussions with leading viral hepatitis experts, global regulatory discussions and feedback, and, with respect to the China territory, discussions and agreement with our collaboration partner, BeiGene, Ltd.

(BeiGene), we

recently decided to not move forward with the global registrational studies for VBR as a chronic suppressive treatment (CST) with NrtI.

(BeiGene), in early 2021, we decided to not move forward with the global registrational studies for VBR as a CST with NrtI.

The decision was made to focus on the greatest unmet medical need of patients, which lies predominantly in cure, rather than CST.

As a result, we also expect to terminate Study 205, as we focus our efforts with VBR moving forward in combination with NrtI and additional mechanisms targeting finite and curative combination therapy.

Our second-generation core inhibitor product candidate, ABI-H2158 (2158), was internally discovered and developed and is chemically distinct from VBR.

We reported the final data from dose-ranging cohorts of the Phase 1b portion of the Phase 1a/1b dose-ranging clinical study at EASL in August 2020.

Based on data from the Phase 1b dose-ranging study, we initiated a Phase 2 clinical study in June 2020 using a 300 mg daily dose of 2158.

This study is being conducted in approximately ten countries in Asia, North America and Europe.

We expect interim data from this study in the second half of 2021.

While we will continue to monitor the situation closely, at this time, we do not expect our timelines for this study to be significantly impacted by the COVID-19 pandemic.

Our third core inhibitor product candidate, ABI-H3733 (3733), has completed Investigational New Drug (IND) enabling studies.

3733 has a novel chemical scaffold separate from both VBR and 2158.

We presented a preclinical profile of this candidate in the first quarter of 2019.

In the first quarter of 2020, we initiated a Phase 1a clinical study to evaluate safety, tolerability and pharmacokinetics (PK) following single ascending dose and multiple ascending dose administration of 3733 in healthy subjects in New Zealand.

Conduct for the study was completed in the fourth quarter of 2020 and preliminary data indicate that 3733 was generally well-tolerated and had favorable PK.

Additional Product Candidates

In addition to our three clinical-stage product candidates, our research discovery team is actively focused on identifying and selecting a fourth-generation core inhibitor candidate, which we anticipate in the first half of 2021.

As a result, we terminated Study 205 and began to focus our efforts with VBR in combination with NrtI and additional mechanisms targeting finite and curative combination therapy.

We currently have two Phase 2 triple combination studies involving VBR ongoing, with a third expected to be initiated in the first half of 2022.

These studies are detailed below.

See “—Multi-Drug Combination Studies.”

Next-Generation Core Inhibitors

In pursuit of our goal of developing finite and curative therapies for patients with chronic HBV infection, we plan to advance the optimal core inhibitor in our portfolio for use as the antiviral backbone with NrtI.

While we currently have VBR, our first-generation core inhibitor product candidate, and 3733, a next-generation product candidate, in clinical studies, we expect to initiate Phase 1a studies of 4334, our most potent next-generation product candidate in the second half of 2022.

Based on the clinical progress of these candidates, we will apply disciplined, data-driven analyses to identify the optimal candidate to advance into late-stage clinical trials to produce potentially higher cure rates than are currently obtainable for patients with chronic HBV infection under the current standard of care.

Our first of two next-generation core inhibitor product candidates, 3733, was internally discovered and developed.

The chemical scaffold of 3733 is novel and distinct from each of VBR, 4334 and our discontinued core inhibitor product candidate, ABI-H2158 (2158).

In 2020, we initiated and completed a Phase 1a clinical study of 3733 to evaluate safety, tolerability and pharmacokinetics (PK) following single ascending dose and multiple ascending dose administration in healthy subjects in New Zealand.

Preliminary data indicate that 3733 was generally well-tolerated and had favorable PK.

Results detailing 3733’s safety and PK from this study were presented in a poster presentation at AASLD 2021.

In addition, at EASL 2021, we presented observations on 3733’s enhanced potency and target coverage for both antiviral activity and inhibition of cccDNA generation as compared to VBR and 2158.

We expect to initiate a Phase 1b study with an improved formulation of 3733 in patients with chronic HBV infection in the first half of 2022.

In mid-2021, we announced the selection of 4334, our other next-generation core inhibitor product candidate.

As with all of our core inhibitor product candidates nominated after VBR, 4334 was internally discovered and developed.

In addition, the chemical scaffold of 4334 is also novel and distinct from each of VBR, 3733 and 2158.

We nominated 4334 based on a preclinical target drug profile that indicates enhanced target coverage and potency to prevent both formation of new virus and cccDNA, which is responsible for maintaining the HBV viral reservoir.

We believe that 4334 has a best-in-class preclinical profile, with single-digit nanomolar potency against the production of new virus and the formation of cccDNA.

Preclinically to date, 4334 has also demonstrated pan-genotypic activity, an improved resistance profile and a favorable safety profile.

Preclinical characterization of 4334 was shared in a poster presentation at AASLD in November 2021.

Our preclinical work on 4334 is ongoing, with the aim of completing Investigational New Drug (IND) enabling studies and initiating a Phase 1a clinical study in the second half of 2022.

In September 2021, we discontinued development of 2158 following the observation of elevated alanine transaminase (ALT) levels in the Phase 2 clinical study consistent with drug-induced hepatotoxicity.

Multi-Drug Combination Studies

We believe that core inhibitors and NrtI will be central to finite and curative therapies for chronic HBV infection.

Therefore, as we continue to develop and advance our current and future core inhibitors through clinical studies, we plan to conduct multi-drug combination studies in parallel that add additional drugs (or compounds) with non-overlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone.

Specifically, we plan on only incorporating our current and future core inhibitors that have demonstrated they are well-tolerated and effective in clinical studies in dual combination with NrtI.

As the 300 mg daily dose of VBR has been observed to be well-tolerated in all studies conducted to date, with no serious adverse effects or dose-limiting toxicities identified and no pattern of treatment-emergent clinical or laboratory abnormalities observed and has progressed beyond dual combination studies, we currently have two triple combination studies planned to study VBR in combination with NrtI and a third mechanism of action.

Therefore, as we continue to develop and advance our current and future core inhibitors through clinical studies, we plan to conduct multi-drug combination studies in parallel that add additional drugs (or compounds) with nonoverlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone.

We currently have two ongoing triple combination studies and a third triple combination study expected to start in the first half of 2022 to study VBR in combination with NrtI and a third mechanism of action.

Our first triple combination study is being conducted pursuant to a Clinical Trial Agreement with Arbutus Biopharma Corporation (Arbutus Biopharma) and consists of a randomized, multi-center, open-label Phase 2 clinical study to explore the safety, PK and antiviral activity of the triple combination of VBR, NrtI and AB-729 (Arbutus Biopharma’s investigational RNAi candidate) compared to the double combinations of VBR + NrtI and AB-729 + NrtI in virologically suppressed patients.

This clinical study initiated in the first quarter of 2021 and completed enrollment in February 2022.

We expect to share interim on-treatment results from this study in the second half of 2022.

Our second triple combination study evaluates VBR and NrtI in combination with interferon in treatment-naïve HBeAg positive subjects.

This study was also initiated in the first quarter of 2021, and we expect enrollment to be complete in March 2022.

We expect to share interim on-treatment results from this study in the second half of 2022.

Our third triple combination study will be conducted pursuant to a Clinical Trial Collaboration Agreement with Antios Therapeutics, Inc.

(Antios) and will evaluate ATI-2173, Antios’s investigational proprietary active site polymerase inhibitor nucleotide (ASPIN), VBR and tenofovir disoproxil fumarate, an NrtI.

This multi-center, double-blinded, placebo-controlled study will evaluate the safety, PK and antiviral activity of this all-oral triple combination.

We expect to initiate this study, which will enroll ten treatment-naïve or off-treatment HBeAg negative or positive patients in a 12-week treatment study, in the first half of 2022.

The study plan initially included a site in Ukraine, but we will no longer be conducting the study there due to the instability resulting from Russia’s recent invasion of Ukraine.

We expect these changes to our study plan to result in a delayed data readout.

Both our first and second triple combination studies have experienced enrollment delays due to the ongoing COVID-19 pandemic.

The pandemic has impacted patients and study sites through patient screening delays, travel restrictions and hesitancy to travel to study sites.

The pandemic has also impacted our vendors, as our central laboratories have been unable to meet their contractual obligations, and our vendors have experienced staffing constraints and supply chain challenges as they seek to obtain lab kits, reagents and other items necessary to enroll patients in our studies.

As a result, we were unable to fully enroll our first and second triple combination studies in 2021 as initially planned;

however, based on enrollment to date, we do not believe these delays will impact interim data readouts for these studies, which remains on schedule in 2022.

Beyond Core Inhibitors

In addition to the development and advancement of our core inhibitor portfolio and our current and future multi-drug combination studies, our research and development team is working on discovering and developing a potent fourth-generation core inhibitor, cccDNA disruptors and small molecules targeting novel undisclosed targets to add to the core inhibitor + NrtI antiviral backbone to achieve cure.

We currently have corporate and administrative offices and research laboratory space in South San Francisco, California, Groton, Connecticut and a small office in China.

In addition to the development and advancement of our core inhibitor portfolio and our current and future multi-drug combination studies, our research and development team is working on discovering and developing cccDNA disruptors and small molecules targeting two novel undisclosed HBV targets, which we expect to announce in the first half of 2022, to complement our HBV cure strategy.

In November 2020, we entered into an exclusive, two-year collaboration and option agreement with Door Pharmaceuticals , LLC (Door Pharma) focused on the development of a novel class of HBV inhibitors.

Door Pharma’s discovery platform targets functions of core protein distinct from viral assembly and have the potential to interfere with viral nucleic acid including intra-nuclear cccDNA, providing a strong complement to our current portfolio.

Together with Door Pharma, we are working on identifying cccDNA disruptors, which will be aimed at inhibiting different intra-nuclear steps in the viral replication cycle that complement the activity of our core inhibitors.

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

In return for an up-front payment and success-based milestones and royalties, we 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.

Additional Antiviral Opportunities

In addition to our work toward developing finite and curative therapies for patients with chronic HBV infection, we have expanded our research and development organizations’ reach by pursuing exploratory research on novel compounds targeting other viruses.

Our expanded focus leverages the depth and breadth of virology expertise of our research and development organization to diversify our pipeline into areas of high unmet medical need.

We expect to disclose more information regarding these discovery programs on additional viral targets in mid-2022.

We currently have corporate and administrative offices and research laboratory space in South San Francisco, California as well as registrational offices in China.

Since our inception, we have had no revenue from product sales and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings and collaborations since then.

Our operations to date have been primarily limited to organizing and staffing our company, licensing our product candidates, discovering and developing our product candidates, maintaining and improving our patent portfolio and

raising capital.

We have generated significant losses to date, and we expect to continue to generate losses as we continue to develop our product candidates.

We have generated significant losses to date, and we expect to continue to generate losses as we develop our product candidates.

As of December 31, 2021, we had an accumulated deficit of $631.4 million.

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We are unable to predict the extent of any future losses or when we will become profitable, if at all.

In mid-March 2020, as a result of the COVID-19 pandemic, six San Francisco Bay Area counties announced a shelter-in-place order, restricting all residents to their homes, with few exceptions.

Within a week, California issued a statewide stay-at-home order.

As a biotechnology company, we were exempt from such orders.

On June 15, 2021, California reopened its economy, and all applicable local orders were also lifted on June 15, 2021.

In addition, we have taken the additional step of requiring that all of our employees be fully vaccinated against COVID-19.

There has not been any significant interruption to date of essential activities at our offices, including work in our laboratories with proper protections and procedures in place.

While we have experienced some shipping delays or shortages of personal protective equipment (PPE) that are important to maintaining normal workflows in our laboratories, we have been able to continue our critical research activities through schedule shifts, use of PPE on-hand and reallocation of certain resources that allow our employees to practice “social distancing” and comply with applicable laws.

Substantially all of our U.S.-based non-research employees have been working from their homes since mid-March 2020.

Early in the pandemic, our current and future planned clinical trials and preclinical studies were largely unaffected, but as the pandemic has continued, we have experienced enrollment delays in our current clinical studies, particularly our two ongoing multi-drug combination studies.

We continually work with our contract research organizations (CROs) and other vendors to ensure, to the extent possible, that services are provided in a timely manner while also identifying alternative vendors and strategies to utilize in the event that COVID- or third party-related delays threaten our ability to meet our timelines.

We cannot currently predict the specific extent, duration or full impact that the COVID-19 pandemic will have on our ongoing and planned research efforts, clinical studies and other business operations.

We continue to monitor the situation regularly for additional potential delays, or modifications to our ongoing and planned studies and, if circumstances warrant, we may adjust our budget and operating plan.

Financial Operations Overview

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employee-related expenses including salaries, benefits, and stock-based compensation expense;

expenses incurred under agreements with third parties, including contract research organizations (CROs) that conduct research and development, nonclinical and clinical activities on our behalf and the cost of consultants, and contract manufacturing organizations (CMOs) that manufacture all of our drug substance and the drug product used in our HBV program;

expenses incurred under agreements with third parties, including CROs that conduct research and development, nonclinical and clinical activities on our behalf and the cost of consultants, and contract

manufacturing organizations (CMOs) that manufacture all of our drug substance and the drug product used in our HBV program;

the cost of lab supplies and acquiring, developing, and manufacturing nonclinical and, in the case of our Microbiome program, early-stage clinical study materials;

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Year Ended December 31,

Microbiome ( 2 )

Expenses presented for HBV include reimbursement of expenses of $0.2 million under the Clinical Trial Collaboration Agreement (Arbutus Agreement) with Arbutus Biopharma Corporation (Arbutus), as discussed in Note 9 to the Consolidated Financial Statements.

Expenses presented for Microbiome do not reflect reimbursement of expenses under the Research, Development, Collaboration and License Agreement (Allergan Agreement) with Allergan Pharmaceuticals International Limited (Allergan), as discussed in Note 9 to the Consolidated Financial Statements.

Expenses presented for Microbiome for the year ended December 31, 2021 include a gain of $3.0 million on the sale of assets under the Asset Purchase Agreement (Microbiome Purchase Agreement) and the reversal of $2.7 million of previously recognized stock-based compensation expense related to forfeited awards of terminated employees due to the wind-down of the Microbiome program .

The successful discovery and development of our product candidates is highly uncertain.

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However, we do not believe that it is possible at this time to accurately project total program-specific expenses through commercialization.

There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and

various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.

Additionally, future commercial and regulatory factors beyond our control will impact our clinical development programs and plans.

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Securities and Exchange Commission (SEC) requirements, insurance, and investor relations costs.

Impairment of goodwill and indefinite-lived intangible asset

Goodwill and our indefinite-lived intangible asset are reviewed for impairment at least annually in the fourth quarter and more frequently if events or other changes in circumstances indicate the carrying amount of the assets may not be recoverable.

Impairment of goodwill and an indefinite-lived intangible assets is determined to exist when the fair value is less than the carrying value of the asset being tested.

In the fourth quarter of 2021, we concluded both goodwill and our indefinite-lived intangible asset were fully impaired resulting in the full write-off of these balances to the statement of operations and comprehensive loss.

Interest income

Interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities.

Critical Accounting Policies and Significant Judgments and Estimates

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States.

The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.

Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our consolidated financial statements.

We evaluate our estimates and judgments, including those described in greater detail below, on an ongoing basis.

We base our estimates on historical experience and on various other factors that we believe are

reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

Actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in the notes to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K, we believe that the following accounting policies are the most critical to aid you in fully understanding and evaluating our financial condition and results of operations.

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 accounting standard and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers accounting standard.

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

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

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

Under certain collaborative arrangements, we are reimbursed for a portion of our research and development expenses or participate 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 our consolidated statements of operations and comprehensive loss, as we do not consider performing these activities for reimbursement to be a part of our ongoing major or central operations.

For arrangements or transactions between arrangement participants determined to be within the scope of the contracts with customers accounting standard, we evaluate the term of the arrangement and recognize revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects the consideration we expect to receive in exchange for those goods or services.

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

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

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

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

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

and (5) recognition of revenue when (or as) we satisfy each performance obligation.

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

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

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

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

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

We recognize the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied as revenue.

Upfront License Fees

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

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

For licenses that are not distinct from other obligations identified in the arrangement, we utilize judgment to assess the nature of the combined

performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time.

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

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

Research and Development Service Payments

Under the Allergan Agreement, we were reimbursed at a certain percentage for performing research and development services based on hours worked by our employees at a fixed contractual rate per hour and third-party pass-through costs we incurred on a quarterly basis.

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

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

We recorded the full reimbursed portion of these expenses accounted for under the contract with customer accounting standard as collaboration revenue in our consolidated statements of operations as we consider performing research and development services to be a part of our ongoing and central operations.

Development and Regulatory Milestone Payments

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

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

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

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

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

Sales-based Milestone and Royalty Payments

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

We recognize revenues related to sales-based milestone and royalty payments upon the later to occur of (1) achievement of the collaborator’s underlying sales or (2) satisfaction of any performance obligation(s) related to these sales, in each case assuming our licensed intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

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

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

If the related performance obligation is expected to be satisfied within the next 12 months, these amounts will be classified in current liabilities.

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

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

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

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

We may be required to exercise considerable judgment in estimating revenue to be recognized.

Judgment is required in identifying performance obligations, estimating the transaction price, estimating the standalone selling prices of identified performance obligations, which may include forecasted revenue, development timelines, reimbursement rates for personnel and other research and development costs, discount rates and probabilities of technical and regulatory success, and estimating the progress towards satisfaction of performance obligations.

On January 1, 2018, we adopted ASU No.

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

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

Results for the year ended December 31, 2018 are presented under ASC 606, while prior period amounts are not adjusted and continue to be reported in

accordance with historic accounting under the previous revenue recognition accounting standard .

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

Based on our analysis, we concluded there was no significant change in applying ASC 606 to our agreement with Allergan and no amounts have been recognized within “accumulated deficit” in the consolidated balance sheet related to the adoption of the new standard.

Goodwill and Indefinite-Lived Intangible Assets

Goodwill and indefinite-lived intangible assets are reviewed for impairment at least annually in the fourth quarter and more frequently if events or other changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

Impairment of goodwill and indefinite-lived intangibles is determined to exist when the fair value is less than the carrying value of the net assets being tested.

We determined that we have only one operating segment and reporting unit.

Goodwill and Indefinite-Lived Intangible Asset

We have one operating segment and reporting unit.

Accordingly, our review of goodwill impairment indicators is performed at the entity-wide level.

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

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

Some of the factors considered in the assessment include general macroeconomic conditions, conditions specific to the industry and market, cost factors, the overall financial performance and whether there have been sustained declines in our share price.

If we conclude it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or elect not to use the qualitative impairment test, a quantitative impairment test is performed.

Effective January 1, 2020, we early adopted 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.

Under this accounting standard, annual or interim quantitative impairment testing is performed by comparing the estimated fair value of the reporting unit to its carrying value.

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

If we conclude it is more

likely than not that the fair value of the reporting unit is less than its carrying amount, or elect not to use the qualitative impairment test, a quantitative impairment test is performed .

We use our market capitalization as an indicator of fair value.

We believe that since our reporting unit is publicly traded, the ability of a controlling stockholder to benefit from synergies and other intangible assets that arise from control might cause the fair value of our reporting unit as a whole to exceed our market capitalization.

However, we believe that the fair value measurement need not be based solely on the quoted market price of an individual share of our common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting unit.

The control premium utilized is based on control premiums observed in recent acquisitions of entities similar to us that were made on a non-minority basis.

Should our market capitalization be less than our total stockholders’ equity as of our annual test date or as of any interim impairment testing date, we would also consider market comparables, recent trends in our stock price over a reasonable period and, if appropriate, use an income approach (discounted cash flow) to determine whether the fair value of our reporting unit is greater than our carrying amount.

If we were to use an income approach, we would establish a fair value by estimating the present value of our projected future cash flows expected to be generated from our business.

The discount rate applied to the projected future cash flows to arrive at the present value would be intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows.

Our discounted cash flow methodology would consider projections of financial performance for a period of several years combined with an estimated residual value.

The most significant assumptions we would use in a discounted cash flow methodology are the discount rate, the residual value and expected future revenues, gross margins and operating costs, along with considering any implied control premium.

In 2020, we elected to bypass the qualitative goodwill impairment assessment.

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

In November 2020, after our public announcement that it became clear that patients who stopped therapy in Study 211 had not achieved meaningful SVR rates as 39 of 41 patients relapsed, our stock price declined 152% closing on November 5 at $15.90 and opening on November 6 at $6.30.

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

However, our interim quantitative impairment test still determined the fair value exceeded the carrying value of our single reporting unit and concluded that goodwill was still not impaired.

We did not recognize any goodwill impairment in any of the years presented.

We believe that since our reporting unit is publicly traded, the ability of a controlling stockholder to benefit from synergies and other intangible assets which arise from control might cause the fair value of our reporting unit as a whole to exceed our market capitalization.

However, we believe the fair value measurement need not be based solely on the quoted market price of an individual share of our common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting unit.

The control premium utilized is based on control premiums observed in recent acquisitions of entities similar to us which were made on a non-minority basis.

Should our market capitalization be less than our total stockholders’ equity as of our annual test date or as of any interim impairment testing date, we also consider market comparables, recent trends in our stock price over a reasonable period and, if appropriate, use an income approach (discounted cash flow) to determine whether the fair value of our reporting unit is greater than our carrying amount.

When we use an income approach, we establish a fair value by estimating the present value of our projected future cash flows, adjusted for probabilities of technical success, expected to be generated from our business.

The discount rate applied to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows.

Our discounted cash flow methodology considers projections of financial performance for a period of several years combined with an estimated residual value.

We elected to perform a quantitative impairment assessment of goodwill for our single reporting unit in the fourth quarter of 2021 due to a sustained decline in our market capitalization, an increase in negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection.

We estimated and reconciled the fair value of our reporting unit using both a market approach, utilizing our market capitalization adjusted for an estimated control premium, and the income approach, discounting future cash flows based on management’s expectations of timelines to complete clinical trials, regulatory and commercial probabilities of technical success as well as future earnings forecast.

Before completing our goodwill impairment test, we first tested our indefinite-lived intangible asset then our remaining long-lived assets for impairment.

We concluded our indefinite-lived intangible asset was fully impaired and included that impairment within the net carrying value of our reporting unit for purposes of our goodwill impairment test.

No impairment was identified for our long-lived assets.

We concluded the fair value of our single reporting unit was less than its carrying value and therefore recognized an impairment charge of $12.6 million to write off the entire balance of our goodwill.

This was primarily due to an increase in discount rates from the standpoint of a market participant and their views on how such aforementioned events increase the risks associated with the Company.

The fair value measurements were primarily based on Level 3 inputs.

The calculation of the impairment charge includes substantial fact-based determinations and estimates including discount rates, future revenues, profitability, cash flows, probabilities of technical success, and fair values of assets and liabilities, and any changes to these assumptions could result in changes to the fair value of our single reporting unit.

The goodwill impairment charge is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss.

Indefinite-Lived Intangible Asset

Our indefinite-lived intangible asset consists of in-process research and development (IPR&D) projects acquired in a business combination that are used in research and development activities but have not yet reached technological feasibility, regardless of whether they have alternative future use.

The primary basis for determining the technological

feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region.

Our indefinite-lived intangible asset consist of in-process research and development (IPR&D) associated with small molecule core inhibitors that directly target and allosterically inhibit core protein functions associated with HBV that were acquired with the acquisition of Assembly Pharmaceuticals, Inc.

IPR&D represents the fair value assigned to incomplete research projects we acquired through a business combination which, at the time of acquisition, had not reached technological feasibility, regardless of whether they had alternative use.

The primary basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to market the underlying products in an applicable geographic region.

We classify in-process research and development acquired in a business combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research and development efforts.

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

In performing each annual impairment assessment and any interim impairment assessment, we determine if we should qualitatively assess whether it is more likely than not that the fair value of our IPR&D asset is less than its carrying amount (the qualitative impairment test).

If we conclude that is the case, or elect not to use qualitative impairment test, we would proceed with quantitatively determining the fair value of the IPR&D asset and comparing its fair value to its carrying value to determine the amount of impairment, if any (the quantitative impairment test).

In performing each annual impairment assessment and any interim impairment assessment, we determine if we should qualitatively assess whether it is more likely than not the fair value of our IPR&D asset is less than its carrying amount (the qualitative impairment test).

If we conclude that is the case, or elect not to use qualitative impairment test, we

would proceed with quantitatively determining the fair value of the IPR&D asset and comparing its fair value to its carrying value to determine the amount of impairment, if any (the quantitative impairment test).

In performing the qualitative impairment test, we consider the results of the most recent quantitative impairment test and identify the most relevant drivers of the fair value for the IPR&D asset.

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Using these drivers, we identify events and circumstances that may have an effect on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined.

We then weigh these factors to determine and conclude if it is not more likely than not that the IPR&D asset is impaired.

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

We then weigh these factors to determine and conclude if it is more likely than not the IPR&D asset is impaired.

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

We use the income approach to determine the fair value of our IPR&D asset.

This approach calculates fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value.

This estimate includes significant assumptions regarding the estimates that market participants would make in evaluating the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which are based on estimates of the sales price of the drug, the number of patients who will be diagnosed and treated and our competitive position in the marketplace, and appropriate discount and tax rates.

This approach calculates fair value by estimating the after-tax, probability of technical success adjusted, cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value.

This estimate includes significant assumptions regarding the estimates market participants would make in evaluating the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which are based on estimates of the sales price of the drug, the number of patients who will be diagnosed and treated and our competitive position in the marketplace, and appropriate discount and income tax rates.

The fair value of our IPR&D asset could vary based on the significant assumptions described.

Any impairment to be recorded is calculated as the difference between the fair value of the IPR&D asset as of the date of the assessment with the carrying value of the IPR&D asset on our consolidated balance sheet.

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

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

We did not recognize any IPR&D impairment in any of the years presented.

For asset purchases outside of business combinations, we expense any purchased research and development assets as of the acquisition date if they have no alternative future uses.

During the fourth quarter of 2021 and prior to the goodwill impairment test, we also completed a quantitative impairment test for our IPR&D asset associated with the Assembly Pharmaceuticals, Inc.

We utilized the discounted cash flow model of the income approach and determined the carrying value of our IPR&D asset was fully impaired resulting in an impairment charge of $29.0 million.

This was primarily driven by a higher discount rate applied to future cash flows based on a market participant’s view of increased risk associated with a negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection.

The fair value measurements were primarily based on Level 3 inputs.

Some of the more significant assumptions inherent in the development of the model included the estimated annual cash flows, particularly net revenues, the appropriate discount rate to select in order to measure the risk inherent in the future cash flows, cost to complete the IPR&D project as well as other factors.

The impairment charge recorded is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss.

Research and Development Expense and Accruals

Research and development costs include personnel-related costs, outside contracted services including clinical study costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval, license fees prior to FDA approval, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials as well as research and development and costs incurred under our collaboration agreements.

Research and development costs are expensed as incurred unless there is an alternative future use in other research and development projects.

Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.

Such payments are evaluated for current or long-term classification based on when they will be realized or consumed.

Assets acquired as part of an asset acquisition that are used in research and development or are IPR&D are immediately expensed as research and development unless there is an alternative future use in other research and development projects.

As part of the process of preparing our consolidated financial statements, we are required to estimate certain research and development expenses.

This process involves reviewing quotations and contracts, reviewing the terms of our license agreements, communicating with our vendors and applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service

when we have not yet been invoiced or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met.

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We assess whether such contingent consideration meets the definition of a derivative and to date we have determined that such contingent consideration are not derivatives.

Restructuring Charges

We recognize restructuring charges related to reorganization plans that have been committed to by us and when liabilities have been incurred.

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

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

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

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

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

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

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

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

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

Off-Balance Sheet Arrangements

Since our inception, we have not engaged in any off-balance sheet arrangements.

Contractual Obligations

We have contractual and commercial obligations under our operating lease commitments and licenses.

The following table summarizes our future contractual obligations and commercial commitments at December 31, 2020 (in thousands):

Payments Due By Period

Operating lease obligations

Total contractual obligations

In general, milestone, royalty and other contingent fees associated with certain collaboration and license agreements have not been included in the above table of contractual obligations, because we cannot reasonably estimate if or when they will occur.

The milestone payments included in the table of contractual obligations above are payments we believe are reasonably likely to occur during the indicated time periods.

We enter into contracts in the normal course of business with CROs for clinical trials and CMO’s for clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination within 30 days of notice, and therefore, are cancelable contracts and not included in the table above.

Further, we anticipate that our operating lease obligations will be higher than projected as we renew existing real estate leases that expire in 2020 and enter into new or expanded real estate leases.

Results of Operations

At December 31, 2021, we had an accumulated deficit of $631.4 million primarily as a result of research and development expenses and general and administrative expenses.

While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our product candidates are in the clinical stage of development and may never be successfully developed or commercialized.

While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our product candidates are in the clinical stage of development or in varying stages of nonclinical development and may never be successfully developed or commercialized.

Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance that we will ever generate significant revenues.

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Collaboration revenue

Collaboration revenue for the year ended December 31, 2020 includes the remaining deferred revenue balance of $37.0 million and reimbursements incurred under the Allergan Agreement, for which AbbVie Inc.

gave written notice of termination in June 2020 following its acquisition of Allergan, and $31.0 million recognized for the transfer of the VBR License upon entering into the Collaboration Agreement with BeiGene (BeiGene Agreement).

Collaboration revenue for the year ended December 31, 2021 consists of the recognition of deferred revenue allocated to 2158 under the BeiGene Agreement upon discontinuing development of 2158.

Collaboration revenue for the year ended December 31, 2020 consists of $31.0 million recognized for the transfer of the VBR License upon entering into the BeiGene Agreement and the remaining deferred revenue balance of $37.0 million and reimbursements incurred under the Allergan Agreement, for which AbbVie Inc.

(formerly Allergan) gave written notice of termination in June 2020 following its acquisition of Allergan.

Research and Development Expense

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Program/Description

Microbiome (2)

Microbiome program

Total research and development expenses

Expenses presented for HBV include reimbursement of expenses of $0.2 million under the Arbutus Agreement, as discussed in Note 9 to the Consolidated Financial Statements.

Expenses presented for the Microbiome program exclude collaboration revenue related to expense reimbursements under the Allergan Agreement as discussed in Note 9 to the Consolidated Financial Statements.

Research and development expenses were $68.5 million for the year ended December 31, 2021 compared to $106.8 million for the year ended December 31, 2020 .

The increase was due to an increase of $14.4 million in research and development expenses related to the HBV program and an increase of $6.6 million in research and development expenses related to the Microbiome program.

These increases were primarily due to increases in clinical activities, chemistry and manufacturing control activities to support VBR, 2158, 3733 and Microbiome clinical trials and increased salary and benefits due to additional employees.

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

We expect to complete the wind-down of the Microbiome program in early 2021.

Microbiome expenses for the year ended December 31, 2020 includes $5.5 million in restructuring costs related to the wind-down, which consists of $3.9 million in employee severance and related benefits and $1.6 million in asset impairment and other costs.

Refer to Note 6 to the Consolidated Financial Statements for additional information.

Research and development expenses include non-cash stock-based compensation expenses of $ 11.4 million for both the years ended December 31, 2020 and 2019 .

The $38.3 million decrease in research and development expenses was primarily related to the wind-down of the Microbiome program and includes a $3.0 million gain on the sale of Microbiome assets.

The decrease was partially offset by an increase of $0.7 million in research and development expenses related to the HBV program, which were primarily due to increases in clinical activities, chemistry and manufacturing control activities to support clinical development of our compounds and increased salary and benefits due to our hiring of additional employees.

Research and development expenses include stock-based compensation expenses of $0.5 million and $11.4 million for the years ended December 31, 2021 and 2020, respectively.

The decrease in stock-based compensation expense is primarily due to a decrease in the grant date fair value of stock option awards and reversals of $4.8 million of previously recognized stock-based compensation expense related to awards forfeited by terminated employees.

General and Administrative Expense

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General and administrative expenses

General and administrative expense consists primarily of salaries, consulting fees and other related costs, professional fees for legal services, accounting and tax services, insurance and travel expenses, as well as stock-based compensation expense associated with equity awards to our employees, consultants and directors.

General and administrative expenses were $28.8 million for the year ended December 31, 2021, compared to $37.1 million for the year ended December 31, 2020 .

The increase in general and administrative expenses was primarily due to an increase of $3.1 million in professional expenses mostly attributable to the amortized incremental contract costs associated with entering into the BeiGene Agreement, $1.3 million in stock-based compensation expense, $0.5 million in equipment rental and $0.3 million in recruitment costs due to an increase in headcount partially offset by a decrease of $0.9 million in travel related expenses due to state and local laws restricting travel in response to the COVID-19 pandemic.

General and administrative expenses includes non-cash stock-based compensation expense of $10.5 million and $9.2 million for the years ended December 31, 2020 and 2019, respectively.

Stock-based compensation expense for the year ended December 31, 2020 includes the reversal of previously recognized expense of $1.7 million related to forfeited awards resulting from the departure of one of our former officers during the period, while stock-based compensation expense for the year ended December 31, 2019 includes the reversal of previously recognized expense of $3.6 million related to forfeited awards resulting from another our former officers during the period.

Interest and Other Income

The following table summarizes the period-over-period changes in our interest and other income (in thousands, except for percentages):

General and administrative expenses include stock-based compensation expense of $4.7 million and $10.5 million for the years ended December 31, 2021 and 2020, respectively.

The decrease in stock-based compensation expense of $5.8 million was due to a decrease in the grant date fair value of recent stock option awards and a reversal of $2.1 million of previously recognized stock-based compensation expense during the year ended December 31, 2021 related to awards forfeited by terminated employees.

Additionally, during the year ended December 31, 2020 , we recognized $0.7 million as a cumulative catch-up adjustment of stock-based compensation expense for RSUs with performance-based vesting conditions granted to an executive officer for which the underlying performance condition was deemed probable.

We also experienced a decrease of $2.6 million in professional fees during the year ended December 31, 2021 compared to the same period in 2020 due to the amortized incremental contract costs associated with entering into the BeiGene Agreement in 2020.

Impairment of Goodwill and Indefinite-Lived Intangible Asset

The following table summarizes the period-over-period change in our impairment of goodwill and indefinite-lived intangible asset (in thousands, except for percentages):

Year Ended December 31,

Interest and other income

Interest and other income was $2.6 million for the year ended December 31, 2020 compared to $4.3 million for the same period in 2019.

Interest income for the years ended December 31, 2020 and 2019 was primarily related to interest income earned on marketable securities, corporate bonds and money market funds and the decrease is a result of lower balances and lower yields carried in 2020.

Income Tax (Expense) Benefit

The following table summarizes the period-over-period change in our income tax benefit (in thousands, except for percentages):

Impairment of goodwill and indefinite-lived intangible asset

In the fourth quarter of 2021, we concluded our goodwill and IPR&D asset were impaired due to a sustained decline in our stock price as well as industry and market factors which caused an increase in the estimated discount rate applied to future cash flows.

This resulted in the entire write-off of our goodwill and IPR&D asset of $12.6 million and $29.0 million, respectively.

Interest and Other Income, Net

The following table summarizes the period-over-period changes in our interest and other income, net (in thousands, except for percentages):

Year Ended December 31,

Interest and other income, net

Interest and other income, net was $0.3 million for the year ended December 31, 2021, compared to $2.6 million for the year ended December 31, 2020.

The decrease was primarily due to less interest income earned on marketable

securities, corporate bonds and money market fund s caused by lower yields and a decrease in the total amount invested in marketable securities in 202 1 .

Income Tax Benefit

Income tax benefit for the year ended December 31, 2020 was nominal compared to an income tax benefit for year ended December 31, 2019 of $0.8 million.

The income tax benefit in the prior year is primarily due to a change in our state and local effective tax rate and recording the impact of certain indefinite-lived deferred tax asset carryforwards.

Comparison of the Years Ended December 31, 2019 and 2018

Collaboration Revenue

The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except for percentages ):

Year ended December 31,

Collaboration revenue

During the year ended December 31, 2019, we generated $16.0 million of collaboration revenue, which included the amortization of deferred revenue and reimbursement revenue in each case incurred under the Allergan Agreement, an increase of $1.2 million from $14.8 million for the same period in 2018.

The increase was based on increased research efforts performed during 2019 for our Microbiome program.

Research and Development Expense

The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages):

Year ended December 31,

Program/Description

Microbiome (2)

Total research and development expenses

(1) Expenses presented for the Microbiome program exclude collaboration revenue related to expense reimbursements under the Allergan Agreement as discussed in Note 9 to the Consolidated Financial Statements.

Research and development expense s were $ 85.8 million for the year ended December 31, 2019 compared to $ 72.7 million for the year ended December 31, 2018 .

The increase was due to an increase of $ 8.1 million in research and development expenses related to the HBV program and an increase of $4.

9 million in research and development expenses related to the Microbiome program.

These increases were primarily due to increases in clinical activities, chemistry and manufacturing control activities to support VBR, 2158 and M icrobiome clinical trials and increased salary and benefits due to additional employees.

Research and development expenses include non-cash stock based compensation expenses of $11.4 million for the year ended December 31, 2019, a decrease of $0.4 million from $11.8 million for the year ended December 31, 2018.

General and Administrative Expense

The following table summarizes the period-over-period change in our general and administrative expenses (in thousands, except for percentages):

Year ended December 31,

General and administrative expenses

General and administrative expenses were $32.9 million for the year ended December 31, 2019, compared to $34.8 million for the year ended December 31, 2018.

The increase in general and administrative expenses was primarily due to an increase of $3.5 million in employee related expenses due to the addition of employees in executive management, finance and human resources.

This increase also includes a one-time expense of $1.7 million for severance packages in conjunction with the relocation of our corporate headquarters to South San Francisco, California effective January 1, 2020, the departure of one of our former executives, $0.9 million in rent expenses for our new office in South San Francisco and $0.3 million in professional expenses.

Stock-based compensation expense was $9.2 million for the year ended December 31, 2019, a decrease of $7.5 million from $16.7 million for the year ended December 31, 2018.

The decrease was primarily due to a $4.3 million one-time expense related to the departure and transition to consultant of one of our former executive officers in 2018 coupled with the reversal of previously recognized expense of $3.6 million related to forfeited awards resulting from the departure of one of our former executive officers in 2019.

Interest and Other Income

The following table summarizes the period-over-period changes in our interest and other income (in thousands, except for percentages):

Year ended December 31,

Interest and other income

Interest and other income was $4.3 million for the year ended December 31, 2019 compared to $3.1 million for the same period in 2018.

Interest income for the years ended December 31, 2019 and 2018 was primarily related to interest income earned on marketable securities, corporate bonds and money market funds, and the increase is a result of higher balances carried in 2019.

Income Tax (Expense) Benefit

The following table summarizes the period-over-period change in our income tax benefit (in thousands, except for percentages):

The following table summarizes the period-over-period changes in our income tax benefit (in thousands, except for percentages):

Year Ended December 31,

Income tax benefit (expense)

Income tax benefit for the year ended December 31, 2019 was $ 0.8 million compared to an income tax expense for year ended December 31, 2018 of $1.1 million.

The income tax benefit in 2019 is primarily due to a change in our state and local effective tax rate and recording the impact of certain indefinite-lived deferred tax asset carryforwards.

The income tax expense recognized in 2018 is primarily due to a change in our state and local effective tax rate.

Income tax benefit

During the year ended December 31, 2021, we recognized an income tax benefit of $2.5 million due to the reversal of deferred tax liabilities associated with our in-process research and development which was fully impaired in 2021.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our significant research and development expenditures and the lack of any FDA-approved products to generate product sales revenue, we have not been profitable and have generated operating losses since we were incorporated in October 2005.

We have funded our operations through December 31, 2021 principally with debt prior to our initial public offering, and thereafter with equity financing, raising an aggregate of $604.6 million in net proceeds from public offerings and private placements from inception to December 31, 2021.

Additionally, in February 2017, we received a $50.0 million upfront payment in connection with the execution of the Allergan Agreement and in July 2020, we received a $40.0 million upfront payment in connection with the execution of the BeiGene Agreement.

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

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

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

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In December 2020, we sold an aggregate of 892,840 shares of common stock through “at-the-market” offerings (2020 ATM), resulting in net proceeds of $5.5 million.

A summary of our cash flows for the periods presented was as follows (in thousands):

Year Ended December 31,

Operating activities

Investing activities

Financing activities

Net increase (decrease) in cash and cash equivalents

Net Cash Used in Operating Activities

Net cash used in operating activities was $63.0 million for the year ended December 31, 2020.

This was primarily due to $62.2 million of net loss and a decrease of $30.3 million of operating assets and liabilities, which were offset by a $21.9 million non-cash expense recorded for stock-based compensation, $5.2 million of amortization of operating lease right-of-use assets, $1.8 million in non-cash expense for acquired IPR&D and $0.7 million of depreciation and amortization expense.

Net cash used in operating activities was $84.1 million for the year ended December 31, 2019.

This was primarily due to $97.6 million of net loss, a decrease of $9.5 million of operating assets and liabilities, $0.8 million of deferred income tax benefit and $1.7 million of amortization of discount on marketable securities, which were offset by a $20.6 million non-cash expense recorded for stock-based compensation, $4.5 million of amortization of operating lease right-of-use assets and $0.5 million of depreciation and amortization expense.

Net cash used in operating activities was $65.0 million for the year ended December 31, 201 8 .

This was primarily due to $90.8 million of net loss, a decrease of $4.2 million of operating assets and liabilities and $0.2 million of amortization of discount on marketable securities, which were offset by a $28.5 million non-cash expense recorded for stock-based compensation, $0.6 million of depreciation and amortization expense and $1.1 million of deferred income tax expenses.

Net Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the year ended December 31, 2020 was $68.1 million primarily due to a purchase of $193.2 million marketable securities, $0.5 million of fixed assets and $1.8 million of IPR&D, which were offset by $221.6 million for the redemption of marketable securities and $41.9 million for the sale of marketable securities.

Net cash used in investing activities for the year ended December 31, 2019 was $50.3 million primarily due to a purchase of $281.3 million marketable securities and $1.6 million of fixed assets, which were offset by $203.9 million for the redemption of marketable securities and $28.7 million for the sale of marketable securities.

Net cash used in investing activities for the year ended December 31, 2018 was $135.4 million primarily due to a purchase of $183.9 million marketable securities and $0.3 million of fixed assets and construction in progress, which were offset by $48.9 million for the redemption of marketable securities.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2020 was $7.6 million resulting from the net proceeds of $5.5 million from the sale of 892,840 shares of our common stock under the 2020 ATM, $1.5 million from the exercise of stock options to purchase 175,579 shares of common stock and $0.7 million from the issuance of 86,812 shares of common stock under our 2018 ESPP.

Net cash provided by financing activities for the year ended December 31, 2019 was $139.6 million resulting from the net proceeds of $134.7 million from our public offering of 6,287,878 shares of common stock and 2,424,242 pre-funded warrants to purchase 2,424,242 shares of common stock at a public offering price of $16.499, including 1,136,363 shares of common stock purchased by the underwriters pursuant to their 30-day option to purchase additional shares, $4.2 million from the exercise of stock options to purchase 585,292 shares of common stock and $0.7 million from the issuance of 59,370 shares of common stock under our 2018 ESPP.

Net cash provided by financing activities for the year ended December 31, 2018 was $159.8 million, resulting from the net proceeds of $155.4 million from our public offering of 4,600,000 shares of common stock, including 600,000 shares of common stock purchased by the underwriters pursuant to their 30-day option to purchase additional shares, and $4.0 million from the exercise of stock options to purchase 775,224 shares of common stock.

In 2021, we sold an aggregate of 11,234,207 shares of common stock through the 2020 ATM, resulting in net proceeds of $52.8 million.

Future Funding Requirements

We expect our expenses related to HBV program to remain flat in 2021 but to generally increase over time in connection with our ongoing activities, particularly as we continue the research, development and clinical studies of our product candidates and pursue our intellectual property strategy.

We expect our expenses related to HBV program to increase in 2022 and to generally increase over time in connection with our ongoing activities, particularly as we continue the research, development and clinical studies of our product candidates and pursue our intellectual property strategy.

Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations.

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We monitor our cash needs and the status of the capital markets on a continuous basis.

From time to time, we opportunistically raise capital and have done so numerous times since our initial public offering by issuing equity securities, most recently in December 2020.

From time to time, we opportunistically raise capital and have done so numerous times since our initial public offering by issuing equity securities, most recently in November 2021.

We expect to continue to raise capital when and as needed and at the time and in the manner most advantageous to us.

We expect that our existing cash, cash equivalents and marketable securities, will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months.

Our contractual obligations include operating lease obligations totaling $6.5 million as of December 31, 2021, of which $3.6 million are short-term.

We are subject to paying milestone, royalty and other contingent fees associated with certain collaboration and license agreements upon the successful achievement of development and regulatory milestones of our core inhibitor product candidates.

We also enter into contracts in the normal course of business with CROs for clinical trials and CMO’s for clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination within 30 days of notice.

Since our inception, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a )(4) of Regulation S-K .

Our future capital requirements will depend on many factors, including:

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If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Recent Accounting Pronouncements

See Note 2 of notes to the consolidated financial statements for a discussion of recent accounting standards and pronouncements.

Cautionary Statement

We operate in a highly competitive environment that involves a number of risks, some of which are beyond our control.

The following statement highlights some of these risks.

For more detail, see “Item 1A.

Risk Factors.”

Statements contained in this Form 10-K that are not historical facts, are or might constitute forward-looking statements under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Although we believe the expectations reflected in such forward-looking statements are based on reasonable assumptions, our expectations might not be attained.

Forward-looking statements involve known and unknown risks that could cause actual results to differ materially from expected results.

Factors that could cause actual results to differ materially from our expectations expressed in the report include, among others:

risks related to the costs, timing, regulatory review and results of our nonclinical studies and clinical studies;

our ability to obtain FDA approval of our product candidates;

our anticipated capital expenditures, our estimates regarding our capital requirements, and our need for future capital;

our liquidity and working capital requirements;

our expectations regarding our revenues, expenses and other results of operations;

the unpredictability of the size of the markets for, and market acceptance of, any of our products;

our ability to sell any approved products and the price we are able realize;

our ability to establish and maintain collaborations on favorable terms;

our ability to obtain future funding on acceptable terms;

our ability to hire and retain necessary employees and to staff our operations appropriately;

our ability to compete in our industry and innovation by our competitors;

our ability to stay abreast of and comply with new or modified laws and regulations that currently apply or become applicable to our business;

estimates and estimate methodologies used in preparing our financial statements;

the future trading prices of our common stock and the impact of securities analysts’ reports on these prices;

and the risks set out in our filings with the SEC.

A summary of our cash flows for the periods presented was as follows (in thousands):

Year Ended December 31,

Operating activities

Investing activities

Financing activities

Net (decrease) increase in cash and cash equivalents

Net Cash Used in Operating Activities

Net cash used in operating activities was $93.4 million for the year ended December 31, 2021.

This was primarily due to our net loss of $129.9 million, partially offset by the $41.6 million we recognized for the impairment of our goodwill and indefinite-lived intangible asset.

Net cash used in operating activities was $63.0 million for the year ended December 31, 2020.

This was primarily due to $62.2 million of net loss and a $28.1 million decrease in deferred revenue from recognition of deferred revenue under the Allergan Agreement, partially offset by an increase in deferred revenue under the BeiGene Agreement.

These were offset by non-cash adjustments of $21.9 million of stock-based compensation and $5.2 million of amortization of operating lease right-of-use assets.

Net Cash Provided by Investing Activities

Net cash provided by investing activities for the year ended December 31, 2021 was $26.5 million.

This was primarily due to proceeds of $27.3 million from sales and maturities of marketable securities, net of purchases, and proceeds of $1.5 million from the sale of Microbiome assets.

This was partially offset by our purchase of leased equipment for $3.1 million that we then sold for $0.9 million in connection with the wind-down of the Microbiome program.

Net cash provided by investing activities for the year ended December 31, 2020 was $68.1 million.

This was due to proceeds of $70.3 million from sales and maturities of marketable securities, net of purchases, used to fund our operations, offset by $1.8 million from the purchase of in-process research and development.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2021 was $53.1 million resulting from the net proceeds of $52.8 million from the sale of 11,234,207 shares of our common stock under the 2020 ATM and $0.3 million from the issuance of 88,820 shares of common stock under the Assembly Biosciences Amended and Restated 2018 Employee Stock Purchase Plan (2018 ESPP).

Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis