What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-04 · 134 added, 137 removed, 79 unchanged (77% of the section changed)

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The condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2021 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 filed with the U.S.

Securities and Exchange Commission on February 25, 2021 (2020 Annual Report).

Securities and Exchange Commission on March 11, 2022 (2021 Annual Report).

In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties.

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Risk Factors” in this report.

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, 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 chronic HBV infection.

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 and nonclinical studies have not been significantly impacted 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 chronic HBV infection.

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, and we are currently advancing an early-stage program evaluating a novel small molecule approach to inhibit entry for HBV and hepatitis delta virus (HDV).

HDV is estimated to impact approximately 5% of those chronically infected with HBV, or approximately 12 million people.

In addition, our research organization is working on discovering and developing small molecules targeting an additional novel, currently undisclosed HBV target.

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

These targets, which we currently expect to disclose 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 clinical and preclinical studies were largely unaffected, but as the pandemic has continued, we have experienced enrollment delays for two of our multi-drug combination clinical studies, delayed animal studies and delayed shipping of compounds necessary for our research programs.

Although the clinical studies that experienced enrollment delays are now fully enrolled, the lockdowns resulting from China’s strict “zero covid” policy are also impacting execution of one of these multi-drug clinical studies.

We rely on contract research organizations (CROs), some of which are in China and India.

While these CROs have experienced pandemic-related impacts from time to time, the latest shutdowns in China have impacted us more than earlier in the pandemic.

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.

Our Primary Focus:

Targeting HBV Core Protein to Achieve a Cure

HBV is a DNA virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique viral DNA species that resides in the 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.

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

In these studies, VBR administered with nucleos(t)ide analogue reverse transcriptase inhibitor (NrtI) therapy demonstrated a favorable safety profile and led to greater viral suppression of both HBV DNA and HBV pre-genomic RNA (pgRNA) than NrtI therapy alone.

Our open-label extension study, Study 211, involved treating patients with VBR plus NrtIs and ultimately transitioning patients who met the requisite stopping criteria, as determined with our lead investigators and the U.S.

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 chronic HBV infection.

It became clear that patients who stopped therapy in Study 211 had not achieved SVR, as all 41 patients ultimately relapsed, meaning they had detectable HBV, and that dual combination therapy of VBR plus NrtIs is insufficient to cure chronic HBV infection in the studied population.

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 additional follow-up 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).

Additional follow-up data from Study 211 demonstrate that patients have increases of HBV DNA and pgRNA after discontinuation of VBR despite continued NrtI treatment, which further supports that

core inhibitors deepen viral suppression in combination with NrtIs.

These results will be shared in an oral presentation at the American Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2021 (AASLD 2021).

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).

At the American Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2021 (AASLD 2021), we presented additional follow-up data from Study 211 demonstrating that patients had increases of HBV DNA and pgRNA after discontinuation of VBR despite continued NrtI treatment, further supporting that core inhibitors deepen viral suppression in combination with NrtIs.

At the EASL International Liver Congress TM in June 2022 (EASL 2022), we plan to present additional VBR data related to the correlation between deeper virologic suppression and fibrosis-4 index in treatment naïve patients with HBeAg positive chronic HBV infection, an evaluation of the drug-drug interaction profile of VBR and an evaluation of the disposition and mass balance recovery of VBR in rats and humans.

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), in the first quarter of 2021, we decided to not move forward with global registrational studies for VBR as a chronic suppressive treatment (CST) with NrtIs.

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

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

In connection with focusing our efforts with VBR moving forward in combination with NrtIs and additional mechanisms targeting finite and curative combination therapy, we terminated Study 205 in the first quarter of 2021.

Study 205 had been initiated to evaluate treatment intensification with VBR in patients with chronic HBV infection who are only partially virologically suppressed on NrtI.

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 three Phase 2 triple combination studies involving VBR ongoing.

These studies are detailed below.

See “—Multi-Drug Combination Studies.”

Next Generation Core Inhibitors

Our first of two next-generation core inhibitor product candidates, ABI-H3733 (3733), was internally discovered and developed.

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

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.

Results from the Phase 1a clinical study, detailing safety and PK of 3733 will be shared in a poster presentation at AASLD 2021.

In addition, we presented observations on the enhanced potency and target coverage for both antiviral inhibition and inhibition of cccDNA generation for 3733 at EASL 2021.

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

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

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

The chemical scaffold of 3733 is novel and distinct from each of VBR, ABI-4334 (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.

At EASL 2022, we plan to present 3733’s improved PK profile resulting from new formulation activities.

We expect to initiate a Phase 1b study with the 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.

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

Preclinical characterization of 4334 will be shared in a poster presentation at AASLD.

We continue to conduct preclinical work on 4334, with the aim of completing regulatory filings and initiating clinical studies in 2022.

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

At EASL 2022, we plan to present preclinical data demonstrating that 4334 promotes formation of empty capsids and pre v ents cccDNA formation by disrupting incoming capsids.

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 the combination of a core inhibitor and NrtI will be central to finite and curative therapies for chronic HBV infection.

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

We currently have two on-going triple combination studies and a third study expected to begin in the first half of 2022 with our lead core inhibitor, VBR, which has been observed to be well-tolerated and have additional antiviral activity in combination with NrtI compared to NrtI alone in completed Phase 2 studies.

Our first triple combination study is being conducted pursuant to a Clinical Trial Collaboration 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 dual combinations of VBR + NrtI and AB-729 + NrtI in virologically suppressed subjects.

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

Both studies initiated in the first quarter of 2021.

We also recently announced that we have entered into a Clinical Trial Collaboration Agreement with Antios Therapeutics, Inc.

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 nonoverlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone.

We currently have three ongoing triple combination studies.

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 completed enrollment 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 is being conducted pursuant to a Clinical Trial Collaboration Agreement with Antios Therapeutics, Inc.

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

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

This cohort is expected to start in the first half of 2022 and enroll ten treatment-naïve or off-treatment HBeAg negative or positive patients in a 12-week treatment study.

In addition to the above studies, we expect to pursue additional multi-drug combinations that include our current and future core inhibitors as they advance in clinical development.

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

This study, which will enroll ten treatment-naïve or off-treatment HBeAg negative or positive patients in a 12-week treatment study, was initiated in April 2022.

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

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, enrollment for both of these studies was completed in the first quarter of 2022, and we do not believe these delays will impact interim data readouts for these studies, which remains on schedule in the second half of 2022.

Beyond Core Inhibitors

In addition to the advancement of our core inhibitor portfolio and our conduct of multi-drug combination studies, our Research team is developing cccDNA disruptors and small molecules targeting novel undisclosed targets to add to the core inhibitor + NrtI antiviral backbone to achieve finite and curative therapies.

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 HBV core protein distinct from viral assembly and has the potential to interfere with viral nucleic acid, including nuclear cccDNA.

Together with Door Pharma, we are working on identifying cccDNA disruptors, which will be aimed at inhibiting different 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 received an exclusive option to license compounds arising from the collaboration and will be responsible for the continued development and commercialization of optioned compounds.

We currently have corporate and administrative offices and research laboratory space in South San Francisco, California as well as registrational offices 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 small molecules to inhibit HBV and HDV viral entry and small molecules targeting an additional novel, currently undisclosed HBV target, which we expect to announce in the first half of 2022, to complement our HBV cure strategy.

HBV/HDV Inhibitor

In March 2022, we announced our new research focused on a novel, orally bioavailable small molecule approach to inhibit entry of HBV and HDV.

While HDV is less well known in the U.S., it is a significant and serious health problem with inadequate treatment in many parts of Europe, Africa, the Middle East, East Asia and parts of South America.

HDV is a “satellite virus,” because it can only infect people (1) that are already infected with HBV or (2) at the same time as a person is infected with HBV.

HDV is known to accelerate disease progression and increase the incidence of liver cirrhosis and liver cancer, which results in higher morbidity and mortality rates than HBV alone.

The current standard of care treatment for HDV is a large, complex molecule that requires daily injections.

Our research team has identified a potential opportunity to develop a safe and effective oral small molecule, which could significantly improve convenience and potentially enhance treatment uptake and diagnosis rates.

Based on current progress, our research team’s aim is to nominate a product candidate for development in the first half of 2023.

cccDNA Disruptors

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, which we terminated in May 2022.

The termination will be effective September 2022.

Prior to the termination of collaboration with Door Pharma, we worked with Door Pharma on identifying cccDNA disruptors aimed at inhibiting different intra-nuclear steps in the viral replication cycle that complement the activity of our core inhibitors.

We terminated this collaboration to focus our resources on our other internal HBV programs and our programs targeting other viruses.

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 res earch 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.

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

As of September 30, 2021, we had an accumulated deficit of $571.2 million.

As of March 31, 2022, we had an accumulated deficit of $654.5 million.

Because we do not generate revenue from any of our product candidates, our losses will continue as we further develop and seek regulatory approval for, and commercialize, our product candidates.

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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.

Effective August 3, 2021, eight Bay Area counties, including where our headquarters is located, required face coverings to be worn indoors.

We do not expect this mandate to result in any significant interruption of the essential activities ongoing at our South San Francisco facility.

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

T here 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.

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

To date, our current and future planned clinical and nonclinical studies have not been significantly impacted by the COVID-19 pandemic.

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 studie s and, if circumstances warrant, we may adjust our budget and operating plan.

Critical Accounting Policies and Significant Judgments and Estimates

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

The COVID-19 pandemic resulted in substantially all of our U.S.-based non-research employees working from their homes beginning in mid-March 2020.

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

As government restrictions have relaxed, our employees began returning to the office during the first quarter of 2022.

We have adopted a hybrid working model, which allows our employees flexibility regarding when and how frequently to retu rn to the office.

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.

hand and reallocation of certain resources that allow our employees to practice “social distancing” and comply with applicable laws.

Early in the pandemic, our clinical and preclinical studies were largely unaffected, but as the pandemic has continued, we have experienced enrollment delays for two of our multi-drug combination clinical studies , delayed animal studies and delayed shipping of compounds necessary for our research programs.

We continually work with our 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.

However, some of our CROs are in China and India, and while these CROs have experienced pandemic-related impacts from time to time, the latest shutdowns in China have impacted us more than earlier in the pandemic.

We cannot currently predict the specific extent, duration or full impact 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.

Critical Accounting Estimates

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

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses.

We evaluate our estimates and judgments, including those related to accrued expenses and stock-based compensation, on an ongoing basis.

We evaluate our estimates and judgments, including those related to research and development expense and accruals and stock-based compensation, 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.

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Our critical accounting policies and significant estimates are detailed in our 2021 Annual Report.

Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2020 Annual Report, except for those accounting subjects discussed in the section of Note 2 to the unaudited condensed consolidated financial statements titled Adoption of Recent Accounting Pronouncements included in this Quarterly Report on Form 10-Q.

Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2021 Annual Report.

Results of Operations

Comparison of the Three Months Ended September 30, 2021 and 2020

Collaboration Revenue

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

Three Months Ended September 30,

Collaboration revenue

Collaboration revenue for the three months ended September 30, 2021 consists of the recognition of deferred revenue allocated to 2158 under the Collaboration Agreement (the BeiGene Agreement) with BeiGene, Ltd.

(BeiGene) upon discontinuing development of 2158 .

Collaboration revenue for the three months ended September 30, 2020 consists of $31.0 million recognized for the transfer of the VBR License upon entering into the BeiGene Agreement as well as reimbursements incurred under the Research, Development, Collaboration and License Agreement (the Allergan Agreement) that we entered into with Allergan Pharmaceuticals Limited (Allergan).

Research and Development Expense

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

Three Months Ended September 30,

Program/Description

Microbiome program

Total research and development expenses

Research and development expenses were $18.5 million for the three months ended September 30, 2021 compared to $26.9 million for the same period in 2020.

The decrease was due to a decrease of $8.3 million related to the wind-down of the Microbiome program and a decrease of $0.2 million in research and development expenses related to the HBV program.

Research and development expenses consist of $1.1 million in non-cash stock-based compensation expense for the three months ended September 30, 2021 compared to $2.8 million for the same period in 2020.

The decrease in stock-based compensation is primarily due to a decrease in the grant date fair value of recent option grants as well as a decrease in headcount and outstanding awards resulting from the wind-down of the Microbiome program.

General and Administrative Expense

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

Three Months Ended September 30,

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 $6.7 million for the three months ended September 30, 2021 compared to $11.7 million for the same period in 2020.

General and administrative expenses consist of non-cash stock-based compensation expenses of $0.5 million for the three months ended September 30, 2021 and $3.3 million for the same period in 2020.

The decrease in stock-based compensation expense of $2.8 million was due to a decrease in the grant date fair value of recent option grants and a reversal of $0.9 million of previously recognized expense in the three months ended September 30, 2021 related to forfeited awards from a terminated executive officer.

We also experienced a decrease of $2.0 million in professional fees during the three months ended September 30, 2021 compared to the same period in 2020 mostly due to more amortization of incremental contract costs associated with entering into the BeiGene Agreement in 2020.

Comparison of the Nine Months Ended September 30, 2021 and 2020

Collaboration Revenue

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

Nine Months Ended September 30,

Collaboration revenue

Collaboration revenue for the nine months ended September 30, 2021 consists of the recognition of deferred revenue allocated to 2158 under the BeiGene Agreement upon discontinuing development of 2158 .

Collaboration revenue

for the nine months ended September 30, 2020 consists of $31.0 million recognized for the transfer of the VBR License upon entering into the BeiGene Agreement.

It also consists of the remaining deferred revenue balance and reimbursements incurred under the Allergan Agreement of $47.1 million , for which AbbVie (formerly Allergan pre-acquisition) gave written notice of termination in June 2020.

Comparison of the Three Months Ended March 31, 2022 and 2021

Research and Development Expense

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

Nine Months Ended September 30,

Program/Description

Microbiome program

Three Months Ended March 31,

External expenses:

Research and discovery

Total external expenses

Employee and contractor-related expenses

Facility and other expenses

Total research and development expenses

Research and development expenses were $53.8 million for the nine months ended September 30, 2021 compared to $73.3 million for the same period in 2020.

The decrease was due to a decrease of $24.1 million in research and development expenses related to the wind-down of the Microbiome program, including the reversal of $3.0 million of previously recognized stock-based compensation expense related to forfeited awards of terminated employees.

This decrease was partially offset by an increase of $4.5 million in research and development expenses related to the HBV program, which was primarily due to increases in clinical activities, chemistry and manufacturing control activities to support our clinical studies and increased salary and benefits due to additional employees.

Research and development expenses consist of $0.2 million in a net reversal of non-cash stock-based compensation expense as a result of forfeited awards for the nine months ended September 30, 2021 compared to $8.3 million of non-cash stock-based compensation expense for the same period in 2020.

Research and development expenses were $17.2 million for the three months ended March 31, 2022 compared to $18.6 million for the same period in 2021.

VBR external expenses decreased due to the termination of Studies 211 and 205 and because costs under two of our currently ongoing Phase 2 triple combination studies are being shared with collaboration partners.

Decreases in 2158 and Microbiome external expenses were due to the termination of both programs and were largely offset by increases in our external expenses for 3733, 4334 and our research

discovery program as we advance those programs.

Employee and contractor-related expenses increased by $3.3 million primarily due to the reversal of $3.6 million of previously recognized stock-based compensation expense related to forfeited awards of terminated employees during the three months ended March 31, 2021 , $2.7 million of which resulted from the wind-down of our Microbiome program .

Facility and other expenses consist primarily of rent and maintenance of our premises and other costs which are allocated based on headcount in each department .

The decrease in facility and other expenses of $1.4 million is primarily attributable to asset impairment and other charges incurred during the three months ended March 31, 2021 in connection with the wind-down of the Microbiome program .

General and Administrative Expense

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

Nine Months Ended September 30,

Three Months Ended March 31,

General and administrative expenses

General and administrative expenses were $22.3 million for the nine months ended September 30, 2021 compared to $29.9 million for the same period in 2020.

General and administrative expenses consist of non-cash stock-based compensation expenses of $3.5 million for the nine months ended September 30, 2021 and $9.8 million for the same period in 2020.

The decrease in stock-based compensation expense of $6.3 million was due to a decrease in the grant date fair value of recent option grants and a reversal of $1.8 million of previously recognized expense in the nine months ended September 30, 2021 related to forfeited awards from terminated employees.

Additionally, for the nine months ended September 30, 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 $2.0 million in professional fees during the nine months ended September 30, 2021 compared to the same period in 2020 due to the amortized incremental contract costs associated with entering into the BeiGene Agreement in 2020.

General and administrative expenses were $6.0 million for the three months ended March 31, 2022 compared to $8.7 million for the same period in 2021.

General and administrative expenses consist of stock-based compensation expense of $0.7 million for the three months ended March 31, 2022 and $1.8 million for the same period in 2021.

The decrease in stock-based compensation expense of $1.1 million was due to a decrease in the grant date fair value of recent option grants, a decrease in the number of employees and a reversal of $0.4 million of previously recognized expense in the three months ended March 31, 2022 related to forfeited awards from terminated employees.

We also experienced decreases of $0.7 million in facility-related expenses due to termination of lease agreements related to the Microbiome program, $0.3 million in recruitment expenses due to hiring of fewer employees during the three months ended March 31, 2022 compared to the same period in 2021, $0.3 million in professional fees primarily due to decreases in legal expenses and $0.2 million in salary and benefits primarily attributable to a decrease in headcount.

Liquidity and Capital Resources

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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 September 30, 2021 principally through equity financings, raising an aggregate of $602.0 million in net proceeds, and strategic collaborations, raising an aggregate of $90.0 million through upfront payments.

Cash Flows for the Nine Months Ended September 30, 2021 and 2020

We have funded our operations through March 31, 2022 principally through equity financings, raising an aggregate of $604.6 million in net proceeds, and strategic collaborations, raising an aggregate of $90.0 million through upfront payments.

Cash Flows for the Three Months Ended March 31, 2022 and 2021

The following table summarizes our cash flow activities (in thousands):

Nine Months Ended September 30,

Three Months Ended March 31,

Cash provided by (used in):

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Net Cash from Operating Activities

Net cash used in operating activities was $74.0 million for the nine months ended September 30, 2021.

This was primarily due to a $69.6 million net loss and a decrease of $13.0 million of operating assets and liabilities.

These decreases were partially offset by $2.9 million of amortization of operating lease right-of-use (ROU) assets, a $3.3 million of non-cash stock-based compensation expense, a $1.6 million loss on the sale of purchased leased equipment in connection with the wind-down of the Microbiome program and $0.4 million amortization of discount of marketable securities.

Net cash used in operating activities was $37.7 million for the nine months ended September 30, 2020.

This was primarily due to a $22.7 million net loss and a decrease of $36.8 million of operating assets and liabilities, which consists of the recognition of the remaining deferred revenue balance of $36.0 million as revenue during the nine months ended September 30, 2020 in connection with AbbVie’s decision to terminate the Allergan Agreement.

These decreases were partially offset by $18.1 million of non-cash stock-based compensation expense, $3.5 million of amortization of operating lease ROU assets and $0.4 million of depreciation and amortization expense.

Net cash used in operating activities was $27.5 million for the three months ended March 31, 2022.

This was primarily due to our $23.1 million net loss and a decrease of $4.4 million in other accrued expenses due to payment of our 2021 annual bonuses during the three months ended March 31, 2022.

Net cash used in operating activities was $33.3 million for the three months ended March 31, 2021.

This was primarily due to our $27.2 million net loss and a decrease of $8.3 million in other accrued expenses due to payment of our 2020 annual bonuses and accrued severances associated with the wind-down of our Microbiome program, partially offset by a $1.6 million loss on disposal of property and equipment associated with the wind-down of our Microbiome program during the three months ended March 31, 2021.

Net Cash from Investing Activities

Net cash provided by investing activities for the nine months ended September 30, 2021 was $35.0 million due to $132.2 million of redemptions of marketable securities and $12.5 million in proceeds from the sale of marketable securities, which were partially offset by the purchase of $107.5 million of marketable securities.

Additionally, we purchased leased equipment for $3.1 million that we sold for $0.9 million in connection with the wind-down of the Microbiome program.

Net cash provided by investing activities for the nine months ended September 30, 2020 was $47.4 million due to $165.3 million of redemptions of marketable securities and $35.6 million in proceeds from the sale of marketable securities, which were partially offset by the purchase of $153.0 million of marketable securities and $0.5 million of property and equipment.

Net cash provided by investing activities for the three months ended March 31, 2022 was $33.0 million, due to proceeds from sales and maturities of marketable securities, net of purchases.

Net cash provided by investing activities for the three months ended March 31, 2021 was $18.0 million.

This was due to proceeds of $20.2 million from sales and maturities of marketable securities, net of purchases, 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 from Financing Activities

Net cash provided by financing activities for the nine months ended September 30, 2021 was $50.4 million resulting from the sale of 10.4 million shares of our common stock through “at-the-market” offerings, net of commissions and fees.

Net cash provided by financing activities for the nine months ended September 30, 2020 was $1.9 million resulting from the exercise of stock options to purchase 172,779 shares of common stock and issuance of 42,266 shares of common stock under the Assembly Biosciences, Inc.

2018 Employee Stock Purchase Plan.

We did not have any cash flows from financing activities for the three months ended March 31, 2022.

Net cash provided by financing activities for the three months ended March 31, 2021 was $34.1 million resulting from the sale of 5,991,858 shares of our common stock under the 2020 ATM .

Funding Requirements

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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 September 2021.

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.

There were no material changes in our commitments under the contractual obligations disclosed in our 2021 Annual Report.

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 .

Off-Balance Sheet Arrangements

Contractual Obligations

There were no material changes in our commitments under the contractual obligations disclosed in our 2020 Annual Report.

Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk as compared to the quantitative and qualitative disclosures about market risk described in our 2020 Annual Report.

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-Q

Item 2. Management’s Discussion and Analysis