Arbutus Biopharma(ABUS) - 2019 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (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 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 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) 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 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][11] Condensed Consolidated Statements of Cash Flows 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] Notes to Condensed Consolidated Financial Statements 1. Nature of business and future operations - Arbutus Biopharma Corporation is a biopharmaceutical company focused on discovering, developing, and commercializing a cure for chronic hepatitis B infection (HBV)[15] - 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] - Success is contingent on regulatory approvals and adequate financing for research, development, and commercialization[16] 2. Significant accounting policies - 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] - 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] - 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] 3. Fair value of financial instruments - The Company measures certain financial instruments at fair value using a three-level hierarchy, prioritizing observable inputs[34][35] 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][38] 4. Equity method investment - 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] - Arbutus holds approximately 40% equity interest in Genevant and accounts for it using the equity method[43] 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 - 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] - 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] 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 - 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] - 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] 7. Accounts payable and accrued liabilities 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] 8. Site consolidation - 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] - Total estimated site consolidation expenses are approximately $5.0 million, with $4.8 million incurred as of September 30, 2019[54] 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 - 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][59] - OMERS will retain this entitlement until it receives $30 million in royalties, after which 100% of the royalty interest will revert to Arbutus[59] 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 - 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] - 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] - 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] 11. Collaborations, contracts and licensing agreements - 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] - 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] 12. Stockholders' equity and stock-based compensation - 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] - 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] 13. Related Party Transactions - 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] - 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] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 - 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][85] - 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] 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] - 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] - 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] 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] - 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] Our HBV product pipeline Agents for Combination Therapy - 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][98] - 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][99] HBsAg Reduction (RNAi Agents) - 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][101] GalNAc RNAi (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] - 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] - 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] HBV Suppression (Capsid Inhibitors (AB-506 & AB-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] - 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][111] - 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][140] HBV RNA Destabilizer (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] - 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] Research Programs - 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] Strategic Alliances and Licensing Agreements ONPATTRO® (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] - 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] - Arbutus also retains a second, lower royalty interest on ONPATTRO™ sales from a settlement agreement with Acuitas Therapeutics[118] Genevant Sciences - 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] - 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] CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGEMENTS AND ESTIMATES - The preparation of financial statements requires management to make estimates and assumptions affecting reported amounts, based on historical experience and reasonable factors[121] - No significant changes in critical accounting policies and estimates were reported compared to the 2018 Annual Report on Form 10-K[121] RECENT ACCOUNTING PRONOUNCEMENTS - 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] RESULTS OF OPERATIONS 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 - 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] - Q3 2019 revenue primarily included a $1.5 million development milestone from Gritstone, ONPATTRO™ royalties, and Marqibo® milestones/royalties[127] - Nine months ended September 30, 2019, revenue included $1.0 million of non-cash revenue for ONPATTRO™ royalty payments remitted to OMERS[128] 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 - 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][135] - 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][136] - The Company discontinued further development of AB-506 in October 2019 due to observed cases of acute hepatitis[135] General and administrative - 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] - 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] Site consolidation - 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] Impairment of intangible assets and goodwill - 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] - 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] 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] Other income (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 - 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] Interest expense - Interest expense in 2019 primarily consisted of non-cash amortization of the liability related to the sale of future ONPATTRO™ royalties to OMERS[146] Foreign exchange gains (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] Gain on investment and equity investment losses - In Q2 2018, the Company recognized a non-cash gain of $24.9 million from the formation of Genevant[148] - 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] Change in fair value of contingent consideration - 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] LIQUIDITY AND CAPITAL RESOURCES 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 - As of September 30, 2019, the Company had $90.1 million in cash and cash equivalents and no outstanding debt[155] - 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] - Additional liquidity sources include royalty entitlement on ONPATTRO™ (partially monetized to OMERS) and a 40% equity ownership in Genevant[156][158] Cash requirements - 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] - 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] - 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] OFF-BALANCE SHEET ARRANGEMENTS - 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] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 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] ITEM 4. CONTROLS AND PROCEDURES 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] - No material changes in internal control over financial reporting occurred during the three months ended September 30, 2019[165] PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS 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] ITEM 1A. RISK FACTORS 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] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 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] ITEM 3. DEFAULTS UPON SENIOR SECURITIES The Company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[168] ITEM 4. MINE SAFETY DISCLOSURES This item is not applicable to the Company - Mine safety disclosures are not applicable to the Company[168] ITEM 5. OTHER INFORMATION The Company reported no other information for this period - No other information was reported[168] ITEM 6. EXHIBITS 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] - XBRL formatted financial statements (Balance Sheets, Statements of Operations, Comprehensive Loss, Stockholders' Equity, Cash Flows, and Notes) are also included as Exhibit 101[169]