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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from           to          
Commission File Number: 001-34949
ARBUTUS BIOPHARMA CORPORATION
(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)
267-469-0914
(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 2, 2021, the registrant had 135,269,247 common shares, without par value, outstanding.



ARBUTUS BIOPHARMA CORPORATION
Page
   
           ITEM 2.
           ITEM 3.
           ITEM 4.
 
           ITEM 1.
           ITEM 1A.
           ITEM 2.
           ITEM 3.
           ITEM 4.
           ITEM 5.
           ITEM 6.



PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands of U.S. Dollars, except share and per share amounts)
September 30, 2021December 31, 2020
Assets
Current assets:
Cash and cash equivalents$77,883 $52,251 
Investments in marketable securities, current43,520 71,017 
Accounts receivable1,667 1,312 
Prepaid expenses and other current assets3,466 3,124 
Total current assets126,536 127,704 
Property and equipment, net of accumulated depreciation of $8,946
(December 31, 2020: $7,621)
6,352 6,927 
Investments in marketable securities, non-current30,534  
Right of use asset2,174 2,405 
Other non-current assets 44 
Total assets$165,596 $137,080 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable and accrued liabilities$9,727 $9,151 
Lease liability, current386 390 
Total current liabilities10,113 9,541 
Liability related to sale of future royalties17,883 19,554 
Contingent consideration5,105 3,426 
Lease liability, non-current2,355 2,593 
Total liabilities35,456 35,114 
Stockholders’ equity  
Preferred shares
Authorized: unlimited number without par value
Issued and outstanding: 1,164,000 (December 31, 2020: 1,164,000)
160,973 149,408 
Common shares
Authorized: unlimited number without par value
Issued and outstanding: 110,264,915 (December 31, 2020: 89,678,722)
1,065,710 985,939 
Additional paid-in capital64,096 60,751 
Deficit(1,112,452)(1,045,961)
Accumulated other comprehensive loss(48,187)(48,171)
Total stockholdersequity
130,140 101,966 
Total liabilities and stockholders’ equity$165,596 $137,080 


See accompanying notes to the condensed consolidated financial statements.
1


ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(In thousands of U.S. Dollars, except share and per share amounts)

Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Revenue
Collaborations and licenses$1,480 $827 $3,819 $2,487 
Non-cash royalty revenue1,860 696 3,963 2,041 
Total Revenue3,340 1,523 7,782 4,528 
Operating expenses  
Research and development16,299 12,065 45,065 32,946 
General and administrative4,146 4,065 12,438 11,184 
Depreciation447 490 1,326 1,491 
Change in fair value of contingent consideration856 120 1,679 348 
Site consolidation   64 
Total operating expenses21,748 16,740 60,508 46,033 
Loss from operations(18,408)(15,217)(52,726)(41,505)
Other income (loss)
Interest income27 100 97 645 
Interest expense(762)(1,074)(2,297)(3,214)
Foreign exchange (loss) gain(15)(19) (84)
Equity investment loss (2,545) (2,545)
Total other loss(750)(3,538)(2,200)(5,198)
Loss before income taxes(19,158)(18,755)(54,926)(46,703)
Net loss$(19,158)$(18,755)$(54,926)$(46,703)
Items applicable to preferred shares:
Dividend accretion of convertible preferred shares(5,087)(3,027)(11,565)(9,000)
Net loss attributable to common shares$(24,245)$(21,782)$(66,491)$(55,703)
Loss per share  
Basic and diluted$(0.24)$(0.27)$(0.68)$(0.77)
Weighted average number of common shares  
Basic and diluted101,286,351 79,487,444 97,174,253 72,342,070 
Comprehensive income (loss)
Unrealized (loss) gain on available-for-sale securities$(31)$(72)$(16)$58 
Currency translation adjustments 44  44 
Comprehensive loss$(19,189)$(18,783)$(54,942)$(46,601)

See accompanying notes to the condensed consolidated financial statements.
2


ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(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, 20201,164,000 $149,408 89,678,722 $985,939 $60,751 $(1,045,961)$(48,171)$101,966 
Accretion of accumulated dividends on Preferred Shares— 3,212 — — — (3,212)—  
Stock-based compensation— — — — 1,647 — — 1,647 
Certain fair value adjustments to liability stock option awards— — — — 40 — — 40 
Issuance of common shares pursuant to the Open Market Sale Agreement— — 6,395,780 26,419 — — — 26,419 
Issuance of common shares pursuant to exercise of options— — 65,952 335 (127)— — 208 
Issuance of common shares pursuant to ESPP— — 104,917 425 (178)— — 247 
Unrealized gain on available-for-sale securities— — — — — — 3 3 
Net loss— — — — — (16,381)— (16,381)
Balance March 31, 20211,164,000 $152,620 96,245,371 $1,013,118 $62,133 $(1,065,554)$(48,168)$114,149 
Accretion of accumulated dividends on Preferred Shares— 3,266 — — — (3,266)—  
Stock-based compensation— — — — 1,758 — — 1,758 
Certain fair value adjustments to liability stock option awards— — — — 51 — — 51 
Issuance of common shares pursuant to the Open Market Sale Agreement— — 1,450,145 4,274 — — — 4,274 
Issuance of common shares pursuant to exercise of options— — 4,500 24 (9)— — 15 
Unrealized loss on available-for-sale securities— — — — — — (31)(31)
Net loss— — — — — (19,387)— (19,387)
Balance June 30, 20211,164,000 $155,886 97,700,016 $1,017,416 $63,933 $(1,088,207)$(48,199)$100,829 
Accretion of accumulated dividends on Preferred Shares— 5,087 — — — (5,087)—  
Stock-based compensation— — — — 1,549 — — 1,549 
Certain fair value adjustments to liability stock option awards— — — — (44)— — (44)
Issuance of common shares pursuant to the Open Market Sale Agreement— — 11,869,217 44,736 — — — 44,736 
Issuance of common shares pursuant to exercise of options— — 604,264 3,166 (1,164)— — 2,002 
Issuance of common shares pursuant to ESPP— — 91,418 392 (178)— — 214 
Unrealized gain on available-for-sale securities— — — — — — 12 12 
Net loss— — — — — (19,158)— (19,158)
Balance September 30, 20211,164,000 $160,973 110,264,915 $1,065,710 $64,096 $(1,112,452)$(48,187)$130,140 


See accompanying notes to the condensed consolidated financial statements.

3




ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
(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 Sale 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 Sale 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 Sale Agreement— — 13,258 48,760 — — — 48,760 
Issuance of common shares pursuant to exercise of options— — 104 543 (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.
4


ARBUTUS BIOPHARMA CORPORATION
Condensed Consolidated Statements of Cash Flow
(Unaudited)
(In thousands of U.S. Dollars)
 Nine Months Ended September 30,
 20212020
OPERATING ACTIVITIES
Net loss$(54,926)$(46,703)
Non-cash items:
Depreciation1,326 1,491 
Stock-based compensation expense4,993 4,730 
Unrealized foreign exchange losses (gains) 56 
Change in fair value of contingent consideration1,679 348 
Net equity investment loss 2,544 
Non-cash royalty revenue(3,963)(2,041)
Non-cash interest expense2,292 3,166 
Net accretion and amortization of investments in marketable securities753 71 
Net change in operating items:
Accounts receivable(355)129 
Prepaid expenses and other assets(67)350 
Accounts payable and accrued liabilities585 (147)
Restructuring accrual (137)
Other liabilities(243)(285)
Net cash used in operating activities(47,926)(36,428)
INVESTING ACTIVITIES
Purchase of investments(54,156)(28,904)
Disposition of investments50,350 66,548 
Investment in Genevant (2,500)
Acquisition of property and equipment(751)(77)
Net cash (used in) provided by investing activities(4,557)35,067 
FINANCING ACTIVITIES
Issuance of common shares pursuant to the Open Market Sale agreement75,429 66,120 
Issuance of common shares pursuant to exercise of options2,225 416 
Issuance of common shares pursuant to ESPP461  
Net cash provided by financing activities78,115 66,536 
Effect of foreign exchange rate changes on cash and cash equivalents (56)
Increase in cash and cash equivalents25,632 65,119 
Cash and cash equivalents, beginning of period52,251 31,799 
Cash and cash equivalents, end of period$77,883 $96,918 
Supplemental cash flow information
Preferred shares dividends accrued$(11,565)$(9,000)

See accompanying notes to the condensed consolidated financial statements.





5



ARBUTUS BIOPHARMA CORPORATION

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

Description of the Business

Arbutus Biopharma Corporation (the “Company” or “Arbutus”) is a clinical-stage biopharmaceutical company primarily focused on discovering, developing and commercializing a broad portfolio of wholly-owned assets with different modes of action to provide a cure for people with chronic hepatitis B virus (HBV) infection. The Company is advancing multiple product candidates with distinct mechanisms of action that suppress viral replication, reduce surface antigen and reawaken the immune system. Arbutus believes this three-prong approach is key to transforming the treatment and developing a potential cure for chronic HBV infection. Arbutus’ HBV product pipeline includes RNA interference (RNAi) therapeutics, oral capsid inhibitors, oral compounds that inhibit PD-L1 and oral HBV RNA destabilizers. In addition, Arbutus has an ongoing drug discovery and development program directed to identifying orally active agents for treating coronaviruses (including COVID-19).

The Company’s two lead product candidates are AB-729, the Company’s proprietary subcutaneously-delivered RNA interference (“RNAi”) product candidate that suppresses HBsAg expression, and AB-836, the Company’s proprietary next-generation oral capsid inhibitor that suppresses HBV DNA replication. AB-729 is currently in an ongoing Phase 1a/1b clinical trial and a Phase 2a proof-of-concept clinical trial in collaboration with Assembly Biosciences, Inc. (“Assembly”). The Company is also evaluating AB-729 in combination with other agents with potentially complementary mechanisms of action in multiple Phase 2a proof-of-concept clinical trials. Additionally, the Company is enrolling healthy subjects and HBV patients in a Phase 1a/1b clinical trial for AB-836 with initial data expected in the fourth quarter of 2021.

Liquidity

At September 30, 2021, the Company had an aggregate of $151.9 million in cash, cash equivalents and investments in marketable securities. The Company believes that these cash resources will be sufficient to fund its operations into the second quarter of 2023.

The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations. The Company’s research and development activities and the commercialization of its products are dependent on its ability to successfully complete these activities and to obtain adequate financing through a combination of financing activities and 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.

COVID-19 Impact

In December 2019 an outbreak of a novel strain of coronavirus (COVID-19) was identified in Wuhan, China. This virus has been declared a pandemic by the World Health Organization and has spread to nearly every country in the world. The impact of this 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 attempts 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 patients in new clinical trials. While the Company has been able to progress with our clinical and pre-clinical activities to date, it is not possible to predict if the COVID-19 pandemic will materially impact the Company’s plans and timelines in the future.

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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, 2020 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 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, 2021 and December 31, 2020, the Company’s results of operations for the three and nine months ended September 30, 2021 and 2020, and the Company’s cash flows for the nine months ended September 30, 2021 and 2020. Such adjustments are of a normal recurring nature. The results of operations for the three and nine months ended September 30, 2021 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, 2020, 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 one wholly-owned subsidiary, Arbutus Biopharma Inc. (“Arbutus Inc.”). All intercompany transactions and balances have been eliminated. Certain prior year amounts have been reclassified to conform to the current year presentation.

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 had issued Series A participating convertible preferred shares (“Preferred Shares”), as further described in note 10. The Company’s Preferred Shares were participating securities, as they entitled the holders to participate in dividends. However, the Company’s Preferred Shares did not require the holders to participate in losses of the Company and 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. Diluted net loss attributable to common shareholders per share does not differ from basic net loss attributable to common shareholders per share since the effect of the Company’s stock options and convertible preferred stock was anti-dilutive. During the nine months ended September 30, 2021 and 2020, potential common shares of 34.3 million and 31.6 million, respectively, consisting of the “if-converted” number of Preferred Shares and outstanding stock options, were excluded from the calculation of net loss per share because their inclusion would be anti-dilutive.

On October 18, 2021, the Preferred Shares were converted into 22,833,922 common shares. As a result of the conversion, the Company will no longer utilize the two-class method when computing net loss per share.

Revenue recognition

Accounting Standards Codification 606, Revenue From Contracts with Customers (“ASC 606”) 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 through certain 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
7


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

In June 2016, the Financial Accounting Standards Board (“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 measurements

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, 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, the time to complete the program development, and overall biotech indices. The Company determined the fair value of the contingent consideration was $5.1 million as of September 30, 2021 and the increase of $1.7 million from December 31, 2020 has been recorded as a component of total operating expenses in the statement of operations and
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comprehensive loss for the nine months ended September 30, 2021. 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 tables present information about the Company’s assets and liabilities that are measured at fair value on a recurring basis, and indicates the fair value hierarchy of the valuation techniques used to determine such fair value:
Level 1Level 2Level 3Total
As of September 30, 2021(in thousands)
Assets
Cash and cash equivalents$77,883 $ $ $77,883 
Short-term investments43,520   43,520 
Long-term investments30,534   30,534 
Total$151,937 $ $ $151,937 
Liabilities
Liability-classified stock options$ $ $37 $37 
Contingent consideration  5,105 5,105 
Total$ $ $5,142 $5,142 

Level 1Level 2Level 3Total
As of December 31, 2020(in thousands)
Assets
Cash and cash equivalents$52,251 $ $ $52,251 
Short-term investments71,017   71,017 
Total$123,268 $ $ $123,268 
Liabilities
Liability-classified stock options$ $ $250 $250 
Contingent consideration  3,426 3,426 
Total$ $ $3,676 $3,676 

The following table presents the changes in fair value of the Company’s liability-classified stock options:
 Liability at beginning of the periodFair value of liability-classified options exercised in the periodIncrease in fair value of liabilityLiability at end of the period
(in thousands)
Nine Months Ended September 30, 2021$250 $(96)$(117)$37 
Nine Months Ended September 30, 2020$253 $ $64 $317 


The following table presents the changes in fair value of the Company’s contingent consideration:
 Liability at beginning of the periodIncrease in fair value of liabilityLiability at end of the period
(in thousands)
Nine Months Ended September 30, 2021$3,426 $1,679 $5,105 
Nine Months Ended September 30, 2020$2,953 $348 $3,301 
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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, 2021(in thousands)
Cash equivalents
US government money market fund$29,708 $— $— $29,708 
Total$29,708 $— $— $29,708 
Investments in marketable short-term securities
US government agency bonds$2,021 $1 $ $2,022 
US treasury bills2,000   2,000 
US government bonds39,494 4  39,498 
Total$43,515 $5 $ $43,520 
Investments in marketable long-term securities
US government agency bonds$12,251 $ $(5)$12,246 
US treasury bills    
US government bonds18,289 1 (2)18,288 
Total$30,540 $1 $(7)$30,534 
 
(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, 2020(in thousands)
Cash equivalents
US government money market fund$13,703 $— $— $13,703 
US treasury bills2,000 — — 2,000 
Total$15,703 $— $— $15,703 
Investments in marketable short-term securities
US government agency bonds$11,550 $7 $ $11,557 
US treasury bills21,990 2  21,992 
US government bonds37,463 6 (1)37,468 
Total$71,003 $15 $(1)$71,017 

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

The contractual term to maturity of the $43.5 million of short-term marketable securities held by the Company as of September 30, 2021 is less than one year. As of September 30, 2021, the Company held $30.5 million of long-term marketable securities with contractual maturities of more than one year, but less than five years. As of December 31, 2020, the Company’s $71.0 million of short-term marketable securities had contractual maturities of less than one year.

There were no realized gains or losses for the three and nine months ended September 30, 2021 or 2020.


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5.     Investment in Genevant

In April 2018, the Company 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 the Company’s lipid nanoparticle (“LNP”) and ligand conjugate delivery technologies. The Company 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 (the “Genevant License”). The Company retained all rights to its LNP and conjugate delivery platforms for HBV. Under the Genevant License, the Company 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 the Company to Genevant, the Company is entitled to receive under the Genevant License, 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 31, 2020, Roivant recapitalized Genevant through an equity investment and conversion of previously issued convertible debt securities held by Roivant. In addition, the Company participated in the recapitalization of Genevant with an investment of $2.5 million. The Company 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 in 2020.

Following the recapitalization, the Company owned approximately 16% of the common equity of Genevant. In connection with the recapitalization, Genevant, the Company and Roivant entered into an Amended and Restated Shareholders Agreement that provides Roivant with substantial control of Genevant. The Company has a non-voting observer seat on Genevant’s Board of Directors. Due to the Company’s loss of significant influence with respect to Genevant as a result of the recapitalization, the Company discontinued the use of the equity method of accounting for its interest in Genevant. Following the recapitalization, the Company 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. The Company’s entitlement to receive future royalties or sublicensing revenue under the Genevant License was not impacted by the recapitalization.

As of September 30, 2021, the carrying value of the Company’s investment in Genevant was zero and the Company owned approximately 16% of the common equity of Genevant.


6.      Accounts payable and accrued liabilities

Accounts payable and accrued liabilities are comprised of the following:
 September 30, 2021December 31, 2020
(in thousands)
Trade accounts payable$1,042 $2,994 
Research and development accruals5,451 1,653 
Professional fee accruals582 679 
Payroll accruals2,612 3,566 
Liability options37 250 
Other accrued liabilities3 9 
Total accounts payable and accrued liabilities$9,727 $9,151 


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 (“OMERS”), pursuant to which the Company sold to OMERS part of its royalty interest on future global net sales of ONPATTRO® (Patisiran) (“ONPATTRO”), an RNA interference therapeutic currently being sold by Alnylam Pharmaceuticals, Inc. (“Alnylam”).

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ONPATTRO utilizes the Company’s 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 the Company is not obligated to reimburse OMERS if they fail to collect any such future royalties.

The $30 million in royalties to be paid to 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. As of September 30, 2021, the Company estimated an effective annual interest rate of approximately 16%. 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.

The Company recognizes 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 is effectively repaid over the life of the Agreement. From the inception of the royalty sale through September 30, 2021, the Company has recorded an aggregate of $9.0 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.
The table below shows the activity related to the net liability for the nine months ended September 30, 2021 and 2020:
Nine Months Ended September 30,
20212020
(in thousands)
Net liability related to sale of future royalties - beginning balance$19,554 $18,992 
Non-cash royalty revenue(3,963)(2,041)
Non-cash interest expense2,292 3,166 
Net liability related to sale of future royalties - ending balance$17,883 $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

Arbitration with the University of British Columbia

Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at the University of British Columbia (“UBC”), as well as by the Company that was subsequently assigned to UBC. These inventions are licensed to the Company by UBC under a license agreement, initially entered into in 1998 and as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to certain third parties, including Alnylam. In November 2014, UBC filed a demand for arbitration against the Company which alleged entitlement to unpaid royalties. In August 2019, the arbitrator issued his decision for the second phase of the arbitration, awarding UBC $5.9 million, which included interest of approximately $2.6 million. The Company paid the $5.9 million award to UBC in September 2019 and paid an additional $0.2 million award for costs and attorneys’ fees in March 2021, and this matter is now fully resolved.

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On December 18, 2020, UBC delivered to the Company a notice of arbitration alleging that under the cross license between UBC and Arbutus, it is due royalties of $2.0 million plus interest arising from the Company’s sale to OMERS of part of its royalty interest on future global net sales of ONPATTRO, currently being sold by Alnylam. Oral hearings for this matter are currently scheduled to begin on April 25, 2022. The Company does not believe that any royalties are due to UBC and the Company intends to vigorously contest UBC’s allegation.

Stock Purchase Agreement with Enantigen

In October 2014, Arbutus Inc., the Company’s wholly-owned subsidiary, acquired all of the outstanding shares of Enantigen Therapeutics, Inc. (“Enantigen”) pursuant to a stock purchase agreement. The amount paid to Enantigen’s selling shareholders could be up to an additional $102.5 million in sales performance milestones in connection with the sale of the first commercialized product by the Company for the treatment of HBV, regardless of whether such product is based upon assets acquired under this agreement, and a low single-digit royalty on net sales of such first commercialized HBV product, up to a maximum royalty payment of $1.0 million that, if paid, would be offset against the Company’s milestone payment obligations. Certain other development milestones related to the acquisition were tied to programs which are no longer under development by the Company, and therefore the contingency related to those development milestones is zero.

The contingent consideration is a financial liability and is measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statements of operations and comprehensive loss (see note 3).

The fair value of the contingent consideration was $5.1 million as of September 30, 2021.


9.      Collaborations, contracts and licensing agreements

Vaccitech plc

In July 2021, the Company entered into a clinical collaboration agreement with Vaccitech plc (“Vaccitech”) to evaluate the safety, pharmacokinetics, immunogenicity, and antiviral activity of AB-729 followed by Vaccitech’s VTP-300, a proprietary T cell stimulating therapeutic vaccine, in nucleos(t)ide reverse transcriptase inhibitor-suppressed patients with chronic HBV infection (“CHB”). The Phase 2a clinical trial will be managed by Arbutus, subject to oversight by a joint development committee comprised of representatives from Arbutus and Vaccitech. Arbutus and Vaccitech retain full rights to their respective product candidates and will split all costs associated with the clinical trial. Pursuant to the agreement, the parties intend to undertake a larger Phase 2b clinical trial depending on the results of the initial Phase 2a clinical trial. The collaboration with Vaccitech is within the scope of the collaborative arrangements guidance and reimbursements and cost-sharing proceeds will be reflected as reductions of research and development expense when realized in the Company’s condensed consolidated statements of operations.

Antios Therapeutics, Inc.

In June 2021, the Company entered into a clinical collaboration agreement with Antios Therapeutics, Inc. (“Antios”) to evaluate a triple combination of AB-729, Antios’ proprietary active site polymerase inhibitor nucleotide (ASPIN), ATI-2173, and Viread (tenofovir disoproxil fumarate), for the treatment of patients with chronic HBV infection. Antios will be responsible for the costs of adding this single cohort to its ongoing Phase 2a ANTT201 clinical trial. Arbutus will be responsible for the manufacture and supply of AB-729. Except to the extent necessary to carry out Antios’ responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Antios for use of its AB-729 compound.

Assembly Biosciences, Inc.

In August 2020, the Company entered into a clinical collaboration agreement with Assembly to evaluate AB-729 in a Phase 2 proof-of-concept triple combination clinical trial with Assembly’s lead HBV core inhibitor (capsid inhibitor) candidate vebicorvir (“VBR”) and standard-of-care NA therapy for the treatment of patients with chronic HBV infection. The Company and Assembly are sharing in the costs of the collaboration. The Company incurred $0.9 million and $2.1 million of costs related to the collaboration during the three and nine months ended September 30, 2021 and reflected those costs in research and development in the statement of operations and comprehensive loss. Except to the extent necessary to carry out Assembly’s responsibilities with respect to the collaboration trial, the Company has not provided any license grant to Assembly for use of its AB-729 compound.
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X-Chem and Proteros

In March 2021, the Company, X-Chem, Inc. (“X-Chem”) and Proteros biostructures GmbH (“Proteros”) entered into a discovery research and license agreement focused on the discovery of novel inhibitors targeting the SARS-CoV-2 nsp5 main protease (Mpro). The agreement is designed to accelerate the development of pan-coronavirus agents to treat COVID-19 and potential future coronavirus outbreaks. This collaboration brings together the Company’s expertise in the discovery and development of antiviral agents with X-Chem’s industry leading DNA-encoded library (DEL) technology and Proteros’ protein sciences, biophysics and structural biology capabilities and provides important synergies to potentially identify safe and effective therapies against coronaviruses including SARS-CoV-2. The collaboration is expected to allow for the rapid screening of one of the largest small molecule libraries against Mpro (an essential protein required for the virus to replicate itself) and the use of state-of-the-art structure guided methods to rapidly optimize Mpro inhibitors, which the Company could potentially progress to clinical candidates. The agreement provides for payments by the Company to X-Chem and Proteros upon satisfaction of certain development, regulatory and commercial milestones, as well as royalties on sales.

Alnylam Pharmaceuticals, Inc. and Acuitas Therapeutics, Inc.

The Company has two royalty entitlements to Alnylam’s global net sales of ONPATTRO.

In 2012, the Company entered into a license agreement with Alnylam that entitles Alnylam to develop and commercialize products with the Company’s LNP technology. Alnylam’s ONPATTRO, which represents the first approved application of the Company’s LNP technology, was approved by the United States Food and Drug Administration (“FDA”) and the European Medicines Agency (“EMA”) during the third quarter of 2018 and was launched by Alnylam immediately upon approval in the United States. Under the terms of this license agreement, the Company is entitled to tiered royalty payments on global net sales of ONPATTRO ranging from 1.00