Washington, D.C. 20549
For the quarterly period ended September 30, 2020
For the Transition Period from           to          
Commission File Number: 001-34949
(Exact Name of Registrant as Specified in Its Charter)
British Columbia, Canada98-0597776
(State or Other Jurisdiction of(I.R.S. Employer
Incorporation or Organization)Identification No.)
701 Veterans Circle, Warminster, PA 18974
(Address of Principal Executive Offices and Zip Code)
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Shares, without par valueABUS       The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒       No ☐   
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒       No  ☐  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer Accelerated filerNon-accelerated filer Smaller reporting companyEmerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes       No ☒
As of November 5, 2020, the registrant had 84,909,258 common shares, without par value, outstanding.

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Condensed Consolidated Balance Sheets
(In thousands of U.S. Dollars, except share and per share amounts)
September 30, 2020December 31, 2019
Current assets:
Cash and cash equivalents$96,918 $31,799 
Investments in marketable securities, current21,378 59,035 
Accounts receivable1,075 1,204 
Prepaid expenses and other current assets1,871 1,790 
Total current assets121,242 93,828 
Property and equipment, net of accumulated depreciation of $7,133 (December 31, 2019: $5,642)
7,262 8,676 
Right of use asset2,491 2,738 
Other non-current assets109 293 
Total assets$131,104 $105,535 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities$6,913 $7,235 
Liability-classified options317 253 
Lease liability, current378 340 
Total current liabilities7,608 7,828 
Liability related to sale of future royalties20,117 18,992 
Contingent consideration3,301 2,953 
Lease liability, non-current2,733 3,018 
Total liabilities33,759 32,791 
Stockholders’ equity  
Preferred shares
Authorized: unlimited number without par value
Issued and outstanding: 1,164,000 (December 31, 2019: 1,164,000)
146,285 137,285 
Common shares
Authorized: unlimited number without par value
Issued and outstanding: 84,618,575 (December 31, 2019: 64,780,314)
965,369 898,535 
Additional paid-in capital59,614 55,246 
Accumulated other comprehensive loss(48,127)(48,229)
Total stockholdersequity
97,345 72,744 
Total liabilities and stockholders’ equity$131,104 $105,535 

See accompanying notes to the condensed consolidated financial statements.

Condensed Consolidated Statements of Operations and Comprehensive Loss
(In thousands of U.S. Dollars, except share and per share amounts)
Three Months Ended September 30,Nine Months Ended September 30,
Collaborations and licenses$827 $2,600 $2,487 $3,414 
Non-cash royalty revenue696 461 2,041 $979 
Total Revenue1,523 3,061 4,528 4,393 
Operating expenses  
Research and development12,065 17,731 32,946 45,183 
General and administrative4,065 3,249 11,184 15,850 
Depreciation and amortization490 507 1,491 1,521 
Change in fair value of contingent consideration120 (376)348 (121)
Site consolidation 182 64 33 
Impairment of intangible assets 43,836  43,836 
Impairment of goodwill 22,471  22,471 
Arbitration 6,486  6,486 
Total operating expenses16,740 94,086 46,033 135,259 
Loss from operations(15,217)(91,025)(41,505)(130,866)
Other income (loss)
Interest income100 503 645 1,709 
Interest expense(1,074)(1,100)(3,214)(1,114)
Foreign exchange gain (loss)(19)(25)(84)43 
Equity investment loss(2,545)(3,512)(2,545)(11,497)
Total other loss(3,538)(4,134)(5,198)(10,859)
Loss before income taxes(18,755)(95,159)(46,703)(141,725)
Income tax benefit 12,656  12,656 
Net loss(18,755)(82,503)(46,703)(129,069)
Items applicable to preferred shares:
Dividend accretion of convertible preferred shares(3,027)(2,792)(9,000)(8,269)
Net loss attributable to common shares$(21,782)$(85,295)$(55,703)$(137,338)
Loss per share  
Basic and diluted$(0.27)$(1.50)$(0.77)$(2.43)
Weighted average number of common shares  
Basic and diluted79,487,444 56,850,172 72,342,070 56,469,358 
Comprehensive income (loss)
Unrealized gain on available-for-sale securities$(72)$ $58 $ 
Currency translation adjustments44 27 44 (47)
Comprehensive loss$(18,783)$(82,476)$(46,601)$(129,116)
See accompanying notes to the condensed consolidated financial statements.

Condensed Consolidated Statement of Stockholders’ Equity
(In thousands of U.S. Dollars, except share and per share amounts)
Convertible Preferred SharesCommon Shares
 Number of SharesShare CapitalNumber of SharesShare CapitalAdditional Paid-In CapitalDeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance December 31, 20191,164,000 $137,285 64,780,314 $898,535 $55,246 $(970,093)$(48,229)$72,744 
Accretion of accumulated dividends on Preferred Shares— 2,978 — — — (2,978)—  
Stock-based compensation— — — — 1,460 — — 1,460 
Certain fair value adjustments to liability stock option awards— — — — 180 — — 180 
Issuance of common shares pursuant to the Open Market Sales Agreement— — 4,147,081 12,315 — — — 12,315 
Issuance of common shares pursuant to exercise of options— — 34,000 249 (83)— — 166 
Unrealized gain on available-for-sale securities— — — — — — 252 252 
Net loss— — — — — (13,861)— (13,861)
Balance March 31, 20201,164,000 $140,263 68,961,395 $911,099 $56,803 $(986,932)$(47,977)$73,256 
Accretion of accumulated dividends on Preferred Shares— 2,995 — — — (2,995)—  
Stock-based compensation— — — — 1,597 — — 1,597 
Certain fair value adjustments to liability stock option awards— — — — (92)— — (92)
Issuance of common shares pursuant to the Open Market Sales Agreement— — 2,291,184 5,045 — — — 5,045 
Issuance of common shares pursuant to exercise of options— — 4,000 (78)(8)— — (86)
Unrealized gain on available-for-sale securities— — — — — — (122)(122)
Net loss— — — — — (14,087)— (14,087)
Balance June 30, 20201,164,000 $143,258 71,256,579 $916,066 $58,300 $(1,004,014)$(48,099)$65,511 
Accretion of accumulated dividends on Preferred Shares— 3,027 — — — (3,027)—  
Stock-based compensation— — — — 1,658 — — 1,658 
Certain fair value adjustments to liability stock option awards— — — — (137)— — (137)
Issuance of common shares pursuant to the Open Market Sales Agreement— — 13,258,096 48,760 — — — 48,760 
Issuance of common shares pursuant to exercise of options— — 103,900 543 (207)— — 336 
Unrealized gain on available-for-sale securities— — — — — — (72)(72)
Currency translation adjustments— — — — — — 44 44 
Net loss— — — — — (18,755)— (18,755)
Balance September 30, 20201,164,000 $146,285 84,618,575 $965,369 $59,614 $(1,025,796)$(48,127)$97,345 

See accompanying notes to the condensed consolidated financial statements.


Condensed Consolidated Statement of Stockholders’ Equity
(In thousands of U.S. Dollars, except share and per share amounts)
Convertible Preferred SharesCommon Shares
 Number of SharesShare CapitalNumber of SharesShare CapitalAdditional Paid-In CapitalDeficitAccumulated Other Comprehensive LossTotal Stockholders' Equity
Balance December 31, 20181,164,000 126,136 55,518,800 $879,405 $48,084 $(805,221)$(48,170)$200,234 
Accretion of accumulated dividends on Preferred Shares— 2,715 — — — (2,715)—  
Stock-based compensation— — — — 1,665 — — 1,665 
Certain fair value adjustments to liability stock option awards— — — — 47 — — 47 
Issuance of common shares pursuant to the Open Market Sales Agreement— — 614,401 2,248 — — — 2,248 
Issuance of common shares pursuant to exercise of options— — 122,603 490 (202)— — 288 
Currency translation adjustment— — — — — — (22)(22)
Net loss— — — — — (23,251)— (23,251)
Balance March 31, 20191,164,000 $128,851 56,255,804 $882,143 $49,594 $(831,187)$(48,192)$181,209 
Accretion of accumulated dividends on Preferred Shares— 2,762 — — — (2,762)—  
Stock-based compensation— — — — 3,915 — — 3,915 
Certain fair value adjustments to liability stock option awards— — — — 230 — — 230 
Issuance of common shares pursuant to the Open Market Sales Agreement— — 593,689 2,477 — — — 2,477 
Issuance of common shares pursuant to exercise of options— — 679 3 (1)— — 2 
Currency translation adjustment— — — — — — (52)(52)
Net loss— — — — — (23,315)— (23,315)
Balance June 30, 20191,164,000 $131,613 56,850,172 $884,623 $53,738 $(857,264)$(48,244)$164,466 
Accretion of accumulated dividends on Preferred Shares— 2,792 — — — (2,792)—  
Stock-based compensation— — — — 1,592 — — 1,592 
Certain fair value adjustments to liability stock option awards— — — — 55 — — 55 
Currency translation adjustment— — — — — — 27 27 
Net loss— — — — — (82,503)— (82,503)
Balance September 30, 20191,164,000 $134,405 56,850,172 $884,623 $55,385 $(942,559)$(48,217)$83,637 

See accompanying notes to the condensed consolidated financial statements.

Condensed Consolidated Statements of Cash Flow
(In thousands of U.S. Dollars)
 Nine Months Ended September 30,
Net loss$(46,703)$(129,069)
Non-cash items:
Deferred income tax benefit (12,661) 1
Depreciation1,491 1,521 
Gain on sale of property and equipment (11)
Stock-based compensation expense4,730 6,822 
Unrealized foreign exchange losses (gains)56 (71)
Change in fair value of contingent consideration348 (121)
Impairment of intangible assets 43,836 
Impairment of goodwill 22,471 
Net equity investment loss2,544 11,497 
Non-cash royalty revenue(2,041)(979)
Non-cash interest expense3,166 1,106 
Net accretion and amortization of investments in marketable securities71  
Net change in operating items:
Accounts receivable129 (1,057)
Prepaid expenses and other assets350 1,839 
Accounts payable and accrued liabilities(147)(1,320)
Restructuring accrual(137)(917)
Other liabilities(285)(541)
Net cash used in operating activities(36,428)(57,655)
Purchase of investments(28,904) 
Disposition of investments66,548 87,675 
Investment in Genevant(2,500) 
Proceeds from sale of property and equipment 11 
Acquisition of property and equipment(77)(526)
Net cash provided by investing activities35,067 87,160 
Proceeds from sale of future royalties, net 18,549 
Issuance of common shares pursuant to the Open Market Sale agreement66,120 4,725 
Issuance of common shares pursuant to exercise of options416 290 
Net cash provided by financing activities66,536 23,564 
Effect of foreign exchange rate changes on cash and cash equivalents(56)71 
Increase in cash and cash equivalents65,119 53,140 
Cash and cash equivalents, beginning of period31,799 36,942 
Cash and cash equivalents, end of period$96,918 $90,082 
Supplemental cash flow information
Preferred shares dividends accrued(9,000)(5,477)
See accompanying notes to the condensed consolidated financial statements.


Notes to Condensed Consolidated Financial Statements
(Tabular amounts in thousands of U.S. Dollars, except share and per share amounts) 

1.      Nature of business and future operations

Arbutus Biopharma Corporation (the “Company” or “Arbutus”) is a clinical-stage biopharmaceutical company primarily focused on developing a cure for people with chronic hepatitis B virus (“HBV”) infection. The Company is advancing multiple drug product candidates that may be combined into a potentially curative regimen for chronic HBV infection. Arbutus has also initiated a drug discovery and development effort for treating coronaviruses, including COVID-19.

The Company’s pipeline includes:

AB-729, a subcutaneously-delivered RNA interference (“RNAi”) product candidate currently in a Phase 1a/1b clinical trial. Preliminary positive safety data in single-dose cohorts of healthy subjects and safety and efficacy data in the 60 mg and 180 mg single-dose cohorts in subjects with chronic HBV infection were reported in March 2020 and additional follow-on week 12 data for the 60 mg single-dose cohort were reported in May 2020. Week 12 data for the 90 mg single-dose cohort were reported in September 2020. The Company is dosing two 60 mg multi-dose cohorts of subjects with chronic HBV infection with dosing intervals of every four and eight weeks, respectively. Results from the 60 mg multi-dose cohort with a dosing interval of every four weeks and additional follow-up data on the 60 mg and 90 mg single-dose cohorts are expected to be disclosed as part of an oral presentation at the upcoming American Association for the Study of Liver Disease Conference (“AASLD”) in November. Separately, results from the 60 mg multi-dose cohort with a dosing interval of every eight weeks and a 90 mg single-dose cohort in HBV positive subjects are expected in the fourth quarter of 2020. Additionally, the Company is dosing two 90 mg multi-dose cohorts with chronic HBV infection with dosing intervals of every eight and twelve weeks, respectively;
AB-836, a next-generation capsid inhibitor product candidate currently advancing through CTA/IND-enabling studies, which the Company expects to be completed by the end of 2020; and
other compounds early in the development process, including oral compounds that inhibit PD-L1 and a next-generation oral HBV RNA destabilizer.

The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully obtain adequate financing through a combination of financing activities and operations. The success of the Company is dependent on progressing its pipeline and subsequently obtaining the necessary regulatory approvals to bring its products to market and achieving profitable operations. It is not possible to predict either the outcome of the Company’s existing or future research and development programs or the Company’s ability to continue to fund these programs in the future, nor to predict whether it will be successful in obtaining the necessary regulatory approvals to bring its products to market.


In December 2019, an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. The virus continues to spread globally, has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world. The impact of the pandemic has been, and will likely continue to be, extensive in many aspects of society. The pandemic has resulted in and will likely continue to result in significant disruptions to businesses. A number of countries and other jurisdictions around the world have implemented extreme measures in an attempt to slow the spread of the virus.  These measures include the closing of businesses and requiring people to stay in their homes, the latter of which raises uncertainty regarding the ability to travel to hospitals in order to participate in clinical trials. Additional measures that have had, and will likely continue to have, a major impact on clinical development, at least in the near-term, include shortages and delays in the supply chain, and prohibitions in certain countries on enrolling subjects in new clinical trials.  Despite the challenges of COVID-19, the Company has not had to alter its objectives for 2020.  However, future disruptions related to the COVID-19

pandemic could negatively impact the Company’s plans and timelines, including enrolling and monitoring subjects in the Company’s clinical trials.

While Arbutus’ core mission is to find a cure for hepatitis B, the magnitude of the coronavirus pandemic is undeniable. Given the Company’s proven expertise in the discovery of new antiviral therapies, Arbutus feels compelled to work towards the discovery of a new treatment. To that end, the Company has assembled an internal team of expert scientists under the direction of Arbutus’ Chief Scientific Officer, Dr. Michael Sofia, to identify novel small molecule therapies to treat COVID-19 and future coronavirus outbreaks. Dr. Sofia, who was awarded the Lasker-DeBakey Award for his discovery of sofosbuvir, brings extensive antiviral drug discovery experience to this new program. The Company has also joined the COVID R&D consortium to further support and expedite efforts to address the SARS-CoV-2 pandemic and any future coronavirus outbreaks. At this time, Arbutus’ COVID-19 research program will focus on the discovery and development of new molecular entities that address specific viral targets including the nsp12 viral polymerase and the nsp5 viral protease. The Company is actively screening multiple new oral molecular entities. These targets are essential viral proteins which Arbutus has experience in targeting.

2.      Significant accounting policies

Basis of presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial statements and accordingly, do not include all disclosures required for annual financial statements. These statements should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). These unaudited condensed consolidated financial statements reflect, in the opinion of management, all adjustments and reclassifications necessary to fairly present the Company’s financial position as of September 30, 2020, the Company’s results of operations for the three and nine months ended September 30, 2020 and the Company’s cash flows for the nine months ended September 30, 2020. The results of operations for the three and nine months ended September 30, 2020 are not necessarily indicative of the results for the full year. These unaudited condensed consolidated financial statements follow the same significant accounting policies as those described in the notes to the audited consolidated financial statements of the Company for the year ended December 31, 2019, except as described below under Recent Accounting Pronouncements.

Principles of consolidation

These unaudited condensed consolidated financial statements include the accounts of the Company and its two wholly-owned subsidiaries, Arbutus Biopharma Inc. (“Arbutus Inc.”) and Arbutus Biopharma US Holdings, Inc. All intercompany transactions and balances have been eliminated in consolidation.

Net loss attributable to common shareholders per share

The Company follows the two-class method when computing net loss attributable to common shareholders per share as the Company has issued Series A participating convertible preferred shares (the “Preferred Shares”), as further described in note 11, that meet the definition of participating securities. The Preferred Shares entitle the holders to participate in dividends but do not require the holders to participate in losses of the Company. Accordingly, if the Company reports a net loss attributable to holders of the Company’s common shares, net losses are not allocated to holders of the Preferred Shares.

Net loss attributable to common shareholders per share is calculated based on the weighted average number of common shares outstanding. The calculation of diluted net loss attributable to common shareholders per share does not differ from the calculation of basic net loss attributable to common shareholders per share, as the effect of the Company’s dilutive potential common shares was anti-dilutive. During the nine months ended September 30, 2020 and 2019, potential common shares of 31.6 million and 28.2 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock and Employee Stock Purchase Plan (“ESPP”) options, were excluded from the calculation of diluted net loss per common share because their inclusion would be anti-dilutive.

Revenue recognition

The Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers (”ASC 606”), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers under a five-step model: (i) identify contract(s) with a customer; (ii) identify the performance obligations

in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when or as a performance obligation is satisfied.

The Company generates revenue primarily through collaboration agreements and license agreements. Such agreements may require the Company to deliver various rights and/or services, including intellectual property rights or licenses and research and development services. Under such agreements, the Company is generally eligible to receive non-refundable upfront payments, funding for research and development services, milestone payments, and royalties.

In contracts where the Company has more than one performance obligation to provide its customer with goods or services, each performance obligation is evaluated to determine whether it is distinct based on whether (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available and (ii) the good or service is separately identifiable from other promises in the contract. The consideration under the contract is then allocated between the distinct performance obligations based on their respective relative stand-alone selling prices. The estimated stand-alone selling price of each deliverable reflects the Company’s best estimate of what the selling price would be if the deliverable was regularly sold on a stand-alone basis and is determined by reference to market rates for the good or service when sold to others or by using an adjusted market assessment approach if the selling price on a stand-alone basis is not available.

The consideration allocated to each distinct performance obligation is recognized as revenue when control is transferred to the customer for the related goods or services. Consideration associated with at-risk substantive performance milestones, including sales-based milestones, is recognized as revenue when it is probable that a significant reversal of the cumulative revenue recognized will not occur. Sales-based royalties received in connection with licenses of intellectual property are subject to a specific exception in the revenue standards, whereby the consideration is not included in the transaction price and recognized in revenue until the customer’s subsequent sales or usages occur.

Segment information

The Company operates as a single segment.

Recent accounting pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s financial position or results of operations upon adoption.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASC 326). The guidance is effective for the Company beginning January 1, 2023 and it changes how entities account for credit losses on financial assets and other instruments that are not measured at fair value through net income, including available-for-sale debt securities. The Company is currently evaluating the impact of the new standard on its consolidated financial statements.

3.    Fair value of financial instruments

The Company measures certain financial instruments and other items at fair value.

To determine the fair value, the Company uses the fair value hierarchy for inputs used in measuring fair value that maximize the use of observable inputs and minimize the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs market participants would use to value an asset or liability and are developed based on market data obtained from independent sources. Unobservable inputs are inputs based on assumptions about the factors market participants would use to value an asset or liability. The three levels of inputs that may be used to measure fair value are as follows:
Level 1 inputs are quoted market prices for identical instruments available in active markets.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly. If the asset or liability has a contractual term, the input must be observable for substantially the full term. An example includes quoted market prices for similar assets or liabilities in active markets.

Level 3 inputs are unobservable inputs for the asset or liability and will reflect management’s assumptions about market assumptions that would be used to price the asset or liability.

Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurements. Changes in the observability of valuation inputs may result in a reclassification of levels for certain securities within the fair value hierarchy.

The carrying values of cash and cash equivalents, investments in marketable securities, accounts receivable, accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments.

To determine the fair value of the contingent consideration (note 8), the Company uses a probability weighted assessment of the likelihood the milestones would be met and the estimated timing of such payments, and then the potential contingent payments were discounted to their present value using a probability adjusted discount rate that reflects the early stage nature of the development program, time to complete the program development, and overall biotech indices. The Company determined the fair value of the contingent consideration was $3.3 million as of September 30, 2020 and the increase of $0.3 million has been recorded as a component of total operating expenses in the statement of operations and comprehensive loss for the nine months ended September 30, 2020. The assumptions used in the discounted cash flow model are level 3 inputs as defined above. The Company assessed the sensitivity of the fair value measurement to changes in these unobservable inputs, and determined that changes within a reasonable range would not result in a materially different assessment of fair value.  

The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the level within the fair value hierarchy of the valuation techniques used to determine such fair value:
Level 1Level 2Level 3Total
As of September 30, 2020(in thousands)
Cash and cash equivalents$96,918 $ $ $96,918 
Short-term investments21,378   21,378 
Total118,296   118,296 
Liability-classified options  317 317 
Contingent consideration  3,301 3,301 
Total$ $ $3,618 $3,618 

Level 1Level 2Level 3Total
As of December 31, 2019(in thousands)
Cash and cash equivalents$31,799 $ $ $31,799 
Short-term investments59,035   59,035 
Total90,834   90,834 
Liability-classified stock option awards  253 253 
Contingent consideration  2,953 2,953 
Total$ $ $3,206 $3,206 

The following table presents the changes in fair value of the Company’s liability-classified stock option awards:
 Liability at beginning of the periodFair value of liability-classified options exercised in the periodIncrease (decrease) in fair value of liabilityLiability at end of the period
(in thousands)
Nine Months Ended September 30, 2020$253 $ $64 $317 
Nine Months Ended September 30, 2019$479 $ $(393)$86 

The following table presents the changes in fair value of the Company’s contingent consideration:
 Liability at beginning of the periodIncrease (decrease) in fair value of liabilityLiability at end of the period
(in thousands)
Nine Months Ended September 30, 2020$2,953 $348 $3,301 
Nine Months Ended September 30, 2019$3,126 $(121)$3,005 

4.    Investments in marketable securities 

Investments in marketable securities consisted of the following:
Amortized Cost
Gross Unrealized Gain(1)
Gross Unrealized Loss(1)
Fair Value
As of September 30, 2020(in thousands)
Cash equivalents
US government money market fund$65,327 $ $ $65,327 
Total$65,327 $ $ $65,327 
Investments in marketable securities
US government agency bonds$11,300 $26 $ $11,326 
US government bonds10,020 32  10,052 
Total$21,320 $58 $ $21,378 
(1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss.

Amortized Cost
Gross Unrealized Gain(1)
Gross Unrealized Loss(1)
Fair Value
As of December 31, 2019(in thousands)
Cash equivalents
US government money market fund$4,106 $ $ $4,106 
US government agency bonds1,511   1,511 
US treasury bills1,499   1,499 
Total$7,116 $ $ $7,116 
Investments in marketable securities
US government agency bonds$19,863 $2 $(1)$19,864 
US treasury bills15,926 2 (1)15,927 
US government bonds23,246  (2)23,244 
Total$59,035 $4 $(4)$59,035 

(1) Gross unrealized gain (loss) is pre-tax and is reported in other comprehensive loss.

The contractual term to maturity of the $21.4 million of short-term marketable securities held by the Company as of September 30, 2020 is less than one year. As of December 31, 2019, the Company’s $59.0 million of marketable securities also had contractual maturities of less than one year.

There were no realized gains or losses for the three and nine months ended September 30, 2020 or 2019.

5.     Investment in Genevant

In April 2018, Arbutus entered into an agreement with Roivant Sciences Ltd. (“Roivant”), its largest shareholder, to launch Genevant Sciences Ltd. (“Genevant”), a company focused on the discovery, development, and commercialization of a broad range of RNA-based therapeutics enabled by Arbutus’ lipid nanoparticle (“LNP”) and ligand conjugate delivery technologies. Arbutus licensed exclusive rights to its LNP and ligand conjugate delivery platforms to Genevant for RNA-based applications outside of HBV, except to the extent certain rights had already been licensed to other third parties. Arbutus retained all rights to its LNP and conjugate delivery platforms for HBV. Arbutus is entitled to receive tiered low single-digit royalties on future sales of Genevant products covered by the licensed patents. If Genevant sub-licenses the intellectual property licensed by Arbutus to Genevant, Arbutus would receive upon the commercialization of a product developed by such sub-licensee the lesser of (i) twenty percent of the revenue received by Genevant for such sublicensing and (ii) tiered low single-digit royalties on product sales by the sublicensee.

On July 23, 2020, the United States Patent and Trademark Office before the Patent Trial and Appeal Board ("PTAB") announced their decision in Moderna Therapeutics, Inc.'s challenge of the validity of U.S. Patent 8,058,069 ("the '069 Patent"). In this decision, the PTAB determined no challenged claims were unpatentable. While Arbutus is the patent holder, this patent has been licensed to Genevant. The '069 Patent was included in the license agreement between Genevant and Arbutus.

On July 31, 2020, Genevant was recapitalized through an equity investment and conversion of previously issued convertible debt securities held by Roivant. In addition, Arbutus participated in the recapitalization of Genevant with an investment of $2.5 million. Arbutus determined that this $2.5 million additional investment in Genevant represented the funding of prior losses and accordingly, the Company recorded the amount as an equity investment loss on the Condensed Consolidated Statements of Operations and Comprehensive Loss during the three months ended September 30, 2020.

Following the recapitalization, Arbutus owned approximately 16% of the common equity of Genevant. In connection with the recapitalization, Genevant, Arbutus and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. Arbutus has a non-voting observer seat on Genevant’s Board of Directors. Due to Arbutus’ loss of significant influence with respect to Genevant as a result of the recapitalization, Arbutus discontinued the use of the equity method of accounting for its interest in Genevant. Following the recapitalization, Arbutus accounts for its interest in Genevant as equity securities without readily determinable fair values. Accordingly, an estimate of the fair value of the securities is based on the original cost less previously recognized equity method losses, less impairments, plus or minus changes resulting from observable price changes in orderly transactions for identical or a similar Genevant securities. As of September 30, 2020, the carrying value of Arbutus’ investment in Genevant was zero and Arbutus owned approximately 16% of the common equity of Genevant.

Arbutus’ entitlement to receive future royalties or sublicensing revenue from Genevant was not impacted by the recapitalization.

6.      Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of the following:
 September 30, 2020December 31, 2019
(in thousands)
Trade accounts payable$852 $2,398 
Research and development accruals2,719 1,433 
Professional fee accruals447 809 
Payroll accruals2,844 2,314 
Site consolidation accrual 137 
Other accrued liabilities51 144 
Total accounts payable and accrued liabilities$6,913 $7,235 

7.    Sale of future royalties
On July 2, 2019, the Company entered into a Purchase and Sale Agreement (the “Agreement”) with the Ontario Municipal Employees Retirement System (or “OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO® (Patisiran) (“ONPATTRO”), an RNAi therapeutic currently being sold by Alnylam Pharmaceuticals, Inc. (“Alnylam”).

ONPATTRO utilizes Arbutus’ LNP technology, which was licensed to Alnylam pursuant to the Cross-License Agreement, dated November 12, 2012, by and between the Company and Alnylam (the “LNP License Agreement”). Under the terms of the LNP License Agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00% to 2.33% after offsets, with the highest tier applicable to annual net sales above $500 million. This royalty interest was sold to OMERS, effective as of January 1, 2019, for $20 million in gross proceeds before advisory fees. OMERS will retain this entitlement until it has received $30 million in royalties, at which point 100% of such royalty interest on future global net sales of ONPATTRO will revert to the Company. OMERS has assumed the risk of collecting up to $30 million of future royalty payments from Alnylam and Arbutus is not obligated to reimburse OMERS if they fail to collect any such future royalties.

The $30 million in royalties to be collected by OMERS is accounted for as a liability, with the difference between the liability and the gross proceeds received accounted for as a discount. The discount, as well as $1.5 million of transaction costs, will be amortized as interest expense based on the projected balance of the liability as of the beginning of each period. Over the course of the Agreement, the actual interest rate will be affected by the amount and timing of royalty revenue recognized and changes in the timing of forecasted royalty revenue. On a quarterly basis, the Company will reassess the expected timing of the royalty revenue, recalculate the amortization and effective interest rate and adjust the accounting prospectively as needed. As of September 30, 2020, the effective annual interest rate was approximately 22%.

The Company will recognize non-cash royalty revenue related to the sales of ONPATTRO during the term of the Agreement. As royalties are remitted to OMERS from Alnylam, the balance of the recognized liability will be effectively repaid over the life of the Agreement. From the inception of the royalty sale through September 30, 2020, the Company has recorded an aggregate of $3.7 million of non-cash royalty revenue for royalties earned by OMERS. There are a number of factors that could materially affect the amount and timing of royalty payments from Alnylam, none of which are within the Company’s control.

During the three and nine months ended September 30, 2020, the Company recognized non-cash royalty revenue of $0.7 million and $2.0 million, respectively, and $1.1 million and $3.2 million of related non-cash interest expense, respectively. During the three and nine months ended September 30, 2019, the Company recognized non-cash royalty revenue of $0.5 million and $1.0 million, respectively, and $1.1 million of related non-cash interest expense during the three and nine months ended September 30, 2019.
The table below shows the activity related to the net liability for 2020:
Nine Months Ended September 30, 2020
(in thousands)
Net liability related to sale of future royalties - beginning balance$18,992 
Non-cash royalty revenue(2,041)
Non-cash interest expense3,166 
Net liability related to sale of future royalties - ending balance$20,117 

In addition to the royalty from the LNP License Agreement, the Company is also receiving a second, lower royalty interest on global net sales of ONPATTRO originating from a settlement agreement and subsequent license agreement with Acuitas Therapeutics, Inc. (“Acuitas”). The royalty from Acuitas has been retained by the Company and was not part of the royalty sale to OMERS.


8.      Contingencies and commitments

Product development partnership with the Canadian Government

The Company entered into a Technology Partnerships Canada (“TPC”) agreement with the Canadian Federal Government on November 12, 1999.  Under this agreement, TPC agreed to fund 27% of the costs incurred by the Company, prior to March 31, 2004, in the development of certain oligonucleotide product candidates up to a maximum contribution from TPC of $