Arbutus Biopharma(ABUS) - 2023 Q4 - Annual Report

Cover Page - The filing is an Annual Report on Form 10-K for the fiscal year ended December 31, 2023[1] Registrant Information | Metric | Value | | :--- | :--- | | Exact Name of Registrant | Arbutus Biopharma Corporation | | Commission File Number | 001-34949 | | Trading Symbol | ABUS | | Exchange Registered | The Nasdaq Stock Market LLC | | Well-known Seasoned Issuer | No | | Required to File Reports | Yes | | Filed All Reports in Preceding 12 Months | Yes | | Submitted Interactive Data File | Yes | | Filer Status | Non-accelerated filer, Smaller reporting company | - As of June 30, 2023, the aggregate market value of voting and non-voting common equity held by non-affiliates was $288,128,811[4] - As of March 1, 2024, there were 179,492,199 common shares outstanding[4] Cautionary Note Regarding Forward-looking Statements - Forward-looking statements in this Form 10-K cover strategy, future operations, preclinical/clinical trials, regulatory approvals, financing, and patent disputes[14] - The company expects a net cash burn between $63.0 million and $67.0 million in 2024, excluding proceeds from the Open Market Sale Agreement[14] - Arbutus believes it has sufficient cash resources to fund operations into the first quarter of 2026[14] - Forward-looking statements are based on current expectations and assumptions, subject to known and unknown risks, particularly those discussed under 'Item 1A-Risk Factors'[14] Risk Factors Summary - Risks include substantial capital requirements, early development stage, and anticipated future losses without product revenues[20] - Development risks involve expensive, time-consuming, and uncertain clinical trials, potential for undesirable side effects, and difficulties in patient enrollment[20] - Dependence on third parties for licensing, development, and manufacturing poses risks if collaborations are unsuccessful or obligations are not met[21] - Intellectual property risks include potential patent challenges, infringement assertions by other entities, and substantial litigation costs[22] - Risks related to common share ownership include concentration of ownership and challenges in enforcing judgments due to Canadian incorporation[23] PART I Item 1. Business Arbutus Biopharma Corporation is a clinical-stage biopharmaceutical company focused on developing a functional cure for chronic hepatitis B virus (cHBV) infection through a combination of novel therapeutics. Its pipeline includes imdusiran (RNAi therapeutic) and AB-101 (oral PD-L1 inhibitor), both in clinical trials. The company also details its collaborations, royalty entitlements, intellectual property litigation, human capital, ESG initiatives, competition, manufacturing, and government regulations Overview and Strategy Arbutus is a clinical-stage biopharmaceutical company focused on developing a functional cure for chronic hepatitis B virus (cHBV) infection. Its strategy centers on creating a portfolio of HBV-targeting compounds and combining them to suppress HBV DNA, reduce HBsAg, and boost immune responses, aiming for a functional cure defined as undetectable HBV DNA and HBsAg six months post-treatment. Key pipeline assets are imdusiran (RNAi therapeutic) and AB-101 (oral PD-L1 inhibitor), both in clinical development - Arbutus is a clinical-stage biopharmaceutical company focused on developing a functional cure for chronic hepatitis B virus (cHBV) infection[26] - The core strategy involves developing a portfolio of HBV-targeting compounds and combining them to achieve a functional cure by suppressing HBV DNA, reducing HBsAg, and boosting HBV-specific immune responses[27] - Imdusiran (AB-729) is a subcutaneously-delivered RNAi therapeutic in Phase 2a trials, designed to suppress all HBV antigens, including HBsAg[28] - AB-101 is an oral PD-L1 inhibitor in a Phase 1a/1b clinical trial, intended to reawaken HBV-specific immune responses[29] HBV Product Pipeline and Clinical Development Arbutus is advancing its HBV product pipeline, primarily focusing on imdusiran and AB-101. Imdusiran is in two Phase 2a combination trials (with Peg-IFNα-2a and VTP-300, with an additional cohort including nivolumab), showing promising HBsAg reductions and immune activation. A new Phase 2a trial combining imdusiran with durvalumab is planned for H1 2024. AB-101, an oral PD-L1 inhibitor, is in a Phase 1a/1b trial in New Zealand after an FDA clinical hold, with preliminary data expected in H1 2024 - Imdusiran is being evaluated in two Phase 2a combination clinical trials: AB-729-201 (with Peg-IFNα-2a) and AB-729-202 (with VTP-300, including a nivolumab cohort)[31] - Preliminary data from AB-729-201 suggests continued HBsAg declines in some patients, with a mean HBsAg decline of -1.6 log at week 24[39] - Preliminary data from AB-729-202 showed robust HBsAg reductions (-1.86 log mean reduction) and early signs of immune activation with VTP-300[40] - AB-101, an oral PD-L1 inhibitor, is in a Phase 1a/1b clinical trial in New Zealand after an FDA clinical hold, with preliminary data from Part 1 expected in H1 2024[45][46] - A new Phase 2a clinical trial (AB-729-203) combining imdusiran with durvalumab is planned for H1 2024[31][42] Background on HBV and Current Treatments Hepatitis B is a life-threatening liver infection affecting over 290 million people worldwide, leading to cirrhosis and liver cancer, with approximately 820,000 deaths annually. Current treatments like Peg-IFNα and NA therapies reduce viral load but achieve functional cure in less than 5% of patients, necessitating lifelong treatment for most. This highlights a significant unmet medical need and market opportunity for a curative regimen - Over 290 million people worldwide suffer from chronic HBV infection, with approximately 820,000 deaths annually from complications[32] - Current treatments (Peg-IFNα and NA therapies) achieve functional cure in less than 5% of patients, requiring lifelong treatment for most[33] - A compelling market opportunity exists for an HBV curative regimen with a finite duration to increase diagnosis and treatment rates[32] Other Collaborations, Royalty Entitlements and Intellectual Property Litigation Arbutus has collaborations with Qilu Pharmaceutical for imdusiran development and commercialization in China, Hong Kong, Macau, and Taiwan, involving upfront payments, milestones, and royalties. The company also holds royalty entitlements from Alnylam's ONPATTRO sales (partially sold to OMERS, with a second royalty retained) and Genevant Sciences for LNP technology outside HBV. Arbutus is actively involved in patent infringement litigation against Moderna, Pfizer, and BioNTech regarding mRNA-LNP vaccines, and is defending its patents against opposition from Moderna and Merck in Europe - Collaboration with Qilu Pharmaceutical includes a $40 million upfront payment, up to $245 million in milestones, and double-digit royalties for imdusiran in specific Asian territories[47][48] - Arbutus holds two royalty entitlements on Alnylam's ONPATTRO sales: one partially sold to OMERS ($22.7 million collected by OMERS as of Dec 31, 2023) and a second retained royalty from Acuitas[51][52][53] - Arbutus and Genevant filed patent infringement lawsuits against Moderna (MRNA-1273 vaccine) and Pfizer/BioNTech (COVID-19 mRNA-LNP vaccines), seeking damages for use of patented LNP technology[62][63] - The company is defending its European patent EP 2279254 against opposition from Moderna and Merck, with oral proceedings scheduled for June 6, 2024[59] Patents and Proprietary Rights Arbutus's commercial success relies on its ability to obtain and maintain proprietary protection for its product candidates and technologies, including HBV core/capsid protein assembly inhibitors, HBV surface antigen secretion inhibitors, coronavirus main protease inhibitors, LNP inventions, and RNAi drugs. The company owns over 55 patent families, with estimated patent expiration dates for imdusiran and AB-101 in the US and EU in 2038 and 2042, respectively. The company faces risks of patent challenges and litigation - Arbutus owns more than 55 patent families related to its compounds, formulations, and technology[69] Estimated Patent Expiration Dates for Clinical Product Candidates | Product Candidate | Estimated Patent Expiration in US | Estimated Patent Expiration in EU | | :---------------- | :-------------------------------- | :-------------------------------- | | Imdusiran | 2038 | 2038 | | AB-101 | 2042 | 2042 | - Patents might be challenged by inter partes review or opposition proceedings, incurring significant costs and potentially limiting patent protection[68] Human Capital As of December 31, 2023, Arbutus had 73 full-time employees, with 51 in R&D, including many with advanced degrees. The company focuses on professional development, employee satisfaction (evidenced by high survey scores and low turnover), and competitive compensation packages including salary, bonuses, comprehensive benefits, and equity. Arbutus also promotes work-life balance through generous time-off, flexible schedules, and parental leave, earning recognition as a 'Best Place to Work' Employee Composition (as of December 31, 2023) | Category | Count | Details | | :--- | :--- | :--- | | Total Full-time Employees | 73 | | | R&D Employees | 51 | Includes 2 medical doctors, 28 PhDs, 21 Master of Science degrees | | Female Workforce | 50% | 31% of VPs or higher are female | - The company offers a total compensation package including base salary, cash bonuses, comprehensive benefits, and equity compensation to attract and retain top talent[74] - Arbutus prioritizes work-life balance with 25 paid days off, 12 paid holidays, a December shutdown, paid parental leave, and flexible/remote work arrangements[75] Environmental, Social and Governance (ESG) Arbutus, a pre-commercial company, maintains a small environmental footprint by outsourcing manufacturing and waste disposal, while actively evaluating energy use. Socially, it engages in community outreach and fosters a diverse and inclusive workplace with a board-led DEI commitment, anti-discrimination policies, and mandatory unconscious bias training. Governance is upheld through compliance with laws, annual Code of Conduct training, and adherence to clinical trial ethical regulations - Environmental footprint is small due to outsourced manufacturing and waste disposal; energy use is regularly reviewed for efficiency[76][77] - Social initiatives include community outreach, a board-led Diversity, Equity and Inclusion (DEI) commitment, anti-discrimination policies, and mandatory unconscious bias training[78][80] - Governance includes compliance with applicable laws, annual training on Code of Conduct, insider trading, anti-bribery, and adherence to clinical trial ethical regulations (FDA, Declaration of Helsinki, ICH-GCP)[82] Competition Arbutus faces significant competition in the HBV therapeutic market from established global pharmaceutical companies, research-stage firms, academic institutions, and government agencies, many of which possess greater resources and experience. The competitive landscape includes various product candidates (antisense oligonucleotides, capsid inhibitors, RNAi therapeutics, immune modulators, surface antigen inhibitors) in different development stages. Success depends on developing effective products, navigating clinical and regulatory processes, marketing, attracting talent, securing IP, and obtaining sufficient capital - Arbutus faces significant competition from large pharmaceutical companies and research institutions with greater financial, technical, and human resources in the HBV therapeutic market[83][84] - Competitors are developing diverse product candidates for HBV, including antisense oligonucleotides, capsid inhibitors, RNAi therapeutics, immune modulators, and surface antigen inhibitors[85] - Ability to compete depends on developing effective products, successfully completing clinical trials and regulatory approvals, effective marketing, attracting qualified personnel, obtaining patent protection, and securing sufficient capital[87] Manufacturing Arbutus relies entirely on third-party manufacturers for the supply of drug substance and drug products, including imdusiran and AB-101, for its clinical trials and non-clinical studies. The company currently has no plans to establish internal large-scale manufacturing facilities - Arbutus relies exclusively on third-party manufacturers for drug substance and drug products for clinical trials (imdusiran and AB-101)[88] - The company has no current plans to establish any large-scale internal manufacturing facilities[88] Government Regulation Arbutus's product development, manufacturing, and marketing are heavily regulated by governmental authorities in the US (FDA) and other countries, requiring rigorous preclinical, clinical, and post-approval testing. The regulatory process is lengthy, complex, and uncertain, involving IND applications, multi-phase clinical trials (Phase 1, 2, 3), and NDA submissions. Post-approval, products remain subject to extensive oversight, including GMP, sales/marketing restrictions, and evolving healthcare fraud/abuse and privacy laws (e.g., Anti-Kickback Law, False Claims Act, HIPAA, GDPR, CCPA). Cost containment measures and healthcare reforms (e.g., ACA, IRA) also significantly impact market access and reimbursement - Product candidates require rigorous regulatory approval by the FDA and foreign authorities, involving extensive preclinical, clinical, and post-approval testing[89][91] - The clinical development process includes IND applications, Phase 1 (safety), Phase 2 (efficacy, dose range), and Phase 3 (safety, effectiveness, risk-benefit) trials, which are expensive, time-consuming, and uncertain[93][95][96][97] - Post-approval, products are subject to ongoing regulations including GMP, quality control, safety surveillance, advertising, and reporting, with non-compliance leading to enforcement actions[115][116] - The company is subject to complex healthcare fraud and abuse laws (e.g., Anti-Kickback Law, False Claims Act, HIPAA) and data privacy laws (e.g., GDPR, CCPA), with violations carrying significant penalties[120][121][122][128][133] - Healthcare reforms like the Affordable Care Act and Inflation Reduction Act (IRA) introduce cost containment measures, drug price negotiation, and rebate schemes, potentially impacting product pricing and reimbursement[145][149][153] Corporate Information Arbutus Biopharma Corporation was incorporated in British Columbia, Canada, in 2005 as Tekmira Pharmaceuticals Corporation, undergoing several name changes and acquisitions, including Protiva Biotherapeutics Inc. and OnCore Biopharma, Inc. Its principal executive office is in Warminster, Pennsylvania, USA. As of December 31, 2023, it had one wholly-owned subsidiary, Arbutus Biopharma, Inc - Arbutus Biopharma Corporation was incorporated in British Columbia, Canada, on October 6, 2005, as Tekmira Pharmaceuticals Corporation[155] - The corporate name changed from Tekmira Pharmaceuticals Corporation to Arbutus Biopharma Corporation on July 31, 2015[156] - The principal executive office is located at 701 Veterans Circle, Warminster, Pennsylvania, USA[156] Investor Information Arbutus common shares trade on the Nasdaq Global Select Market under the symbol 'ABUS.' The company is a reporting issuer in Canada and provides its SEC filings (10-K, 10-Q, 8-K, proxy statements) free of charge on its investor relations website - Common shares trade on the Nasdaq Global Select Market under the symbol 'ABUS'[157] - The company maintains a website (http://www.arbutusbio.com) where SEC filings are available free of charge[157] Item 1A. Risk Factors This section details substantial risks and uncertainties that could materially and adversely affect Arbutus's business, financial condition, results of operations, or prospects. These risks are categorized into those related to the business, financial results, and capital needs; development, clinical testing, regulatory approval, marketing, and reimbursement of product candidates; dependence on third parties; intellectual property; ownership of common shares; and general risk factors - The company is in early stages of development with limited operating history and no product revenues, requiring substantial additional capital to fund operations[160][161][164] - Clinical trials are expensive, time-consuming, difficult to design, and uncertain in outcome, with potential for delays, termination, or failure to demonstrate safety and efficacy[176][177][179] - Dependence on third parties for licensing, clinical trials, and manufacturing exposes the company to risks if partners fail to meet obligations or if conflicts arise[230][236][239] - Intellectual property risks include potential patent challenges, infringement assertions by other entities, and substantial litigation costs, which could prevent commercialization[242][245] - Cybersecurity threats, including system failures and breaches, could disrupt operations, compromise data, and lead to financial, legal, or reputational harm[261][262] Item 1B. Unresolved Staff Comments As of the reporting date, there are no unresolved staff comments from the SEC - There are currently no unresolved staff comments[267] Item 1C. Cybersecurity Arbutus maintains a robust, risk-based cybersecurity program leveraging NIST framework, including administrative, physical, and technical safeguards, regular audits, and annual penetration tests. Third-party service providers are assessed for security and privacy compliance. An Incident Management and Response program is in place, overseen by the Executive Director of IT and Information Security, who reports to the CFO and Audit Committee. No material cybersecurity incidents were experienced in the last three years - Arbutus maintains a robust cybersecurity program based on the NIST Cybersecurity Risk Assessment Framework, including regular evaluations, internal/external audits, and annual penetration tests[269] - Third-party service providers are assessed for technical capabilities, reputation, financial stability, and compliance with data security and privacy terms[270] - An Incident Management and Response program is in place, overseen by the Executive Director of IT and Information Security, who reports to the CFO and Audit Committee[271][272][273] - No material cybersecurity incidents or threats were experienced in the last three years[275] Item 2. Properties Arbutus's headquarters are located at 701 Veterans Circle, Warminster, Pennsylvania, under a lease agreement expiring April 30, 2027, with options for two five-year extensions. The facility comprises approximately 35,000 square feet of laboratory and office space, which the company believes is sufficient for the foreseeable future - Headquarters located at 701 Veterans Circle, Warminster, Pennsylvania, with approximately 35,000 square feet of laboratory and office space[276] - The lease expires on April 30, 2027, with options for two further five-year terms[276] Item 3. Legal Proceedings Arbutus is involved in several patent infringement litigations. The company and Genevant filed lawsuits against Pfizer/BioNTech and Moderna for infringement of LNP technology patents used in COVID-19 mRNA-LNP vaccines, seeking damages. Moderna and Merck have also filed oppositions to Arbutus's European patent, which is ongoing. Additionally, Acuitas filed a declaratory judgment lawsuit against Arbutus and Genevant concerning patent infringement related to Pfizer/BioNTech's vaccine, which was refiled in New Jersey - Arbutus and Genevant filed a lawsuit against Pfizer Inc. and BioNTech SE in April 2023 for infringement of LNP technology patents used in COVID-19 mRNA-LNP vaccines, with a trial date set for April 21, 2025[277][278] - Arbutus and Genevant filed a lawsuit against Moderna Inc. in February 2022 for infringement of LNP technology patents used in MRNA-1273 COVID-19 vaccine, with a claim construction hearing held on February 8, 2024[279] - Moderna and Merck filed Notices of Opposition to Arbutus's European patent EP 2279254, with oral proceedings presently scheduled for June 6, 2024[283] - Acuitas filed a declaratory judgment lawsuit against Arbutus and Genevant concerning patent infringement related to Pfizer and BioNTech's COVID-19 vaccine, refiling it in the District Court of New Jersey in August 2023[280] Item 4. Mine Safety Disclosures This item is not applicable to Arbutus Biopharma Corporation - This item is not applicable[287] PART II Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Arbutus's common shares trade on the Nasdaq Global Select Market under 'ABUS.' As of March 1, 2024, there were 102 registered holders and 179,492,199 common shares outstanding. The company did not repurchase any equity securities during the year ended December 31, 2023, and no unregistered equity securities were issued during the same period, other than previously disclosed - Common shares trade on the Nasdaq Global Select Market under the symbol 'ABUS'[288] Common Equity Statistics (as of March 1, 2024) | Metric | Value | | :--- | :--- | | Registered Holders | 102 | | Common Shares Issued and Outstanding | 179,492,199 | - The company did not repurchase any of its equity securities during the year ended December 31, 2023[289] Item 6. Reserved This item is reserved and contains no information - This item is reserved[289] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Arbutus's financial condition and results of operations, highlighting its focus on cHBV functional cure development with imdusiran and AB-101. It details collaborations with Qilu, Alnylam, and Genevant, critical accounting policies (contingent consideration, revenue recognition), and a comparative analysis of financial results for 2023 and 2022, including revenue, operating expenses, other income, and liquidity Overview Arbutus Biopharma Corporation is a clinical-stage biopharmaceutical company focused on developing a functional cure for chronic hepatitis B virus (cHBV) infection. Its pipeline includes imdusiran (RNAi therapeutic) in Phase 2a combination trials and AB-101 (oral PD-L1 inhibitor) in a Phase 1a/1b clinical trial, both designed to suppress HBV DNA, reduce HBsAg, and boost immune responses - Arbutus is a clinical-stage biopharmaceutical company developing novel therapeutics with distinct mechanisms of action for a functional cure of cHBV infection[292] - Key pipeline compounds are imdusiran (AB-729), an RNAi therapeutic in Phase 2a combination trials, and AB-101, an oral PD-L1 inhibitor in a Phase 1a/1b clinical trial[292] - The strategy is to position imdusiran as a cornerstone therapeutic in combination with AB-101 or other agents with complementary mechanisms of action[293] Collaborations and Royalty Entitlements Arbutus has a technology transfer and license agreement with Qilu Pharmaceutical for imdusiran in China, Hong Kong, Macau, and Taiwan, involving an upfront payment, potential milestones up to $245 million, and double-digit royalties. The company also holds royalty entitlements from Alnylam's ONPATTRO sales (partially sold to OMERS, with $22.7 million collected by OMERS as of Dec 31, 2023) and a second, lower royalty from Acuitas. Additionally, Arbutus holds a 16% equity stake in Genevant Sciences, from which it may receive a percentage of sublicense revenue or royalties on net sales of sublicensed products - Qilu Pharmaceutical agreement includes a $40 million upfront payment, up to $245 million in milestones, and double-digit royalties for imdusiran in China, Hong Kong, Macau, and Taiwan[297] - Arbutus has two royalty entitlements on Alnylam's ONPATTRO sales: one partially sold to OMERS (reverts after $30M collected, $22.7 million collected by OMERS as of Dec 31, 2023) and a second retained royalty from Acuitas[300][318] - Arbutus owns approximately 16% of Genevant Sciences, with potential to receive a specified percentage of sublicense revenue or low single-digit royalties on net sales of sublicensed products[301] Critical Accounting Policies and Estimates Arbutus's critical accounting policies include contingent consideration and revenue from collaborations and licenses. Contingent consideration, primarily from the Enantigen acquisition, is remeasured at fair value each reporting period, requiring significant judgment on program success probability, future sales timing, and discount rates. Revenue from collaborations and licenses is recognized using a five-step model under ASC 606, involving identification of performance obligations, transaction price determination, allocation, and recognition upon transfer of control, with variable consideration recognized when probable of no significant reversal - Contingent consideration liability (from Enantigen acquisition) is remeasured to fair value each period, requiring estimates for program success probability, future sales timing, and discount rates[304][305] - Revenue from collaborations and licenses is recognized using a five-step model (ASC 606), evaluating distinct performance obligations and allocating transaction price based on stand-alone selling prices[308][309] - Variable consideration, such as milestone payments, is included in the transaction price when it is probable that a significant reversal of cumulative revenue recognized will not occur[310] Results of Operations Arbutus reported a net loss of $72.8 million in 2023, an increase from $69.5 million in 2022. Total revenue decreased by $20.9 million, primarily due to lower license revenue from Qilu and reduced ONPATTRO royalty revenue. Operating expenses decreased by $8.2 million, driven by lower R&D costs (manufacturing, AB-836 program discontinuation) partially offset by increased G&A expenses (legal fees, stock-based compensation). Other income increased significantly due to higher market interest rates Consolidated Statements of Operations (Selected Data, in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | Change (2023 vs 2022) | | :--- | :--- | :--- | :--- | | Revenue | $18,141 | $39,019 | $(20,878) | | Operating Expenses | $96,244 | $104,475 | $(8,231) | | Loss from Operations | $(78,103) | $(65,456) | $(12,647) | | Other Income | $5,254 | $444 | $4,810 | | Net Loss | $(72,849) | $(69,456) | $(3,393) | | Loss per Basic & Diluted Share | $(0.44) | $(0.46) | $0.02 | - Total revenue decreased $20.9 million (53.5%) for the year ended December 31, 2023, compared to 2022, primarily due to a $15.3 million decrease in Qilu license revenue and a $5.5 million decrease in ONPATTRO royalty revenue[317] - Research and development expenses decreased $10.7 million in 2023 compared to 2022, mainly due to lower manufacturing expenses and discontinuation of the AB-836 program, partially offset by increased AB-101 clinical expenses[322] - Interest income increased $3.5 million in 2023 compared to 2022, primarily due to a general increase in market interest rates on marketable securities[327] Liquidity and Capital Resources As of December 31, 2023, Arbutus had $132.3 million in cash, cash equivalents, and marketable securities, with no outstanding debt. The company expects these funds to last into Q1 2026, with a projected net cash burn of $63.0-$67.0 million in 2024. Liquidity is also supported by royalty entitlements from ONPATTRO (partially sold to OMERS, with $22.7 million collected by OMERS as of Dec 31, 2023) and the Qilu licensing agreement ($40 million upfront, $15 million equity investment in 2022). The company continues to raise capital through its Open Market Sale Agreement, issuing $29.9 million in common shares in 2023 Cash, Cash Equivalents, and Marketable Securities (in millions) | Metric | As of Dec 31, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | Cash and Cash Equivalents | $26.3 | $30.8 | | Investments in Marketable Securities | $106.0 | $153.5 | | Total Liquidity | $132.3 | $184.3 | - The company believes its cash resources are sufficient to fund operations into the first quarter of 2026, with an expected net cash burn between $63.0 million and $67.0 million in 2024[338] - Net cash used in operating activities increased by $50.6 million in 2023 compared to 2022, primarily due to the $40.0 million upfront cash payment from Qilu in January 2022 not recurring[342] - During 2023, Arbutus issued 12,020,257 common shares under the Sale Agreement, resulting in net proceeds of approximately $29.9 million[335] Recent Accounting Pronouncements This section refers to Note 2 of the consolidated financial statements for a description of recent accounting pronouncements applicable to the business - Refer to Note 2 of the consolidated financial statements for a description of recent accounting pronouncements applicable to the business[345] Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is not applicable to Arbutus Biopharma Corporation - This item is not applicable[345] Item 8. Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for Arbutus Biopharma Corporation for the years ended December 31, 2023 and 2022, including the Report of Independent Registered Public Accounting Firm (Ernst & Young LLP), Consolidated Balance Sheets, Consolidated Statements of Operations and Comprehensive Loss, Consolidated Statements of Stockholders' Equity, Consolidated Statements of Cash Flows, and accompanying Notes to Consolidated Financial Statements. Key audit matters include the valuation of contingent consideration liability Report of Independent Registered Public Accounting Firm Ernst & Young LLP provided an unqualified opinion on Arbutus Biopharma Corporation's consolidated financial statements for the years ended December 31, 2023 and 2022, affirming fair presentation in all material respects according to U.S. GAAP. The critical audit matter highlighted was the complex and highly judgmental valuation of the contingent consideration liability, which relies on significant assumptions like program success probability, future revenue timing, and discount rates - Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements for the years ended December 31, 2023 and 2022[350] - The critical audit matter is the valuation of the contingent consideration liability ($7.6 million as of Dec 31, 2023), which is complex and highly judgmental due to significant estimation required for program success, future revenue timing, and discount rates[356][357] Consolidated Balance Sheets The consolidated balance sheets show Arbutus's financial position as of December 31, 2023, and 2022. Total assets decreased from $195.4 million in 2022 to $144.4 million in 2023, primarily due to a reduction in investments in marketable securities. Total liabilities decreased from $58.6 million to $38.4 million, while total stockholders' equity decreased from $136.9 million to $106.0 million Consolidated Balance Sheet Highlights (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | Change (2023 vs 2022) | | :--- | :--- | :--- | :--- | | Total Current Assets | $132,027 | $151,139 | $(19,112) | | Investments in Marketable Securities, Non-current | $6,284 | $37,363 | $(31,079) | | Total Assets | $144,401 | $195,419 | $(51,018) | | Total Current Liabilities | $22,487 | $32,857 | $(10,370) | | Total Liabilities | $38,383 | $58,567 | $(20,184) | | Total Stockholders' Equity | $106,018 | $136,852 | $(30,834) | - Cash and cash equivalents decreased from $30.8 million in 2022 to $26.3 million in 2023[361] - Investments in marketable securities (current and non-current) significantly decreased from $153.5 million in 2022 to $106.0 million in 2023[361] Consolidated Statements of Operations and Comprehensive Loss The consolidated statements of operations and comprehensive loss show a net loss of $72.8 million for 2023, compared to $69.5 million in 2022. Total revenue decreased from $39.0 million in 2022 to $18.1 million in 2023, while total operating expenses decreased from $104.5 million to $96.2 million. Other income saw a substantial increase from $0.4 million to $5.3 million Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Total Revenue | $18,141 | $39,019 | | Total Operating Expenses | $96,244 | $104,475 | | Loss from Operations | $(78,103) | $(65,456) | | Total Other Income | $5,254 | $444 | | Net Loss | $(72,849) | $(69,456) | | Basic and Diluted Loss per Share | $(0.44) | $(0.46) | | Comprehensive Loss | $(70,782) | $(71,609) | - Net loss increased to $72.8 million in 2023 from $69.5 million in 2022[364] - Revenue from collaborations and licenses decreased from $31.4 million in 2022 to $14.3 million in 2023[364] - Research and development expenses decreased from $84.4 million in 2022 to $73.7 million in 2023[364] Consolidated Statements of Stockholders' Equity The consolidated statements of stockholders' equity detail changes for the years ended December 31, 2023, and 2022. Total stockholders' equity decreased from $136.9 million in 2022 to $106.0 million in 2023. Key movements include stock-based compensation, issuance of common shares from sales agreements and exercises, unrealized gains/losses on available-for-sale securities, and net loss Consolidated Stockholders' Equity Highlights (in thousands) | Metric | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Stockholders' Equity | $106,018 | $136,852 | | Common Shares (Number) | 169,867,414 | 157,455,363 | | Common Share Capital | $1,349,821 | $1,318,737 | | Additional Paid-in Capital | $81,270 | $72,406 | | Deficit | $(1,276,652) | $(1,203,803) | | Accumulated Other Comprehensive Loss | $(48,421) | $(50,488) | - Total stockholders' equity decreased by $30.8 million from 2022 to 2023[367] - Stock-based compensation expense was $9.3 million in 2023, up from $7.2 million in 2022[367] - Issuance of common shares pursuant to the Open Market Sales Agreement generated $29.9 million in 2023[367] Consolidated Statements of Cash Flows The consolidated statements of cash flows show a decrease in cash and cash equivalents of $4.5 million in 2023, significantly less than the $78.5 million decrease in 2022. Net cash used in operating activities increased to $85.9 million in 2023 from $35.4 million in 2022, primarily due to the absence of the $40 million upfront payment from Qilu received in 2022. Net cash provided by investing activities was $50.8 million in 2023, a reversal from $74.9 million used in 2022, mainly due to timing of marketable securities transactions. Net cash provided by financing activities decreased slightly to $30.6 million in 2023 Consolidated Cash Flow Activities (in thousands) | Metric | Year Ended Dec 31, 2023 | Year Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | $(85,936) | $(35,356) | | Net Cash Provided by/(Used in) Investing Activities | $50,773 | $(74,942) | | Net Cash Provided by Financing Activities | $30,647 | $31,814 | | Decrease in Cash and Cash Equivalents | $(4,491) | $(78,506) | | Cash and Cash Equivalents, End of Period | $26,285 | $30,776 | - Net cash used in operating activities increased by $50.6 million in 2023 compared to 2022, primarily due to the $40.0 million upfront cash payment from Qilu in January 2022 not recurring[342] - Net cash provided by investing activities in 2023 was $50.8 million, a significant shift from net cash used of $74.9 million in 2022, primarily due to the timing of acquisitions and maturities of investments in marketable securities[343] - Net cash provided by financing activities in 2023 was $30.6 million, primarily from $29.9 million of proceeds from sales of common shares under the Sale Agreement[343] Notes to Consolidated Financial Statements The notes provide detailed information on Arbutus's financial statements, including its organization, business description, liquidity, and significant accounting policies such as basis of presentation, use of estimates, cash and investments, foreign currency, investment in Genevant, property and equipment, revenue recognition, leases, R&D costs, net loss per share, deferred income taxes, and stock-based compensation. It also covers fair value measurements, contingent consideration, collaborations (Qilu, Assembly, Barinthus), royalty entitlements (Alnylam, Acuitas, Gritstone), shareholders' equity, and income taxes - Arbutus is a clinical-stage biopharmaceutical company focused on cHBV, with imdusiran and AB-101 in development[373] - As of December 31, 2023, the company had $132.3 million in cash, cash equivalents, and marketable securities, believing it sufficient to fund operations for at least the next 12 months[374] - Contingent consideration liability was $7.6 million as of December 31, 2023, with an increase of $0.1 million in 2023[403][408] - Total stock-based compensation expense was $9.3 million in 2023, with $10.6 million of unrecognized expense for stock options and $1.9 million for restricted stock units[478] - As of December 31, 2023, the company had $7.1 million in Canadian federal investment tax credits, $2.0 million in provincial ITCs, and $7.3 million in U.S. federal R&D credits[481] - Net operating losses include $61.9 million (indefinite carry-forward in Canada), $148.1 million (expiring 2035-2038 in Canada), and $230.2 million (indefinite carry-forward in US)[482][483] Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in or disagreements with accountants on accounting and financial disclosure - There have been no changes in and disagreements with accountants on accounting and financial disclosure[489] Item 9A. Controls and Procedures Management, including the CEO and CFO, concluded that Arbutus's disclosure controls and procedures were effective as of December 31, 2023, providing reasonable assurance for timely and accurate reporting. Management also affirmed the effectiveness of internal control over financial reporting based on the COSO 2013 framework. No material changes in internal control over financial reporting occurred during Q4 2023 - Disclosure controls and procedures were effective as of December 31, 2023, providing reasonable assurance for timely and accurate reporting[490] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO 2013 framework[492][494] - No material changes in internal control over financial reporting occurred during the quarter ended December 31, 2023[495] Item 9B. Other Information During the three months ended December 31, 2023, none of the company's directors or officers adopted, modified, or terminated a 'Rule 10b5-1 trading arrangement' or a 'non-Rule 10b5-1 trading arrangement' - No Rule 10b5-1 or non-Rule 10b5-1 trading arrangements were adopted, modified, or terminated by directors or officers in Q4 2023[496] Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable - This item is not applicable[496] PART III Item 10. Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement. The company has a Code of Business Conduct available on its website - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2024 Annual Meeting of Shareholders[498] - The company has adopted a Code of Business Conduct for directors, officers, and employees, available on its website[498] Item 11. Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2024 Annual Meeting of Shareholders[499] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership of certain beneficial owners and management and related stockholder matters is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2024 Annual Meeting of Shareholders[499] Item 13. Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships and related transactions, and director independence is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2024 Annual Meeting of Shareholders[500] Item 14. Principal Accountant Fees and Services Information regarding principal accountant fees and services is incorporated by reference from the company's 2024 Annual Meeting of Stockholders Proxy Statement - Information required by this item is incorporated by reference to the company's Proxy Statement for the 2024 Annual Meeting of Shareholders[501] PART IV Item 15. Exhibits and Financial Statement Schedules This section lists all exhibits and financial statement schedules filed as part of the 10-K report, including agreements, articles, plans, and certifications. It also notes that financial statements are indexed under Item 8 and there are no financial statement schedules - The section provides a comprehensive list of exhibits, including various agreements, articles, plans, and certifications[504][505][506][507] - Financial statements are referenced under Item 8 of Part II[508] - No financial statement schedules are included[508] Item 16. Form 10-K Summary This item indicates that no Form 10-K Summary is provided - No Form 10-K Summary is provided[508] Signatures - The report was signed on behalf of Arbutus Biopharma Corporation by Michael J. McElhaugh, Interim President and Chief Executive Officer, and other directors and officers on March 5, 2024[510][511][512]