Notes to Consolidated Financial Statements
(Tabular amounts in thousands of US Dollars, except share and per share amounts)
1. Nature of business and future operations
Arbutus Biopharma Corporation (the “Company” or “Arbutus”) is a biopharmaceutical business dedicated to discovering, developing, and commercializing a cure for patients suffering from chronic hepatitis B infection, a disease of the liver caused by the hepatitis B virus (“HBV”). The Company is also developing a pipeline focused on advancing novel RNA interference therapeutics ("RNAi") leveraging the Company’s expertise in Lipid Nanoparticle ("LNP") technology.
The success of the Company is dependent on obtaining the necessary regulatory approvals to bring its products to market and achieve profitable operations. The continuation of the research and development activities and the commercialization of its products are dependent on the Company’s 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 future research and development programs or the Company’s ability to continue to fund these programs in the future.
2. Significant accounting policies
Basis of presentation
Arbutus Biopharma Corporation was incorporated in Canada on October 6, 2005 as an inactive wholly owned subsidiary of Inex Pharmaceuticals Corporation (Inex). Pursuant to a “Plan of Arrangement” effective April 30, 2007, the business and substantially all of the assets and liabilities of Inex were transferred to the Company. The consolidated financial statements for all periods presented herein include the consolidated operations of Inex until April 30, 2007 and the operations of the Company thereafter.
The Company has
two
wholly-owned subsidiaries as at December 31, 2016: Arbutus Biopharma, Inc. (Arbutus Inc. formerly OnCore Biopharma, Inc.) and Protiva Biotherapeutics Inc. ("Protiva"). Protiva was acquired on May 30, 2008. Arbutus Inc. was acquired by way of a Merger Agreement on March 4, 2015.
In addition to Arbutus Inc. and Protiva, the Company's former wholly-owned subsidiary, Protiva Agricultural Development Company Inc. ("PADCo"), was previously recorded by the Company using the equity method. On March 4, 2016, Monsanto exercised its option to acquire
100%
of the outstanding shares of PADCo, as described in note 4(b).
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Arbutus Inc. and Protiva. All intercompany transactions and balances have been eliminated on consolidation.
Foreign currency translation and functional currency conversion
Prior to January 1, 2016, the Company's functional currency was the Canadian dollar. Translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar was the functional currency are included as part of cumulative currency translation adjustment, which is reported as a component of shareholders' equity under accumulated other comprehensive loss.
The Company re-assessed its functional currency and determined as at January 1, 2016, its functional currency changed from the Canadian dollar to the U.S. dollar based on management's analysis of changes in the primary economic environment in which the Company operates. The change in functional currency is accounted for prospectively from January 1, 2016 and financial statements prior to and including the period ended December 31, 2015 have not been restated for the change in functional currency.
For periods prior to January 1, 2016, the effects of exchange rate fluctuations on translating foreign currency monetary assets and liabilities into Canadian dollars were included in the statement of operations and comprehensive loss as foreign exchange gain/loss. Revenue and expense transactions were translated into the U.S. dollar reporting currency at the balance sheet date at average exchange rates during the period, and assets and liabilities were translated at end of period exchange rates, except for equity transactions, which were translated at historical exchange rates. Translation gains and losses from the application of the U.S. dollar as the reporting currency while the Canadian dollar was the functional currency are included as part of the cumulative foreign currency translation adjustment, which is reported as a component of shareholders’ equity in accumulated other comprehensive loss.
For periods commencing January 1, 2016, monetary assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates in effect at the balance sheet date. Opening balances related to non-monetary assets and liabilities are based on prior period translated amounts, and non-monetary assets and non-monetary liabilities incurred after January 1, 2016 are translated at the approximate exchange rate prevailing at the date of the transaction. Revenue and expense transactions are translated at the approximate exchange rate in effect at the time of the transaction. Foreign exchange gains and losses are included in the statement of operations and comprehensive loss as foreign exchange gains.
Use of estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions about future events that affect the reported amounts of assets, liabilities, revenue, expenses, contingent assets and contingent liabilities as at the end or during the reporting period. Actual results could significantly differ from those estimates. Significant areas requiring the use of management estimates relate valuation of intangible assets and goodwill, recognition of revenue, stock-based compensation, and financial instruments, and the amounts recorded as accrued liabilities, contingent consideration, and income tax recovery.
Cash and cash equivalents
Cash and cash equivalents are all highly liquid instruments with an original maturity of three months or less when purchased. Cash equivalents are recorded at cost plus accrued interest. The carrying value of these cash equivalents approximates their fair value.
Short-term and long-term investments
Short-term investments have original maturities exceeding three months, and have remaining maturities less than one year. Long-term investments have remaining maturities exceeding twelve months. Short-term and long-term investments accrue interest daily based on a fixed interest rate for the term. The carrying value of these investments are recorded at cost plus accrued interest, which approximates their fair value. All investments are governed by the Board approved Investment Policy for the Company.
Loan payable and restricted cash (investment)
The Company obtained a loan from Wells Fargo for the purpose of financing its operations, including the expansion of laboratory facilities for its U.S. operations. The loan accrues interest daily based on an interest rate with a variable and fixed component. The variable component is the one-month London Interbank Offered Rate (LIBOR), and the fixed component is a margin based on the amount of collateral cash the Company maintains with the lender - see note 9. The loan is due December 2019. The loan is recorded at amortized cost.
The Company must maintain a cash or investment balance as collateral for the loan payable to Wells Fargo. The cash or investment is restricted from the Company's use until the loan is repaid. The Company does not expect to repay the loan within twelve months of the balance sheet date so has classified the restricted cash as a long-term asset. The restricted cash balance has been used to purchase a
two
year investment maturing on December 23, 2018 and accruing interest at a fixed interest rate of
1.25%
. The carrying value of the restricted cash is recorded at cost plus any accrued interest not yet received, which approximates its fair value.
Fair value of financial instruments
We measure certain financial instruments and other items at fair value.
To determine the fair value, we use the fair value hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes 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:
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•
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Level 1 inputs are quoted market prices for identical instruments available in active markets.
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•
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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.
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•
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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.
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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 Company’s financial instruments consist of cash and cash equivalents, short-term, long-term and restricted investments, accounts receivable, accounts payable and accrued liabilities, warrants, and loan payable . Long-term and restricted investments approximate fair value due to the interest rates being at prevailing market rates.
The carrying values of cash and cash equivalents, short-term investments, accounts receivable and accounts payable and accrued liabilities approximate their fair values due to the immediate or short-term maturity of these financial instruments.
As quoted prices for the warrants are not readily available, the Company has used a Black-Scholes pricing model, as described in note 6, to estimate fair value. These are level 3 inputs as defined above.
To determine the fair value of the contingent consideration, 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, as detailed in note 10. The Company determined the fair value of the contingent consideration was
$9,065,000
and the increase of
$1,568,000
has been recorded in other losses in the statement of operations and comprehensive loss for the year ended December 31, 2016. The assumptions used in the discounted cash flow model are level 3 inputs as defined above.
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:
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Level 1
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Level 2
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Level 3
|
|
|
December 31, 2016
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Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
23,413
|
|
|
—
|
|
|
—
|
|
|
$
|
23,413
|
|
Short-term investments
|
107,146
|
|
|
—
|
|
|
—
|
|
|
107,146
|
|
Restricted investment
|
12,601
|
|
|
—
|
|
|
—
|
|
|
12,601
|
|
Total
|
$
|
143,160
|
|
|
—
|
|
|
—
|
|
|
$
|
143,160
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|
Liabilities
|
|
|
|
|
|
|
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|
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Warrants
|
—
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|
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—
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|
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$
|
107
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$
|
107
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|
Liability-classified stock option awards
|
—
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|
|
—
|
|
|
553
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|
|
553
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|
Contingent consideration
|
—
|
|
|
—
|
|
|
9,065
|
|
|
9,065
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Total
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—
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|
|
—
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|
|
9,725
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|
|
$
|
9,725
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|
|
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Level 1
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Level 2
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Level 3
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December 31, 2015
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Assets
|
|
|
|
|
|
|
|
|
|
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Cash and cash equivalents
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$
|
166,779
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|
|
—
|
|
|
—
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|
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$
|
166,779
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Guaranteed investment certificates
|
14,525
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|
|
—
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|
|
—
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14,525
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Term deposit
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10,070
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|
|
—
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|
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—
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10,070
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Total
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$
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191,374
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|
|
—
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|
|
—
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|
|
$
|
191,374
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Liabilities
|
|
|
|
|
|
|
|
|
|
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Warrants
|
—
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|
|
—
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|
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$
|
883
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|
|
$
|
883
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Contingent consideration
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—
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|
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—
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7,497
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7,497
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Total
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—
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—
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$
|
8,380
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$
|
8,380
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The following table presents the changes in fair value of the Company’s warrants:
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Liability at beginning
of the period
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Fair value of
warrants exercised
in the period
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Increase (decrease) in fair
value of warrants
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Foreign exchange
loss
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Liability at end
of the period
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Year ended December 31, 2014
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$
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5,379
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$
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(10,208
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)
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$
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10,383
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$
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(455
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)
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$
|
5,099
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Year ended December 31, 2015
|
$
|
5,099
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|
|
$
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(334
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)
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$
|
(3,341
|
)
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|
$
|
(541
|
)
|
|
$
|
883
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|
Year ended December 31, 2016
|
$
|
883
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|
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$
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(247
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)
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$
|
(529
|
)
|
|
$
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—
|
|
|
$
|
107
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|
The following table presents the changes in fair value of the Company’s liability-classified stock option awards:
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Reclassification of equity to liability
(1)
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Fair value of
liability-classified stock option awards exercised
in the period
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Increase (decrease) in fair
value of liability
|
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Liability at end
of the period
|
Year ended December 31, 2016
|
$
|
1,909
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$
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(54
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)
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$
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(1,302
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)
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|
$
|
553
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(1) Upon functional currency conversion on January 1, 2016 - see functional currency conversion above.
The following table presents the changes in fair value of the Company’s contingent consideration:
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Contingent consideration at beginning
of the period
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Increase in fair
value of contingent consideration
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Contingent consideration at end
of the period
|
Year ended December 31, 2015
(1)
|
$
|
6,727
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|
$
|
770
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$
|
7,497
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Year ended December 31, 2016
|
$
|
7,497
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|
$
|
1,568
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$
|
9,065
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(1) As at acquisition date of March 4, 2015.
Property and equipment
Property and equipment is recorded at cost less impairment losses, accumulated depreciation, related government grants and investment tax credits. The Company records depreciation using the straight-line method over the estimated useful lives of the capital assets as follows:
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Useful life (years)
|
Laboratory equipment
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5
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Computer and office equipment
|
2
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—
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5
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Furniture and fixtures
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5
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Leasehold improvements are depreciated over their estimated useful lives but in no case longer than the lease term, except where lease renewal is reasonably assured.
If there is a major event indicating that the carrying value of property and equipment may be impaired then management will perform an impairment test and if the carrying value exceeds the recoverable value, based on undiscounted future cash flows, then such assets are written down to their fair values.
Goodwill and intangible assets
The costs incurred in establishing and maintaining patents for intellectual property developed internally are expensed in the period incurred.
Intangible assets consist of in-process research and development arising from the Company’s acquisition of Arbutus Inc. in 2015. In-process research and development (IPR&D) intangible assets are classified as indefinite-lived and are not amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts. Intangible assets with finite useful lives are amortized on a straight-line basis over their estimated useful lives, which are the respective patent terms. Amortization begins when intangible assets with finite lives are put into use. If there is a major event indicating that the carrying value of intangible assets may be impaired, then management will perform an impairment test in an interim period and if the carrying value exceeds the recoverable value, based on discounted future cash flows, then such assets are written down to their fair values.
The Company reviews the recoverable amount of intangible assets and goodwill on an annual basis, and the annual evaluation is performed as of December 31 each year. In addition, the Company evaluates for events or changes in the business that could indicate impairment and earlier testing. Such indicators include, but are not limited to, on an ongoing basis: (a) industry and market considerations such as increased competitive environment or adverse change in legal factors including an adverse assessment by regulators; (b) an accumulation of costs significantly in excess of the amount originally expected for the development of the asset; (c) current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of the asset; (d) adverse research and development program results; and (e) if applicable, a sustained decrease in share price.
Goodwill represents the excess of purchase price over the value assigned to the net tangible and identifiable intangible assets of Arbutus Inc. - see note 3. Goodwill has an indefinite accounting life and is therefore not amortized. Instead, goodwill is subject to a two-step impairment test on an annual basis, unless the Company identifies impairment indicators that would require earlier testing. The first step compares the fair value of the reporting unit to its carrying amount, which includes the goodwill. When the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not to be impaired, and the second step of the impairment test is unnecessary. If the carrying amount exceeds the fair value of the reporting unit, the second step measures the amount of the impairment loss. In the second step of the impairment test, the amount of impairment loss is calculated to the extent that the implied fair value of goodwill exceeds the carrying value of goodwill assigned to the Company's single reporting unit based on a hypothetical purchase price allocation.
Revenue recognition
The Company earns revenue from research and development collaboration and contract services, licensing fees, milestone and royalty payments. In arrangements with multiple deliverables, the delivered item or items is considered a separate unit of accounting if: (1) the delivered item has value to the customer on a standalone basis; and (2) if the arrangement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probably and substantially in the Company's control. If the elements of the arrangement do not meet both of the criteria above, they are recognized as a single unit of accounting. If the elements do meet the criteria above, arrangement consideration is allocated to the separate units of accounting based on their relative selling price. Non-refundable payments received under collaborative research and development agreements are recorded as revenue as services are performed and related expenditures are incurred. Non-refundable upfront license fees from collaborative licensing and development arrangements are recognized as the Company fulfills its obligations related to the various elements within the agreements, in accordance with the contractual arrangements with third parties and the term over which the underlying benefit is being conferred. If non-refundable license fees have values to the customer on a standalone basis, separate from the undelivered performance obligations, they are recognized upon delivery. To date, the Company has not recognized any non-refundable license fees upon delivery.
The Company evaluates new arrangements for any substantive milestones by considering: whether substantive uncertainty exists upon execution of the arrangement; if the event can only be achieved based in whole or in part on the Company’s performance, or occurrence of a specific outcome resulting from the Company’s performance; any future performance required, and payment is reasonable relative to all deliverables; and, the payment terms in the arrangement. Payments received upon the achievement of substantive milestones are recognized as revenue in their entirety. Payments received upon the occurrence of milestones that are non-substantive are deferred and recognized as revenue over the estimated period of performance applicable to the associated collaborative agreement.
Revenue earned under research and development manufacturing collaborations where the Company bears some or all of the risk of a product manufacturing failure is recognized when the purchaser accepts the product and there are no remaining rights of return.
Revenue earned under research and development collaborations where the Company does not bear any risk of product manufacturing failure is recognized in the period the work is performed. For contracts where the manufacturing amount is specified, revenue is recognized as product is manufactured in proportion to the total amount specified under the contract.
Revenue and expenses under the contract with the United States Government Department of Defense (“DoD”) were being recorded using the percentage-of-completion method. Contract progress was based on costs incurred to date. Expenses under the contract were recorded in the Company’s consolidated statement of operations and comprehensive income (loss) as they were incurred. Government contract revenues related to expenses incurred under the contract were recorded in the same period as those expenses. Expenses accrued under the contract but not yet invoiced were recorded in the Company’s balance sheet as accrued liabilities and accrued revenues. Equipment purchased under the contract was recorded on the Company’s balance sheet as deferred expense and deferred revenue and amortized, on a straight-line basis, over the life of the contract.
Cash or other compensation received in advance of meeting the revenue recognition criteria is recorded on the balance sheet as deferred revenue. Revenue meeting recognition criteria but not yet received or receivable is recorded on the balance sheet as accrued revenue.
Leases and lease inducements
Leases entered into are classified as either capital or operating leases. Leases which substantially transfer all benefits and risks of ownership of property to the Company are accounted for as capital leases. At the time a capital lease is entered into, an asset is recorded together with its related long-term obligation to reflect the purchase and financing.
All other leases are accounted for as operating leases wherein rental payments are expensed as incurred.
Lease inducements represent leasehold improvement allowances and reduced or free rent periods and are amortized on a straight-line basis over the term of the lease and are recorded as a reduction of rent expense.
Research and development costs
Research and development costs, including acquired in-process research and development expenses for which there is no alternative future use, are charged as an expense in the period in which they are incurred.
Income or loss per share
Income or loss per share is calculated based on the weighted average number of common shares outstanding. Diluted loss per share does not differ from basic loss per share for the years ended December 31,
2016
,
2015
and
2014
, since the effect of the Company’s stock options and warrants is anti-dilutive.
The following table sets out the computation of basic and diluted net income (loss) per common share:
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For the year ended December 31
|
|
2016
|
|
2015
|
|
2014
|
Numerator:
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Net loss
|
$
|
(384,164
|
)
|
|
$
|
(61,121
|
)
|
|
$
|
(38,837
|
)
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
|
53,074,401
|
|
|
45,462,324
|
|
|
21,603,136
|
|
Basic income (loss) per common share
|
$
|
(7.24
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(1.80
|
)
|
Diluted income (loss) per common share
|
$
|
(7.24
|
)
|
|
$
|
(1.34
|
)
|
|
$
|
(1.80
|
)
|
For the year ended
December 31, 2016
, potential common shares of
4,645,864
were excluded from the calculation of income per common share because their inclusion would be anti-dilutive (
December 31, 2015
–
2,899,331
;
December 31, 2014
–
2,221,233
).
Government grants and refundable investment tax credits
Government grants and tax credits provided for current expenses is included in the determination of income or loss for the year, as a reduction of the expenses to which it relates. Government grants and tax credits towards the acquisition of property and equipment is deducted from the cost of the related property and equipment.
Deferred income taxes
Income taxes are accounted for using the asset and liability method of accounting. Deferred income taxes are recognized for the future income tax consequences attributable to differences between the carrying values of assets and liabilities and their respective income tax bases and for loss carry-forwards. Deferred income tax assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the periods in which temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax laws or rates is included in earnings in the period that includes the enactment date. When realization of deferred income tax assets does not meet the more-likely-than-not criterion for recognition, a valuation allowance is provided.
Equity classified stock option awards
The Company grants stock options to employees, directors and consultants pursuant to share incentive plans described in note 6. Compensation expense is recorded for issued stock options using the fair value method with a corresponding increase in additional paid-in capital. Any consideration received on the exercise of stock options is credited to share capital.
The fair value of equity classified stock options is measured at the grant date and amortized on a straight-line basis over the vesting period.
Liability-classified stock option awards
The Company accounts for liability-classified stock option awards ("liability options") under ASC 718 - Compensation - Stock Compensation ("ASC 718"), under which awards of options that provide for an exercise price that is not denominated in: (a) the currency of a market in which a substantial portion of the Company's equity securities trades, (b) the currency in which the employee's pay is denominated, or (c) the Company's functional currency, are required to be classified as liabilities. Due to the change in functional currency as of January 1, 2016, certain stock option awards with exercise prices denominated in Canadian dollars changed from equity classification to liability classification. As such, the historic equity classification of these stock option awards changed to liability classification effective January 1, 2016. The change in classification resulted in reclassification of these awards from additional paid-in capital to liability-classified options.
Liability options are re-measured to their fair values at each reporting date with changes in the fair value recognized in share-based compensation expense or additional paid-in capital until settlement or cancellation. Under ASC 718, when an award is reclassified from equity to liability, if at the reclassification date the original vesting conditions are expected to be satisfied, then the minimum amount of compensation cost to be recognized is based on the grant date fair value of the original award. Fair value changes below this minimum amount are recorded in additional paid-in capital.
Replacement awards
Replacement awards are share-based payment awards exchanged for awards held by employees of Arbutus Inc. As part of the Company’s acquisition of Arbutus Inc., Arbutus shares were exchanged for Arbutus Inc.’s shares subject to repurchase rights held by Arbutus Inc.’s employees.
As at the date of acquisition of Arbutus Inc., the Company determined the total fair value of replacement awards and attributed a portion of the replacement awards to pre-combination service as part of the total acquisition consideration, and a portion to post-combination service, which is recognized as compensation expense over the expiry period of repurchase provision rights subsequent to the acquisition date.
The replacement awards consist of common shares that were issued at acquisition. Accordingly, as stock compensation expense related to these awards is recognized, share capital is increased by a corresponding amount. Replacement awards are excluded in the calculation of basic net income (loss) per share until the repurchase rights have expired.
Warrants
The Company accounts for the warrants under the authoritative guidance on accounting for derivative financial instruments indexed to, and potentially settled in, a company’s own stock, on the understanding that in compliance with applicable securities laws, the registered warrants require the issuance of registered securities upon exercise and do not sufficiently preclude an implied right to net cash settlement. The Company classifies warrants in its consolidated balance sheet as a liability which is revalued at each balance sheet date subsequent to the initial issuance. The Company uses the Black-Scholes pricing model to value the warrants. Determining the appropriate fair-value model and calculating the fair value of registered warrants requires considerable judgment. A small change in the estimates used may cause a relatively large change in the estimated valuation. The estimated volatility of the Company’s common stock at the date of issuance, and at each subsequent reporting period, is based on historic fluctuations in the Company’s stock price. The risk-free interest rate is based on the Government of Canada rate for bonds with a maturity similar to the expected remaining life of the warrants at the valuation date. The expected life of the warrants is based on the historical pattern of exercises of warrants.
Segment information
The Company operates in a single reporting segment. Substantially all of the Company’s revenues to date were earned from customers or collaborators based in the United States. Substantially all of the Company’s premises, property and equipment are located in Canada and the United States.
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, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (ASC 606). The standard, as subsequently amended (ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-12, ASU 2016-20), is intended to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS by creating a new Topic 606, Revenue from Contracts with Customers. This guidance supersedes the revenue recognition requirements in ASC 605, Revenue Recognition, and supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition – Construction-Type and Production-Type Contracts. The core principle of the accounting standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those good or services. The amendments should be applied by either (1) retrospectively to each prior reporting period presented; or (2) retrospectively with the cumulative effect of initially applying this ASU recognized at the date of initial application. The new guidance would be effective for fiscal years beginning after December 15, 2017, which for the Company means January 1, 2018. The Company has begun its evaluation and, at this time, does not expect adoption of this guidance to materially impact its financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification of the statement of cash flows. Under this update, there are five simplifications for public companies. All excess tax benefits and tax deficiencies should be recognized as income tax expense or benefit in the income statement and the tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. Excess tax benefits should be classified along with other tax cash flows as an operating activity. An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur. Cash paid by an employee when directly withholding shares for tax withholding purposes should be classified as financing activity. The amendments in this update would be effective for annual periods beginning after December 15, 2016, which for the Company means January 1, 2017. Early application is permitted in any interim period or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The Company has early adopted all provisions of this update effective October 1, 2016 and elected an entity-wide accounting policy to recognize forfeitures as they occur. The impact of this adoption was immaterial and has been reflected in the Company's statement of operations and comprehensive loss for the year ended December 31, 2016. The remaining provisions did not have a material impact on the Company's financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842): Recognition and Measurement of Financial Assets and Financial Liabilities. The update supersedes Topic 840, Leases and requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. Topic 842 retains a distinction between finance leases and operating leases, with cash payments from operating leases classified within operating activities in the statement of cash flows. The amendments in this update are effective for fiscal years beginning after December 15, 2018 for public business entities, which for the Company means January 1, 2019. The Company does not plan to early adopt this update. The extent of the impact of this adoption has not yet been determined.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. Under this update, the classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in GAAP. In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The amendments in this update are effective for public business entities for fiscal years beginning after December 31, 2017, which for the Company means January 1, 2018, and interim periods within those fiscal years. Early adoption is permitted. The amendments in this update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the extent of the impact of this adoption.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Statement of Cash Flows: Restricted Cash. The update requires the statement of cash flows to explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The amendments in this update are effective for public business entities for fiscal years beginning after December 15, 2017, which for the Company means January 1, 2018. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that included that interim period. The amendments in this update should be applied using a retrospective transition method to each period presented. The Company is currently evaluating the extent of the impact of this adoption.
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets required and liabilities assumed in a business combination. Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. The amendments in this update are effective for public business entities should be adopted for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, which for the Company means January 1, 2020. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the extent of the impact of this adoption.
3. Impairment evaluations for intangible assets and goodwill
During the year ended December 31, 2016, the Company recognized a cumulative impairment charge of
$391,347,000
against intangible assets and goodwill, as detailed below. The change in the estimated discount rate and the resulting impairment charge did not impact liquidity, cash runway, or cash flow from operations.
All in-process research and development (IPR&D) acquired is currently classified as indefinite-lived and is not currently being amortized. IPR&D becomes definite-lived upon the completion or abandonment of the associated research and development efforts, and will be amortized from that time over an estimated useful life based on respective patent terms. The Company evaluates the recoverable amount of intangible assets on an annual basis and performs an annual evaluation of goodwill as of December 31 each year, unless there is an event or change in the business that could indicate a requirement to test at an interim period.
Impairment of intangible assets
During the year-ended December 31, 2016, the Company recorded a total impairment charge of
$253,197,000
and a corresponding income tax benefit of
$105,002,000
against its identified intangible assets. The total impairment charge included
$156,324,000
for the discontinuance of the ARB-1598 program in the Immune Modulator drug class, as well as a delay in the Company's research and development of its cccDNA Sterilizer drug class recorded during the quarter ended June 30, 2016. An additional charge of
$96,873,000
resulted from the Company's impairment assessment performed at December 31, 2016.
At December 31, 2016, the Company re-assessed the discount rate used in its valuation models used to assess the carrying value of goodwill and intangible assets for impairment as a result of the sustained discrepancy between the Company’s market capitalization compared to carrying values and management’s assessment of fair values. As a result, the Company adjusted its company-specific risk premium to its market-derived weighted average cost of capital, which has increased the discount rate used in the annual impairment assessment at December 31, 2016. Following the process prescribed by the standard, intangible assets are first tested before assessing goodwill for impairment. The change in discount rate has resulted in an impairment charge of
$96,873,000
to the Company’s intangible assets at December 31, 2016.
The following table summarizes the carrying values, net of impairment of the intangible assets as at December 31, 2016:
|
|
|
|
|
|
|
|
Year ended December 31
|
2016
|
|
2015
|
|
IPR&D – Immune Modulators
|
40,798
|
|
183,103
|
|
IPR&D – Antigen Inhibitors
|
14,811
|
|
36,437
|
|
IPR&D – cccDNA Sterilizers
|
43,836
|
|
133,102
|
|
Total IPR&D
|
$
|
99,445
|
|
$
|
352,642
|
|
Annual impairment evaluation of goodwill
On December 31, the Company conducted its annual impairment evaluation of goodwill. Goodwill was recorded as a result of the acquisition of Arbutus Inc. as described in note 2. As part of the evaluation of the recoverability of goodwill, the Company has identified only
one
reporting unit to which the total carrying amount of goodwill has been assigned.
The Company determines the fair value of the reporting unit each reporting period using accepted valuation methods, including the use of discounted cash flows supplemented by market-based assessments of fair value.
The income approach is used in step one of the impairment assessment to estimate the fair value of the reporting unit, which requires estimating future cash flows and risk-adjusted discount rates in the Company's discounted cash flow model. The overall market outlook and cash flow projections of our reporting unit involve the use of key assumptions, including cash flows, discount rates and probability of success. Due to uncertainties in the estimates that are inherent to our industry, actual results could differ significantly from the estimates made.
As at December 31, 2016, the Company re-assessed the discount rate used in the calculation of fair value, consistent with the change to the discount rate used in the intangible assets impairment assessment (described above). As a result of the increased discount rate, the carrying value of the reporting unit determined in step one of the impairment assessment exceeded the fair value of the reporting unit, and as such the Company proceeded to the second step of the impairment test, which measures the amount of an impairment charge. In the second step, the carrying value of goodwill is compared to the fair value of goodwill that is implied by performing a hypothetical purchase price allocation based on identifiable assets at the date of the assessment. The remaining implied goodwill of
$24,364,000
is the result of deferred taxes in the hypothetical purchase price allocation. As a result, the Company has recorded an impairment for
$138,150,000
against goodwill.
Many key assumptions in the cash flow projections are interdependent on each other. A change in any one or combination of these assumptions could impact the estimated fair value of the reporting unit. See note 2 for additional discussion of the Company's policy for accounting for goodwill.
4. Collaborations, contracts and licensing agreements
The following tables set forth revenue recognized under collaborations, contracts and licensing agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2016
|
|
2015
|
|
2014
|
Collaborations and contracts
|
|
|
|
|
|
DoD (a)
|
$
|
—
|
|
|
$
|
6,764
|
|
|
$
|
8,407
|
|
Monsanto (b)
|
—
|
|
|
4,725
|
|
|
1,080
|
|
BMS (c)
|
—
|
|
|
—
|
|
|
1,741
|
|
Dicerna (d)
|
229
|
|
|
1,820
|
|
|
510
|
|
Total research and development collaborations and contracts
|
229
|
|
|
13,309
|
|
|
11,738
|
|
Licensing fees, milestone and royalty payments
|
|
|
|
|
|
|
|
|
Monsanto licensing fees and milestone payments (b)
|
—
|
|
|
10,256
|
|
|
2,744
|
|
Dicerna licensing fee (d)
|
1,066
|
|
|
1,053
|
|
|
131
|
|
Other milestone and royalty payments (e)
|
196
|
|
|
255
|
|
|
340
|
|
Total licensing fees, milestone and royalty payments
|
1,262
|
|
|
11,564
|
|
|
3,215
|
|
Total revenue
|
$
|
1,491
|
|
|
$
|
24,873
|
|
|
$
|
14,953
|
|
The following table sets forth deferred collaborations and contracts revenue:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
DoD (a)
|
$
|
15
|
|
|
$
|
15
|
|
Monsanto current portion (b)
|
—
|
|
|
—
|
|
Dicerna current portion (d)
|
—
|
|
|
853
|
|
Deferred revenue, current portion
|
15
|
|
|
868
|
|
Monsanto long-term portion (b)
|
—
|
|
|
—
|
|
Dicerna long-term portion (d)
|
—
|
|
|
213
|
|
Total deferred revenue
|
$
|
15
|
|
|
$
|
1,081
|
|
(a) Contract with United States Government’s Department of Defense (“DoD”) to develop TKM-Ebola
On July 14, 2010, the Company signed a contract with the DoD to advance TKM-Ebola, an RNAi therapeutic utilizing the Company’s lipid nanoparticle technology to treat Ebola virus infection.
In the initial phase of the contract, funded as part of the Transformational Medical Technologies program, the Company was eligible to receive up to
$34,700,000
. This initial funding was for the development of TKM-Ebola including completion of preclinical development, filing an Investigational New Drug application with the United States Food and Drug Administration (“FDA”) and completing a Phase 1 human safety clinical trial. On May 8, 2013, the Company announced that the contract had been modified to support development plans that integrate recent advancements in lipid nanoparticle (“LNP”) formulation and manufacturing technologies. The contract modification increased the stage one targeted funding by an additional
$6,970,000
. On April 22, 2014, the Company and the DoD signed a contract modification to further increase the stage one targeted funding by
$2,100,000
to
$43,819,000
. The additional funding was to compensate the Company for unrecovered overheads related to the temporary stop-work period that occurred in 2012 and to provide additional overhead funding should it be required.
The DoD had the option of extending the contract beyond the initial funding period to support the advancement of TKM-Ebola through to the completion of clinical development and FDA approval. Based on the contract’s budget this would have provided the Company with up to
$140,000,000
in funding for the entire program. In December 2014, the DoD exercised an option valued at
$7,000,000
to manufacture TKM-Ebola-Guinea, developed by the Company targeting the Ebola-Guinea strain responsible for the current outbreak in West Africa.
Under the contract, the Company is reimbursed for costs incurred, including an allocation of overhead costs, and is paid an incentive fee. At the beginning of the fiscal year, the Company estimates its labor and overhead rates for the year ahead. At the end of the year the actual labor and overhead rates are calculated and revenue is adjusted accordingly. The Company’s actual labor and overhead rates will differ from its estimated rates based on actual costs incurred and the proportion of the Company’s efforts on contracts and internal products versus indirect activities. Within minimum and maximum collars, the amount of incentive fee the Company can earn under the contract varies based on costs incurred versus budgeted costs. During the contractual period, incentive fee revenue and total costs are impacted by management’s estimate and judgments which are continuously reviewed and adjusted as necessary using the cumulative catch-up method. For the years ended December 31, 2015 and 2016, the Company believes it can reliably estimate the final contract costs so has recognized the portion of expected incentive fee which has been earned to date.
On October 1, 2015, the Company received formal notification from the DoD that, due to the unclear development path for TKM-Ebola and TKM-Ebola-Guinea, the Ebola-Guinea Manufacturing and the Ebola-Guinea IND submission statements of work had been terminated, subject to the completion of certain post-termination obligations. The TKM-Ebola portion of the contract was completed in November 2015. The Company is currently conducting contract close out procedures with the DoD.
(b)
Option and Services Agreements with Monsanto Company (“Monsanto”)
On January 13, 2014, the Company and Monsanto signed an Option Agreement and a Services Agreement (together, the “Agreements”). Under the Agreements, Monsanto has an option to obtain a license to use the Company’s proprietary delivery technology and related intellectual property for use in agriculture. Over the option period, which is expected to be approximately
four
years, the Company will provide lipid formulations for Monsanto’s research and development activities, and Monsanto will make certain payments to the Company to maintain its option rights. The maximum potential value of the transaction is
$86,200,000
following the successful completion of milestones.
In May 2015, the arrangement was amended to extend the option period by approximately
five
months, with payments up to
$2,000,000
for the extension period. From inception of the contract to December 31, 2015, the Company had received
$19,300,000
from Monsanto. The amounts received relate to research services and use of the Company’s technology over the option period, and are recognized as revenue on a straight-line basis over the extended option period.
Following the completion of the Phase A extension period in October 2015, no further research activities were conducted under the arrangement, as Monsanto did not elect to proceed to Phase B of the research plan. As such, the Company revised its estimate of the option period, over which payments received from Monsanto is recognized as revenue, to be from inception to December 31, 2015 as the Company believes it no longer has any further obligations to provide future research activities to Monsanto. This resulted in the full release of Monsanto deferred revenue and a recognition of
$14,981,000
in Monsanto revenue for the year ended December 31, 2015.
Under the Agreements, the Company has established a wholly-owned subsidiary, PADCo. The Company has determined that PADCo is a variable interest entity (“VIE”); however, Monsanto is the primary beneficiary of the arrangement. PADCo was established to perform research and development activities, which have been funded by Monsanto in return for a call option to acquire the equity or all of the assets of PADCo. On March 4, 2016, Monsanto exercised its option to acquire
100%
of the outstanding shares of PADCo and paid the Company an option exercise fee of
$1,000,000
. From the acquisition of PADCo, Monsanto received a worldwide, exclusive right to use the Company’s proprietary delivery technology in the field of agriculture. The Company recorded the exercise fee received as a gain on disposition of a financial instrument in its consolidated statement of operations and comprehensive loss for the year ended
December 31, 2016
.
(c) Bristol-Myers Squibb (“BMS”) collaboration
On May 10, 2010 the Company announced the expansion of its research collaboration with BMS. Under the new agreement, BMS uses small interfering RNA (“siRNA”) molecules formulated by the Company in LNP technology to silence target genes of interest. BMS is conducting the preclinical work to validate the function of certain genes and share the data with the Company. The Company can use the preclinical data to develop RNAi therapeutic drugs against the therapeutic targets of interest. The Company received
$3,000,000
from BMS concurrent with the signing of the agreement and recorded the amount as deferred revenue. The Company is required to provide a pre-determined number of LNP batches over the
four
-year agreement. BMS has a first right to negotiate a licensing agreement on certain RNAi products developed by the Company that evolve from BMS validated gene targets.
Revenue from the May 10, 2010 agreement with BMS is being recognized as the Company produces the related LNP batches.
Revenue earned for the year ended December 31, 2014 relates to batches shipped to BMS during the period. In August 2014, the agreement expired and both companies' obligations under the agreement ended.
(d) License and Development and Supply Agreement with Dicerna Pharmaceuticals, Inc. (“Dicerna”)
On November 16, 2014, the Company signed a License Agreement and a Development and Supply Agreement (together, the “Agreements”) with Dicerna related to development, manufacture, and commercialization of products directed to the treatment of Primary Hyperoxaluria 1 (“PH1”). In consideration for the rights granted under the Agreements, Dicerna paid the Company an upfront cash payment of
$2,500,000
. The Company is also entitled to receive payments from Dicerna on the manufacturing and services provided, as well as further payments with the achievement of development and regulatory milestones of
$22,000,000
in aggregate, and potential commercial royalties. Further, under the Agreements, a joint development committee has been established to provide guidance and direction on the progression of the collaboration.
The Company determined the deliverables under the Agreements included the rights granted, participation in the joint development committee, materials manufactured and other services provided, as directed under the joint development committee. The license and participation in the joint development committee have been determined by the Company to not have standalone value due to the uniqueness of the subject matter under the Agreements. Therefore, these deliverables are treated as one unit of accounting and recognized as revenue over the performance period. In September 2016, Dicerna announced the discontinuation of their DCR-PH1 program using the Company's technology. As such, the Company revised the completion date of performance period from March 2017 to
September 30, 2016
, at which time the Company had no further remaining performance obligations. This resulted in the recognition of
$1,066,000
in Dicerna license fee revenue for the year ended December 31, 2016.
The Company has determined that manufacturing services and other services provided have standalone value, as a separate statement of work is executed and invoiced for each manufacturing or service work order. The relative fair values are determined as a batch price or fee is estimated upon the execution of each work order, with actual expenditures charged at comparable market rates with embedded margins on each work order.
Manufacturing work orders are invoiced at the time of execution of the work order, at the initiation of manufacture, and at the release of materials. The Company has deferred the recognition of revenue on all cash deposit payments received for manufacturing work orders until acceptance of inventory. Revenue from service work orders is recognized as the services are performed.
The Company believes the development and regulatory milestones are substantive, due to the existence of substantive uncertainty upon the execution of the arrangement, and that the achievement of the development and regulatory events are based in part on the Company’s performance and the occurrence of a specific outcome resulting from performance. The Company has not received any milestone payments to date.
(e) Agreements with Spectrum Pharmaceuticals, Inc. (“Spectrum”)
On May 6, 2006, the Company signed a number of agreements with Talon Therapeutics, Inc. (“Talon”, formerly Hana Biosciences, Inc.) including the grant of worldwide licenses (the “Talon License Agreement”) for
three
of the Company’s chemotherapy products, Marqibo®, Alocrest ™ (Optisomal Vinorelbine) and Brakiva ™ (Optisomal Topotecan).
On August 9, 2012, the Company announced that Talon had received accelerated approval for Marqibo from the FDA for the treatment of adult patients with Philadelphia chromosome negative acute lymphoblastic leukemia in second or greater relapse or whose disease has progressed following two or more anti-leukemia therapies. Marqibo is a liposomal formulation of the chemotherapy drug vincristine. In the year ended December 31, 2012, the Company received a milestone of $
1,000,000
based on the FDA’s approval of Marqibo and will receive royalty payments based on Marqibo’s commercial sales. There are no further milestones related to Marqibo but the Company is eligible to receive total milestone payments of up to
$18,000,000
on Alocrest and Brakiva.
Talon was acquired by Spectrum in July 2013. The acquisition did not affect the terms of the license between Talon and the Company. On September 3, 2013, Spectrum announced that they had shipped the first commercial orders of Marqibo. In the year ended
December 31, 2016
, the Company recorded
$212,000
in Marqibo royalty revenue (
2015
-
$240,000
,
2014
-
$190,000
). In the year ended
December 31, 2016
, the Company accrued
$5,000
in royalties due to TPC in respect of the Marqibo royalty earned by the Company (see note 10).
5. Property and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net
book value
|
|
Lab equipment
|
$
|
7,894
|
|
|
$
|
(4,305
|
)
|
|
$
|
3,589
|
|
Leasehold improvements
|
4,928
|
|
|
(4,454
|
)
|
|
474
|
|
Computer hardware and software
|
2,103
|
|
|
(1,665
|
)
|
|
438
|
|
Furniture and fixtures
|
374
|
|
|
(314
|
)
|
|
60
|
|
Assets under construction
|
$
|
2,384
|
|
|
$
|
—
|
|
|
$
|
2,384
|
|
|
$
|
17,683
|
|
|
$
|
(10,738
|
)
|
|
$
|
6,945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
Cost
|
|
|
Accumulated
depreciation
|
|
|
Net
book value
|
|
Lab equipment
|
$
|
5,910
|
|
|
$
|
(3,748
|
)
|
|
$
|
2,162
|
|
Leasehold improvements
|
4,681
|
|
|
(4,189
|
)
|
|
492
|
|
Computer hardware and software
|
2,014
|
|
|
(1,487
|
)
|
|
527
|
|
Furniture and fixtures
|
307
|
|
|
(305
|
)
|
|
2
|
|
|
$
|
12,912
|
|
|
$
|
(9,729
|
)
|
|
$
|
3,183
|
|
As at
December 31, 2016
, all of the Company’s property and equipment are currently in use and
no
impairment has been recorded.
6. Share capital
(a) Financing
On March 26, 2014, the Company completed an underwritten public offering of
2,125,000
common shares, at a price of
$28.50
per share, representing gross proceeds of
$60,562,000
. The Company also granted the underwriters a
30
-day option to purchase an additional
318,750
shares for an additional
$9,084,000
to cover any over-allotments. The underwriters did not exercise the option. The cost of financing, including commissions and professional fees, was
$4,085,000
, resulting in net proceeds of
$56,477,000
.
On March 25, 2015, the Company announced that it had completed an underwritten public offering of
7,500,000
common shares, at a price of
$20.25
per share, representing gross proceeds of
$151,875,000
. The Company also granted the underwriters a
30
-day option to purchase an additional
1,125,000
shares for an additional
$22,781,000
to cover any over-allotments. The underwriters did not exercise the option. The cost of financing, including commissions and professional fees, was
$9,700,000
, resulting in net proceeds of
$142,177,000
.
(b) Authorized share capital
The Company’s authorized share capital consists of an unlimited number of common and preferred shares without par value.
(c) Warrants to purchase common shares
During the year ended
December 31, 2016
, there were
170,500
warrants exercised for
$445,000
in cash (
December 31, 2015
–
18,750
warrants for
$42,000
) and
no
warrants were exercised using the cashless exercise provision (
December 31, 2015
–
0
warrants for
0
common shares). In June 2016,
8,000
of the Company's warrants expired. The decrease in fair value from the previous balance sheet date relating to the expired warrants has been included in the total decrease in fair value of warrant liability in the Company's statement of comprehensive loss for the year ended December 31, 2016 of
$530,000
.
The following table summarizes the Company’s warrant activity for the years ended
December 31, 2016
and
2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares
purchasable upon
exercise of
warrants
|
|
|
Weighted average
exercise price (C$)
|
|
|
Weighted
average exercise
price (US$)
|
|
|
Range of
exercise prices
(C$)
|
|
|
Range of
exercise prices
(US$)
|
|
|
Weighted average remaining contractual life (years)
|
|
Aggregate
intrinsic value
(C$)
|
|
|
Aggregate
intrinsic value
(US$)
|
|
Balance, December 31, 2014
|
398,250
|
|
|
$
|
2.95
|
|
|
$
|
2.67
|
|
|
$2.60
|
|
—
|
|
$
|
3.35
|
|
|
$2.35
|
|
—
|
|
$
|
3.03
|
|
|
1.8
|
|
$
|
5,902
|
|
|
$
|
5,343
|
|
Exercised
|
(18,750
|
)
|
|
2.88
|
|
|
2.25
|
|
|
2.60
|
|
—
|
|
3.35
|
|
|
2.03
|
|
—
|
|
2.62
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
379,500
|
|
|
$
|
2.95
|
|
|
$
|
2.13
|
|
|
$2.60
|
|
—
|
|
$
|
3.35
|
|
|
$2.03
|
|
—
|
|
$
|
2.62
|
|
|
0.8
|
|
1,217
|
|
|
$
|
879
|
|
Exercised
|
(170,500
|
)
|
|
3.35
|
|
|
2.53
|
|
|
3.35
|
|
—
|
|
3.35
|
|
|
2.53
|
|
—
|
|
2.53
|
|
|
|
|
|
|
|
|
|
Expired
|
(8,000
|
)
|
|
3.35
|
|
|
2.53
|
|
|
3.35
|
|
—
|
|
3.35
|
|
|
2.53
|
|
—
|
|
2.53
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
201,000
|
|
|
$
|
2.60
|
|
|
$
|
1.94
|
|
|
$2.60
|
|
—
|
|
$
|
2.60
|
|
|
$
|
1.94
|
|
|
—
|
|
$
|
1.94
|
|
|
0.2
|
|
$
|
139
|
|
|
$
|
104
|
|
The aggregate intrinsic value in the table above is calculated based on the difference between the exercise price of the warrants and the quoted price of the Company’s common stock as of the reporting date.
All of the Company’s warrants were exercisable as of
December 31, 2016
.
The weighted average Black-Scholes option-pricing assumptions and the resultant fair values are as follows for warrants outstanding at
December 31, 2016
and
2015
are as follows:
|
|
|
|
|
|
|
|
|
|
As at December 31
|
|
2016
|
|
2015
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
41.95
|
%
|
|
49.07
|
%
|
Risk-free interest rate
|
0.76
|
%
|
|
0.48
|
%
|
Expected average term (years)
|
0.2 years
|
|
|
0.6 years
|
|
Fair value of warrants outstanding
|
$
|
0.53
|
|
|
$
|
2.33
|
|
Aggregate fair value of warrants outstanding
|
$
|
107
|
|
|
$
|
883
|
|
Number of warrants outstanding
|
201,000
|
|
|
379,500
|
|
The value of the Company’s warrants is particularly sensitive to changes in the Company’s share price and the estimated share price volatility.
(d) Stock-based compensation
The Company has
seven
share-based compensation plans; the “2007 Plan”, the “2011 Plan”, the "2016 Plan", two “Designated Plans” (together, the “Arbutus Plans”), the “Protiva Option Plan”, and the "OnCore Option Plan".
On June 22, 2011, the shareholders of the Company approved an omnibus stock-based compensation plan (the “2011 Plan”). The Company’s pre-existing 2007 Plan was limited to the granting of stock options as equity incentive awards whereas the 2011 Plan also allows for the issuance of tandem stock appreciation rights, restricted stock units and deferred stock units (collectively, and including options, referred to as “Awards”). The 2011 Plan replaces the 2007 Plan. The 2007 Plan will continue to govern the options granted thereunder. No further options will be granted under the Company’s 2007 Plan.
Under the Company’s 2007 Plan the Board of Directors granted options to employees, directors and consultants of the Company. The exercise price of the options was determined by the Company’s Board of Directors but was always at least equal to the closing market price of the common shares on the day preceding the date of grant and the term of options granted did not exceed
10
years. The options granted generally vested over
three years
for employees and immediately for directors.
Under the Company’s 2011 Plan the Board of Directors may grant options, and other types of Awards, to employees, directors and consultants of the Company. The exercise price of the options is determined by the Company’s Board of Directors but will be at least equal to the closing market price of the common shares on the day preceding the date of grant and the term may not exceed
10
years. Options granted generally vest over
three years
for employees and immediately for directors.
At the Company’s annual general and special meeting of shareholders on May 8, 2014 and July 9, 2015, the shareholders of the Company approved respectively, a
800,000
and a
3,500,000
increase in the number of stock-based compensation awards that the Company is permitted to issue under the 2011 Plan.
At the Company’s annual general and special meeting of shareholders on May 19, 2016, the shareholders of the Company approved the adoption of the Company's 2016 Omnibus Share and Incentive Plan (the "2016 Plan") and the reserve of
5,000,000
shares of the Company issuable pursuant to awards under the 2016 Plan. These include both equity-classified and liability-classified stock options. The Company's 2011 Omnibus Share Compensation Plan, as amended, also remains in effect.
Additionally, the Company granted a total of
200,000
options in 2013 to
two
executive officers in conjunction with their new appointments as executive officers. These options were granted in accordance with the policies of the Toronto Stock Exchange and pursuant to newly designated share compensation plans (the “Designated Plans”). The Designated Plans are governed by substantially the same terms as the 2011 Plan. Hereafter, information on options governed by the 2007 Plan, the 2011 Plan, the 2016 Plan and the Designated Plans is presented on a consolidated basis as the terms of the
five
plans are similar. Information on the Protiva Option Plan and the OnCore Option Plan are presented separately.
Stock option activity for the Arbutus Plans
Equity-classified stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
optioned
common shares
|
|
|
Weighted
average exercise
price (C$)
|
|
|
Weighted
average exercise
price (US$)
|
|
|
Aggregate
intrinsic
value (C$)
|
|
|
Aggregate
intrinsic
value (US$)
|
|
Balance, December 31, 2013
|
1,730,765
|
|
|
$
|
4.45
|
|
|
$
|
4.32
|
|
|
$
|
7,030
|
|
|
$
|
6,826
|
|
Options granted
|
431,125
|
|
|
13.63
|
|
|
12.34
|
|
|
|
|
|
|
|
Options exercised
|
(622,752
|
)
|
|
4.62
|
|
|
4.18
|
|
|
7,650
|
|
|
6,926
|
|
Options forfeited, canceled or expired
|
(9,000
|
)
|
|
8.20
|
|
|
7.42
|
|
|
|
|
|
|
|
Balance, December 31, 2014
|
1,530,138
|
|
|
6.95
|
|
|
6.29
|
|
|
16,573
|
|
|
15,004
|
|
Options granted
|
1,309,625
|
|
|
N/A
|
|
|
16.57
|
|
|
|
|
|
|
|
Options exercised
|
(398,293
|
)
|
|
5.03
|
|
|
3.93
|
|
|
6,887
|
|
|
5,386
|
|
Options forfeited, canceled or expired
|
(151,207
|
)
|
|
19.29
|
|
|
15.09
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
2,290,263
|
|
|
15.53
|
|
|
11.22
|
|
|
1,376
|
|
|
994
|
|
Options reclassified to liability
1
|
(718,333
|
)
|
|
7.24
|
|
|
5.23
|
|
|
836
|
|
|
604
|
|
Options granted
|
1,789,599
|
|
|
N/A
|
|
|
3.89
|
|
|
|
|
|
|
|
Options exercised
|
(56,125
|
)
|
|
2.88
|
|
|
2.18
|
|
|
160
|
|
|
121
|
|
Options forfeited, canceled or expired
|
(394,200
|
)
|
|
13.49
|
|
|
10.18
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
2,911,204
|
|
|
$
|
11.45
|
|
|
$
|
8.53
|
|
|
$
|
75
|
|
|
$
|
56
|
|
|
|
1.
|
Due to the change in the Company's functional currency as of January 1, 2016, certain stock option awards with exercise prices denominated in Canadian dollars changed from equity classification to liability classification - see note 2.
|
Options under the Arbutus Plans expire at various dates from March 21, 2017 to November 28, 2026.
The following table summarizes information pertaining to stock options outstanding at
December 31, 2016
under the Arbutus Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2016
|
|
Options exercisable December 31, 2016
|
Range of
Exercise prices (US$)
|
|
Number
of options
outstanding
|
|
|
Weighted
average
remaining
contractual
life (years)
|
|
|
Weighted
average
exercise
price (US$)
|
|
|
Number
of options
exercisable
|
|
|
|
Weighted
average
exercise
price (US$)
|
|
$1.12
|
|
to
|
|
$3.05
|
|
121,725
|
|
|
6.4
|
|
|
2.23
|
|
|
75,225
|
|
|
|
1.78
|
|
$3.28
|
|
to
|
|
$3.84
|
|
209,033
|
|
|
8.4
|
|
|
3.64
|
|
|
62,033
|
|
|
|
3.69
|
|
$3.94
|
|
to
|
|
$3.94
|
|
1,369,849
|
|
|
9.2
|
|
|
3.94
|
|
|
—
|
|
|
|
N/A
|
|
$3.98
|
|
to
|
|
$8.64
|
|
81,713
|
|
|
8.1
|
|
|
4.49
|
|
|
71,380
|
|
|
|
4.38
|
|
$9.11
|
|
to
|
|
$9.73
|
|
118,843
|
|
|
7.8
|
|
|
9.44
|
|
|
91,375
|
|
|
|
9.44
|
|
$9.88
|
|
to
|
|
$13.89
|
|
201,000
|
|
|
8.1
|
|
|
13.42
|
|
|
74,271
|
|
|
|
13.26
|
|
$17.57
|
|
to
|
|
$17.57
|
|
809,041
|
|
|
8.2
|
|
|
17.57
|
|
|
324,957
|
|
|
|
17.57
|
|
$1.12
|
|
to
|
|
$17.57
|
|
2,911,204
|
|
|
8.6
|
|
|
$
|
8.53
|
|
|
699,241
|
|
|
|
$
|
11.77
|
|
At
December 31, 2016
, there were
699,241
options exercisable (
December 31, 2015
-
938,730
;
December 31, 2014
–
1,088,908
). The weighted average remaining contractual life of exercisable options as at
December 31, 2016
was
7.5
years.
The aggregate intrinsic value of in-the-money options exercisable at
December 31, 2016
was
$56,000
.
A summary of the Company’s non-vested stock option activity and related information for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
optioned
common shares
|
|
|
Weighted
average
fair value (C$)
|
|
|
Weighted
average
fair value (US$)
|
|
Non-vested at December 31, 2015
|
1,351,541
|
|
|
$
|
15.69
|
|
|
$
|
11.34
|
|
Options reclassified to liability-options
1
|
(134,000
|
)
|
|
10.80
|
|
|
7.80
|
|
Options granted
|
1,789,599
|
|
|
5.15
|
|
|
3.89
|
|
Options vested
|
(472,479
|
)
|
|
14.20
|
|
|
10.72
|
|
Non-vested options forfeited
|
(322,698
|
)
|
|
9.70
|
|
|
7.33
|
|
Non-vested at December 31, 2016
|
2,211,963
|
|
|
$
|
7.17
|
|
|
$
|
5.34
|
|
1. Non-vested liability-classified stock options as at January 1, 2016
The weighted average remaining contractual life for options expected to vest at
December 31, 2016
was
9.0
years and the weighted average exercise price for these options was
$7.50
(
C$10.07
) per share.
The aggregate intrinsic value of options expected to vest as at
December 31, 2016
was
$0
(
December 31, 2015
-
$10,000
;
December 31, 2014
-
$2,626,000
).
The total fair value of options that vested during the year ended
December 31, 2016
was
$5,058,000
(
December 31, 2015
-
$1,718,000
;
December 31, 2014
-
$2,505,000
).
Valuation assumptions for the Arbutus Plans
On March 3, 2015, the Company voluntarily de-listed from the Toronto Stock Exchange. All stock options granted after March 3, 2015 were denominated in US dollars based on the Company's stock price on the NASDAQ. The methodology and assumptions used to estimate the fair value of stock options at date of grant under the Black-Scholes option-pricing model remain unchanged. Assumptions on the dividend yield are based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. Assumptions about the Company’s expected stock-price volatility are based on the historical volatility of the Company’s publicly traded stock. The risk-free interest rate used for each grant is equal to the
zero
coupon rate for instruments with a similar expected life. Expected life assumptions are based on the Company’s historical data. The Company recognizes forfeitures as they occur, and the effects of forfeitures are reflected in stock-based compensation expense recorded in the statement of operations and comprehensive loss for the year ended December 31, 2016. The weighted average option pricing assumptions for options granted during the year are as follows:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2016
|
|
2015
|
|
2014
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
77.99
|
%
|
|
76.88
|
%
|
|
101.08
|
%
|
Risk-free interest rate
|
0.90
|
%
|
|
1.10
|
%
|
|
2.25
|
%
|
Expected average option term
|
7.3 years
|
|
|
7.5 years
|
|
|
8.8 years
|
|
Liability-classified stock option activity:
Valuation assumptions
Liability options are re-measured to their fair values at each reporting date, using the Black-Scholes valuation model. The methodology and assumptions prevailing at the re-measurement date used to estimate the fair values of liability options remain unchanged from the date of grant of equity classified stock option awards. Assumptions about the Company’s expected stock-price volatility are based on the historical volatility of the Company’s publicly traded stock. The risk-free interest rate used for each grant is equal to the zero coupon rate for instruments with a similar expected life. Expected life assumptions are based on the Company’s historical data. The weighted average Black-Scholes option-pricing assumptions and the resultant fair values as at the reclassification date of January 1, 2016, and as at December 31, 2016, are presented in the following table:
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
January 1,
|
|
2016
|
|
2016
|
Dividend yield
|
—
|
%
|
|
—
|
%
|
Expected volatility
|
66.18
|
%
|
|
97.78
|
%
|
Risk-free interest rate
|
0.88
|
%
|
|
0.86
|
%
|
Expected average term (years)
|
3.6
|
|
|
5.3
|
|
Fair value of options outstanding
|
$
|
0.87
|
|
|
$
|
3.33
|
|
Fair value of vested liability-classified options (in thousands)
|
$
|
553
|
|
|
$
|
1,909
|
|
Stock option activity for liability options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
optioned
common shares
|
|
|
Weighted
average exercise
price (C$)
|
|
|
Weighted
average exercise
price (US$)
|
|
|
Aggregate
intrinsic
value (US$)
|
|
Balance, January 1, 2016
|
718,333
|
|
|
$
|
7.24
|
|
|
$
|
5.23
|
|
|
$
|
604
|
|
Options exercised
|
(30,000
|
)
|
|
3.00
|
|
|
2.30
|
|
|
54
|
|
Options forfeited, canceled or expired
|
(49,833
|
)
|
|
8.29
|
|
|
6.17
|
|
|
—
|
|
Balance, December 31, 2016
|
638,500
|
|
|
$
|
7.35
|
|
|
$
|
5.48
|
|
|
$
|
116
|
|
Liability options expire at various dates from August 6, 2017 to May 7, 2024.
The following table summarizes information pertaining to liability options outstanding at
December 31, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding December 31, 2016
|
|
Options exercisable December 31, 2016
|
Range of
Exercise prices (US$)
|
|
Number
of options
outstanding
|
|
|
Weighted
average
remaining
contractual
life (years)
|
|
Weighted
average
exercise
price (US$)
|
|
|
Number
of options
exercisable
|
|
|
Weighted
average
exercise
price (US$)
|
|
$1.27
|
|
to
|
|
$1.79
|
|
120,000
|
|
|
3.7
|
|
$
|
1.48
|
|
|
120,000
|
|
|
$
|
1.48
|
|
$2.87
|
|
to
|
|
$3.84
|
|
120,000
|
|
|
3.6
|
|
3.42
|
|
|
120,000
|
|
|
3.42
|
|
$3.97
|
|
to
|
|
$4.28
|
|
74,000
|
|
|
1.6
|
|
4.22
|
|
|
74,000
|
|
|
4.22
|
|
$4.84
|
|
to
|
|
$6.18
|
|
76,250
|
|
|
0.7
|
|
5.83
|
|
|
76,250
|
|
|
5.83
|
|
$6.79
|
|
to
|
|
$6.79
|
|
150,000
|
|
|
6.8
|
|
6.79
|
|
|
150,000
|
|
|
6.79
|
|
$9.32
|
|
to
|
|
$12.21
|
|
98,250
|
|
|
6.0
|
|
11.53
|
|
|
83,500
|
|
|
11.44
|
|
$1.27
|
|
to
|
|
$12.21
|
|
638,500
|
|
|
4.2
|
|
$
|
5.48
|
|
|
623,750
|
|
|
$
|
5.32
|
|
At
December 31, 2016
, there were
623,750
liability options exercisable with a weighted average exercise price of
$5.32
(
C$7.14
). The weighted average remaining contractual life of exercisable liability options as at
December 31, 2016
was
4.1
years.
A summary of the Company's non-vested liability stock option activity and related information at
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
Number of
optioned
common shares
|
|
|
Weighted
average
fair value (US$)
|
|
Non-vested at January 1, 2016
|
134,000
|
|
|
$
|
3.61
|
|
Options vested
|
(93,250
|
)
|
|
0.67
|
|
Non-vested options forfeited
|
(26,000
|
)
|
|
0.04
|
|
Non-vested at December 31, 2016
|
14,750
|
|
|
$
|
0.92
|
|
The weighted average remaining contractual life for liability options expected to vest at
December 31, 2016
was
7.1
years and the weighted average exercise price for these options was
$12.06
(
C$16.19
) per share.
The total fair value of liability options that vested during the year ended
December 31, 2016
was
$62,200
.
Protiva Option Plan
On May 30, 2008, as a condition of the acquisition of Protiva Biotherapeutics Inc., a total of
350,457
common shares of the Company were reserved for the exercise of
519,073
Protiva share options (“Protiva Options”). The Protiva Options have an exercise price of
C$0.30
, were fully vested and exercisable as of May 30, 2008. As at
December 31, 2016
, the outstanding options expire at various dates from April 3, 2017 to March 1, 2018 and upon exercise each option will be converted into approximately
0.6752
shares of the Company (the same ratio at which Protiva common shares were exchanged for Company common shares at completion of the acquisition of Protiva). The Protiva Options are not part of the Arbutus Plans and the Company is not permitted to grant any further Protiva Options.
The following table sets forth outstanding options under the Protiva Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Protiva
Options
|
|
|
Equivalent number
of Company
common shares
|
|
|
Weighted
average exercise
price (C$)
|
|
|
Weighted
average exercise
price (US$)
|
|
Balance, December 31, 2013
|
472,885
|
|
|
319,274
|
|
|
$
|
0.30
|
|
|
0.29
|
|
Options exercised
|
(38,145
|
)
|
|
(25,754
|
)
|
|
0.30
|
|
|
0.27
|
|
Options forfeited, canceled or expired
|
(1,000
|
)
|
|
(675
|
)
|
|
0.30
|
|
|
0.27
|
|
Balance, December 31, 2014
|
433,740
|
|
|
292,845
|
|
|
0.30
|
|
|
0.27
|
|
Options exercised
|
(358,675
|
)
|
|
(242,164
|
)
|
|
0.30
|
|
|
0.23
|
|
Options forfeited, canceled or expired
|
(8,065
|
)
|
|
(5,445
|
)
|
|
0.30
|
|
|
0.23
|
|
Balance, December 31, 2015
|
67,000
|
|
|
45,236
|
|
|
0.30
|
|
|
0.22
|
|
Options exercised
|
(21,000
|
)
|
|
(14,178
|
)
|
|
0.30
|
|
|
0.23
|
|
Options forfeited, canceled or expired
|
—
|
|
|
—
|
|
|
—
|
|
|
N/A
|
|
Balance, December 31, 2016
|
46,000
|
|
|
31,058
|
|
|
$
|
0.30
|
|
|
$
|
0.22
|
|
The weighted average remaining contractual life of exercisable Protiva Options as at
December 31, 2016
was
1.0
years.
The aggregate intrinsic value of Protiva Options outstanding at
December 31, 2016
was
$56,000
. The intrinsic value of Protiva Options exercised in the year ended
December 31, 2016
was
$49,000
(
2015
-
$1,249,000
;
2014
-
$378,000
).
OnCore Option Plan
As at the acquisition date in March 2015, the Company reserved
184,332
shares for the future exercise of OnCore (Arbutus Inc.) stock options. The total fair value of OnCore stock options at the date of acquisition has been determined to be
$3,287,000
, using the Black-Scholes pricing model with an assumed risk-free interest rate of
0.97%
, volatility of
78%
, a
zero
dividend yield and an expected life of
8
years, which are consistent with the assumption inputs used by the Company to determine the fair value of its options. Of the total fair value,
$1,127,000
has been attributed as pre-combination service and included as part of the total acquisition consideration. The post-combination attribution of
$2,160,000
will be recognized as compensation expense over the vesting period of the stock options through to December 2018.
Following the merger, the Company is not permitted to grant any further options under the OnCore Option Plan. The Company has included
$577,000
of compensation expense related to the vesting of Arbutus Inc. stock options for the year ended
December 31, 2016
.
The following table sets forth outstanding options under the OnCore Option Plan:
|
|
|
|
|
|
|
|
|
|
|
|
Number of OnCore
Options
|
|
|
Equivalent number
of Company
common shares
|
|
|
Weighted
average exercise
price (US$)
|
|
Balance, December 31, 2015
|
183,040
|
|
|
184,332
|
|
|
$
|
0.57
|
|
Options exercised
|
—
|
|
|
—
|
|
|
N/A
|
|
Options forfeited, canceled or expired
|
—
|
|
|
—
|
|
|
N/A
|
|
Balance, December 31, 2016
|
183,040
|
|
|
184,332
|
|
|
$
|
0.57
|
|
At
December 31, 2016
, there were
119,988
OnCore options (
120,835
Arbutus equivalent) exercisable with a weighted average exercise price of
$0.57
. The weighted average remaining contractual life of exercisable options as at
December 31, 2016
was
7.9
years. The aggregate intrinsic value of in-the-money options exercisable at
December 31, 2016
was
$226,000
.
A summary of the OnCore Option Plan's non-vested stock option activity and related information for the year ended
December 31, 2016
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Number of
OnCore Options
|
|
|
Equivalent number
of Company
common shares
|
|
|
Weighted
average
fair value (US$)
|
|
Non-vested at December 31, 2015
|
96,382
|
|
|
97,063
|
|
|
$
|
16.42
|
|
Options vested
|
(33,331
|
)
|
|
(33,566
|
)
|
|
16.80
|
|
Non-vested options forfeited
|
—
|
|
|
—
|
|
|
N/A
|
|
Non-vested at December 31, 2016
|
63,051
|
|
|
63,497
|
|
|
$
|
16.80
|
|
The weighted average remaining contractual life for options expected to vest at
December 31, 2016
was
7.9
years and the weighted average exercise price for these options was
$0.57
per share.
The aggregate intrinsic value of options expected to vest as at
December 31, 2016
was
$119,000
.
The total fair value of options that vested during the year ended
December 31, 2016
was
$560,000
.
Stock-based compensation expense
Total stock-based compensation expense is comprised of: (1) the vesting options awarded to employees under the Arbutus and OnCore option plans calculated in accordance with the fair value method as described above; and (2) the expiration of repurchase rights related to the post-combination service portion of the total fair value of shares issued to Arbutus Inc.'s employees.
The total stock-based compensation has been recorded in the consolidated statement of operations and comprehensive income (loss) as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Research, development, collaborations and contracts expenses
|
$
|
11,155
|
|
|
$
|
7,868
|
|
|
$
|
2,343
|
|
General and administrative expenses
|
28,004
|
|
|
14,225
|
|
|
940
|
|
Total
|
$
|
39,159
|
|
|
$
|
22,093
|
|
|
$
|
3,283
|
|
At
December 31, 2016
, there remains
$8,835,000
of unearned compensation expense related to unvested equity employee stock options to be recognized as expense over a weighted-average period of approximately
12
months, as well as a remaining
$7,912,000
unearned compensation expense related to unexpired repurchase rights on shares issued to Arbutus Inc. employees to be recognized as expense over a weighted average period of approximately
5
months.
Awards outstanding and available for issuance
Combining all of the Company’s share-based compensation plans, at
December 31, 2016
, the Company has
3,765,094
options outstanding and a further
6,790,414
Awards available for issuance.
(e) Replacement awards
Included in the total consideration transferred for the acquisition of Arbutus Inc. in March 2015 are common shares issued as replacement awards, which are subject to repurchase provisions. The total fair value of these common shares attributed to the post acquisition period was approximately
$56,934,000
and is being recognized as compensation expense over the expiry period of repurchase provision rights subsequent to the acquisition date.
In July 2015, in conjunction with amendments to the employment contracts of Arbutus Inc.’s founding executives, the Company amended the repurchase provision rights period of expiry from August 2018 to August 2017. This amendment results in an acceleration of compensation expense recognized in each subsequent period by approximately
$1,900,000
per quarter, effective in Q3 2015.
In April and May 2016,
two
of the
four
shareholders of these common shares subject to repurchase provision departed from the Company, resulting in accelerated expiry of the repurchase provision. These departures triggered the recognition of an incremental compensation expense of
$14,008,000
during the year, for a total of
$31,986,000
(2015 -
$16,687,000
) in stock-based compensation expense related to the expiration of repurchase provision rights for the year-ended December 31, 2016. The total unrecognized compensation expense related to the expiry of repurchase provisions was
$7,972,000
as at December 31, 2016.
7. Government grants and refundable investment tax credits
Government grants and refundable investment tax credits have been recorded as a reduction in research and development expenses.
(a) Government grants
On December 22, 2014, the Company entered into a Manufacturing and Clinical Trial Agreement with the University of Oxford to provide the new TKM-Ebola-Guinea therapeutic product for clinical studies in West Africa. The University of Oxford is the representative of the International Severe Acute Respiratory and Emerging Infection Consortium (ISARIC), who conducted clinical studies of TKM-Ebola-Guinea in Ebola virus infected patients, with funding provided by the Wellcome Trust. In January 2015, the Company received
$1,098,000
from ISARIC for materials manufactured and used in the March 2015 TKM-Ebola-Guinea Phase II single arm trial conducted in Sierra Leone. In June 2015, the Company announced closing of the enrollment for the trial as it reached a futility boundary, which was a predefined statistical endpoint. No further funding is expected under this grant.
Government grants for the year ended
December 31, 2016
include
$129,000
in funding from the U.S. National Institutes of Health (
2015
-
$1,245,000
).
(b) Refundable investment tax credits
The Company’s estimated claim for refundable Scientific Research and Experimental Development investment tax credits for the year ended December 31, 2016 is
$145,000
(2015 -
$196,000
).
8. Income taxes
Income tax (recovery) expense varies from the amounts that would be computed by applying the combined Canadian federal and provincial income tax rate of
26%
(2015 -
26%
; 2014 –
26%
) to the loss before income taxes as shown in the following tables:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31,
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
Computed taxes (recoveries) at Canadian federal and provincial tax rates
|
$
|
(127,183
|
)
|
|
$
|
(20,100
|
)
|
|
$
|
(10,097
|
)
|
Permanent and other differences
|
(3,598
|
)
|
|
769
|
|
|
2,594
|
|
Change in valuation allowance - other
|
17,043
|
|
|
3,675
|
|
|
6,599
|
|
Difference due to income taxed at foreign rates
|
(47,962
|
)
|
|
(7,874
|
)
|
|
—
|
|
Stock-based compensation
|
9,727
|
|
|
7,345
|
|
|
904
|
|
Impairment of goodwill
|
46,971
|
|
|
—
|
|
|
—
|
|
Deferred income tax recovery
|
$
|
(105,002
|
)
|
|
$
|
(16,185
|
)
|
|
$
|
—
|
|
As at
December 31, 2016
, the Company has investment tax credits available to reduce Canadian federal income taxes of
$10,245,000
(December 31, 2015 -
$7,969,000
) and provincial income taxes of
$5,337,000
(December 31, 2015 -
$3,869,000
), expiring between 2027 and 2036. In addition, the Company has research and development credits of
$1,454,000
available for indefinite carry-forward, which can be used to reduce future taxable income in the U.S.
At December 31, 2016, the Company has scientific research and experimental development expenditures of
$65,332,000
(December 31, 2015 -
$51,823,000
) available for indefinite carry-forward and
$71,460,000
(December 31, 2015 -
$24,745,000
) of net operating losses due to expire between 2027 and 2035 and which can be used to offset future taxable income in Canada.
As at December 31, 2016, the Company has
$14,621,000
of net operating losses due to expire between 2030 and 2036, which can be used to offset future taxable income in the U.S. Future use of a portion of the U.S. loss carry-forwards is subject to limitations under the Internal Revenue Code Section 382. As a result of ownership changes occurring on October 1, 2014 and March 4, 2015, the Company's ability to use these losses may be limited. Losses incurred to date may be further limited if a subsequent change in control occurs.
On November 23, 2011, the Company was registered as a corporation under the Business Activity Act in the province of British Columbia. Under this program, provincial corporation tax charged on foreign income earned from the Company’s patents will be eligible for a
75%
tax refund up to a maximum of
C$8,000,000
.
Significant components of the Company’s deferred tax assets and liabilities are shown below:
|
|
|
|
|
|
|
|
|
|
As at December 31,
|
|
2016
|
|
|
2015
|
|
Deferred tax assets (liabilities):
|
|
|
|
Non-capital loss carryforwards
|
$
|
24,275
|
|
|
$
|
13,932
|
|
Research and development deductions
|
16,986
|
|
|
13,474
|
|
Book amortization in excess of tax
|
451
|
|
|
2,142
|
|
Share issue costs
|
486
|
|
|
777
|
|
Revenue recognized for tax purposes in excess of revenue recognized for accounting purposes
|
410
|
|
|
281
|
|
Tax value in excess of accounting value in lease inducements
|
58
|
|
|
77
|
|
Federal investment tax credits
|
8,630
|
|
|
6,303
|
|
Provincial investment tax credits
|
5,270
|
|
|
3,879
|
|
In-process research and development
|
(41,263
|
)
|
|
(146,324
|
)
|
Upfront license fees
|
536
|
|
|
629
|
|
Other
|
1,435
|
|
|
—
|
|
Total deferred tax assets (liabilities)
|
17,274
|
|
|
(104,830
|
)
|
Valuation allowance
|
(58,537
|
)
|
|
(41,494
|
)
|
Net deferred tax assets (liabilities)
|
$
|
(41,263
|
)
|
|
$
|
(146,324
|
)
|
9. Loan payable
On December 27, 2016, the Company obtained a loan of
$12,001,000
from Wells Fargo in the form of a promissory note for the purpose of financing its operations, including the expansion of laboratory facilities for its U.S. operations. The loan accrues interest daily based on an interest rate with a variable and fixed component. The variable component is the one-month London Interbank Offered Rate (LIBOR), and the fixed component is a margin of
1.25%
per annum. The carrying value of the loan is recorded at the principal plus any accrued interest not yet paid. The loan is due on December 27, 2019.
The loan is secured by the Company's cash of
$12,601,000
, and is restricted from use until the loan has been settled in full. The Company invested the restricted cash in a
two
-year fixed certificate of deposit with Wells Fargo (see note 2) and is presented as restricted investment in the Company's balance sheet for the period ended December 31, 2016.
10. Contingencies and commitments
Property lease
On August 9, 2016, the Company signed a lease agreement for 701 Veterans Circle, Warminster, Pennsylvania. The facility has approximately
35,000
square feet of laboratory and office space. Renovations commenced in October 2016 and, once completed, this facility will replace the current Doylestown, Pennsylvania facility. The term of the lease is
10.6
years and expires on April 30, 2027, with the option to extend for up to
two
5
-year terms. The estimated total facility commitment, including operating costs, is approximately
$6,900,000
.
The total minimum rent and estimated operating cost commitment, net of lease inducements, for both our head office in Burnaby and new Warminster facility is as follows:
|
|
|
|
|
Year ended December 31, 2017
|
$
|
1,475,444
|
|
Year ended December 31, 2018
|
1,539,323
|
|
Year ended December 31, 2019
|
1,203,863
|
|
Year ended December 31, 2020
|
656,469
|
|
Year ended December 31, 2021 and after
|
4,486,194
|
|
|
$
|
9,361,293
|
|
The Company’s lease expense, for the year ended December 31, 2016 of
$1,341,000
has been recorded in the consolidated statements of operations and comprehensive loss (
2015
of
$1,158,000
;
2014
of
$1,133,000
).
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
$7,179,000
(
C$9,330,000
). As at
December 31, 2016
, a cumulative contribution of
$2,756,000
(
C$3,702,000
) had been received and the Company does not expect any further funding under this agreement. In return for the funding provided by TPC, the Company agreed to pay royalties on the share of future licensing and product revenue, if any, that is received by the Company on certain non-siRNA oligonucleotide product candidates covered by the funding under the agreement. These royalties are payable until a certain cumulative payment amount is achieved or until a pre-specified date. In addition, until a cumulative amount equal to the funding actually received under the agreement has been paid to TPC, the Company agreed to pay
2.5%
royalties on any royalties the Company receives for Marqibo. For the year ended
December 31, 2016
, the Company earned royalties on Marqibo sales in the amount of
$212,000
(see note 4(e)), resulting in
$5,000
recorded by the Company as royalty payable to TPC (
2015
-
$6,000
;
2014
-
$5,000
). The cumulative amount paid or accrued up to
December 31, 2016
was
$17,000
, resulting in the contingent amount due to TPC being
$2,741,000
(
C$3,680,000
).
Arbitration with the University of British Columbia (“UBC”)
Certain early work on lipid nanoparticle delivery systems and related inventions was undertaken at UBC. These inventions are licensed to the Company by UBC under a license agreement, initially entered in 1998 as amended in 2001, 2006 and 2007. The Company has granted sublicenses under the UBC license to Alnylam as well as to Talon. Alnylam has in turn sublicensed back to the Company under the licensed UBC patents. In 2009, the Company entered into a supplemental agreement with UBC, Alnylam and Acuitas, in relation to a separate research collaboration to be conducted among UBC, Alnylam and Acuitas to which the Company has license rights. The settlement agreement signed in late 2012 to resolve the litigation among the Company, Alnylam, and Acuitas, provided for the effective termination of all obligations under such supplemental agreement as between and among all litigants.
On November 10, 2014, UBC filed a notice of arbitration against the Company and on January 16, 2015, filed a Statement of Claim, which alleges entitlement to
$3,500,000
in allegedly unpaid royalties based on publicly available information, and an unspecified amount based on non-public information. UBC also seeks interest and costs, including legal fees. The Company continues to dispute UBC’s allegations. The proceeding has been bifurcated into phases, beginning with a liability phase, addressing UBC’s Claims and Arbutus’ Counterclaim, that is presently set for hearing from June 19-30, 2017. However, the Company notes that arbitration is subject to inherent uncertainty and an arbitrator could rule against the Company. The Company has not recorded an estimate of the possible loss associated with this arbitration, due to the uncertainties related to both the likelihood and amount of any possible loss or range of loss. However, the defense of arbitration and related matters are costly and may divert the attention of the Company’s management and other resources that would otherwise be engaged in other activities. Costs related to the arbitration have been recorded in the statement of operations and comprehensive loss by the Company as incurred.
Contingent consideration from Arbutus Inc. acquisition of Enantigen and License Agreements between Enantigen and Baruch S. Blumberg Institute (Blumberg) and Drexel
In October 2014, Arbutus Inc. acquired all of the outstanding shares of Enantigen pursuant to a stock purchase agreement. Through this transaction, Arbutus Inc. acquired a HBV surface antigen secretion inhibitor program and a capsid assembly inhibitor program, each of which are now assets of Arbutus, following the Company’s merger with Arbutus Inc. in March 2015.
Under the stock purchase agreement, Arbutus Inc. agreed to pay up to a total of
$21,000,000
to Enantigen’s selling stockholders upon the achievement of certain triggering events related to HBV therapies. The first triggering event is enrollment of the first patient in a Phase 1b clinical trial in HBV patients.
The regulatory, development and sales milestone payments had an estimated fair value of approximately
$6,727,000
as at the date of acquisition of Arbutus Inc., and were treated as contingent consideration payable in the purchase price allocation. The contingent consideration was calculated based on information available at the date of acquisition, using 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.
Contingent consideration is a financial liability and measured at its fair value at each reporting period, with any changes in fair value from the previous reporting period recorded in the statement of operations and comprehensive loss. For the period ended December 31, 2016, the Company performed an evaluation of the fair value of the contingent consideration using the probability weighted assessment of likelihood of milestone payments as described above. The Company determined the fair value of the contingent consideration has increased by
$1,568,000
to
$9,065,000
and the increase in fair value has been recorded in other losses in the statement of operations and comprehensive loss for the year ended December 31, 2016.
Drexel and Blumberg
In February 2014, Arbutus Inc. entered into a license agreement with Blumberg and Drexel that granted an exclusive, worldwide, sub-licensable license to
three
different compound series: cccDNA inhibitors, capsid assembly inhibitors and HCC inhibitors.
In partial consideration for this license, Arbutus Inc. paid a license initiation fee of
$150,000
and issued warrants to Blumberg and Drexel. The warrants were exercised in 2014. Under this license agreement, Arbutus Inc. also agreed to pay up to
$3,500,000
in development and regulatory milestones per licensed compound series, up to
$92,500,000
in sales performance milestones per licensed product, and royalties in the mid-single digits based upon the proportionate net sales of licensed products in any commercialized combination. The Company is obligated to pay Blumberg and Drexel a double digit percentage of all amounts received from the sub-licensees, subject to customary exclusions.
In November 2014, Arbutus Inc. entered into an additional license agreement with Blumberg and Drexel pursuant to which it received an exclusive, worldwide, sub-licensable license under specified patents and know-how controlled by Blumberg and Drexel covering epigenetic modifiers of cccDNA and STING agonists. In consideration for these exclusive licenses, Arbutus Inc. made an upfront payment of
$50,000
. Under this agreement, the Company will be required to pay up to
$1,000,000
for each licensed product upon the achievement of a specified regulatory milestone and a low single digit royalty, based upon the proportionate net sales of compounds covered by this intellectual property in any commercialized combination. The Company is also obligated to pay Blumberg and Drexel a double digit percentage of all amounts received from its sub-licensees, subject to exclusions.
Research Collaboration and Funding Agreement with Blumberg
In October 2014, Arbutus Inc. entered into a research collaboration and funding agreement with Blumberg under which the Company will provide
$1,000,000
per year of research funding for
three
years, renewable at the Company’s option for an additional
three
years, for Blumberg to conduct research projects in HBV and liver cancer pursuant to a research plan to be agreed upon by the parties. Blumberg has exclusivity obligations to Arbutus with respect to HBV research funded under the agreement. In addition, the Company has the right to match any third party offer to fund HBV research that falls outside the scope of the research being funded under the agreement. Blumberg has granted the Company the right to obtain an exclusive, royalty bearing, worldwide license to any intellectual property generated by any funded research project. If the Company elects to exercise its right to obtain such a license, the Company will have a specified period of time to negotiate and enter into a mutually agreeable license agreement with Blumberg. This license agreement will include the following pre negotiated upfront, milestone and royalty payments: an upfront payment in the amount of
$100,000
; up to
$8,100,000
upon the achievement of specified development and regulatory milestones; up to
$92,500,000
upon the achievement of specified commercialization milestones; and royalties at a low single to mid-single digit rates based upon the proportionate net sales of licensed products from any commercialized combination.
On June 5, 2016, the Company and Blumberg entered into an amended and restated research collaboration and funding agreement, primarily to: (i) increase the annual funding amount to Blumberg from
$1,000,000
to
$1,100,000
; (ii) extend the initial term through to October 29, 2018; (iii) provide an option for the Company to extend the term past October 29, 2018 for
two
additional
one
year terms; and (iv) expand the Company's exclusive license under the Agreement to include the sole and exclusive right to obtain an exclusive, royalty-bearing, worldwide and all-fields license under Blumberg's rights in certain other inventions described in the agreement.
NeuroVive Pharmaceutical AB (“NeuroVive”)
In September 2014, Arbutus Inc. entered into a license agreement with NeuroVive that granted them an exclusive, worldwide, sub-licensable license to develop, manufacture and commercialize, for the treatment of HBV, oral dosage form sanglifehrin based cyclophilin inhibitors (including OCB-030).
In 2015, the Company discontinued the OCB-30 development program based on significant research and analysis. In July 2016, the Company provided NeuroVive with a notice of termination of the license agreement. The parties agreed to terminate the agreement in October 2016.
Cytos Biotechnology Ltd (“Cytos”)
On December 30, 2014, Arbutus Inc. entered into an exclusive, worldwide, sub-licensable (subject to certain restrictions with respect to licensed viral infections other than hepatitis) license to
six
different series of compounds. The licensed compounds are Qbeta-derived virus-like particles that encapsulate TLR9, TLR7 or RIG-I agonists and may or may not be conjugated with antigens from the hepatitis virus or other licensed viruses. The Company has an option to expand this license to include additional viral infections other than influenza and Cytos will retain all rights for influenza, all non-viral infections, and all viral infections (other than hepatitis) for which it has not exercised its option.
In partial consideration for this license, the Company is obligated to pay Cytos up to a total of
$67,000,000
for each of the
six
licensed compound series upon the achievement of specified development and regulatory milestones; for hepatitis and each additional licensed viral infection, up to a total of
$110,000,000
upon the achievement of specified sales performance milestones; and tiered royalty payments in the high-single to low-double digits, based upon the proportionate net sales of licensed products in any commercialized combination. In June 2016, the Company discontinued the TLR9 development program based on significant levels of research and analysis (refer to note 3 above).
11. Concentrations of business risk
Credit risk
Credit risk is defined by the Company as an unexpected loss in cash and earnings if a collaborative partner is unable to pay its obligations in due time. The Company’s main source of credit risk is related to its accounts receivable balance which principally represents temporary financing provided to collaborative partners in the normal course of operations.
The Company does not currently maintain a provision for bad debts as the majority of accounts receivable are from collaborative partners or government agencies and are considered low risk.
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at
December 31, 2016
was the accounts receivable balance of
$273,000
(2015 -
$1,008,000
).
All accounts receivable balances were current as at
December 31, 2016
and
December 31, 2015
.
Significant collaborators and customers risk
We depend on a small number of collaborators and customers for a significant portion of our revenues (see note 4).
Liquidity Risk
Liquidity risk results from the Company’s potential inability to meet its financial liabilities, for example payments to suppliers. The Company ensures sufficient liquidity through the management of net working capital and cash balances.
The Company’s liquidity risk is primarily attributable to its cash and cash equivalents, and short-term investments. The Company limits exposure to liquidity risk on its liquid assets through maintaining its cash and cash equivalent, and short-term investments with high-credit quality financial institutions. Due to the nature of these investments, the funds are available on demand to provide optimal financial flexibility.
The Company believes that its current sources of liquidity are sufficient to cover its likely applicable short term cash obligations. The Company’s financial obligations include accounts payable and accrued liabilities which generally fall due within
45
days. The net liquidity of the Company is considered to be the cash and cash equivalents and short-term investments less accounts payable and accrued liabilities.
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Cash, cash equivalents and short-term investments
|
$
|
130,559
|
|
|
$
|
181,304
|
|
Less: Accounts payable and accrued liabilities
|
$
|
(9,910
|
)
|
|
$
|
(8,827
|
)
|
|
$
|
120,649
|
|
|
$
|
172,477
|
|
Foreign currency risk
The results of the Company’s operations are subject to foreign currency transaction and translation risk as the Company’s revenues and expenses are denominated in both Canadian and US dollars. The fluctuation of the Canadian dollar in relation to the US dollar will consequently have an impact upon the Company’s reported income or loss and may also affect the value of the Company’s assets, liabilities, and the amount of shareholders’ equity both as recorded in the Company’s financial statements, in the US functional currency, and as reported, for presentation purposes, in the US dollar.
The Company manages its foreign currency risk by using cash received in a currency to pay for expenses in that same currency, whenever possible. The Company’s policy to maintain US and Canadian dollar cash and investment and short-term investment balances based on long term forecasts of currency needs thereby creating a natural currency hedge.
The Company has not entered into any agreements or purchased any instruments to hedge possible currency risks. The Company’s exposure to Canadian dollar currency expressed in US dollars was as follows:
|
|
|
|
|
(in US$)
|
December 31, 2016
|
Cash and cash equivalents and short-term investments
|
$
|
43,094
|
|
Accounts receivable
|
289
|
|
Accrued revenue
|
128
|
|
Accounts payable and accrued liabilities
|
(3,238
|
)
|
|
$
|
40,273
|
|
An analysis of the Company’s sensitivity to foreign currency exchange rate movements is not provided in these financial statements as the Company’s Canadian dollar cash holdings and expected Canadian dollar revenues are sufficient to cover Canadian dollar expenses for the foreseeable future.
12. Supplementary information
Accounts payable and accrued liabilities is comprised of the following:
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
December 31, 2015
|
Trade accounts payable
|
$
|
3,215
|
|
|
$
|
2,610
|
|
Research and development accruals
|
3,131
|
|
|
2,358
|
|
Professional fee accruals
|
498
|
|
|
640
|
|
Deferred lease inducements
|
350
|
|
|
297
|
|
Payroll accruals
|
2,178
|
|
|
2,331
|
|
Other accrued liabilities
|
538
|
|
|
591
|
|
|
$
|
9,910
|
|
|
$
|
8,827
|
|
13. Interim financial data (unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
Revenue
|
$
|
603
|
|
|
$
|
309
|
|
|
$
|
774
|
|
|
$
|
(195
|
)
|
|
$
|
1,491
|
|
Loss from operations
|
(19,977
|
)
|
|
(195,248
|
)
|
|
(18,975
|
)
|
|
(257,439
|
)
|
|
(491,639
|
)
|
Net loss
|
$
|
(15,874
|
)
|
|
$
|
(130,000
|
)
|
|
$
|
(19,595
|
)
|
|
$
|
(218,695
|
)
|
|
$
|
(384,164
|
)
|
Basic and diluted net loss per share
|
$
|
(0.31
|
)
|
|
$
|
(2.47
|
)
|
|
$
|
(0.37
|
)
|
|
$
|
(4.05
|
)
|
|
$
|
(7.24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
|
Q1
|
|
|
Q2
|
|
|
Q3
|
|
|
Q4
|
|
|
Total
|
|
Revenue
|
$
|
4,682
|
|
|
$
|
3,440
|
|
|
$
|
4,065
|
|
|
$
|
12,686
|
|
|
$
|
24,873
|
|
Loss from operations
|
(18,006
|
)
|
|
(14,420
|
)
|
|
(58,138
|
)
|
|
(11,758
|
)
|
|
(102,322
|
)
|
Net loss
|
$
|
(11,989
|
)
|
|
$
|
(14,886
|
)
|
|
$
|
(28,982
|
)
|
|
$
|
(5,264
|
)
|
|
$
|
(61,121
|
)
|
Basic and diluted net loss per share
|
$
|
(0.40
|
)
|
|
$
|
(0.27
|
)
|
|
$
|
(0.57
|
)
|
|
$
|
(0.10
|
)
|
|
$
|
(1.34
|
)
|
14. Subsequent events
(a) Termination of License Agreement with Acuitas
In December 2013, the Company entered into a cross-license agreement with Acuitas Therapeutics Inc., or Acuitas. The terms of the cross-license agreement provided Acuitas with access to certain of the Company's earlier intellectual property generated prior to April 2010 for a specific field. On August 29, 2016, the Company provided Acuitas with notice that it considered Acuitas to be in material breach of the cross-license agreement. The cross-license agreement provides that it may be terminated upon any material breach by the other party 60 days after receipt of written notice of termination describing the material breach in reasonable detail. On October 25, 2016, Acuitas filed a Notice of Civil Claim in the Supreme Court of British Columbia seeking an order that the Company perform its obligations under the Cross License Agreement, for damages ancillary to specific performance, injunctive relief, interest and costs. The Company disputes Acuitas’ position and have not recorded an estimate of the possible loss associated with this claim, due to the uncertainties related to both the likelihood and amount of any possible loss or range of loss. The Company has filed its response within the time frame prescribed by the Court.
On February 8, 2017, the Company announced that the Supreme Court of British Columbia granted Arbutus' request for a pre-trial injunction against Acuitas, preventing Acuitas from further sublicensing of Arbutus' lipid nanoparticle (LNP) technology until the end of October 2017, or further order of the Court. Under the terms of the pre-clinical injunction, Acuitas is prevented from entering into any new agreements which include sublicensing of Arbutus' LNP.
(b) LNP License with Alexion
On March 16, 2017, the Company announced that it had entered into an agreement to license its LNP delivery technology to Alexion. Under the terms of the agreement, the Company will receive
$7,500,000
up front and subsequent payments up to
$75,000,000
for the achievement of development, regulatory and commercial milestones as well as future royalties.