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Arbutus Announces Corporate Update and Third Quarter 2017 Financial Results

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Strategic Investment from Roivant Extends Cash Runway
Combination Study for ARB-1467 Starting in 4Q17
Company to Host a Corporate Update Conference Call Today at 4:15 PM ET

VANCOUVER, British Columbia and WARMINSTER, Pa., Nov. 02, 2017 (GLOBE NEWSWIRE) -- Arbutus Biopharma Corporation (NASDAQ:ABUS), an industry-leading Hepatitis B Virus (HBV) therapeutic solutions company, today announced its third quarter 2017 unaudited financial results and provided a corporate update.

"We've achieved major milestones this quarter to advance our HBV pipeline," said Dr. Mark J Murray, Arbutus' President and CEO. "Our novel clinical candidate ARB-1467 is advancing into a combination study with HBV standard of care tenofovir and pegylated interferon to potentially drive durable loss of HBV DNA and HBV s-antigen (HBsAg) in patients. A strategic financing from our largest shareholder, Roivant Sciences Ltd. (Roivant), strengthens our financial position and extends our cash runway to further advance and validate our strategy of curing chronic HBV through a combination regimen."

Recent Highlights and Developments

  • LNP licensee Alnylam announced positive Phase III results for LNP-enabled patisiran program, which met its primary efficacy endpoint and all secondary endpoints. Arbutus to receive single digit royalties on sales of patisiran. A New Drug Application (NDA) filing is anticipated in 2017.
  • Licensing transaction completed with Gritstone Oncology (Gritstone) to access Arbutus' LNP delivery technology to deliver RNA-based neoantigen immunotherapy products. Gritstone will pay Arbutus an upfront payment, payments for achievement of development, regulatory and commercial milestones, royalties, and reimburse Arbutus for technology development, manufacturing, and regulatory support.
  • On October 16, 2017, Arbutus closed the issue and sale of 500,000 Series A participating convertible preferred shares to Roivant, plus 8.75% per annum compounded annually (subject to mandatory conversion in 4 years at $7.13 per share - 15% premium at closing), for gross proceeds of $50 million (Tranche 1), representing the first of two tranches of preferred shares comprising the previously announced $116.4 million strategic investment by Roivant in Arbutus. Arbutus is expected to close the remaining amount of $66.4 million (Tranche 2) by the end of 4Q17, subject to customary closing conditions including regulatory and shareholder approvals, as applicable, under Canadian securities law.
  • Top-line results reported for ARB-1467 Phase II Cohort 4 (bi-weekly dosing): all twelve patients experienced reductions in serum HBsAg (average reduction of 1.4 log10, 64% of evaluable patients met the predefined response criteria of HBsAg ≤1000 IU/mL with ≥1 log10 decline during the first 10 weeks of treatment, and 71% of patients who met the response criteria had their serum HBsAg reduced to low absolute levels (below 50 IU/mL) during the bi-weekly dosing period. Results have informed the design of the combination study with ARB-1467, tenofovir, and pegylated interferon that will start later this year. Initial results for the monthly dosing extension suggest that monthly dosing is not sufficient to maintain or improve upon these reductions in HBsAg levels so Arbutus has discontinued the monthly extension and the next study will utilize bi-weekly dosing.
  • Top-line results from the healthy volunteer study of AB-423 show that it has been generally well-tolerated with no serious adverse events following single doses up to 800mg. AB-423's favorable safety and pharmacokinetics (PK) profile following single doses supported further evaluation of multiple-dose administration of AB-423, which is now complete and will be followed by a multi-dosing study in HBV patients, which is expected to start in 1Q18.
  • 2 oral presentations and 5 posters presented at the 2017 AASLD Liver Meeting confirm Arbutus' LNP siRNA (ARB-1467) drove significant reductions in serum HBsAg levels, and capsid inhibitors (AB-423 and AB-506) and HBV RNA destabilizer (AB-425) have significant potential to contribute to future curative combination treatment regimens.
  • Dr. Michael Sofia, Arbutus' Chief Scientific Officer, was awarded the Research & Development Council of New Jersey's highest award, the 2017 Edison Patent Award Science & Technology Medal.

Phase II Triple Combination Study of ARB-1467

Arbutus will initiate a Phase II triple combination, multi-dose study with ARB-1467, tenofovir, and pegylated interferon to maximize reduction of HBsAg and evaluate the importance of immune stimulation in patients who have achieved low HBV DNA and HBsAg levels. This study will enroll 20 HBeAg- patients who will receive 30-weeks of bi-weekly dosing of ARB-1467 at 0.4 mg/kg and daily tenofovir. Predefined treatment responders at 6-weeks will qualify for the addition of weekly pegylated interferon treatment while continuing to receive bi-weekly doses of ARB-1467 and daily tenofovir for the remaining 24-weeks. The study will conclude with a 24-week post-treatment follow-up period. Interim on-treatment results from this study are expected in the second half of 2018, followed by final results in 2019.

Upcoming Milestones

  • 4Q17: Alnylam expected to file NDA application for patisiran (Arbutus to receive royalties on sales).
  • 4Q17: Initiate 30-week Phase II triple combination study of ARB-1467 tenofovir, and pegylated interferon.
  • 4Q17: Close of Tranche 2, subject to shareholder approval, for remaining amount ($66.4 million) of strategic investment from Roivant.
  • 1Q18: Initiate AB-423 Phase II multi ascending dose (MAD) study in HBV patients.
  • Mid-2018: AB-506 IND (or equivalent) filing. 
  • Mid-2018: AB-452 IND (or equivalent) filing. 
  • Mid-2018: Results from AB-423 multi-dosing study in HBV patients.
  • 2H18: Interim on-treatment results from triple combination study of ARB-1467, tenofovir, and pegylated interferon.
  • 2018: Expected FDA approval decision for Alnylam's patisiran.

Financial Results

Cash, Cash Equivalents and Investments

As at September 30, 2017, Arbutus had cash, cash equivalents, short-term investments and restricted investments totaling $100.8 million, as compared to $143.2 million at December 31, 2016.

On October 16, 2017, the Company closed Tranche 1 for the issue and sale of 500,000 Preferred Shares to Roivant for gross proceeds of $50 million. Arbutus is expected to close Tranche 2, subject to shareholder approval, for the remaining amount of $66.4 million by 4Q17 for total gross proceeds of $116.4 million, subject to customary closing conditions including regulatory and shareholder approvals, as applicable, under Canadian securities law. For further details with respect to the Preferred Shares, please refer to Arbutus' Form 8-K filed with the U.S. Securities and Exchange Commission on October 3, 2017 or Arbutus' material change report filed with the Canadian securities regulatory authorities on SEDAR on October 5, 2017.

Net Loss

For Q3 2017, the net loss was $11.6 million ($0.21 basic and diluted loss per common share) as compared to a net loss of $19.6 million ($0.37 basic and diluted loss per common share) for Q3 2016. The net loss for the nine-months ended September 30, 2017 was $48.5 million ($0.89 basic and diluted loss per common share) as compared to a net loss of $165.5 million ($3.15 basic and diluted loss per common share) for the nine-months ended September 30, 2016.

Non-GAAP Net Loss

The non-GAAP net loss for Q3 2017 was $9.6 million ($0.17 loss per common share) as compared to a non-GAAP net loss of $16.6 million ($0.31 per common share) for Q3 2016. The non-GAAP net loss for the nine-months ended September 30, 2017 was $40.5 million ($0.74 loss per common share) as compared to a non-GAAP net loss of $45.0 million ($0.86 loss per common share) for the nine-months ended September 30, 2016. The non-GAAP net loss for Q3 2017 has been adjusted to exclude non-cash compensation expense in connection with certain share repurchase provisions arising from the merger with Arbutus Inc. in March 2015.

Revenue

Revenue was $6.9 million in Q3 2017 as compared to $0.8 million in Q3 2016.

In March 2017, Arbutus signed a License Agreement with Alexion that granted them exclusive use of the Company's proprietary lipid nanoparticle (LNP) technology in one of Alexion's rare disease programs. Licensing fee revenue recognized in Q3 2017 relates to the non-refundable upfront payment of $7.5 million for the use of Arbutus' technology. In addition, Arbutus recognized revenue for services provided to Alexion related to technology development, manufacturing and regulatory support for the advancement of Alexion's mRNA product candidate. In July 2017, the Company received notice of termination from Alexion for the LNP license agreement. Therefore, Arbutus recorded the remaining deferred revenue for the non-refundable upfront payment as well as any revenue for any work done related to closeout procedures in Q3 2017.

Revenue in Q3 2016 related primarily to the Dicerna license and collaboration that was terminated in November 2016.

In addition, Arbutus has ongoing license agreements with Alnylam and Spectrum, under which Arbutus is eligible to receive commercial royalties.

Research, Development, Collaborations and Contracts Expenses

Research, development, collaborations and contracts expenses were $15.5 million in Q3 2017 as compared to $15.7 million in Q3 2016.

R&D expenses remained consistent in Q3 2017 and Q3 2016.  The Company's R&D expenses predominantly relate to its HBV programs during both periods.  Arbutus initiated a Phase I clinical trial for AB-423 in Q1 2017 and continues to incur costs related to the Company's clinical trials for ARB-1467 as well as costs for IND enabling studies for the Company's recent candidate nominations - a second capsid inhibitor (AB-506) and an HBV RNA destabilizer (AB-452), as well as costs related to research and preclinical studies for the Company's other HBV programs.

General and Administrative

General and administrative expenses were $3.7 million in Q3 2017, consistent with $3.7 million in Q3 2016.

Outstanding Shares

The Company had 55.0 million common shares issued and outstanding and 60.4 million shares on a fully diluted basis as at September 30, 2017.  Subsequent to September 30, 2017, Roivant Sciences Ltd. completed its initial purchase of 500,000 convertible preferred shares, which will be mandatorily convertible into 7,037,839 common shares on October 16, 2021.  Assuming that the convertible preferred shares were converted on October 16, 2017 (the closing date of the issuance of the convertible preferred shares), the Company would have had 62,089,834 common shares outstanding at October 16, 2017.

Other Income (Losses)

The Company continues to incur substantial expenses and hold a portion of its cash and investment balances in Canadian dollars, and as such, will remain subject to risks associated with foreign currency fluctuations. During Q3 2017, Arbutus recorded a foreign exchange gain of $1.2 million, which is primarily an unrealized gain related to an appreciation in the value of the Company's Canadian dollar funds from the previous period, when converted to the Company's functional currency of U.S. dollars.

Contingent consideration is a liability assumed by the Company from acquiring Arbutus Inc. in March 2015. In Q3 2017 Arbutus recorded and increase in the fair value of contingent consideration of $0.2 million. In general, increases in the fair value of the contingent consideration are related to the progress of the Company's programs as they get closer to triggering contingent payments.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions)
 
 
  September 30,   December 31,  
  2017   2016  
         
Cash and cash equivalents $ 15.2     $ 23.4    
Short-term investments 73.0     107.1    
Accounts receivable 0.8     0.3    
Other current assets 1.8     1.8    
Restricted investments 12.6     12.6    
Property and equipment, net 12.6     6.9    
Intangible assets 99.4     99.4    
Goodwill 24.4     24.4    
Total assets $ 239.8     $ 275.9    
Accounts payable and accrued liabilities 6.4     9.8    
Deferred lease inducements, net of current portion 0.7     0.0    
Warrant liability     0.1    
Liability-classified options 1.8     0.6    
Loan payable 12.0     12.0    
Contingent consideration 10.2     9.1    
Deferred tax liability 41.3     41.3    
Total stockholders' equity 167.4     203.0    
Total liabilities and stockholders' equity $ 239.8     $ 275.9    


UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(in millions)
 
 
  Three Months Ended   Nine Months Ended  
  September 30,   September 30,  
  2017 2016   2017 2016  
             
Net loss for the period $ (11.6 ) $ (19.6 )   $ (48.5 ) $ (165.5 )  
Net cash used in operating activities (15.6 ) (14.7 )   (38.3 ) (43.1 )  
Net cash provided by (used in) investing activities 5.3   (0.9 )   27.1   (99.8 )  
Net cash provided by financing activities 0.0   0.0     0.4   0.6    
Effect of foreign exchange rate changes on cash & cash equivalents 1.3   (0.8 )   2.6   2.1    
Net increase (decrease) in cash and cash equivalents $ (9.0 ) $ (16.4 )   $ (8.2 ) $ (140.2 )  
Cash and cash equivalents, beginning of period 24.2   43.0     23.4   166.8    
Cash and cash equivalents, end of period $
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