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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2024

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________to___________.

 

Commission file number: 001-35005

 

ASSEMBLY BIOSCIENCES, INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

20-8729264

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

 

 

Two Tower Place, 7th Floor

South San Francisco, California

94080

(Address of principal executive offices)

(zip code)

 

(833) 509-4583

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

ASMB

The Nasdaq Global Select Market5

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

 

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

 

As of May 3, 2024, there were 5,513,308 shares of the registrant’s common stock outstanding.

 

 

 


 

Index

 

 

 

Page

Number

 

 

 

PART I:

FINANCIAL INFORMATION

2

 

 

 

Item 1.

Financial Statements

2

 

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2024 (unaudited) and December 31, 2023

2

 

 

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2024 and 2023 (unaudited)

3

 

 

 

 

Condensed Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

4

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

5

 

 

 

 

Notes to the Condensed Consolidated Financial Statements (unaudited)

6

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

13

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

22

 

 

 

Item 4.

Controls and Procedures

22

 

 

 

PART II:

OTHER INFORMATION

23

 

 

 

Item 1.

Legal Proceedings

23

 

 

 

Item 1A.

Risk Factors

23

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37

 

 

 

Item 3.

Defaults Upon Senior Securities

37

 

 

 

Item 4.

Mine Safety Disclosures

37

 

 

 

Item 5.

Other Information

37

 

 

 

Item 6.

Exhibits

38

 

 

SIGNATURES

39

 

 


 

References to Assembly Biosciences, Inc.

Throughout this Quarterly Report on Form 10-Q, the “Company,” “Assembly,” “we,” “us,” and “our,” except where the context requires otherwise, refer to Assembly Biosciences, Inc. and its consolidated subsidiaries, and “board of directors” refers to the board of directors of Assembly Biosciences, Inc.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” that are subject to certain risks and uncertainties, including, without limitation, those set forth in Part I, Item 1A of our Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (SEC) on March 28, 2024 (2023 Annual Report) and Part II, Item 1A of this Quarterly Report on Form 10-Q under the heading “Risk Factors,” that could cause actual results to materially differ. Such risks and uncertainties include, among other things:

our ability to realize the potential benefits of our collaboration with Gilead Sciences, Inc. (Gilead), including all financial aspects of the collaboration and equity investments;
our ability to initiate and complete clinical studies involving our therapeutic product candidates, including studies contemplated by our collaboration with Gilead, in the currently anticipated timeframes or at all;
safety and efficacy data from clinical or nonclinical studies may not warrant further development of our product candidates;
clinical and nonclinical data presented at conferences may not differentiate our product candidates from other companies’ candidates; and
results of nonclinical studies may not be representative of disease behavior in a clinical setting and may not be predictive of the outcomes of clinical studies.

You are urged to consider statements that include the words may, will, would, could, should, might, believes, hopes, estimates, projects, potential, expects, plans, anticipates, intends, continues, forecast, designed, goal or the negative of those words or other comparable words to be uncertain and forward-looking. In particular, forward-looking statements include, but are not limited to, statements regarding the timing of commencement of future clinical studies involving our therapeutic product candidates; and our ability to successfully complete, and receive favorable results in, clinical studies for our product candidates. We intend such forward-looking statements to be covered by the safe harbor provisions contained in Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). Except as required by law, we assume no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

1


 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except for share amounts and par value)

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,749

 

 

$

19,841

 

Marketable securities

 

 

94,227

 

 

 

110,406

 

Accounts receivable from collaboration

 

 

43

 

 

 

43

 

Prepaid expenses and other current assets

 

 

4,149

 

 

 

3,497

 

Total current assets

 

 

117,168

 

 

 

133,787

 

 

 

 

 

 

 

Property and equipment, net

 

 

367

 

 

 

385

 

Operating lease right-of-use (ROU) assets

 

 

2,036

 

 

 

2,339

 

Other assets

 

 

312

 

 

 

312

 

Total assets

 

$

119,883

 

 

$

136,823

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

727

 

 

$

461

 

Accrued research and development expenses

 

 

2,059

 

 

 

885

 

Other accrued expenses

 

 

2,051

 

 

 

5,744

 

Deferred revenue from a related party - short-term

 

 

32,771

 

 

 

30,915

 

Operating lease liabilities - short-term

 

 

1,145

 

 

 

1,220

 

Total current liabilities

 

 

38,753

 

 

 

39,225

 

 

 

 

 

 

 

Deferred revenue from a related party - long-term

 

 

47,738

 

 

 

55,379

 

Operating lease liabilities - long-term

 

 

791

 

 

 

1,122

 

Total liabilities

 

 

87,282

 

 

 

95,726

 

 

 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or outstanding

 

 

 

 

 

 

Common stock, $0.001 par value; 150,000,000 shares authorized as of March 31, 2024 and December 31, 2023; 5,482,752 shares issued and outstanding as of March 31, 2024 and December 31, 2023

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

827,660

 

 

 

826,921

 

Accumulated other comprehensive loss

 

 

(239

)

 

 

(81

)

Accumulated deficit

 

 

(794,825

)

 

 

(785,748

)

Total stockholders' equity

 

 

32,601

 

 

 

41,097

 

Total liabilities and stockholders' equity

 

$

119,883

 

 

$

136,823

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

2


 

ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands except for share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

 

2024

 

 

2023

 

 

Collaboration revenue from a related party

 

$

5,785

 

 

$

 

 

 

 

 

 

 

 

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

 

11,879

 

 

 

14,547

 

 

General and administrative

 

 

4,635

 

 

 

5,012

 

 

Total operating expenses

 

 

16,514

 

 

 

19,559

 

 

Loss from operations

 

 

(10,729

)

 

 

(19,559

)

 

 

 

 

 

 

 

 

Other income

 

 

 

 

 

 

 

Interest and other income, net

 

 

1,652

 

 

 

609

 

 

Total other income

 

 

1,652

 

 

 

609

 

 

Net loss

 

$

(9,077

)

 

$

(18,950

)

 

 

 

 

 

 

 

 

Other comprehensive loss

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities

 

 

(158

)

 

 

290

 

 

Comprehensive loss

 

$

(9,235

)

 

$

(18,660

)

 

 

 

 

 

 

 

 

Net loss per share, basic and diluted

 

$

(1.66

)

 

$

(4.46

)

 

Weighted average common shares outstanding, basic and diluted

 

 

5,483,313

 

 

 

4,251,037

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

3


 

ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except for share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid-in
Capital

 

 

Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Stockholders'
Equity

 

Balance as of December 31, 2023

 

 

5,482,752

 

 

$

5

 

 

$

826,921

 

 

$

(81

)

 

$

(785,748

)

 

$

41,097

 

Unrealized loss on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

(158

)

 

 

 

 

 

(158

)

Stock-based compensation

 

 

 

 

 

 

 

 

739

 

 

 

 

 

 

 

 

 

739

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(9,077

)

 

 

(9,077

)

Balance as of March 31, 2024

 

 

5,482,752

 

 

$

5

 

 

$

827,660

 

 

$

(239

)

 

$

(794,825

)

 

$

32,601

 

 

 

 

Common Stock

 

 

Additional

 

 

Accumulated
Other

 

 

 

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

Paid-in
Capital

 

 

Comprehensive
Loss

 

 

Accumulated
Deficit

 

 

Stockholders'
Equity

 

Balance as of December 31, 2022

 

 

4,074,552

 

 

$

4

 

 

$

807,983

 

 

$

(803

)

 

$

(724,520

)

 

$

82,664

 

Issuance of common stock under at-the-market (ATM) equity offering program, net of issuance costs

 

 

254,203

 

 

 

 

 

 

4,492

 

 

 

 

 

 

 

 

 

4,492

 

Issuance of common stock for settlement of restricted stock units (RSUs)

 

 

5,820

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain on marketable debt securities

 

 

 

 

 

 

 

 

 

 

 

290

 

 

 

 

 

 

290

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,837

 

 

 

 

 

 

 

 

 

1,837

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,950

)

 

 

(18,950

)

Balance as of March 31, 2023

 

 

4,334,575

 

 

$

4

 

 

$

814,312

 

 

$

(513

)

 

$

(743,470

)

 

$

70,333

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

4


 

ASSEMBLY BIOSCIENCES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities

 

 

 

 

 

 

Net loss

 

$

(9,077

)

 

$

(18,950

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

32

 

 

 

124

 

Stock-based compensation

 

 

739

 

 

 

1,835

 

Net accretion of investments in marketable debt securities

 

 

(1,264

)

 

 

(52

)

Non-cash rent expense

 

 

359

 

 

 

855

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable from collaboration

 

 

 

 

 

227

 

Prepaid expenses and other current assets

 

 

(652

)

 

 

(1,598

)

Other assets

 

 

 

 

 

555

 

Accounts payable

 

 

266

 

 

 

(1,269

)

Accrued research and development expenses

 

 

1,174

 

 

 

(76

)

Other accrued expenses

 

 

(3,693

)

 

 

(4,161

)

Deferred revenue from a related party

 

 

(5,785

)

 

 

 

Operating lease liabilities

 

 

(463

)

 

 

(918

)

Net cash used in operating activities

 

 

(18,364

)

 

 

(23,428

)

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Proceeds from maturities of marketable securities

 

 

21,000

 

 

 

10,000

 

Purchases of property and equipment

 

 

(14

)

 

 

 

Purchases of marketable securities

 

 

(3,714

)

 

 

 

Net cash provided by investing activities

 

 

17,272

 

 

 

10,000

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from the issuance of common stock under ATM equity offering program, net of issuance costs

 

 

 

 

 

4,492

 

Net cash provided by financing activities

 

 

 

 

 

4,492

 

 

 

 

 

 

 

Net decrease in cash and cash equivalents

 

 

(1,092

)

 

 

(8,936

)

Cash and cash equivalents at the beginning of the period

 

 

19,841

 

 

 

52,418

 

Cash and cash equivalents at the end of the period

 

$

18,749

 

 

$

43,482

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

5


 

ASSEMBLY BIOSCIENCES, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Nature of Business

Overview

Assembly Biosciences, Inc. (together with its subsidiaries, Assembly or the Company), incorporated in Delaware in October 2005, is a biotechnology company developing innovative therapeutics. The Company's pipeline includes two helicase-primase inhibitors (HPI) targeting recurrent genital herpes, an orally bioavailable hepatitis delta virus (HDV) entry inhibitor, a clinical stage capsid assembly modulator candidate designed to disrupt the replication cycle of hepatitis B virus (HBV) and research programs focused on a non-nucleoside polymerase inhibitor (NNPI) targeting transplant-related herpesviruses and a small molecule interferon-α (IFN-α) receptor (IFNAR) agonist targeting HBV and HDV. The Company operates in one segment and is headquartered in South San Francisco, California.

Liquidity

The Company has not derived any revenue from product sales to date and currently has no approved products. Once a product has been developed, it will need to be approved for sale by the U.S. Food and Drug Administration (FDA) or an applicable foreign regulatory agency. Since inception, the Company’s operations have been financed through the sale of equity securities, the proceeds from the exercise of warrants and stock options, the issuance of debt, and upfront payments related to collaboration agreements. The Company has incurred losses from operations since inception and expects to continue to incur substantial losses for the next several years as it continues its product development efforts. Management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months following the date these unaudited condensed consolidated financial statements are issued.

Note 2 - Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and pursuant to the instructions to Form 10-Q and Rule 10-01 of Regulation S-X of the SEC. In management’s opinion, the unaudited condensed consolidated financial statements have been prepared on the same basis as the annual audited consolidated financial statements and include normal recurring adjustments necessary for the fair presentation of the Company’s financial position and its results of operations and comprehensive loss and its cash flows for the periods presented. These statements do not include all disclosures required by U.S. GAAP and should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes for the fiscal year ended December 31, 2023, which are contained in the 2023 Annual Report. The results for the three months ended March 31, 2024 are not necessarily indicative of results to be expected for the entire year ending December 31, 2024 or future operating periods.

Use of Estimates

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying unaudited condensed consolidated financial statements include estimates for revenue recognition and costs incurred but not yet invoiced for research and development accruals.

6


 

The Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible these external factors could have an effect on the Company’s estimates and could cause actual results to differ materially from those estimates and assumptions.

Other Risks and Uncertainties

U.S. and global financial markets have experienced volatility and disruption due to macroeconomic and geopolitical events such as rising inflation, rising interest rates to combat inflation, the risk of a recession, the war between Russia and Ukraine and the Israel-Hamas war. The Company cannot predict at this time to what extent, if at all, it and its employees, CROs, vendors and/or collaborators could potentially be negatively impacted by these events.

Reverse Stock Split

In September 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market notifying the Company, as the bid price for its common stock had closed below $1.00 per share for the last 30 consecutive business days, it was not in compliance with Nasdaq Listing Rule 5450(a)(1), which is the minimum bid price requirement for continued listing on the Nasdaq Global Select Market. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided a 180-calendar day period, or until March 25, 2024, to regain compliance with the minimum bid price requirement. The continued listing standard would be met once the closing bid price of the Company’s common stock was at least $1.00 per share for a minimum of ten consecutive business days during the 180-calendar day period. In January 2024, the Company's stockholders approved a reverse stock split of its common stock at a range of ratios between 1-for-7 to 1-for-17, and the Company's board of directors approved the implementation of the reverse stock split at a ratio of 1-for-12 (the Reverse Stock Split). The Reverse Stock Split was effective as of February 9, 2024 and the Company regained compliance with the minimum bid price requirement in February 2024.

As of the effective time of the Reverse Stock Split, every 12 issued and outstanding shares of the Company’s common stock was automatically reclassified into one issued and outstanding share of the Company’s common stock. This reduced the number of shares outstanding from 65.8 million shares to 5.5 million shares. The Reverse Stock Split did not affect the number of authorized shares of common stock or the par value of the common stock. No fractional shares of common stock were issued in connection with the Reverse Stock Split and all fractional shares were rounded down to the nearest whole share with respect to outstanding shares of common stock. Any holders of common stock who would have otherwise received a fractional share of common stock pursuant to the Reverse Stock Split, received cash in lieu of the fractional share. All prior period share and per share amounts of the Company's common stock presented have been retroactively adjusted to reflect the 1-for-12 Reverse Stock Split, including reclassifying an amount equal to the reduction in par value of common stock to additional paid-in capital.

Net Loss per Share

Basic net loss per share of common stock excludes dilution and is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Diluted net loss per share is the same as basic net loss per share, since the effects of potentially dilutive securities are antidilutive given the net loss for each period presented.

A reconciliation of the numerators and the denominators of the basic and diluted net loss per common share computations is as follows (in thousands, except for share and per share amounts):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net loss

 

$

(9,077

)

 

$

(18,950

)

Denominator:

 

 

 

 

 

 

Weighted average common shares outstanding - basic and diluted

 

 

5,483,313

 

 

 

4,251,037

 

Net loss per share - basic and diluted

 

$

(1.66

)

 

$

(4.46

)

 

7


 

Securities excluded from the computation of diluted net loss per share because including them would have been antidilutive are as follows:

 

 

March 31,

 

 

 

2024

 

 

2023

 

Options to purchase common stock

 

 

1,026,696

 

 

 

876,272

 

Common stock subject to purchase under Employee Stock Purchase Plan

 

 

7,545

 

 

 

7,740

 

Unvested RSUs

 

 

103,752

 

 

 

143,110

 

Total

 

 

1,137,993

 

 

 

1,027,122

 

 

Note 3 – Related Party

In October 2023, the Company entered into an Option, License and Collaboration agreement (the Gilead Collaboration Agreement), and a Common Stock Purchase Agreement and an Investor Rights Agreement (collectively, the Gilead Equity Agreements) under which it received total proceeds of $100.0 million from Gilead Sciences, Inc. (Gilead). During the three months ended March 31, 2024, the Company recognized $5.8 million of collaboration revenue under the Gilead Collaboration Agreement (see Note 8). As of March 31, 2024, Gilead held 19.9% of the Company's outstanding voting common stock. Additionally, Gilead may, at the Company’s or Gilead's option, subject to certain conditions, purchase additional shares to increase its holdings up to a maximum of 29.9% of the Company's then-outstanding voting common stock. Under the Investor Rights Agreement, Gilead has the right to designate two directors to the Company's board of directors. The Company appointed each of Gilead's designees to its board of directors in December 2023 and February 2024.

Note 4 – Fair Value Measurements and Investments in Marketable Securities

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain of the Company’s financial instruments are not measured at fair value on a recurring basis, but are recorded at amounts that approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable, accounts payable and accrued expenses.

The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.

Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.

Level 3: Significant unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Investments in marketable securities consisted of the following (in thousands):

 

 

March 31, 2024

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gain

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

18,110

 

 

$

 

 

$

 

 

$

18,110

 

Total cash equivalents

 

 

18,110

 

 

 

 

 

 

 

 

 

18,110

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign corporate debt securities

 

 

17,764

 

 

 

12

 

 

 

 

 

 

17,776

 

U.S. treasury securities

 

 

60,471

 

 

 

20

 

 

 

(6

)

 

 

60,485

 

U.S. and foreign commercial paper

 

 

15,958

 

 

 

11

 

 

 

(3

)

 

 

15,966

 

Total short-term marketable securities

 

 

94,193

 

 

 

43

 

 

 

(9

)

 

 

94,227

 

Total cash equivalents and marketable securities

 

$

112,303

 

 

$

43

 

 

$

(9

)

 

$

112,337

 

 

8


 

 

 

December 31, 2023

 

 

 

Amortized
Cost

 

 

Gross
Unrealized
Gain

 

 

Gross
Unrealized
Loss

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

18,982

 

 

$

 

 

$

 

 

$

18,982

 

Total cash equivalents

 

 

18,982

 

 

 

 

 

 

 

 

 

18,982

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign corporate debt securities

 

 

17,595

 

 

 

41

 

 

 

(3

)

 

 

17,633

 

U.S. treasury securities

 

 

76,891

 

 

 

127

 

 

 

 

 

 

77,018

 

U.S. and foreign commercial paper

 

 

15,728

 

 

 

27

 

 

 

 

 

 

15,755

 

Total short-term marketable securities

 

 

110,214

 

 

 

195

 

 

 

(3

)

 

 

110,406

 

Total cash equivalents and marketable securities

 

$

129,196

 

 

$

195

 

 

$

(3

)

 

$

129,388

 

 

There were no realized gains and losses for the three months ended March 31, 2024 and 2023. As of March 31, 2024 and 2023, investments which were in an unrealized loss position were not material and generally due to interest rate fluctuations, as opposed to declines in credit quality. The Company determined it has the intent and ability to hold all marketable securities that have been in a continuous loss position until recovery of their amortized cost basis, which may be until maturity. As a result, the Company did not recognize any credit losses related to its investments and all unrealized gains and losses on available-for-sale securities are recorded in accumulated other comprehensive loss on the condensed consolidated balance sheets during the three months ended March 31, 2024 and 2023.

Accrued interest receivable was $0.3 million as of March 31, 2024 and December 31, 2023 and was recorded in prepaid expenses and other current assets on the condensed consolidated balance sheets. The Company did not write off any accrued interest receivable during the three months ended March 31, 2024 and 2023.

The following tables present the fair value of the Company’s financial assets measured at fair value on a recurring basis (in thousands):

 

 

 

March 31, 2024

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

18,110

 

 

$

 

 

$

 

 

$

18,110

 

Total cash equivalents

 

 

18,110

 

 

 

 

 

 

 

 

 

18,110

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign corporate debt securities

 

 

 

 

 

17,776

 

 

 

 

 

 

17,776

 

U.S. treasury securities

 

 

 

 

 

60,485

 

 

 

 

 

 

60,485

 

U.S. and foreign commercial paper

 

 

 

 

 

15,966

 

 

 

 

 

 

15,966

 

Total short-term marketable securities

 

 

 

 

 

94,227

 

 

 

 

 

 

94,227

 

Total assets measured at fair value

 

$

18,110

 

 

$

94,227

 

 

$

 

 

$

112,337

 

 

 

 

December 31, 2023

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Fair Value

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

Money market fund

 

$

18,982

 

 

$

 

 

$

 

 

$

18,982

 

Total cash equivalents

 

 

18,982

 

 

 

 

 

 

 

 

 

18,982

 

Short-term marketable securities

 

 

 

 

 

 

 

 

 

 

 

 

U.S. and foreign corporate debt securities

 

 

 

 

 

17,633

 

 

 

 

 

 

17,633

 

U.S. treasury securities

 

 

 

 

 

77,018

 

 

 

 

 

 

77,018

 

U.S. and foreign commercial paper

 

 

 

 

 

15,755

 

 

 

 

 

 

15,755

 

Total short-term marketable securities

 

 

 

 

 

110,406

 

 

 

 

 

 

110,406

 

Total assets measured at fair value

 

$

18,982

 

 

$

110,406

 

 

$

 

 

$

129,388

 

 

The Company estimates the fair value of its investments in marketable securities by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities, prepayment/default projections based on historical data, and other observable inputs.

9


 

There were no transfers between Level 1, Level 2 or Level 3 investments during the periods presented.

Note 5 – Other Accrued Expenses

Other accrued expenses consist of the following (in thousands):

 

 

March 31,
2024

 

 

December 31,
2023

 

Accrued expenses:

 

 

 

 

 

 

Accrued compensation

 

$

1,727

 

 

$

5,484

 

Accrued professional fees and other

 

 

324

 

 

 

260

 

Total accrued expenses

 

$

2,051

 

 

$

5,744

 

 

Note 6 – Sale of Common Stock

In August 2020, the Company entered into a sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100.0 million through “at-the-market” offerings (2020 ATM), pursuant to its shelf registration statement on Form S-3 on file with the SEC. The Company did not sell any shares of common stock under the 2020 ATM during the three months ended March 31, 2024. During the three months ended March 31, 2023, the Company sold 254,203 shares of common stock under the 2020 ATM, for which the Company received net proceeds of $4.5 million, after deducting commissions, fees and expenses.

Note 7 – Stock-Based Compensation

The following table summarizes the components of total stock-based compensation expense included in the condensed consolidated statements of operations and comprehensive loss (in thousands):

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Research and development

 

$

354

 

 

$

910

 

General and administrative

 

 

385

 

 

 

925

 

Total stock-based compensation expense

 

$

739

 

 

$

1,835

 

As of March 31, 2024, there was $4.2 million of total unrecognized stock-based compensation related to outstanding equity awards, which is expected to be recognized over a weighted average remaining amortization period of 1.9 years.

The fair value of stock options granted during the periods indicated was estimated using the Black-Scholes option pricing model, based on the following assumptions:

 

 

Three Months Ended March 31,

 

 

2024

 

2023

Exercise price

 

$13.30

 

$10.68 - $18.36

Expected volatility

 

80.4% - 86.9%

 

77.5% - 82.8%

Risk-free rate

 

4.16%

 

3.59% - 4.00%

Expected term (years)

 

5.5 - 7.0

 

5.5 - 7.0

Expected dividend yield

 

0%

 

0%

 

10


 

Note 8 - Collaboration Agreements

Gilead Agreement

In October 2023, the Company entered into the Gilead Collaboration Agreement and the Gilead Equity Agreements under which it received total proceeds of $100.0 million. Under the Gilead Collaboration Agreement, Gilead exclusively licensed to the Company its HPI program and NNPI program, while retaining opt-in rights to these programs and have an option to take an exclusive license, on a program-by-program basis, to all of the Company’s other current and future pipeline programs. During the 12-year collaboration term (subject to payment of certain extension fees) and for a specified period thereafter, Gilead may exercise its opt-in rights, on a program-by-program basis, at one of two timepoints—completion of a certain Phase 1 study or completion of a certain Phase 2 study for the first product within the program—upon payment of an opt-in fee ranging from $45.0 million to $125.0 million per program depending on the type of program and when the option is exercised.

If Gilead exercises its opt-in right to any current or future program under the collaboration, the Company is eligible to receive up to $330.0 million in potential regulatory and commercial milestones on that program, in addition to royalties ranging from the high single-digits to high teens, depending on the clinical stage of the program at the time of the opt-in. Following Gilead’s exercise of its option for each of the Company’s programs, the Company may opt in to cover 40% of the research and development costs in the United States and share 40% of the profits and operating loss in the United States for products within the program in lieu of receiving milestones and royalties for that program in the United States, unless the Company later opts out of the cost/profit share for the program. Prior to Gilead’s potential exercise of its opt-in, the Company will be primarily responsible for all discovery, research and development on its programs and the two Gilead-contributed programs. Following Gilead’s opt-in, Gilead will control the further discovery, research, development, and commercialization on any optioned programs. During the term, Gilead will continue to support the collaboration through extension fees of $75.0 million in each of the third, fifth and seventh years of the collaboration.

The Gilead Collaboration Agreement is subject to termination by either party for the other party’s uncured, material breach or insolvency. Subject to certain limitations, the Company and Gilead both have certain termination for convenience rights, upon sufficient prior written notice, with respect to programs that one party in-licenses from the other (subject to Gilead’s option rights), and with respect to Gilead, for programs it has option rights to (subject to certain time limitations with respect to existing Company programs). Gilead also has a right to terminate the collaborative activities under the Gilead Collaboration Agreement at certain specified points during the collaboration term. Other customary termination rights are further provided in the Gilead Collaboration Agreement.

The Company concluded Gilead is a customer and accordingly, the Gilead Collaboration Agreement is within the scope of the revenue from contracts with customers guidance. The Company identified a single combined performance obligation for the discovery, research and development services during the collaboration term (the R&D Services). As of March 31, 2024, the total transaction price of the Gilead Collaboration Agreement was determined to be $90.7 million. The Company will reevaluate the transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.

The transaction price is reflected as collaboration revenue when realized in the Company’s condensed consolidated statements of operations. The Company will recognize revenue over time using a cost-based input method over the initial non-cancellable term of three years since this method best reflects the transfer of services to Gilead. In applying a cost-based input method of revenue recognition, the Company uses actual costs incurred relative to estimated total costs to fulfill each performance obligation.

The Company recognized collaboration revenue of $5.8 million during the three months ended March 31, 2024. The transaction price for future collaborative activities was recorded as deferred revenue on the condensed consolidated balance sheet as of March 31, 2024, of which $32.8 million was short-term and $47.7 million was long-term. During the three months ended March 31, 2024, the Company incurred $0.2 million in reimbursable expenses due to Gilead.

The following table presents changes in the Company’s contract liabilities (in thousands):

 

 

Balance at
Beginning
of Period

 

 

Additions

 

 

Deductions

 

 

Balance at
End of
Period

 

Three Months Ended March 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

86,294

 

 

$

 

 

$

(5,785

)

 

$

80,509

 

 

11


 

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Collaboration revenue recognized in the period from

 

 

 

 

 

 

Amounts included in deferred revenue at the beginning of the period

 

$

5,785

 

 

$

 

Performance obligations satisfied in previous period

 

$

 

 

$

 

Arbutus Biopharma Agreement

In August 2020, the Company and Arbutus Biopharma Corporation (Arbutus Biopharma) entered into a Clinical Trial Collaboration Agreement (the Arbutus Biopharma Agreement) to conduct a randomized, multi-center, open-label Phase 2 clinical trial to explore the safety, pharmacokinetics and antiviral activity of the triple combination of vebicorvir (VBR), AB-729 and a nucleos(t)ide analog reverse transcriptase inhibitor (NrtI) compared to the double combinations of VBR with a NrtI and AB-729 with a NrtI. Under the Arbutus Biopharma Agreement, Assembly and Arbutus Biopharma share responsibility for the costs of the trial equally, excluding manufacturing supply which are the burden of each company to supply their respective drugs, VBR and AB-729. Assembly is responsible for conducting this clinical trial with Arbutus Biopharma reimbursing Assembly its share of expenses. In February 2023, Assembly and Arbutus Biopharma decided to terminate the Phase 2 clinical trial early, at the end of the 48-week on-treatment period, and are in the process of completing the final reconciliation of costs.

Reimbursements and cost-sharing portions from Arbutus Biopharma are reflected as a reduction of research and development expense when realized in the Company’s condensed consolidated statements of operations. There were no costs incurred under the Arbutus Biopharma Agreement during the three months ended March 31, 2024. During the three months ended March 31, 2023, the Company recognized a reduction of research and development expenses of $0.6 million under the Arbutus Biopharma Agreement.

Note 9 - Milestones and Research Agreements

HBV Research Agreement with Indiana University

Since September 2013, the Company was party to an exclusive License Agreement dated September 3, 2013 with Indiana University Research and Technology Corporation (IURTC) from whom it licensed aspects of the Company’s HBV program held by IURTC. The license agreement required the Company to make milestone payments based upon the successful accomplishment of clinical and regulatory milestones. The aggregate amount of all performance milestone payments under the IURTC license agreement, if all milestones through development were met, was $0.8 million, with a portion having been paid. The Company was obligated to pay IURTC royalty payments based on net sales of the licensed technology as well as a portion of any sublicensing revenue Assembly received. The Company was also required to pay diligence maintenance fees each year to the extent that the royalty, sublicensing, and milestone payments to IURTC were less than such fees for that year. In February 2024, following its decision to discontinue further development or partnering for ABI-H3733, the Company terminated the IURTC license agreement, which became effective April 2024. The Company paid IURTC $0.1 million in diligence maintenance fees during both the three months ended March 31, 2024 and 2023.

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The condensed consolidated financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2023 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023 filed with the U.S. Securities and Exchange Commission on March 28, 2024 (2023 Annual Report). In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under “Part I. Item 1A. Risk Factors” in our 2023 Annual Report and “Part II. Item 1A. Risk Factors” in this report.

Overview

We are a biotechnology company developing innovative therapeutics targeting serious viral diseases with the potential to improve the lives of patients worldwide. Our pipeline includes two helicase-primase inhibitors (HPI) targeting recurrent genital herpes, an orally bioavailable hepatitis delta virus (HDV) entry inhibitor, a clinical stage capsid assembly modulator (CAM) designed to disrupt the replication cycle of hepatitis B virus (HBV) and research programs focused on a non-nucleoside polymerase inhibitor (NNPI) targeting transplant-related herpesviruses and a small molecule interferon-α (IFN-α) receptor (IFNAR) agonist targeting HBV and HDV.

Our Clinical Programs and CTA-Enabling Programs

We expect four of our programs to initiate clinical studies in 2024. By mid-year, we expect to initiate the Phase 1a portion of a Phase 1a/1b study of ABI-5366 (5366), a long-acting HPI for recurrent genital herpes and a Phase 1b study of ABI-4334 (4334), a highly potent, next-generation CAM for chronic HBV infection. By the end of the year, we expect to initiate: the Phase 1b portion of the Phase 1a/1b study of 5366; a Phase 1a study of ABI-6250 (6250), an orally bioavailable HDV entry inhibitor; and a Phase 1a study of ABI-1179 (1179), a long-acting HPI for recurrent genital herpes contributed by Gilead Sciences, Inc. (Gilead) through the Gilead Collaboration (as defined below).

Recurrent Genital Herpes/HSV-1 and HSV-2

Genital herpes can be caused by either herpes simplex virus type 1 (HSV-1) or herpes simplex virus type 2 (HSV-2). HSV-1 and HSV-2 are acquired by oral or genital contact either during symptomatic or asymptomatic reactivation of the virus. Both viruses replicate in neurons, where they can remain latent for the rest of the patient’s life and periodically reactivate, with the virus spreading and replicating in epithelial tissues. Initial infection can be asymptomatic or can be marked by symptoms, including localized pain and painful lesions. Genital herpes recurrence is common and can cause painful genital lesions that can lead to increased transmission and debilitate patients, and symptoms may become more serious with additional episodes. Additional complications include increased risk of HIV infection, as well as associated psychological stress and isolationary thoughts, depression and suicidal ideation. Immunocompromised patients may experience more severe and prolonged symptoms due to increased recurrence rates. While genital herpes can be caused by either HSV-1 or HSV-2, recurrences are more likely to be experienced by patients infected by HSV-2.

HPIs are antiviral agents in development for HSV-1 and HSV-2, with a clinically-validated mechanism of action. HPIs inhibit the HSV helicase-primase complex, which is a unique viral enzyme complex without a human homolog, consisting of helicase, primase and cofactor subunits. Both of these subunits have functions that are essential for viral DNA replication and are conserved across HSV-1 and HSV-2. Unlike nucleoside analogs, these compounds do not require phosphorylation by the HSV thymidine kinase (TK) and ongoing viral replication to become active drugs. As a result, HPIs are active immediately upon reactivation of latent HSV-1 and HSV-2. Furthermore, HPIs are active against TK-deficient HSV-1 and HSV-2, which is a major mechanism of resistance to nucleoside analogs.

Approximately 50% of individuals with initial symptomatic genital herpes infection have three or more recurrences per year, including over four million people in the United States and France, Germany, Italy and Spain (collectively, the EU4) and the United Kingdom (UK). Currently, there are three antiviral drugs (all nucleoside analogs) that have been approved in the United States and the EU4/UK for the treatment of genital herpes. However, no new drugs have been approved in these regions to treat genital herpes for more than 25 years. In addition to the approved nucleoside analogs, agents such as local anesthetics or analgesics may be used to alleviate local symptoms of minor pain and discomfort.

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Nucleoside analogs can be administered as episodic therapy as individual outbreaks arise or daily as chronic suppressive therapy for those with high post-exposure recurrences. However, these agents are only partially effective at controlling the infection or reducing transmission risk. With current nucleoside analog therapies, only one out of three recurrent genital herpes patients with six or more recurrences per year are able to make it through a year of treatment without a recurrence. There are still high titer (greater than 104 HSV-2 DNA copies/mL) shedding episodes under this current standard of care for recurrent genital herpes, which can lead to recurrent episodes and transmission of genital herpes.

Based on the limitations of current therapies, we see a path to advancing the treatment paradigm for patients suffering from recurrent genital herpes. To reach that goal, we identified an opportunity to develop a potent, long-acting HPI for recurrent genital herpes, 5366, which has demonstrated a strong nonclinical profile, with low nanomolar potency in vitro against both HSV-1 and HSV-2 clinical isolates, exceptionally low plasma clearance rates in multiple nonclinical models and a projected human half-life of more than seven days. This nonclinical profile has led us to target 5366 for development as a long-acting treatment with the potential to be administered orally or as an injectable.

To date, 5366 has demonstrated a favorable nonclinical safety profile in Good Laboratory Practice (GLP) toxicology studies, with high safety margins and minimal potential for off-target effects. During the first quarter of 2024, we filed a CTA to support initiation of Phase 1a/1b clinical studies, which was approved in April 2024. We expect to initiate a Phase 1a/1b clinical study by mid-2024. Interim Phase 1a data is expected in the third quarter of 2024 and interim Phase 1b data is expected in the first half of 2025.

In addition, we are also advancing 1179, a structurally-differentiated HPI with single digit nM potency against HSV-1 and HSV-2 and a nonclinical pharmacokinetics (PK) profile strongly supporting a potential long-acting treatment by oral and injectable administration. GLP toxicology studies are underway and clinical studies are expected to begin by the end of 2024. We acquired rights to 1179, Gilead’s HPI program, as part of the Gilead Collaboration in October 2023.

HBV and HDV

The World Health Organization (WHO) estimates that 254 million people worldwide are chronically infected with HBV as of 2022, and 1.2 million new infections occur each year. HBV is a leading global cause of chronic liver disease and liver transplants, and the WHO estimates that 1.1 million people died in 2022 from HBV, mostly due to cirrhosis and hepatocellular carcinoma. As of 2022, of the 254 million people living with chronic HBV infection, only approximately 33 million, or 13%, were aware of their infection, and only approximately 7 million, or 3% receiving treatment. HBV is a highly prevalent disease that infects almost three times the number of people infected with hepatitis C virus and HIV infections combined, according to the WHO.

HDV is a “satellite virus,” because it can only infect people (1) who are already infected with HBV or (2) at the same time as a person is infected with HBV. HDV affects a subset of approximately 12 to 72 million HBV infected people. These individuals infected with HDV, which comprise an estimated 4.5% of hepatitis B surface antigen (HBsAg) positive individuals, experience a substantially increased disease burden, as they account for 18% of cirrhosis and 20% of hepatocellular carcinoma associated with HBV. HDV is considered the most severe form of hepatitis, as 70% of individuals infected with HDV progress to cirrhosis within ten years. While HDV is less prevalent in the United States, it is a significant and serious health problem with inadequate treatment in many parts of Europe, Africa, the Middle East, East Asia and parts of South America. HDV may be significantly underdiagnosed, because there were no HDV-targeted therapies approved until very recently, and the first therapy approved is only approved in the European Union (EU). HDV is known to accelerate disease progression and increase the incidence of liver cirrhosis and liver cancer, which results in higher morbidity and mortality rates than HBV alone.

The current standard of care for chronic HBV infection, nucleos(t)ide analog reverse transcriptase inhibitors (NrtIs), are taken life-long and reduce, but do not eliminate, the virus and result in very low cure rates. No new mechanisms of action (MOA) have been approved for the treatment of chronic HBV infection in over 25 years. The focus of our HBV program is to improve outcomes and increase the number of patients diagnosed and treated through the development of finite and curative therapies targeting an orthogonal MOA.

The current standard of care treatment for HDV is off-label pegylated IFN-α injected weekly or, in some regions, a large, complex molecule that requires daily injections. There are no approved HDV treatments in the United States, and there is only one approved HDV treatment in the EU. We believe a safe and effective oral small molecule entry inhibitor would be a significant innovation for patients living with HDV, which face a significant and immediate disease burden.

14


 

HDV Entry Inhibitor Program

HDV is a small RNA virus that encodes just two viral proteins and relies on host enzymes as well as the HBsAg from HBV to replicate, which limits the number of HDV-specific antiviral targets. Similar to HBV, HDV utilizes HBsAg to enter hepatocytes by binding the cellular transmembrane protein sodium taurocholate co-transporting peptide (NTCP). NTCP is highly expressed on human hepatocytes, where it serves as one of several proteins involved in the transport of bile acids. The binding of specific small or large molecules to NTCP has been shown to effectively inhibit the interaction of HBsAg with NTCP, which prevents HBV and HDV from infecting hepatocytes.

The inhibition of HBV and HDV infection by molecules that bind NTCP has been demonstrated in vitro, in animal models and clinically. Notably, bulevirtide, a peptide blocker of NTCP, is the only approved therapy for HDV (approved in the EU). The binding of NTCP-targeted HBV/HDV entry inhibitors to NTCP has also been shown to inhibit the transport of certain bile acids into cells, which results in plasma elevations of bile acids; this effect has been well tolerated clinically and may serve as a biomarker of pharmacologically active concentrations of drug in the plasma.

We believe a safe and effective oral small molecule entry inhibitor would be a significant innovation for patients living with HDV and could significantly improve treatment uptake and diagnosis rates, especially when compared with currently available injectable products.

In September 2023, we nominated 6250, a novel, orally bioavailable small molecule approach to inhibit entry of HBV and HDV by targeting NTCP. In nonclinical studies, 6250 demonstrated low nanomolar potency against all tested HBV/HDV genotypes, favorable selectivity for NTCP versus other bile acid transporters, good oral bioavailability and a PK profile in nonclinical species projected to support once-daily oral dosing.

At the European Association for the Study of the Liver's International Liver CongressTM in June 2023 and the International HBV Meeting in September 2023, we presented nonclinical characterization of the potencies and properties of our novel class of highly potent, small molecule, orally-bioavailable entry inhibitors. We expect to initiate Phase 1a clinical studies of 6250 by the end of 2024.

Capsid Assembly Modulator Program

HBV is a DNA virus that infects hepatocytes and establishes a reservoir of covalently closed circular DNA (cccDNA), a unique viral DNA moiety that resides in the nucleus of HBV-infected hepatocytes and is associated with viral persistence and chronic infection. No currently approved oral therapies target cccDNA activity directly, which makes molecules that can modulate cccDNA generation or disrupt its function highly sought after in the HBV field. As a result, we have worked to discover and develop compounds targeting the core protein, a viral protein involved in numerous aspects of the HBV replication cycle, including the generation of HBV cccDNA.

A benchmark for therapeutic agents aiming to decrease cccDNA levels is the use of several key viral antigens as surrogate biomarkers of active cccDNA. The same biomarkers can be used in both primary human hepatocytes and infected individuals. On this basis, our next-generation CAM, 4334, has shown nonclinical proof of principle. In a variety of cell culture models, 4334 has demonstrated the ability to reduce production of HBV DNA levels as well as the surrogate markers for cccDNA establishment: HBV e antigen (HBeAg), HBV core-related antigen (HBcrAg) and HBV pre-genomic RNA (pgRNA).

As a next-generation CAM, 4334 has been optimized to potently disrupt viral replication (MOA #1) and prevent the establishment and replenishment of new cccDNA (MOA #2). In contrast, while active against MOA #1, first-generation CAMs have not demonstrated adequate potency to sufficiently block cccDNA formation (MOA #2). Further, the current standard of care, NrtIs, impacts the viral life cycle after establishment of cccDNA and can only inhibit production of new viral particles, and it does so incompletely. The chemical scaffold of 4334 is novel and distinct from all our prior CAM candidates.

We believe that 4334 has a best-in-class nonclinical profile, with single-digit nanomolar potency against MOA #1 and MOA #2, pan-genotypic activity, an improved resistance profile and a favorable safety profile. Through mechanistic studies presented at multiple conferences, we have demonstrated that 4334 promotes the formation of empty capsids by acceleration of capsid assembly, prevents the formation of cccDNA by disrupting incoming capsids, and prematurely disrupts capsids containing duplex linear DNA, the precursor for integrated HBV DNA.

A Phase 1a study demonstrated that 4334 was well tolerated when administered orally as single or multiple doses. In addition, the PK data supports 4334 as a once daily oral therapy and predicts best in class activity against both MOA

15


 

#1 and MOA #2. During the first quarter of 2024, we filed a CTA to support initiation of a Phase 1b clinical study, which was approved in April 2024, and we expect to initiate the Phase 1b clinical study of 4334 by mid-2024.

Research Programs

Transplant-Associated Herpesviruses

In August 2022, in connection with our announcement of our HPI program, we also introduced our NNPI research program, targeting transplant-associated herpesviruses. In a transplant setting, when people are experiencing immunosuppression, they are at high risk of uncontrolled viral replication and severe disease brought on by one or more herpesviruses, including cytomegalovirus (CMV), HSV-1, HSV-2 and varicella zoster virus (VZV). Each of these herpesviruses are highly prevalent, as approximately (1) 60% of people receiving transplants are CMV-positive; (2) 60% of people receiving transplants are HSV-positive; and (3) 80% of people receiving transplants are VZV-positive. These viruses establish lifelong latent infections and frequently reactivate in people receiving transplants due to the use of immunosuppressive drugs following the transplant. These uncontrolled viral infections increase the risk of severe disease and serious complications, including organ rejection, graft loss and death, and impacted approximately 60,000 people receiving transplants in 2018 in the United States and EU4/UK.

While there are approved antivirals that are administered in a transplant setting, currently approved antivirals are not broad spectrum and pose the risk of potentially serious side effects and drug-drug interactions. As a result of these limitations, we identified an opportunity to develop a potent oral pan-herpes NNPI for these transplant-associated herpesvirus infections, which could greatly advance treatment. Our research team has discovered multiple chemical series of potent, broad-spectrum herpesvirus polymerase inhibitors. In addition, Gilead exclusively licensed us its NNPI program, and we believe the combined effort will accelerate candidate nomination and enhance our chance of clinical success.

IFNAR Agonist

In July 2022, we introduced our new research program advancing a novel, small molecule IFNAR agonist designed to selectively activate the IFN-α pathway within the liver and offer the convenience of oral dosing. IFN-α is a subcutaneous injectable immune modulatory therapy approved for HBV that has demonstrated functional cure in some HBV infected people, but its poor tolerability profile significantly limits its use. Substantial side effects include flu-like symptoms, cytopenias, serious depression and psychiatric effects. In addition, multiple contraindications limit its use, and it requires weekly injections that result in systemic exposure for up to a year.

By focusing exposure on the liver, our investigational IFNAR agonist program aims to engage IFN-α’s validated antiviral and immune modulatory mechanisms, retaining the efficacy of IFN-α while reducing systemic exposure to improve tolerability. Lead optimization of multiple IFNAR agonists is in progress.

Gilead Collaboration

On October 15, 2023, we entered into an Option, License and Collaboration agreement (the Gilead Collaboration Agreement) with Gilead pursuant to which Gilead (1) exclusively licensed to us its HPI program and its NNPI program, while retaining opt-in rights to these programs and (2) has an option to take an exclusive license, on a program-by-program basis, to all of our other current and future pipeline programs. During the 12-year collaboration term (subject to payment of certain extension fees) and for a specified period thereafter, Gilead may exercise its opt-in rights, on a program-by-program basis, at one of two timepoints—completion of a certain Phase 1 study or completion of a certain Phase 2 study for the first product within the program—upon payment of an opt-in fee ranging from $45.0 million to $125.0 million per program depending on the type of program and when the option is exercised. Pursuant to the Gilead Collaboration Agreement, Gilead made an $84.8 million upfront cash payment to us.

If Gilead exercises its opt-in right to any current or future program under the collaboration, we are eligible to receive up to $330.0 million in potential regulatory and commercial milestones on that program, in addition to royalties ranging from the high single-digits to high teens, depending on the clinical stage of the program at the time of the opt-in. Following Gilead’s exercise of its option for each of our programs, we may opt in to cover 40% of the research and development costs in the United States and share 40% of the profits and operating loss in the United States for products within the program in lieu of receiving milestones and royalties for that program in the United States, unless we later opt out of the cost/profit share for the program. Prior to Gilead’s potential exercise of its opt-in, we will be primarily responsible for all discovery, research and development on both our programs and the two Gilead-contributed programs. Following Gilead’s opt-in, Gilead will control the further discovery, research, development, and commercialization on any optioned programs. During the term, Gilead will continue to support the collaboration through extension fees of $75.0 million in each of the third, fifth and seventh years of the collaboration.

16


 

The Gilead Collaboration Agreement is subject to termination by either party for the other party’s uncured, material breach or insolvency. Subject to certain limitations, we and Gilead both have certain termination for convenience rights, upon sufficient prior written notice, with respect to programs that one party in-licenses from the other (subject to Gilead’s option rights), and with respect to Gilead, for programs it has option rights to (subject to certain time limitations with respect to existing Company programs). Gilead also has a right to terminate the collaborative activities under the Gilead Collaboration Agreement at certain specified points during the collaboration term. Other customary termination rights are further provided in the Gilead Collaboration Agreement.

We and Gilead also entered into a Common Stock Purchase Agreement and an Investor Rights Agreement (together, the Gilead Equity Agreements), pursuant to which Gilead made an upfront equity investment of $15.2 million by purchasing from us 1,089,472 shares of our common stock at a purchase price of $13.92 per share. If we complete an equity financing (or series of financings) by July 15, 2024 that results in at least $30 million of proceeds to us, then, subject to approval by our stockholders (which was obtained on January 31, 2024), we may require Gilead to purchase additional shares of common stock from us in an amount that results in Gilead owning 29.9% of our then-outstanding voting capital stock. If we do not complete the equity financing or do not require Gilead to purchase the additional shares, Gilead may elect to purchase additional shares of common stock from us in an amount that results in Gilead owning 29.9% of our then-outstanding voting capital stock. The purchase price per share for additional shares purchased by Gilead will be equal to the lesser of (1) a 35% premium to the 30-day volume weighted average price immediately prior to the date of purchase or (2) a 35% premium to the 30-day volume weighted average price immediately prior to delivery by Gilead of notice of the anticipated closing date. The Gilead Equity Agreements also include a three-year standstill provision and a two-year lockup provision, each with customary exceptions, and provide Gilead with certain other stock purchase rights and registration rights, as well as the right to designate two directors (or, alternatively, board observers at Gilead’s election) to our board of directors. In December 2023, Gilead designated Tomas Cihlar, Ph.D. to serve on our board of directors, and in March 2024, Gilead designated Robert D. Cook II to serve on our board of directors.

Operations

We currently have corporate and administrative offices and research laboratory space in South San Francisco, California.

Since our inception, we have had no revenue from product sales and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings and collaborations since then. Our operations to date have been primarily limited to organizing and staffing our company, licensing our product candidates, discovering and developing our product candidates, maintaining and improving our patent portfolio and raising capital.

We have generated significant losses to date, and we expect to continue to generate losses as we develop our product candidates. As of March 31, 2024, we had an accumulated deficit of $794.8 million. Because we do not generate revenue from any of our product candidates, our losses will continue as we further develop and seek regulatory approval for, and commercialize, our product candidates. Additionally, we expect our research and development expenses to increase over the next few years due to the Gilead Collaboration Agreement. As a result, our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none are approved or successfully launched. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP). The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.

We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Our critical accounting policies and significant estimates are detailed in our 2023 Annual Report. Our critical accounting policies and significant estimates have not changed from those previously disclosed in our 2023 Annual Report.

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Results of Operations

Comparison of the Three Months Ended March 31, 2024 and 2023

Collaboration Revenue

The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except for percentages):

 

 

Three Months Ended March 31,

 

 

$ Change

 

 

% Change

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

2024 vs. 2023

 

Collaboration revenue

 

$

5,785

 

 

$

 

 

$

5,785

 

 

 

100

%

Collaboration revenue for the three months ended March 31, 2024 includes the recognition of $5.8 million for services performed under the Gilead Collaboration Agreement entered into in October 2023. There was no revenue for the three months ended March 31, 2023.

Research and Development Expenses

Research and development expenses consist primarily of employee-related expenses, fees paid to contract research organizations and contract manufacturing organizations, lab supplies and other third-party expenses that support our research and discovery, nonclinical and clinical activities. External costs represent a significant portion of our research and development expenses, which we track on a program-by-program basis following the nomination of a development candidate. We use our employee and infrastructure resources, as well as certain third-party costs, across multiple research and development programs, and we do not specifically allocate these costs to our programs.

The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages):

 

 

Three Months Ended March 31,

 

 

$ Change

 

 

% Change

 

 

 

2024

 

 

2023

 

 

2024 vs. 2023

 

 

2024 vs. 2023

 

External expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and discovery

 

$

2,379

 

 

$

2,767

 

 

$

(388

)

 

 

(14

%)

1179

 

 

1,040

 

 

 

 

 

 

1,040

 

 

 

100

%

6250

 

 

1,027

 

 

 

 

 

 

1,027

 

 

 

100

%

4334

 

 

553

 

 

 

770

 

 

 

(217

)

 

 

(28

%)

5366

 

 

377

 

 

 

 

 

 

377

 

 

 

100

%