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Arbutus Reports Third Quarter 2019 Financial Results and Provides Corporate Update

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WARMINSTER, Pa., Nov. 06, 2019 (GLOBE NEWSWIRE) -- Arbutus Biopharma Corporation (NASDAQ:ABUS), a Hepatitis B Virus (HBV) therapeutic solutions company, today reports its third quarter 2019 financial results and provides a corporate update.

"We remain committed to our mission of developing a portfolio of assets with differing mechanisms of action that we believe will form the basis for a functional cure of chronic Hepatitis B", said William Collier, Arbutus' President and Chief Executive Officer. "Our current efforts are focused on completing the Phase 1a/b clinical trial of AB-729, rapidly selecting a next-generation capsid inhibitor for IND-enabling studies to replace our recently discontinued AB-506, evaluating our oral RNA destabilizer, AB-452, as well as next-generation compounds in this class, and research on compounds that inhibit PD-L1."

Recent Corporate Updates

AB-729

  • In July 2019, the Company initiated a single and multiple dose Phase 1a/1b clinical trial for AB-729, a subcutaneously delivered RNAi agent which has been shown in preclinical models to span all HBV transcripts, reduce all viral antigens, including hepatitis B surface antigen (HBsAg) expression, and inhibit HBV replication.  In this trial, which is designed to investigate the safety, tolerability, pharmacokinetics, and pharmacodynamics of AB-729 in healthy volunteers and in subjects with chronic hepatitis B (CHB) infection, AB-729 will be dosed monthly. 
     
  • Preliminary safety data in single-dose cohorts of healthy subjects and safety and efficacy data in single-dose cohorts of subjects with CHB infection are expected in the first quarter of 2020.

Capsid Inhibitors

  • In October 2019, Arbutus announced its decision to discontinue the clinical development of AB-506, an oral capsid inhibitor, in Phase 1a/1b clinical development for the treatment of CHB due to safety observations in a Phase 1a 28-day clinical trial in healthy volunteers.  Arbutus intends to present results from the AB-506 Phase 1a/1b clinical trial program at the American Association for the Study of Liver Diseases meeting later this month.
     
  • Arbutus is evaluating a number of oral next-generation capsid inhibitor compounds with chemical scaffolding different from AB-506 that the Company believes have the potential to contribute to the inhibition of HBV replication as part of a combination regimen. The Company's objective is to select one of several lead compounds for IND-enabling studies in December of this year. 

AB 452

  • Arbutus remains committed to the development of oral RNA-destabilizers that have shown compelling anti-viral effects in multiple HBV preclinical models. AB-452, Arbutus' lead oral RNA-destabilizer is being evaluated in a repeat 90-day preclinical safety study in two species before making a go/no-go decision. We expect that the results of this study will allow us to make that decision early in 2020.  The Company is also continuing to advance back-up compounds with chemical scaffolding different from that of AB-452.

Early R&D Programs

  • Arbutus continues a focused discovery effort on follow-on compounds for its current HBV pipeline, including efforts to identify compounds potentially capable of reawakening patients' HBV-specific immune response by inhibiting PD-L1.

New Appointment to Arbutus' Board of Directors

  • Andrew Cheng, M.D., Ph.D., was appointed to the Arbutus Board of Directors.  Previously, Dr. Cheng spent nearly two decades at Gilead Sciences, Inc., where he most recently served as Chief Medical Officer and Executive Vice President.  Dr. Cheng is currently President and Chief Executive Officer of Akero Therapeutics (NASDAQ:AKRO).

Cash Position and Cash Guidance

  • The Company had approximately $90.1 million in cash and cash equivalents as of September 30, 2019.  The discontinuation of the AB-506 development program is anticipated to reduce cash burn in the short term and the Company believes its existing cash and cash equivalents balance is sufficient to fund operations into early 2021.

Financial Results

Cash, Cash Equivalents and Investments

Arbutus had cash, cash equivalents and short-term investments totaling $90.1 million as of September 30, 2019, as compared to $124.6 million as of December 31, 2018.  The decreased cash balance was due primarily to the $57.7 million used in operating activities during the first nine months of 2019, partially offset by $18.5 million in net proceeds from the sale of a portion of its royalty entitlement on net sales of ONPATTRO in the third quarter of 2019 and $4.7 million of net proceeds from the issuance of shares under its ATM program.  Included in the $57.7 million used in operating activities is a $5.9 million payment for the award rendered in the arbitration proceeding with the University of British Columbia in the third quarter of 2019.

Net Loss

Net loss attributable to common shares for the third quarter of 2019, including non-cash charges of $43.8 million related to the impairment of an in-process research and development ("IPR&D") intangible asset and $22.5 million for the impairment of goodwill described further below, was $85.3 million ($1.50 basic and diluted loss per common share) as compared to $27.1 million ($0.49 basic and diluted loss per common share) for the third quarter of 2018.  Net loss attributable to common shares also included non-cash expense for the accrual of coupon on the Company's convertible preferred shares of $2.8 million in the third quarter of 2019 and $2.6 million in the third quarter of 2018, as well as non-cash expense for a proportionate share of Genevant's net losses of $3.5 million in the third quarter of 2019 and $2.8 million in the third quarter of 2018.

ONPATTRO Royalty Entitlement

Arbutus has a royalty entitlement on global net sales of ONPATTRO™ (Patisiran) for the lipid nanoparticle delivery (LNP) technology licensed by Arbutus to Alnylam Pharmaceuticals, Inc. (Alnylam) for this product. ONPATTRO is an RNAi therapeutic for the treatment of hereditary ATTR (hATTR) amyloidosis that has been approved by the U.S. Food and Drug Administration and the European Medical Agency. In July 2019, Arbutus sold this royalty entitlement to OCM IP Healthcare Portfolio LP, an affiliate of the Ontario Municipal Employees Retirement System (collectively, OMERS), effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this royalty entitlement until it has received $30 million in royalties, at which point 100% of this royalty entitlement will revert to Arbutus.  OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties.  Arbutus recognized the $20 million of gross proceeds from this transaction as a liability, net of transaction costs. The Company is amortizing the liability to non-cash interest expense and will continue to recognize the royalty revenue that Alnylam pays to OMERS as non-cash royalty revenue.

In addition to the royalty entitlement from the Alnylam LNP license agreement, Arbutus is also receiving a second, lower royalty entitlement on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics. The royalty entitlement from Acuitas has been retained by Arbutus and is not part of the royalty entitlement sale to OMERS.

Operating Expenses

Research and development expenses were $17.7 million in the third quarter of 2019 compared to $16.6 million in the third quarter of 2018.  Research and development expenses in the third quarter of 2019 included costs associated with the Company's Phase 1a/1b clinical trial for its RNAi agent (AB-729), costs associated with the Company's Phase 1a/1b clinical trial for its oral capsid inhibitor (AB-506) that was discontinued in October 2019, and toxicology studies for its HBV RNA Destabilizer (AB-452).  The increase in research and development expenses was due primarily to increased spending in 2019 for the two Phase 1a/1b clinical trials for AB-729 and AB-506.  General and administrative expenses were $3.3 million in the third quarter of 2019 compared to $2.6 million in the third quarter of 2018.  The increase in general and administrative expenses was due primarily to increased stock compensation expense and an increase in insurance premiums.

In the third quarter of 2019, the Company also recorded a charge of $6.5 million related to an arbitration award from the Company's arbitration with the University of British Columbia.

Impairment of IPR&D Intangible Assets and Goodwill

The Company has historically carried IPR&D and goodwill from its acquisition of technologies and business combination as assets.  All acquired IPR&D intangible assets relate to the Company's covalently closed circular DNA ("cccDNA") program.  During the three months ended September 30, 2019, the Company recorded a $43.8 million non-cash impairment expense to reduce the carrying value of its IPR&D intangible assets to zero as of September 30, 2019.  The Company also recognized a corresponding income tax benefit of $12.7 million related to the decrease in its deferred tax liability associated with the IPR&D intangible assets.  The impairment was due to an indefinite delay in further development of the Company's cccDNA program while the Company focuses on its other development programs.

Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets in connection with the business combination that formed Arbutus.  For the third quarter of 2019, the Company assessed the changes in circumstances that occurred during the quarter to determine if it was more likely than not that the fair value of the Company was below its carrying amount.  Due to a sustained decrease in the Company's share price in recent months, the Company's market capitalization was reduced below the book value of its net assets and the Company concluded that its fair value was below its carrying amount by an amount in excess of the carrying value of the goodwill.  As a result, the Company recorded a $22.5 million non-cash impairment expense to reduce the carrying value of its goodwill asset to zero as of September 30, 2019.

Equity Investment Loss in Genevant

As of September 30, 2019, the Company owned approximately 40% of the common equity of Genevant Sciences Ltd. (Genevant), a company launched with Roivant Sciences Ltd. in April 2018.  Arbutus recorded a loss of $3.5 million in the third quarter of 2019 for its proportionate share of Genevant's net loss.  Financial results of Genevant are recorded on a one-quarter lag basis.

Outstanding Shares

The Company had 56,850,172 common shares issued and outstanding as of September 30, 2019. In addition, the Company had approximately 9.1 million stock options outstanding and 1.164 million convertible preferred shares outstanding, which (including the annual 8.75% coupon) will be mandatorily convertible into approximately 23 million common shares on October 18, 2021.



UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
(in millions, except share and per share data)

  Three Months Ended
 September 30,
  Nine Months Ended
 September 30,
  2019   2018   2019   2018
Total revenue $ 3.1     $ 1.6     $ 4.4     $ 4.3  
Operating expenses              
Research and development 17.7     16.6     45.2     46.9  
General and administrative 3.3     2.6     15.9     10.1  
Depreciation 0.5     0.5     1.5     1.7  
Site consolidation 0.2     (0.5 )       3.7  
Impairment of intangible assets 43.8     14.8     43.8     14.8  
Impairment of goodwill 22.5         22.5      
Arbitration settlement 6.5         6.5      
Loss from operations $ (91.4 )   $ (32.4 )   $ (131.0 )   $ (72.9 )
Other income (loss)              
Interest income (expense), net (0.6 )   0.7     0.6     2.2  
Foreign exchange gain (loss)     0.1     0.1     (0.8 )
Gain on investment             24.9  
Equity investment loss (3.5 )   (2.8 )   (11.5 )   (2.8 )
Change in fair value of contingent consideration 0.3     5.6     0.1     6.3  
Total other income (loss) $ (3.8 )   $ 3.6     $ (10.7 )   $ 29.8  
Income tax benefit 12.7     4.3     12.7     4.3  
Net loss (1) $ (82.5 )   $ (24.5 )   $ (129.0 )   $ (38.8 )
Accrual of coupon on convertible preferred shares (2.8 )   (2.6 )   (8.3 )  
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