UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2020 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 001-34949 | --- | --- | --- | --- | |---------------------------------------------------|------------------------------------------------- ...

Arbutus Biopharma Corporation (NASDAQ:ABUS) Q1 2020 Earnings Conference Call May 11, 2020 8:00 AM ET Company Participants Pam Murphy - Investor Relations Bill Collier - President & Chief Executive Officer Mike Sofia - Chief Scientific Officer Dave Hastings - Chief Financial Officer Gaston Picchio - Chief Development Officer Conference Call Participants Mayank Mamtani - B. Riley Operator Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation First Quarter 2020 Finan ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 or o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period from to Commission File Number: 001-34949 Arbutus Biopharma Corporation (Exact Name of Registrant as Specified in Its Charter) British Columbia, Canada 98-0597776 (State or Other ...

Arbutus Biopharma Corporation (NASDAQ:ABUS) Q4 2019 Earnings Conference Call March 5, 2020 8:45 AM ET Company Participants Pam Murphy - IR Bill Collier - President and CEO Dave Hastings - CFO Gaston Picchio - Chief Development Officer Mike Sofia - Chief Scientific Officer Conference Call Participants Mayank Mamtani - B. Riley Keay Nakae - Chardan Madhu Kumar - Robert W. Baird Operator Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation Fourth Quarter and Year-En ...

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents the unaudited condensed consolidated financial statements for Arbutus Biopharma Corporation, including balance sheets, statements of operations, comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes on accounting policies, fair value, investments, leases, intangible assets, goodwill, site consolidation, royalties, contingencies, collaborations, and related party transactions [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) **Condensed Consolidated Balance Sheets (In thousands of U.S. Dollars):** | Item | Sep 30, 2019 | Dec 31, 2018 | | :---------------------------------------- | :----------- | :----------- | | **Assets** | | | | Cash and cash equivalents | $90,082 | $36,942 | | Short-term investments | — | $87,675 | | Total current assets | $94,341 | $129,229 | | Investment in Genevant | $10,969 | $22,224 | | Property and equipment, net | $9,150 | $10,145 | | Right of use asset | $2,817 | — | | Intangible assets | — | $43,836 | | Goodwill | — | $22,471 | | **Total assets** | **$117,277** | **$227,905** | | **Liabilities** | | | | Accounts payable and accrued liabilities | $8,199 | $9,429 | | Site consolidation accrual | $203 | $1,331 | | Liability-classified options | $86 | $479 | | Lease liability, current | $329 | — | | Total current liabilities | $8,817 | $11,239 | | Liability related to sale of future royalties | $18,675 | — | | Contingent consideration | $3,005 | $3,126 | | Lease liability, non-current | $3,143 | — | | Deferred tax liability | — | $12,661 | | **Total liabilities** | **$33,640** | **$27,671** | | **Stockholders' Equity** | | | | Total stockholders' equity | $83,637 | $200,234 | | **Total liabilities and stockholders' equity** | **$117,277** | **$227,905** | [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) **Condensed Consolidated Statements of Operations (In thousands of U.S. Dollars, except share and per share amounts):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $3,061 | $1,587 | $4,393 | $4,267 | | Total operating expenses | $94,462 | $34,013 | $135,380 | $77,144 | | Loss from operations | $(91,401) | $(32,426) | $(130,987) | $(72,877) | | Total other income (loss) | $(3,758) | $3,671 | $(10,738) | $29,784 | | Loss before income taxes | $(95,159) | $(28,755) | $(141,725) | $(43,093) | | Income tax benefit | $12,656 | $4,282 | $12,656 | $4,282 | | Net loss | $(82,503) | $(24,473) | $(129,069) | $(38,811) | | Net loss attributable to common shareholders | $(85,295) | $(27,040) | $(137,338) | $(46,255) | | Basic and diluted net loss per common share | $(1.50) | $(0.49) | $(2.43) | $(0.84) | | Weighted average number of common shares | 56,850,172 | 55,421,504 | 56,469,358 | 55,241,284 | [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) **Condensed Consolidated Statements of Comprehensive Income (Loss) (In thousands of U.S. Dollars):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss | $(82,503) | $(24,473) | $(129,069) | $(38,811) | | Share of other comprehensive income (loss) of equity method investment | $27 | $(12) | $(47) | $(12) | | Comprehensive loss | $(82,476) | $(24,485) | $(129,116) | $(38,823) | [Condensed Consolidated Statement of Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders'%20Equity) **Condensed Consolidated Statement of Stockholders' Equity (In thousands of U.S. Dollars, except share and per share amounts):** | Item | Balance, Dec 31, 2018 | Balance, Sep 30, 2019 | | :---------------------------------------- | :-------------------- | :-------------------- | | Convertible Preferred Shares (Number) | 1,164,000 | 1,164,000 | | Convertible Preferred Shares (Share Capital) | $126,136 | $134,405 | | Common Shares (Number) | 55,518,800 | 56,850,172 | | Common Shares (Share Capital) | $879,405 | $884,623 | | Additional Paid-In Capital | $48,084 | $55,385 | | Deficit | $(805,221) | $(942,559) | | Accumulated Other Comprehensive Loss | $(48,170) | $(48,217) | | Total Stockholders' Equity | $200,234 | $83,637 | - Total stockholders' equity decreased from **$200,234 thousand** at December 31, 2018, to **$83,637 thousand** at September 30, 2019, primarily due to a significant net loss of **$(82,503) thousand** for the three months ended September 30, 2019, and **$(129,069) thousand** for the nine months ended September 30, 2019[8](index=8&type=chunk)[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) **Condensed Consolidated Statements of Cash Flows (In thousands of U.S. Dollars):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(23,470) | $(13,204) | $(57,655) | $(50,791) | | Net cash provided by (used) in investing activities | $16,155 | $24,378 | $87,160 | $(48,911) | | Net cash provided by financing activities | $18,549 | $435 | $23,564 | $55,537 | | Effect of foreign exchange rate changes on cash and cash equivalents | $(24) | $131 | $71 | $(795) | | Increase in cash and cash equivalents | $11,210 | $11,740 | $53,140 | $(44,960) | | Cash and cash equivalents, end of period | $90,082 | $21,933 | $90,082 | $21,933 | - Cash and cash equivalents significantly increased to **$90,082 thousand** by September 30, 2019, from **$36,942 thousand** at the beginning of the nine-month period, driven by strong investing and financing activities, despite increased cash usage in operating activities[14](index=14&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) [1. Nature of business and future operations](index=10&type=section&id=1.%20Nature%20of%20business%20and%20future%20operations) - Arbutus Biopharma Corporation is a biopharmaceutical company focused on discovering, developing, and commercializing a cure for chronic hepatitis B infection (HBV)[15](index=15&type=chunk) - The company's pipeline includes AB-729 (RNAi therapeutic in Phase 1a/1b), AB-452 (oral HBV RNA destabilizer in pre-clinical testing), next-generation oral capsid inhibitor compounds, and PD-L1 inhibitors[15](index=15&type=chunk) - Success is contingent on regulatory approvals and adequate financing for research, development, and commercialization[16](index=16&type=chunk) [2. Significant accounting policies](index=11&type=section&id=2.%20Significant%20accounting%20policies) - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial statements, reflecting all necessary adjustments for fair presentation[17](index=17&type=chunk) - The company adopted ASU No. 2016-02, Leases (Topic 842), on January 1, 2019, using a modified retrospective approach, resulting in the recording of operating lease right-of-use assets and lease liabilities of approximately **$3.2 million** and **$4.1 million**, respectively[32](index=32&type=chunk) - Net loss attributable to common shareholders per share is calculated using the two-class method due to the issuance of Series A participating convertible preferred shares, which participate in dividends but not losses[19](index=19&type=chunk) [3. Fair value of financial instruments](index=13&type=section&id=3.%20Fair%20value%20of%20financial%20instruments) - The Company measures certain financial instruments at fair value using a three-level hierarchy, prioritizing observable inputs[34](index=34&type=chunk)[35](index=35&type=chunk) **Fair Value of Financial Instruments (As of September 30, 2019, in thousands of U.S. Dollars):** | Item | Level 1 | Level 2 | Level 3 | Total | | :----------------------------- | :------ | :------ | :------ | :------ | | **Assets** | | | | | | Cash and cash equivalents | $90,082 | — | — | $90,082 | | **Liabilities** | | | | | | Liability-classified options | — | — | $86 | $86 | | Contingent consideration | — | — | $3,005 | $3,005 | | **Total Liabilities** | **—** | **—** | **$3,091** | **$3,091** | - Liability-classified options are valued using the Black-Scholes model, while contingent consideration is valued using a probability-weighted assessment of milestone achievement and estimated timing of payments[37](index=37&type=chunk)[38](index=38&type=chunk) [4. Equity method investment](index=14&type=section&id=4.%20Equity%20method%20investment) - In April 2018, Arbutus launched Genevant Sciences Ltd. with Roivant Sciences Ltd., licensing its LNP and ligand conjugate delivery platforms for RNA-based applications outside of HBV[41](index=41&type=chunk) - Arbutus holds approximately **40% equity interest** in Genevant and accounts for it using the equity method[43](index=43&type=chunk) **Equity Investment in Genevant (In thousands of U.S. Dollars):** | Item | Sep 30, 2019 | | :---------------------------------------- | :----------- | | Carrying value of interest in Genevant | $11,000 | | Equity investment loss (3 months ended Sep 30, 2019) | $(3,512) | | Equity investment loss (9 months ended Sep 30, 2019) | $(11,497) | [5. Leases](index=15&type=section&id=5.%20Leases) - The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019, recognizing operating lease right-of-use assets and lease liabilities[45](index=45&type=chunk) - The weighted-average remaining lease term as of September 30, 2019, was **7.3 years**, with a weighted average discount rate of **8.9%**[48](index=48&type=chunk) **Operating Lease Expenses and Sublease Income (Nine Months Ended September 30, in thousands of U.S. Dollars):** | Item | 2019 | 2018 | | :---------------------------------------- | :--- | :--- | | Total operating lease expenses | $1,100 | $900 | | Sublease income | $200 | $100 | [6. Intangible assets and goodwill](index=16&type=section&id=6.%20Intangible%20assets%20and%20goodwill) - The Company recorded a **$43.8 million** non-cash impairment expense for IPR&D intangible assets (cccDNA program) in Q3 2019, reducing their carrying value to zero, due to an indefinite delay in development[50](index=50&type=chunk) - A **$22.5 million** non-cash impairment expense was recorded for goodwill in Q3 2019, reducing its carrying value to zero, as the Company's market capitalization fell below the book value of its net assets[51](index=51&type=chunk) [7. Accounts payable and accrued liabilities](index=17&type=section&id=7.%20Accounts%20payable%20and%20accrued%20liabilities) **Accounts Payable and Accrued Liabilities (In thousands of U.S. Dollars):** | Item | Sep 30, 2019 | Dec 31, 2018 | | :---------------------------------------- | :----------- | :----------- | | Trade accounts payable | $1,400 | $3,192 | | Research and development accruals | $4,112 | $2,716 | | Professional fee accruals | $1,177 | $871 | | Payroll accruals | $1,509 | $2,341 | | Other accrued liabilities | $1 | $309 | | **Total** | **$8,199** | **$9,429** | - Total accounts payable and accrued liabilities decreased from **$9,429 thousand** at December 31, 2018, to **$8,199 thousand** at September 30, 2019, primarily due to decreases in trade accounts payable and payroll accruals, partially offset by an increase in R&D accruals[53](index=53&type=chunk) [8. Site consolidation](index=17&type=section&id=8.%20Site%20consolidation) - The Company substantially completed a site consolidation and organizational restructuring in 2018, aligning its HBV business in Warminster, PA, and closing its Burnaby facility[54](index=54&type=chunk) - Total estimated site consolidation expenses are approximately **$5.0 million**, with **$4.8 million** incurred as of September 30, 2019[54](index=54&type=chunk) **Site Consolidation Expenses (In thousands of U.S. Dollars):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Employee severance and relocation | $231 | $198 | $429 | $3,399 | | Facility and other expenses | $(49) | $(690) | $(396) | $311 | | **Total site consolidation expense** | **$182** | **$(492)** | **$33** | **$3,710** | [9. Sale of future royalties](index=17&type=section&id=9.%20Sale%20of%20future%20royalties) - On July 2, 2019, Arbutus sold a portion of its royalty interest on future global net sales of ONPATTRO™ to OMERS for **$20 million** in gross proceeds[57](index=57&type=chunk)[59](index=59&type=chunk) - OMERS will retain this entitlement until it receives **$30 million** in royalties, after which 100% of the royalty interest will revert to Arbutus[59](index=59&type=chunk) **Net Liability Related to Sale of Future Royalties (Nine Months Ended September 30, 2019, in thousands of U.S. Dollars):** | Item | Amount | | :---------------------------------------- | :----- | | Initial recognition of liability | $30,000 | | Debt discount and issuance costs | $(11,451) | | Non-cash royalty revenue | $(979) | | Non-cash interest expense | $1,106 | | **Net liability - ending balance** | **$18,675** | [10. Contingencies and commitments](index=18&type=section&id=10.%20Contingencies%20and%20commitments) - In August 2019, an arbitrator awarded the University of British Columbia (UBC) **$5.9 million** (including **$2.6 million** interest) in an arbitration concerning LNP delivery systems and related inventions[65](index=65&type=chunk) - The Company recorded a **$6.5 million** charge in Q3 2019 for the UBC award and an estimate for potential costs and attorney's fees[65](index=65&type=chunk) - Contingent consideration related to the Enantigen acquisition was valued at **$3.0 million** as of September 30, 2019, with potential future payments up to **$21.0 million** for development/regulatory milestones and an additional **$102.5 million** for sales performance milestones[67](index=67&type=chunk) [11. Collaborations, contracts and licensing agreements](index=20&type=section&id=11.%20Collaborations,%20contracts%20and%20licensing%20agreements) - Revenue for the three and nine months ended September 30, 2019, primarily included a **$1.5 million** development milestone from Gritstone, royalties from ONPATTRO™ sales, and a milestone/royalties from Spectrum's Marqibo®[73](index=73&type=chunk) - The Company is entitled to tiered low to mid single-digit royalty payments on global net sales of ONPATTRO™ from Alnylam, a portion of which was sold to OMERS in July 2019[72](index=72&type=chunk) [12. Stockholders' equity and stock-based compensation](index=20&type=section&id=12.%20Stockholders'%20equity%20and%20stock-based%20compensation) - Under an Open Market Sale Agreement, the Company issued **1,208,090 common shares** for **$5.2 million** in gross proceeds during the nine months ended September 30, 2019[74](index=74&type=chunk) - The Company issued **1,164,000 Series A participating convertible preferred shares** to Roivant for **$116.4 million**, which accrue an **8.75% per annum coupon** and are subject to mandatory conversion into common shares by October 2021[75](index=75&type=chunk) [13. Related Party Transactions](index=21&type=section&id=13.%20Related%20Party%20Transactions) - The Company purchased **$33 thousand** in R&D services from Genevant for the nine months ended September 30, 2019, a decrease from **$0.2 million** in the prior year[78](index=78&type=chunk) - Genevant purchased **$284 thousand** in administrative and transitional services from the Company for the nine months ended September 30, 2019, and paid **$0.1 million** in sublease income[79](index=79&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's perspective on the Company's financial condition and operational results, highlighting its strategy to cure chronic HBV through a diverse product pipeline and combination therapies, detailing program progress, challenges, and liquidity [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=22&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) - This report contains forward-looking statements regarding the Company's strategy, operations, clinical trials, regulatory approvals, financing, and product development, which are subject to known and unknown risks and uncertainties[82](index=82&type=chunk)[85](index=85&type=chunk) - The Company disclaims any obligation to update forward-looking statements, advising readers to consult further disclosures and not place undue reliance on these statements[86](index=86&type=chunk) [OVERVIEW](index=24&type=section&id=OVERVIEW) - Arbutus Biopharma Corporation is dedicated to discovering, developing, and commercializing a cure for chronic hepatitis B infection (HBV), a significant global unmet medical need affecting approximately **257 million** people[89](index=89&type=chunk) - The Company is developing a diverse product pipeline of drug candidates with complementary mechanisms of action to improve upon the standard of care and achieve higher cure rates with finite treatment durations[90](index=90&type=chunk) - Additional assets, including royalty entitlement on ONPATTRO™ (Patisiran) and a **40% equity ownership** in Genevant, provide potential non-dilutive capital to fund the HBV pipeline[91](index=91&type=chunk) [Strategy](index=24&type=section&id=Strategy) - The Company's objective is to develop a cure for chronic HBV by developing proprietary therapeutic agents targeting multiple elements of the HBV viral lifecycle and identifying effective combination regimens[92](index=92&type=chunk) - Primary focus areas include progressing clinical and pre-clinical candidates through Phase 1 and 2 trials, identifying safe and effective combination regimens for Phase 3, obtaining regulatory approval, and commercializing these regimens[93](index=93&type=chunk) [Our HBV product pipeline](index=25&type=section&id=Our%20HBV%20product%20pipeline) [Agents for Combination Therapy](index=25&type=section&id=Agents%20for%20Combination%20Therapy) - Current HBV treatments (Peg-IFNα and NAs) have low cure rates (**<5%**), leading the Company to believe combination therapies are key to more effective treatment[97](index=97&type=chunk)[98](index=98&type=chunk) - The R&D pipeline includes multiple drug candidates targeting various steps in the viral lifecycle, with AB-729 (RNAi agent) and a capsid inhibitor being considered for the first combination therapy[98](index=98&type=chunk)[99](index=99&type=chunk) [HBsAg Reduction (RNAi Agents)](index=25&type=section&id=HBsAg%20Reduction%20(RNAi%20Agents)) - RNAi drugs offer a novel approach to treating HBV by eliminating the production of disease-associated proteins, with the goal of reducing HBsAg expression to reawaken the patient's immune system[100](index=100&type=chunk)[101](index=101&type=chunk) [GalNAc RNAi (AB-729)](index=26&type=section&id=GalNAc%20RNAi%20(AB-729)) - AB-729, a subcutaneously-delivered RNAi therapeutic, was nominated for development in early 2018, designed to inhibit viral replication and suppress all viral antigens, including HBsAg[103](index=103&type=chunk) - A Phase 1a/1b clinical trial for AB-729 was initiated in July 2019, with preliminary safety and efficacy data expected in Q1 2020[105](index=105&type=chunk) - Development of the initial RNAi candidate, ARB-1467, has been discontinued in favor of AB-729 due to its improved delivery and administration profile[106](index=106&type=chunk) [HBV Suppression (Capsid Inhibitors (AB-506 & AB-423))](index=26&type=section&id=HBV%20Suppression%20(Capsid%20Inhibitors%20(AB-506%20%26%20AB-423))) - Capsid inhibitors like AB-506 are being developed as oral therapeutics to block HBV replication and reduce cccDNA formation, complementing current SOC therapies[107](index=107&type=chunk) - Preliminary results from a Phase 1a/1b clinical trial for AB-506 showed potent oral capsid inhibition in CHB subjects, with mean HBV DNA and RNA decreases ranging from **-2.0 to -2.8 log** and **-2.4 log**, respectively, at Day 28[110](index=110&type=chunk)[111](index=111&type=chunk) - Development of AB-506 was discontinued due to the observation of two cases of acute hepatitis in a healthy subjects study, leading to a **$43.8 million** impairment of intangible assets[111](index=111&type=chunk)[140](index=140&type=chunk) [HBV RNA Destabilizer (AB-452)](index=27&type=section&id=HBV%20RNA%20Destabilizer%20(AB-452)) - AB-452, an orally administered HBV RNA destabilizer, has shown novel and broad activity in pre-clinical studies, leading to RNA degradation and reduction in viral antigens[112](index=112&type=chunk) - Nonclinical safety findings in October 2018 led to a pause in AB-452 clinical trials; a repeat 90-day preclinical safety study is underway to address confounding observations, with a go/no-go decision expected in early 2020[114](index=114&type=chunk) [Research Programs](index=28&type=section&id=Research%20Programs) - The Company has ongoing discovery efforts focused on checkpoint inhibition to identify novel, orally administered small molecule drug candidates to complement its pipeline for HBV combination therapy[116](index=116&type=chunk) [Strategic Alliances and Licensing Agreements](index=28&type=section&id=Strategic%20Alliances%20and%20Licensing%20Agreements) [ONPATTRO® (Patisiran/ALN-TTR02)](index=28&type=section&id=ONPATTRO%C2%AE%20(Patisiran/ALN-TTR02)) - Arbutus is entitled to tiered royalties (**1.00%-2.33%**) on global net sales of Alnylam's ONPATTRO™, which utilizes Arbutus' LNP technology[117](index=117&type=chunk) - A portion of this royalty interest was sold to OMERS in July 2019 for **$20 million**, with the entitlement reverting to Arbutus after OMERS receives **$30 million** in royalties[117](index=117&type=chunk) - Arbutus also retains a second, lower royalty interest on ONPATTRO™ sales from a settlement agreement with Acuitas Therapeutics[118](index=118&type=chunk) [Genevant Sciences](index=28&type=section&id=Genevant%20Sciences) - Arbutus launched Genevant Sciences with Roivant Sciences Ltd. in April 2018, licensing its LNP and ligand conjugate delivery platforms for RNA-based applications outside of HBV[119](index=119&type=chunk) - Arbutus holds approximately **40% equity interest** in Genevant and is entitled to tiered low single-digit royalties on future sales of products enabled by the licensed delivery platforms[120](index=120&type=chunk) [CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES](index=28&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGEMENTS%20AND%20ESTIMATES) - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, based on historical experience and reasonable factors[121](index=121&type=chunk) - No significant changes in critical accounting policies and estimates were reported compared to the 2018 Annual Report on Form 10-K[121](index=121&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=29&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) - The Company believes that recently issued accounting standards not yet effective will not have a material impact on its financial position or results of operations upon adoption[123](index=123&type=chunk) [RESULTS OF OPERATIONS](index=29&type=section&id=RESULTS%20OF%20OPERATIONS) **Summary of Results of Operations (In thousands of U.S. Dollars except per share amounts):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Total revenue | $3,061 | $1,587 | $4,393 | $4,267 | | Operating expenses | $94,462 | $34,013 | $135,380 | $77,144 | | Loss from operations | $(91,401) | $(32,426) | $(130,987) | $(72,877) | | Net loss | $(82,503) | $(24,473) | $(129,069) | $(38,811) | | Net loss attributable to common shares | $(85,295) | $(27,040) | $(137,338) | $(46,255) | | Basic and diluted loss per common share | $(1.50) | $(0.49) | $(2.43) | $(0.84) | [Revenue](index=29&type=section&id=Revenue) - Revenue increased by **$1.5 million** for the three months ended September 30, 2019, and **$0.1 million** for the nine months ended September 30, 2019, compared to the same periods in 2018[127](index=127&type=chunk) - Q3 2019 revenue primarily included a **$1.5 million** development milestone from Gritstone, ONPATTRO™ royalties, and Marqibo® milestones/royalties[127](index=127&type=chunk) - Nine months ended September 30, 2019, revenue included **$1.0 million** of non-cash revenue for ONPATTRO™ royalty payments remitted to OMERS[128](index=128&type=chunk) [Expenses](index=30&type=section&id=Expenses) **Operating Expenses (Three Months Ended September 30, in thousands of U.S. Dollars):** | Item | 2019 | % of Total | 2018 | % of Total | | :---------------------------------------- | :--- | :--------- | :--- | :--------- | | Research and development | $17,731 | 19% | $16,566 | 49% | | General and administrative | $3,249 | 3% | $2,631 | 8% | | Depreciation | $507 | 1% | $497 | 1% | | Site consolidation | $182 | —% | $(492) | (1)% | | Impairment of intangible assets | $43,836 | 46% | $14,811 | 44% | | Impairment of goodwill | $22,471 | 24% | — | —% | | Arbitration | $6,486 | 7% | — | —% | | **Total operating expenses** | **$94,462** | **100%** | **$34,013** | **100%** | **Operating Expenses (Nine Months Ended September 30, in thousands of U.S. Dollars):** | Item | 2019 | % of Total | 2018 | % of Total | | :---------------------------------------- | :--- | :--------- | :--- | :--------- | | Research and development | $45,183 | 33% | $46,871 | 61% | | General and administrative | $15,850 | 12% | $10,075 | 13% | | Depreciation | $1,521 | 1% | $1,677 | 2% | | Site consolidation | $33 | —% | $3,710 | 5% | | Impairment of intangible assets | $43,836 | 32% | $14,811 | 19% | | Impairment of goodwill | $22,471 | 17% | — | —% | | Arbitration | $6,486 | 5% | — | —% | | **Total operating expenses** | **$135,380** | **100%** | **$77,144** | **100%** | [Research and development](index=30&type=section&id=Research%20and%20development) - R&D expenses increased by **$1.2 million** for the three months ended September 30, 2019, due to costs for AB-729 and AB-506 Phase 1a/b clinical trials[134](index=134&type=chunk)[135](index=135&type=chunk) - R&D expenses decreased by **$1.7 million** for the nine months ended September 30, 2019, primarily due to reduced costs for AB-452 manufacturing and AB-1467 Phase 2 trials in 2018, partially offset by increased spending on AB-506 and AB-729 trials in 2019[134](index=134&type=chunk)[136](index=136&type=chunk) - The Company discontinued further development of AB-506 in October 2019 due to observed cases of acute hepatitis[135](index=135&type=chunk) [General and administrative](index=31&type=section&id=General%20and%20administrative) - G&A expenses increased by **$0.6 million** and **$5.8 million** for the three and nine months ended September 30, 2019, respectively, compared to 2018[138](index=138&type=chunk) - The nine-month increase was primarily due to **$2.3 million** cash severance and **$2.2 million** non-cash stock-based compensation for the former CEO's departure, along with increased stock compensation and insurance premiums[138](index=138&type=chunk) [Site consolidation](index=31&type=section&id=Site%20consolidation) - Site consolidation and organizational restructuring expenses totaled approximately **$4.8 million** as of September 30, 2019, out of an estimated **$5.0 million** total[139](index=139&type=chunk) [Impairment of intangible assets and goodwill](index=31&type=section&id=Impairment%20of%20intangible%20assets%20and%20goodwill) - A **$43.8 million** non-cash impairment expense was recorded in Q3 2019 for IPR&D assets (cccDNA program) due to an indefinite development delay[140](index=140&type=chunk) - A **$22.5 million** non-cash impairment expense was recorded in Q3 2019 for goodwill, as the Company's market capitalization fell below the book value of its net assets[141](index=141&type=chunk) [Arbitration](index=31&type=section&id=Arbitration) - The Company recorded a **$6.5 million** expense in Q3 2019, including a **$5.9 million** award (with **$2.6 million** interest) to UBC from arbitration proceedings and an estimate for costs and attorney's fees[142](index=142&type=chunk) [Other income (loss)](index=32&type=section&id=Other%20income%20(loss)) **Other Income (Loss) (In thousands of U.S. Dollars):** | Item | Three Months Ended Sep 30, 2019 | Three Months Ended Sep 30, 2018 | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest income | $503 | $756 | $1,709 | $2,319 | | Interest expense | $(1,100) | — | $(1,114) | $(104) | | Foreign exchange gain (loss) | $(25) | $145 | $43 | $(740) | | Gain on investment | — | — | — | $24,884 | | Equity investment loss | $(3,512) | $(2,838) | $(11,497) | $(2,838) | | Change in fair value of contingent consideration | $376 | $5,608 | $121 | $6,263 | | **Total other income (loss)** | **$(3,758)** | **$3,671** | **$(10,738)** | **$29,784** | [Interest income](index=32&type=section&id=Interest%20income) - Interest income decreased by **$0.3 million** and **$0.6 million** for the three and nine months ended September 30, 2019, respectively, due to a lower average balance of cash, cash equivalents, and short-term investments[145](index=145&type=chunk) [Interest expense](index=32&type=section&id=Interest%20expense) - Interest expense in 2019 primarily consisted of non-cash amortization of the liability related to the sale of future ONPATTRO™ royalties to OMERS[146](index=146&type=chunk) [Foreign exchange gains (losses)](index=32&type=section&id=Foreign%20exchange%20gains%20(losses)) - The Company's exposure to foreign currency fluctuations has decreased due to its site consolidation to Warminster, PA, reducing Canadian dollar-denominated expenses and cash balances[147](index=147&type=chunk) [Gain on investment and equity investment losses](index=32&type=section&id=Gain%20on%20investment%20and%20equity%20investment%20losses) - In Q2 2018, the Company recognized a non-cash gain of **$24.9 million** from the formation of Genevant[148](index=148&type=chunk) - Equity investment losses of **$3.5 million** and **$11.5 million** were recorded for the three and nine months ended September 30, 2019, respectively, reflecting Arbutus' proportionate share of Genevant's net loss[148](index=148&type=chunk) [Change in fair value of contingent consideration](index=32&type=section&id=Change%20in%20fair%20value%20of%20contingent%20consideration) - The fair value of contingent consideration liability decreased by **$5.2 million** and **$6.1 million** for the three and nine months ended September 30, 2019, respectively, primarily due to recalibrating the estimated timing of future development milestones[150](index=150&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) **Cash Flow Activities (In thousands of U.S. Dollars):** | Item | Nine Months Ended Sep 30, 2019 | Nine Months Ended Sep 30, 2018 | | :---------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(57,655) | $(50,791) | | Net cash provided by (used) in investing activities | $87,160 | $(48,911) | | Net cash provided by financing activities | $23,564 | $55,537 | | Increase in cash and cash equivalents | $53,140 | $(44,960) | | Cash and cash equivalents, end of period | $90,082 | $21,933 | [Sources of Liquidity](index=33&type=section&id=Sources%20of%20Liquidity) - As of September 30, 2019, the Company had **$90.1 million** in cash and cash equivalents and no outstanding debt[155](index=155&type=chunk) - The Company issued **1,208,090 common shares** for **$5.2 million** in gross proceeds during the nine months ended September 30, 2019, under an Open Market Sale Agreement[155](index=155&type=chunk) - Additional liquidity sources include royalty entitlement on ONPATTRO™ (partially monetized to OMERS) and a **40% equity ownership** in Genevant[156](index=156&type=chunk)[158](index=158&type=chunk) [Cash requirements](index=34&type=section&id=Cash%20requirements) - The Company believes its cash and cash equivalents of **$90.1 million** as of September 30, 2019, will be sufficient to fund operations into early 2021, following the discontinuation of AB-506 development[160](index=160&type=chunk) - Substantial additional funds will be required for future pipeline development, with funding needs dependent on factors like R&D program progress, collaborative arrangements, and intellectual property costs[160](index=160&type=chunk) - The Company intends to seek funding through equity/debt financing, monetization transactions, collaborative arrangements, and government grants, but there is no assurance of availability or acceptable terms[161](index=161&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=34&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) - The Company does not have any off-balance sheet arrangements that are material to its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources[163](index=163&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=34&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) There have been no material changes in the Company's quantitative and qualitative disclosures about market risk from those reported in its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes in market risk disclosures were reported compared to the previous annual report[164](index=164&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=34&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management, with the participation of the principal executive and financial officers, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2019, concluding they were effective at a reasonable assurance level - As of September 30, 2019, the Company's disclosure controls and procedures were deemed effective at the reasonable assurance level[164](index=164&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2019[165](index=165&type=chunk) [PART II. OTHER INFORMATION](index=36&type=section&id=PART%20II.%20OTHER%20INFORMATION) [ITEM 1. LEGAL PROCEEDINGS](index=36&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Information regarding legal matters, specifically the arbitration with the University of British Columbia, is incorporated by reference from Note 10, 'Contingencies and Commitments,' to the condensed consolidated financial statements - Legal proceedings information is detailed in Note 10, 'Contingencies and Commitments,' of the financial statements[167](index=167&type=chunk) [ITEM 1A. RISK FACTORS](index=36&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes to the Company's risk factors since those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - No material changes in risk factors were reported compared to the previous annual report[168](index=168&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=36&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The Company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities or use of proceeds were reported[168](index=168&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=36&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[168](index=168&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=36&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) This item is not applicable to the Company - Mine safety disclosures are not applicable to the Company[168](index=168&type=chunk) [ITEM 5. OTHER INFORMATION](index=36&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The Company reported no other information for this period - No other information was reported[168](index=168&type=chunk) [ITEM 6. EXHIBITS](index=36&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including organizational documents, governance agreements, purchase and sale agreements, offer letters, and certifications from executive officers, along with XBRL formatted financial statements - The exhibit index includes organizational documents, governance agreements, a purchase and sale agreement with OMERS, an offer letter for Andrew Cheng, and certifications from the Principal Executive and Financial Officers[169](index=169&type=chunk) - XBRL formatted financial statements (Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity, Cash Flows, and Notes) are also included as Exhibit 101[169](index=169&type=chunk)

Financial Data and Key Metrics Changes - As of September 30, 2019, the company had a cash and investment balance of $90.1 million, down from $124.6 million at December 31, 2018 [11] - Cash used in operating activities during the first nine months of 2019 was $57.7 million, partially offset by $20 million in non-refundable gross proceeds from the sale of a portion of royalty entitlement [12] - The company reported non-cash charges of $43.8 million related to impairment of in-process research and development and tangible assets, and $22.5 million for impairment of goodwill [13] Business Line Data and Key Metrics Changes - The company discontinued the clinical development of AB-506 due to safety concerns observed in Phase 1a trials [6] - Focus areas include completing the Phase 1a/1b clinical trial of AB-729, selecting a next-generation capsid inhibitor, and advancing research on oral compounds that inhibit PDL-1 [7][8] Market Data and Key Metrics Changes - The company plans to present results from the AB-506 trials at the AASLD Meeting on November 11, 2019, indicating ongoing engagement with the market and stakeholders [7] Company Strategy and Development Direction - The company aims to improve the standard of care in Hepatitis B by developing a curative combination regimen with multiple mechanisms of action [7] - The strategy includes selecting a next-generation capsid inhibitor for IND enabling studies by December 2019 and advancing the RNA destabilizer AB-452 [9][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing development of AB-729 and its potential to provide a once-monthly dosing regimen based on preclinical results [19] - The company remains focused on achieving a functional cure for HBV patients through a combination of therapies, including capsid inhibitors and immune reawakening strategies [27] Other Important Information - The company believes its current cash is sufficient to fund operations into early 2021 [13] - The accounting treatment for the sale of royalty entitlement involves recording an initial liability equal to the net proceeds received, with future royalty payments accounted for as non-cash revenue [14] Q&A Session Summary Question: Could you review the preclinical observations for AB-729 RNAi program? - Management highlighted that AB-729 demonstrates a multi-dose dependent reduction in HBV S-antigen in animal models, comparing favorably to competitors [18] Question: What do you believe success looks like in 1Q 2020 readout from HBV patient cohort? - Success will be measured by the magnitude and consistency of surface antigen decay across different patient types [22] Question: After seeing the J&J Arrow partnership data, what is the incremental value of having a core capsid inhibitor? - Management reiterated the belief that multiple mechanisms are necessary for achieving a functional cure, emphasizing the importance of capsid inhibitors in combination therapies [27] Question: What are your thoughts on the Roche-Dicerna deal? - Management expressed interest in developing a portfolio of assets with different mechanisms of action and did not rule out potential partnerships [30] Question: Can you provide an estimate of when you might commence Phase 1 studies for your next-gen capsid inhibitor? - Management did not provide a specific start date but indicated that guidance would be clearer in the future [35]

Financial Data and Key Metrics Changes - As of June 30, 2019, the company had a cash and investments balance of $95.3 million, down from $124.6 million at December 31, 2018 [13] - Cash used in operating activities during the first half of 2019 was $34.1 million, and the company believes its cash balance plus net proceeds from a recent royalty monetization is sufficient to fund operations into the second half of 2020 [14][15] Business Line Data and Key Metrics Changes - The company is focused on advancing two lead compounds, AB-506 and AB-729, through clinical trials, with preliminary results expected in early 2020 [6][12] - AB-506 showed a decrease in mean HBV DNA and HBV RNA at the end of treatment, with reductions ranging from minus 2 logs for the 160-milligram dose to minus 2.8 logs for the 400-milligram dose [8][10] Market Data and Key Metrics Changes - The company is targeting chronic hepatitis B patients for its clinical trials, with plans to initiate a combination proof-of-concept Phase II trial in the second half of 2020 if both lead compounds progress as expected [12][16] Company Strategy and Development Direction - The company's objective is to improve the existing standard of care in hepatitis B by developing a curative combination regimen that includes multiple mechanisms of action [6] - The combination of AB-506 and AB-729 is believed to have the potential for profound inhibition of HBV replication and higher rates of sustained S-antigen loss compared to current treatments [12] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's ability to advance its pipeline and achieve significant clinical milestones, with results from ongoing trials expected later in the year [16][30] - The management highlighted the importance of the upcoming data from the Phase Ia/Ib trials for both AB-506 and AB-729 in shaping the future direction of the company's clinical development [12][16] Other Important Information - A severance charge of $4.5 million was recorded in the second quarter of 2019 due to the retirement of the former CEO, impacting general and administrative expenses [14][15] Q&A Session Summary Question: How many chronic hepatitis B patients will have data by the end of the year? - The company expects to have data from 24 chronic hepatitis B patients, divided into two cohorts of 12 [18] Question: Any update on the progress for the RNA destabilizer? - The company is conducting a 90-day study in two species, with data expected by the first quarter of 2020 to inform future decisions [20] Question: Update on AB-506 and its Phase I trial on safety and efficacy? - The company reported satisfactory results with HBV DNA drops of 2 logs and 2.9 logs, with plans to continue dosing based on the outcomes of the healthy volunteer study [22][23] Question: Is seeing a surface antigen response a competitive advantage? - The company believes its capsid inhibitor may be unique in showing drops in surface antigen and e-antigen, but more data is needed to confirm any competitive advantage [24][25] Question: Will there be protocol amendments for AB-729 to include hep-B patients? - The protocol already includes plans for single ascending doses in chronic hepatitis B patients, so no amendments are necessary [26][27]

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's discussion and analysis [ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)](index=4&type=section&id=ITEM%201.%20FINANCIAL%20STATEMENTS%20(UNAUDITED)) This section presents Arbutus Biopharma Corporation's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and detailed notes [Condensed Consolidated Balance Sheets](index=4&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates | Metric | June 30, 2019 (in thousands) | December 31, 2018 (in thousands) | | :----------------------------------- | :--------------------------- | :----------------------------- | | Total Current Assets | $99,583 | $129,229 | | Total Assets | $192,570 | $227,905 | | Total Current Liabilities | $8,799 | $11,239 | | Total Liabilities | $28,104 | $27,671 | | Total Stockholders' Equity | $164,466 | $200,234 | - **Total current assets** **decreased** from **$129.2 million** at December 31, 2018, to **$99.6 million** at June 30, 2019, primarily due to a reduction in short-term investments[5](index=5&type=chunk) - **Total stockholders' equity** **decreased** from **$200.2 million** at December 31, 2018, to **$164.5 million** at June 30, 2019[5](index=5&type=chunk) [Condensed Consolidated Statements of Operations](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section outlines the company's revenues, expenses, and net income or loss over specific reporting periods | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $653 | $1,244 | $1,332 | $2,680 | | Total Expenses | $21,168 | $23,290 | $40,918 | $43,131 | | Loss from operations | $(20,515) | $(22,046) | $(39,586) | $(40,451) | | Net (loss) income | $(23,315) | $3,091 | $(46,566) | $(14,338) | | Net (loss) income attributable to common shares | $(26,077) | $550 | $(52,043) | $(19,215) | | Basic EPS | $(0.46) | $0.01 | $(0.92) | $(0.35) | | Diluted EPS | $(0.46) | $0.01 | $(0.92) | $(0.35) | - **Revenue** **decreased** by **$0.6 million** for the three months ended June 30, 2019, and by **$1.3 million** for the six months ended June 30, 2019, compared to the same periods in 2018[7](index=7&type=chunk) - The company reported a **net loss** of **$23.3 million** for the three months ended June 30, 2019, compared to a **net income** of **$3.1 million** in the prior year period, and a **net loss** of **$46.6 million** for the six months ended June 30, 2019, compared to a **net loss** of **$14.3 million** in the prior year period[7](index=7&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the company's net income or loss and other comprehensive income or loss components | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net income (loss) | $(23,315) | $3,091 | $(46,566) | $(14,338) | | Other comprehensive loss: Share of other comprehensive loss of equity method investment | $(52) | — | $(74) | — | | Comprehensive income (loss) | $(23,367) | $3,091 | $(46,640) | $(14,338) | - **Comprehensive loss** for the three months ended June 30, 2019, was **$23.4 million**, compared to **comprehensive income** of **$3.1 million** for the same period in 2018[9](index=9&type=chunk) [Condensed Consolidated Statement of Stockholders' Equity](index=8&type=section&id=Condensed%20Consolidated%20Statement%20of%20Stockholders'%20Equity) This section details changes in the company's stockholders' equity, including net loss, stock-based compensation, and share issuances | Metric (in thousands) | December 31, 2018 | June 30, 2019 | | :-------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $200,234 | $164,466 | | Common Shares Outstanding | 55,518,800 | 56,850,172 | | Net Loss (Six months ended June 30, 2019) | N/A | $(46,566) | | Stock-based compensation (Six months ended June 30, 2019) | N/A | $5,580 | | Issuance of common shares (Six months ended June 30, 2019) | N/A | $4,725 | - **Total stockholders' equity** **decreased** by **$35.8 million** from December 31, 2018, to June 30, 2019, primarily due to a **net loss** of **$46.6 million**, partially offset by **stock-based compensation** and common share issuances[10](index=10&type=chunk)[11](index=11&type=chunk) - The number of **common shares outstanding** **increased** from **55,518,800** at December 31, 2018, to **56,850,172** at June 30, 2019, due to issuances from the **Open Market Sale Agreement** and option exercises[10](index=10&type=chunk)[11](index=11&type=chunk) [Condensed Consolidated Statements of Cash Flow](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flow) This section reports the cash inflows and outflows from operating, investing, and financing activities | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(17,605) | $(17,622) | $(34,185) | $(37,589) | | Net cash provided by (used in) investing activities | $9,972 | $14,980 | $71,005 | $(60,686) | | Net cash provided by financing activities | $2,479 | $735 | $5,015 | $55,102 | | Net (decrease) increase in cash, cash equivalents, and restricted cash | $(5,097) | $(2,268) | $41,930 | $(44,099) | | Cash, cash equivalents, and restricted cash, end of period | $78,872 | $10,193 | $78,872 | $10,193 | - **Net cash used in operating activities** **decreased** slightly to **$34.2 million** for the six months ended June 30, 2019, from **$37.6 million** in the prior year, primarily due to lower site consolidation cash outflows[14](index=14&type=chunk)[146](index=146&type=chunk) - **Investing activities** provided **$71.0 million** in cash for the six months ended June 30, 2019, a significant **increase** from a **$60.7 million** use in the prior year, mainly due to the disposition of **short-term investments**[14](index=14&type=chunk)[147](index=147&type=chunk) - **Financing activities** provided **$5.0 million** in cash for the six months ended June 30, 2019, primarily from common share sales, compared to **$55.1 million** in the prior year which included proceeds from preferred share financing[14](index=14&type=chunk)[148](index=148&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures for the financial statements, covering business, accounting policies, fair value, equity, assets, liabilities, leases, and key events [1. Nature of business and future operations](index=11&type=section&id=1.%20Nature%20of%20business%20and%20future%20operations) This note describes Arbutus Biopharma's focus on developing a cure for chronic hepatitis B infection and its future operational outlook - **Arbutus Biopharma Corporation** is a biopharmaceutical company focused on discovering, developing, and commercializing a cure for chronic **hepatitis B infection (HBV)**[15](index=15&type=chunk) - The company's pipeline includes **AB-506** (oral **capsid inhibitor** in **Phase 1a/1b**), **AB-729** (**RNAi therapeutic** in **Phase 1a/1b**), and **AB-452** (oral **HBV RNA destabilizer** in **pre-clinical** testing)[15](index=15&type=chunk) - The company's success depends on regulatory approvals, achieving profitable operations, and securing adequate financing for research and development[16](index=16&type=chunk) [2. Significant accounting policies](index=12&type=section&id=2.%20Significant%20accounting%20policies) This note outlines the key accounting principles and methods used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial statements and should be read with the 2018 Form 10-K[17](index=17&type=chunk) - The company adopted **ASU No. 2016-02, Leases (Topic 842)**, on January 1, 2019, using the modified retrospective approach, resulting in recording operating lease right-of-use assets and lease liabilities of approximately **$3.2 million** and **$4.1 million**, respectively[31](index=31&type=chunk) - The company follows the two-class method for **EPS** calculation due to participating convertible preferred shares, which do not participate in losses[19](index=19&type=chunk) [3. Fair value of financial instruments](index=14&type=section&id=3.%20Fair%20value%20of%20financial%20instruments) This note details the fair value measurements of financial instruments using a three-level hierarchy - The company measures certain financial instruments at fair value using a three-level hierarchy based on input observability[33](index=33&type=chunk)[34](index=34&type=chunk)[36](index=36&type=chunk) | Financial Instrument (in thousands) | Level 1 (June 30, 2019) | Level 3 (June 30, 2019) | Total (June 30, 2019) | | :---------------------------------- | :---------------------- | :---------------------- | :-------------------- | | Cash and cash equivalents | $78,872 | — | $78,872 | | Short-term investments | $16,410 | — | $16,410 | | Liability-classified options | — | $141 | $141 | | Contingent consideration | — | $3,381 | $3,381 | - Liability-classified options **decreased** from **$479 thousand** at December 31, 2018, to **$141 thousand** at June 30, 2019, while **contingent consideration** **increased** from **$3,126 thousand** to **$3,381 thousand**[37](index=37&type=chunk) [4. Equity method investment](index=16&type=section&id=4.%20Equity%20method%20investment) This note describes the company's equity investment in Genevant, a joint venture for RNA-based applications outside HBV - In April 2018, the company launched **Genevant** with **Roivant Sciences Ltd.**, licensing its **LNP** and ligand conjugate delivery platforms for **RNA-based applications** outside of **HBV**[41](index=41&type=chunk) - As of June 30, 2019, **Arbutus** held approximately **40% equity interest** in **Genevant**, with a carrying value of **$14.4 million**[43](index=43&type=chunk) - The company recorded **equity investment losses** of **$3.3 million** and **$8.0 million** for the three and six months ended June 30, 2019, respectively, representing its share of **Genevant's net loss**[43](index=43&type=chunk) [5. Intangible assets and goodwill](index=16&type=section&id=5.%20Intangible%20assets%20and%20goodwill) This note details the company's intangible assets, including IPR&D and goodwill, and their impairment evaluations - Acquired **in-process research and development (IPR&D)** related to the **cccDNA** program is classified as indefinite-lived and not amortized[44](index=44&type=chunk) - **Goodwill** represents the excess of purchase price over the value of net tangible and identifiable intangible assets of **Arbutus Inc.**[44](index=44&type=chunk) - The company performs annual evaluations of intangible assets and **goodwill** for impairment, with no new indicators identified during the three and six months ended June 30, 2019[45](index=45&type=chunk) [6. Accounts payable and accrued liabilities](index=16&type=section&id=6.%20Accounts%20payable%20and%20accrued%20liabilities) This note provides a breakdown of the company's accounts payable and various accrued liabilities | Category (in thousands) | June 30, 2019 | December 31, 2018 | | :---------------------- | :------------ | :---------------- | | Trade accounts payable | $685 | $3,192 | | Research and development accruals | $2,528 | $2,716 | | Professional fee accruals | $566 | $871 | | Payroll accruals | $4,159 | $2,341 | | Other accrued liabilities | $2 | $309 | | Total | $7,940 | $9,429 | - **Total accounts payable and accrued liabilities** **decreased** from **$9.4 million** at December 31, 2018, to **$7.9 million** at June 30, 2019, primarily due to a **decrease** in **trade accounts payable**[46](index=46&type=chunk) - **Payroll accruals** significantly **increased** from **$2.3 million** to **$4.2 million** during the period[46](index=46&type=chunk) [7. Site consolidation](index=17&type=section&id=7.%20Site%20consolidation) This note details the expenses and progress related to the company's 2018 site consolidation and restructuring efforts - In 2018, the company completed a **site consolidation** and organizational restructuring, including a **35%** workforce reduction and closure of its Burnaby facility[48](index=48&type=chunk) - Total estimated **site consolidation expenses** are **$4.9 million**, with **$4.7 million** incurred as of June 30, 2019[48](index=48&type=chunk) | Category (in thousands) | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :---------------------- | :----------------------------- | :----------------------------- | | Employee severance and relocation | $197 | $3,201 | | Facility and other expenses | $(346) | $1,001 | | Total site consolidation expenses | $(149) | $4,202 | [8. Leases](index=17&type=section&id=8.%20Leases) This note explains the company's adoption of new lease accounting standards and its lease obligations - The company adopted **ASU No. 2016-02, Leases (Topic 842)**, on January 1, 2019, recognizing operating lease right-of-use assets and lease liabilities[52](index=52&type=chunk) - As of June 30, 2019, the weighted average remaining lease term was **7.2 years**, and the weighted average discount rate was **8.7%**[54](index=54&type=chunk) | Lease Maturities (in thousands) | As of June 30, 2019 | | :------------------------------ | :------------------ | | July through December 2019 | $433 | | 2020 | $657 | | 2021 | $677 | | 2022 | $581 | | 2023 | $598 | | Thereafter | $2,038 | | Total Lease Payments | $4,984 | | Less: interest | $(1,345) | | Present value of lease payments | $3,639 | [9. Stockholders' equity and stock-based compensation](index=18&type=section&id=9.%20Stockholders'%20equity%20and%20stock-based%20compensation) This note details changes in stockholders' equity, including common share issuances and preferred share characteristics - Under an **Open Market Sale Agreement**, the company issued **593,689** common shares for **$2.5 million** **gross proceeds** in Q2 2019, and **1,208,090** common shares for **$5.2 million** **gross proceeds** in H1 2019[57](index=57&type=chunk) - The company has **1,164,000 Series A participating convertible preferred shares** outstanding, convertible into approximately **23 million** common shares by October 2021, which would give **Roivant** approximately **49%** ownership[59](index=59&type=chunk) - An **8.75%** per annum compounding coupon on preferred shares is accrued as an **increase** to preferred share capital and deficit[60](index=60&type=chunk) [10. Collaborations, contracts and licensing agreements](index=20&type=section&id=10.%20Collaborations,%20contracts%20and%20licensing%20agreements) This note outlines the company's revenue sources from royalties and services, and key licensing agreements - **Revenue** for the three and six months ended June 30, 2019, primarily consisted of **royalties** from **Alnylam's ONPATTRO™** and **Spectrum's Marqibo®**, and services to **Gritstone Oncology**[64](index=64&type=chunk) - In July 2019, the company sold a portion of its **ONPATTRO™ royalty entitlement** to **OMERS** for **$20 million** **gross proceeds**, with the entitlement reverting after **OMERS** receives **$30 million**[63](index=63&type=chunk)[77](index=77&type=chunk) - The company retains a separate, lower **royalty interest** on **ONPATTRO™** from a settlement agreement with **Acuitas Therapeutics**[78](index=78&type=chunk) [11. Contingencies and commitments](index=20&type=section&id=11.%20Contingencies%20and%20commitments) This note describes ongoing legal proceedings, contingent consideration, and other contractual commitments - The company is involved in an arbitration with the **University of British Columbia (UBC)** regarding alleged unpaid **royalties**, with **UBC** seeking **$10.9 million** plus interest[66](index=66&type=chunk) - The fair value of **contingent consideration** related to the **Enantigen acquisition** was **$3.4 million** as of June 30, 2019, with potential future payments up to **$21.0 million** for development/regulatory milestones and **$102.5 million** for sales performance milestones[70](index=70&type=chunk) - Under a new two-year master services agreement with **Blumberg**, the company will fund specific research activities, retaining exclusive rights to generated intellectual property[72](index=72&type=chunk) [12. Related Party Transactions](index=21&type=section&id=12.%20Related%20Party%20Transactions) This note details transactions with related parties, primarily Genevant Sciences, for services and sublease arrangements - The company purchased **$33 thousand** in **research and development services** from **Genevant** for the six months ended June 30, 2019[73](index=73&type=chunk) - **Genevant** purchased **$0.2 million** in administrative and transitional services from the company for the six months ended June 30, 2019[74](index=74&type=chunk) - Sublease income from **Genevant** for the Burnaby facility was **$0.1 million** for the six months ended June 30, 2019; the sublease expired on July 31, 2019[74](index=74&type=chunk) [13. Subsequent Events](index=22&type=section&id=13.%20Subsequent%20Events) This note discloses significant events occurring after the reporting period, including a royalty interest sale - On July 2, 2019, the company sold a portion of its **royalty interest** on future global net sales of **ONPATTRO™** to **OMERS** for **$20 million** in **gross proceeds**[76](index=76&type=chunk)[77](index=77&type=chunk) - **OMERS** will retain this entitlement until it has received **$30 million** in **royalties**, after which **100%** of the **royalty interest** will revert to the company[77](index=77&type=chunk) - The company retains a separate, lower **royalty interest** on **ONPATTRO™** from **Acuitas Therapeutics**, which was not part of the sale to **OMERS**[78](index=78&type=chunk) [ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS](index=22&type=section&id=ITEM%202.%20MANAGEMENT'S%20DISCUSSION%20AND%20ANALYSIS%20OF%20FINANCIAL%20CONDITION%20AND%20RESULTS%20OF%20OPERATIONS) This section provides management's analysis of the company's financial condition, results of operations, strategy, product pipeline, and liquidity [CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS](index=22&type=section&id=CAUTIONARY%20NOTE%20REGARDING%20FORWARD-LOOKING%20STATEMENTS) This note advises readers that the report contains forward-looking statements subject to risks and uncertainties - The report contains forward-looking statements regarding strategy, future operations, clinical trials, regulatory approvals, financing, and product development[80](index=80&type=chunk) - These statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially[82](index=82&type=chunk) - The company disclaims any obligation to update forward-looking statements, advising readers to consult further SEC disclosures[83](index=83&type=chunk) [OVERVIEW](index=24&type=section&id=OVERVIEW) This section provides an overview of Arbutus Biopharma's mission to cure chronic HBV and its diverse product pipeline - **Arbutus Biopharma Corporation** is dedicated to discovering, developing, and commercializing a cure for chronic **hepatitis B infection (HBV)**, a global unmet medical need affecting approximately **257 million** people[85](index=85&type=chunk) - The company is developing a diverse product pipeline of drug candidates with complementary mechanisms of action to achieve higher cure rates with finite treatment durations[86](index=86&type=chunk) - Additional assets, including **royalty entitlement** on **ONPATTRO™** and a **40% equity interest** in **Genevant**, are expected to provide significant non-dilutive capital[87](index=87&type=chunk) [Strategy](index=24&type=section&id=Strategy) This section outlines the company's strategic objectives for developing HBV therapeutics, including clinical progression and combination therapies - The company's objective is to develop a cure for chronic **HBV** by developing proprietary therapeutic agents targeting **HBV viral lifecycle** elements and the host immune system[88](index=88&type=chunk) - Key focus areas include progressing clinical and **pre-clinical** candidates through **Phase 1** and **Phase 2** trials, identifying effective combination regimens for **Phase 3**, obtaining regulatory approval, and commercialization[89](index=89&type=chunk) - Results from current **Phase 1a/1b clinical trials** and **pre-clinical** studies will inform the adaptive design of future combination therapy trials[90](index=90&type=chunk) [HBV Product Pipeline](index=25&type=section&id=HBV%20Product%20Pipeline) The company's **HBV product pipeline** includes multiple drug candidates like **AB-506**, **AB-729**, and **AB-452**, targeting viral lifecycle steps for combination therapies [Agents for Combination Therapy](index=25&type=section&id=Agents%20for%20Combination%20Therapy) This section discusses the rationale for combination therapies in HBV treatment and the company's approach - Current **HBV** treatments (**Peg-IFNα** and **NAs**) have low cure rates (**<5%**), highlighting the need for combination therapies[93](index=93&type=chunk) - The company believes its **RNAi agent**, **AB-729**, could be combined with its **capsid inhibitor**, **AB-506**, and approved **NAs** for a first combination therapy[95](index=95&type=chunk) - Combination clinical trials with **AB-506**, **AB-729**, and an approved **NA** are anticipated to begin in the second half of 2020[95](index=95&type=chunk) [HBV Suppression (Capsid Inhibitors: AB-506 & AB-423)](index=25&type=section&id=HBV%20Suppression%20(Capsid%20Inhibitors%3A%20AB-506%20%26%20AB-423)) This section details the development and preliminary clinical results of **capsid inhibitors** **AB-506** and **AB-423** for **HBV suppression** - **AB-506**, an orally administered **capsid inhibitor**, is in a **Phase 1a/1b clinical trial**, showing improved potency and pharmacokinetics over first-generation **AB-423** in **pre-clinical** studies[99](index=99&type=chunk)[100](index=100&type=chunk) - Preliminary **Phase 1a/1b** results for **AB-506** monotherapy indicated potent **HBV DNA** and **RNA decreases** (**2.0-2.8 log** and **2.4 log**, respectively) at Day 28 in **CHB** subjects[101](index=101&type=chunk)[102](index=102&type=chunk) - Four **CHB** subjects experienced **Grade 4 ALT flares**, with one showing notable declines in **HBsAg** and **HBeAg**, suggesting an immune-mediated response[102](index=102&type=chunk) [HBsAg Reduction (RNAi Agents: AB-729)](index=27&type=section&id=HBsAg%20Reduction%20(RNAi%20Agents%3A%20AB-729)) This section describes **AB-729**, a second-generation **RNAi therapeutic** designed to reduce **HBsAg expression** - **AB-729** is a second-generation **GalNAc RNAi therapeutic** designed to reduce **HBsAg expression**, inhibit viral replication, and suppress all viral antigens, with anticipated monthly subcutaneous dosing[107](index=107&type=chunk) - **Pre-clinical** data showed robust **HBsAg knockdown** and more durable in vivo activity compared to earlier-generation **siRNA agents**[108](index=108&type=chunk) - The healthy subject portion of a **Phase 1a/1b clinical trial** for **AB-729** was initiated in July 2019, with preliminary safety and efficacy data expected in Q1 2020[109](index=109&type=chunk) [HBV RNA Destabilizer (AB-452)](index=27&type=section&id=HBV%20RNA%20Destabilizer%20(AB-452)) This section discusses **AB-452**, an **HBV RNA destabilizer**, its **pre-clinical** findings, and safety study status - **AB-452**, an orally administered **HBV RNA destabilizer**, has shown novel activity in **pre-clinical** studies by destabilizing **HBV RNA**, leading to **RNA degradation** and **HBsAg reduction**[111](index=111&type=chunk) - Nonclinical safety findings in October 2018 led to pausing clinical entry for **AB-452**; a repeat **90-day preclinical safety study** in two species is underway, with a go/no-go decision expected in early 2020[113](index=113&type=chunk)[115](index=115&type=chunk) - The company is also advancing back-up compounds with distinct chemical scaffolds into lead optimization[115](index=115&type=chunk) [Research Programs](index=28&type=section&id=Research%20Programs) This section outlines ongoing discovery efforts focused on **checkpoint inhibition** and **cccDNA** targeting for novel **HBV** therapies - Ongoing discovery efforts focus on **checkpoint inhibition** and **cccDNA** targeting to identify novel, orally administered small molecule drug candidates[116](index=116&type=chunk) - These programs aim to complement the existing pipeline and form an effective combination therapy for **HBV** treatment[116](index=116&type=chunk) [Strategic Alliances and Licensing Agreements](index=28&type=section&id=Strategic%20Alliances%20and%20Licensing%20Agreements) The company leverages strategic alliances and licensing agreements, including **ONPATTRO™ royalties** and an **equity stake** in **Genevant Sciences**, to **fund its HBV pipeline** [ONPATTRO® (Patisiran/ALN-TTR02)](index=28&type=section&id=ONPATTRO%C2%AE%20(Patisiran%2FALN-TTR02)) This section details the company's **royalty entitlement** from **Alnylam's ONPATTRO™** and its partial sale to **OMERS** - The company is entitled to tiered low to mid single-digit **royalty payments** on global net sales of **Alnylam's ONPATTRO™**, which utilizes its **LNP technology**[117](index=117&type=chunk)[119](index=119&type=chunk) - In July 2019, a portion of this **royalty interest** was sold to **OMERS** for **$20 million** **gross proceeds**, with the entitlement reverting to the company after **OMERS** receives **$30 million**[118](index=118&type=chunk)[119](index=119&type=chunk) - A second, lower **royalty interest** on **ONPATTRO™** from **Acuitas Therapeutics** was retained by the company[120](index=120&type=chunk) [Genevant Sciences](index=28&type=section&id=Genevant%20Sciences) This section describes **Genevant Sciences**, a joint venture with **Roivant** focused on **RNA-based therapeutics** outside **HBV** - **Genevant**, launched in April 2018 with **Roivant Sciences**, focuses on **RNA-based therapeutics** using the company's **LNP** and ligand conjugate delivery technologies for non-HBV applications[121](index=121&type=chunk) - **Roivant** contributed **$37.5 million** in seed capital to **Genevant**, and the company retains all rights to its Delivery Platforms for **HBV**[122](index=122&type=chunk) - As of June 30, 2019, the company held an approximate **40% equity interest** in **Genevant**[122](index=122&type=chunk) [CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES](index=29&type=section&id=CRITICAL%20ACCOUNTING%20POLICIES%20AND%20SIGNIFICANT%20JUDGEMENTS%20AND%20ESTIMATES) This section highlights the critical accounting policies and significant judgments used in financial statement preparation - The preparation of financial statements requires estimates and assumptions affecting reported amounts of assets, liabilities, revenues, and expenses[124](index=124&type=chunk) - No significant changes in critical accounting policies and estimates were reported from the Annual Report on Form 10-K for the year ended December 31, 2018[124](index=124&type=chunk) [RECENT ACCOUNTING PRONOUNCEMENTS](index=29&type=section&id=RECENT%20ACCOUNTING%20PRONOUNCEMENTS) This section discusses the impact of recently issued accounting standards on the company's financial reporting - The company believes that recently issued accounting standards not yet effective will not have a material impact on its financial position or results of operations upon adoption[125](index=125&type=chunk) - Further details on recent accounting pronouncements are provided in Note 2 to the condensed consolidated financial statements[126](index=126&type=chunk) [RESULTS OF OPERATIONS](index=29&type=section&id=RESULTS%20OF%20OPERATIONS) The company experienced **decreased revenue**, lower **R&D** and **site consolidation costs**, **increased G&A expenses** due to executive departure, and reported a **net loss** [Revenue](index=29&type=section&id=Revenue) This section analyzes the company's **revenue** performance for the reported periods, highlighting key drivers | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total revenue | $653 | $1,244 | $1,332 | $2,680 | - **Revenue** **decreased** by **$0.6 million** and **$1.3 million** for the three and six months ended June 30, 2019, respectively, compared to the same periods in 2018[128](index=128&type=chunk) - Current period **revenue** primarily consisted of **royalties** from **Alnylam's ONPATTRO™** and **Spectrum's Marqibo®**, and services to **Gritstone**, while prior year **revenue** included an upfront license fee from **Gritstone**[128](index=128&type=chunk) [Expenses](index=30&type=section&id=Expenses) This section provides a detailed breakdown of the company's operating expenses, including **R&D** and **G&A** | Expense Category (in thousands) | Three months ended June 30, 2019 | % of Total (2019) | Three months ended June 30, 2018 | % of Total (2018) | | :------------------------------ | :------------------------------- | :---------------- | :------------------------------- | :---------------- | | Research and development | $12,740 | 60% | $16,356 | 70% |\ | General and administrative | $8,189 | 39% | $3,775 | 16% |\ | Depreciation and amortization | $505 | 2% | $578 | 2% |\ | Site consolidation | $(266) | (1)% | $2,581 | 11% |\ | Total operating expenses | $21,168 | | $23,290 | | | Expense Category (in thousands) | Six months ended June 30, 2019 | % of Total (2019) | Six months ended June 30, 2018 | % of Total (2018) | | :------------------------------ | :----------------------------- | :---------------- | :----------------------------- | :---------------- | | Research and development | $27,452 | 67% | $30,305 | 70% |\ | General and administrative | $12,601 | 31% | $7,444 | 17% |\ | Depreciation and amortization | $1,014 | 2% | $1,180 | 3% |\ | Site consolidation | $(149) | —% | $4,202 | 10% |\ | Total operating expenses | $40,918 | | $43,131 | | [Research and development](index=30&type=section&id=Research%20and%20development) This section details the changes in **research and development expenses**, attributing them to specific program activities - **Research and development expenses** **decreased** by **$3.6 million** and **$2.9 million** for the three and six months ended June 30, 2019, respectively, compared to 2018[134](index=134&type=chunk) - The **decrease** was primarily due to higher costs in 2018 for **AB-452** manufacturing and **AB-1467 Phase 2 clinical trials**, partially offset by **increased** spending in 2019 for **AB-506 Phase 1a/1b** and **AB-729 pre-clinical** studies[134](index=134&type=chunk) - Current **R&D expenses** included enrollment for **AB-506 Phase 1a/1b**, **IND/CTA** enabling studies for **AB-729**, and in vitro/in vivo studies for **AB-452**[134](index=134&type=chunk) [General and administrative](index=30&type=section&id=General%20and%20administrative) This section explains the **increase** in **general and administrative expenses**, primarily due to executive severance - **General and administrative expenses** **increased** by **$4.4 million** and **$5.2 million** for the three and six months ended June 30, 2019, respectively, compared to 2018[136](index=136&type=chunk) - The **increase** was primarily due to the former President and CEO's departure in June 2019, resulting in **$2.3 million** **cash severance** and **$2.2 million** non-cash **stock-based compensation expense** for accelerated vesting[136](index=136&type=chunk) [Site consolidation](index=31&type=section&id=Site%20consolidation) This section reports on the progress and expenses related to the company's **site consolidation** efforts - **Site consolidation expenses** were substantially completed by June 30, 2018, with total expected expenses of approximately **$4.9 million**, of which **$4.7 million** incurred by June 30, 2019[139](index=139&type=chunk) - For the six months ended June 30, 2019, **site consolidation expenses** were a credit of **$0.1 million**, compared to an expense of **$4.2 million** in the prior year[132](index=132&type=chunk) [Other income (loss)](index=31&type=section&id=Other%20income%20(loss)) This section details other non-operating income and losses, including interest, foreign exchange, and equity investment impacts | Metric (in thousands) | Three months ended June 30, 2019 | Three months ended June 30, 2018 | Six months ended June 30, 2019 | Six months ended June 30, 2018 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Interest income | $606 | $805 | $1,206 | $1,563 | | Foreign exchange gain (loss) | $60 | $(359) | $68 | $(885) | | Gain on investment | — | $24,884 | — | $24,884 | | Equity investment losses | $(3,334) | — | $(7,985) | — | | Decrease (increase) in fair value of contingent consideration | $(130) | $(193) | $(255) | $655 | | Total other income (loss) | $(2,800) | $25,137 | $(6,980) | $26,113 | [LIQUIDITY AND CAPITAL RESOURCES](index=32&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) The company's liquidity is supported by cash, investments, equity sales, and royalty monetization, with current resources funding operations into H2 2020, but additional funding is required [Sources of Liquidity](index=32&type=section&id=Sources%20of%20Liquidity) This section identifies the primary sources of the company's liquidity, including cash, investments, and equity sales - As of June 30, 2019, the company had **$78.9 million** in **cash and cash equivalents** and **$16.4 million** in **short-term investments**, totaling **$95.3 million**[149](index=149&type=chunk) - In H1 2019, the company issued **1,208,090** common shares under an **Open Market Sale Agreement**, generating **$5.2 million** in **gross proceeds**[150](index=150&type=chunk) - The sale of a portion of **ONPATTRO™ royalty interest** to **OMERS** in July 2019 for **$20 million** **gross proceeds** is expected to provide significant non-dilutive capital[151](index=151&type=chunk) [Cash requirements](index=33&type=section&id=Cash%20requirements) This section outlines the company's anticipated cash needs and the factors influencing future funding requirements - The company believes its cash, **cash equivalents**, and **short-term investments** as of June 30, 2019, combined with the **$20 million** from the **OMERS royalty sale**, will **fund operations** into the second half of 2020[153](index=153&type=chunk) - Substantial **additional funds** will be required for continued development of pipeline products and technologies[153](index=153&type=chunk) - Future **funding needs** depend on factors such as business development, **revenue** from partnerships, product candidate development, acquisition decisions, clinical trial delays, and intellectual property costs[154](index=154&type=chunk) [OFF-BALANCE SHEET ARRANGEMENTS](index=34&type=section&id=OFF-BALANCE%20SHEET%20ARRANGEMENTS) This section confirms the absence of material off-balance sheet arrangements impacting the company's financial position - The company does not have any off-balance sheet arrangements that are material to its financial condition, revenues, expenses, results of operations, liquidity, capital expenditures, or capital resources[157](index=157&type=chunk) [ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK](index=34&type=section&id=ITEM%203.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) There have been no material changes in the company's quantitative and qualitative disclosures about market risk since its Annual Report on Form 10-K for the year ended December 31, 2018 - No material changes in market risk disclosures from the Annual Report on Form 10-K for the year ended December 31, 2018[158](index=158&type=chunk) [ITEM 4. CONTROLS AND PROCEDURES](index=34&type=section&id=ITEM%204.%20CONTROLS%20AND%20PROCEDURES) Management concluded that disclosure controls and procedures were effective as of June 30, 2019, with no material changes to internal control [Evaluation of Disclosure Controls and Procedures](index=34&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) This section details the evaluation and conclusion regarding the effectiveness of the company's disclosure controls - Management, including the principal executive and financial officers, concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2019[159](index=159&type=chunk) [Changes in Internal Control over Financial Reporting](index=34&type=section&id=Changes%20in%20Internal%20Control%20over%20Financial%20Reporting) This section reports on any material changes to the company's internal control over financial reporting - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended June 30, 2019[160](index=160&type=chunk) PART II. OTHER INFORMATION This section contains additional information not covered in the financial statements, including legal proceedings, risk factors, and exhibits [ITEM 1. LEGAL PROCEEDINGS](index=35&type=section&id=ITEM%201.%20LEGAL%20PROCEEDINGS) Information regarding legal matters is incorporated by reference from Note 11, 'Contingencies and Commitments,' to the condensed consolidated financial statements - Legal proceedings information is detailed in Note 11, 'Contingencies and Commitments,' of the financial statements[162](index=162&type=chunk) [ITEM 1A. RISK FACTORS](index=35&type=section&id=ITEM%201A.%20RISK%20FACTORS) There have been no material changes in the company's risk factors from those disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - No material changes in risk factors from the Annual Report on Form 10-K for the year ended December 31, 2018[163](index=163&type=chunk) [ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS](index=35&type=section&id=ITEM%202.%20UNREGISTERED%20SALES%20OF%20EQUITY%20SECURITIES%20AND%20USE%20OF%20PROCEEDS) The company reported no unregistered sales of equity securities or use of proceeds during the period - No unregistered sales of equity securities and use of proceeds[163](index=163&type=chunk) [ITEM 3. DEFAULTS UPON SENIOR SECURITIES](index=35&type=section&id=ITEM%203.%20DEFAULTS%20UPON%20SENIOR%20SECURITIES) The company reported no defaults upon senior securities during the period - No defaults upon senior securities[163](index=163&type=chunk) [ITEM 4. MINE SAFETY DISCLOSURES](index=35&type=section&id=ITEM%204.%20MINE%20SAFETY%20DISCLOSURES) Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable[163](index=163&type=chunk) [ITEM 5. OTHER INFORMATION](index=35&type=section&id=ITEM%205.%20OTHER%20INFORMATION) The company reported no other information for the period - No other information to report[163](index=163&type=chunk) [ITEM 6. EXHIBITS](index=36&type=section&id=ITEM%206.%20EXHIBITS) This section lists all exhibits filed with the Quarterly Report on Form 10-Q, including articles of incorporation, governance agreements, and certifications - **Exhibit 3.1**: Notice of Articles and Articles of **Arbutus Biopharma Corporation**, as amended[164](index=164&type=chunk) - **Exhibit 10.6**: Purchase and Sale Agreement, dated July 2, 2019, by and between **Arbutus Biopharma Corporation** and **OCM IP Healthcare Portfolio LP**[170](index=170&type=chunk) - **Exhibit 31.1** and **31.2**: Certifications of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities Exchange Act of 1934[170](index=170&type=chunk)