331 Oyster Point Boulevard4th FloorSouth San Francisco, CA 94080assemblybio.com2021 Annual Report Our Scientific Approach It takes deep experience, agility and unbiased scientific thinking to translate research and discovery into a finite and curative therapy. It’s imperative that we approach our science without preconceived notions of what will and won’t work and instead approach it creatively and open mindedly. This past year we continued to expand our leadership and scientific teams to reflect the broad thinking and creativity needed to achieve the ambitious goals we’ve set for ourselves as a company. We’ve benefited from the additions of renowned international industry experts to our board of directors, including Nobel laureate Sir Michael Houghton, PhD, who brings more than 40 years of scientific and drug experience, as well as Lisa Johnson-Pratt, MD, a distinguished physician with more than 20 years of experience overseeing business development efforts for the entire drug development lifecycle. We’ve also bolstered our leadership team from within through the promotions of Jason Okazaki, our Chief Operating Officer; Michael Samar, our Chief Financial Officer; and Nicole White, PhD, our Chief Manufacturing Officer. We possess deep knowledge in molecular biology and chemistry, and that knowledge continues to drive our progress. I see so many contributions already taking shape among our leadership and broader scientific teams. I’m confident that our science, mission and people will create value for our stockholders as we reach important milestones throughout 2022. Scientific Advances, Collaborations and Pipeline Progress In October, we reinforced our commitment to evaluating the backbone of our core inhibitors + nucleos(t)ide reverse transcriptase inhibitors (NrtI) in DEAR FELLOW STOCKHOLDERS,2021 served as an important reminder of what it means to be a pioneer in virology. As the pandemic continues to impact our daily lives in unexpected ways, science continuously empowers us to innovate and move forward. I’m proud to report that at Assembly Bio, we’ve made great strides in advancing our science and leveraging our team’s strengths to achieve important milestones, sharpen our strategic focus and move closer to fulfilling our mission to relieve millions of people from the burden of chronic hepatitis B virus (HBV) infection.Passionate about making a profound impact on patients’ livesAssembly Bio is passionately applying scientific ingenuity and a deep knowledge of virology to find a cure for hepatitis B infection, one of the world’s most prevalent and devastating infectious diseases, and to discover novel antivirals to treat serious viral diseases. We’ve made great strides advancing our science and leveraging our team’s strengths to achieve important milestones, sharpen our strategic focus and move closer to fulfilling our mission Our Scientific Approach It takes deep experience, agility and unbiased scientific thinking to translate research and discovery into a finite and curative therapy. It’s imperative that we approach our science without preconceived notions of what will and won’t work and instead approach it creatively and open mindedly. This past year we continued to expand our leadership and scientific teams to reflect the broad thinking and creativity needed to achieve the ambitious goals we’ve set for ourselves as a company. We’ve benefited from the additions of renowned international industry experts to our board of directors, including Nobel laureate Sir Michael Houghton, PhD, who brings more than 40 years of scientific and drug experience, as well as Lisa Johnson-Pratt, MD, a distinguished physician with more than 20 years of experience overseeing business development efforts for the entire drug development lifecycle. We’ve also bolstered our leadership team from within through the promotions of Jason Okazaki, our Chief Operating Officer; Michael Samar, our Chief Financial Officer; and Nicole White, PhD, our Chief Manufacturing Officer. We possess deep knowledge in molecular biology and chemistry, and that knowledge continues to drive our progress. I see so many contributions already taking shape among our leadership and broader scientific teams. I’m confident that our science, mission and people will create value for our stockholders as we reach important milestones throughout 2022. Scientific Advances, Collaborations and Pipeline Progress In October, we reinforced our commitment to evaluating the backbone of our core inhibitors + nucleos(t)ide reverse transcriptase inhibitors (NrtI) in DEAR FELLOW STOCKHOLDERS,2021 served as an important reminder of what it means to be a pioneer in virology. As the pandemic continues to impact our daily lives in unexpected ways, science continuously empowers us to innovate and move forward. I’m proud to report that at Assembly Bio, we’ve made great strides in advancing our science and leveraging our team’s strengths to achieve important milestones, sharpen our strategic focus and move closer to fulfilling our mission to relieve millions of people from the burden of chronic hepatitis B virus (HBV) infection.Passionate about making a profound impact on patients’ livesAssembly Bio is passionately applying scientific ingenuity and a deep knowledge of virology to find a cure for hepatitis B infection, one of the world’s most prevalent and devastating infectious diseases, and to discover novel antivirals to treat serious viral diseases. We’ve made great strides advancing our science and leveraging our team’s strengths to achieve important milestones, sharpen our strategic focus and move closer to fulfilling our mission 2022 Key Objectives and
Anticipated Progress
1H 2022
• Introduce HBV/HDV entry
inhibitor program
• Reveal novel undisclosed HBV
Target 2
• Introduce R&D initiatives aimed
at other viruses (non-HBV) - mid-
year
• Both Phase 2 Triple Combo
Studies (IFN and RNAi) fully
enrolled
• Initiate Phase 2 Triple Combo
Study – ASPIN
• Initiate Phase 1b Study – 3733
2H 2022
• Interim Phase 2 On-Treatment
Data
Triple Combo Study - IFN
• Interim Phase 2 On-Treatment
Data Triple Combo Study – RNAi
• Initiate Phase 1a Study – 4334
• Interim Phase 1b Data - 3733
combination with other mechanisms to
treat HBV when we announced our clinical
collaboration with Antios Therapeutics. The
collaborative study with Antios will evaluate
a triple combination treatment of ATI-2173,
Antios’ investigational proprietary active site
polymerase inhibitor nucleotide (ASPIN),
along with our lead core inhibitor candidate,
vebicorvir (VBR), and tenofovir disoproxil
fumarate, an NrtI in patients with HBV.
Our two ongoing Phase 2 triple combination
studies of our lead investigational core
inhibitor candidate, vebicorvir (VBR), plus
Nrtl therapy, the first with AB-729 Arbutus
Biopharma’s investigational RNAi candidate,
and the second with interferon, have both
completed enrollment, and we anticipate
initial on-treatment data during the second
half of this year.
Other important goals we accomplished in
2021 include:
• Nominating our fourth core inhibitor
candidate, ABI-4334 (4334), which has
been optimized for potency, to advance
into clinical development with the aim of
initiating clinical studies in 2022
• Presenting two posters and an oral
presentation at AASLD The Liver Meeting™
focusing on:
- preclinical characterization, including
single-digit nanomolar potency for 4334
against both pgRNA encapsidation and
cccDNA formation
- favorable pharmacokinetics and safety
results in our Phase 1a study of our next-
generation core inhibitor ABI-H3733
(3733)
- positive Phase 2 open-label study data
for VBR demonstrating the contribution
of core inhibition to deepen viral
suppression
• Reporting the enhanced potency and target
coverage of both 3733 and our discontinued
core inhibitor, ABI-H2158 (2158), as compared
to VBR for both antiviral inhibition and
cccDNA formation at EASL’s International
in the U.S. healthcare landscape about this
Liver Congress™
• Reported Phase 1a safety and
pharmacokinetics data for 3733
In 2021, we also learned f rom our work
and clinical study results and adapted
our strategy and pipeline advancement
plans accordingly. In September, we
announced our decision to halt the clinical
development of 2158 due to elevated
alanine transaminase (ALT) levels observed
in our Phase 2 study. Patient safety is
paramount and the lessons we gained
from this study are invaluable as they
inform our work and the larger HBV field.
This outcome allowed us to focus on our
next-generation core inhibitor candidates,
3733 and 4334, and continue evaluating the
best and safest candidate to take forward
into later-stage clinical studies.
Expanding our Strategic Focus
Our expanded strategy and pipeline
progress in 2021 have positioned us to
reach several key milestones already in
2022 with both our core inhibitor portfolio
and our research programs beyond core
inhibition and HBV.
We remain focused on advancing our
clinical programs, including the Phase 2
triple combination studies with VBR and
accelerating the clinical development of
our next-generation core inhibitors. Initial
antiviral data for 3733 is anticipated before
year-end 2022, and 4334, our newest core
inhibitor candidate, which we believe has a
best-in-class preclinical profile, is expected
to enter clinical development during the
second half of the year.
We are also building out new research
and development programs that will
leverage our team’s deep virologic drug
development expertise to explore new
targets in HBV as well as other viral
diseases. One such program focuses on
hepatitis delta virus (HDV). Less is known
virus, but HDV remains a significant and
serious health problem without adequate
treatment in parts of Europe, Af rica, the
Middle East, Asia and parts of South
America.
Referred to as a “satellite virus,” HDV only
infects those already infected with HBV or
individuals when they first acquire hepatitis
B infection. Conservative estimates suggest
that 12 million people suffer from the
added burden of HDV, which is known to
accelerate disease progression and increase
the incidence of liver cirrhosis and liver
cancer. It is ultimately associated with
higher morbidity and mortality rates. In
our mission to deliver curative treatments
for individuals with HBV, we also have a
significant opportunity to address the
urgent need of those also infected with
HDV. Our aim and responsibility is to
improve their quality of life and outcomes.
Further updates on this program and
the introduction of another HBV target
program, as well as R&D initiatives aimed at
other viruses, will be forthcoming.
Looking ahead, I’m excited to see how we
can continue to build upon the strength
of our existing pipeline of potent core
inhibitor candidates—moving more of
them to and through the clinic with
urgency—and expanding our portfolio with
novel approaches for treating viral diseases
more broadly. We truly are pioneers in the
mechanism of core inhibition, and together
we have the potential to change the way
our industry approaches virology treatment
for years to come.
Wishing you good health,
John McHutchison, AO, MD
Chief Executive Officer and President
2022 Key Objectives and
Anticipated Progress
1H 2022
• Introduce HBV/HDV entry
inhibitor program
• Reveal novel undisclosed HBV
Target 2
• Introduce R&D initiatives aimed
at other viruses (non-HBV) - mid-
year
• Both Phase 2 Triple Combo
Studies (IFN and RNAi) fully
enrolled
• Initiate Phase 2 Triple Combo
Study – ASPIN
• Initiate Phase 1b Study – 3733
2H 2022
Data
• Interim Phase 2 On-Treatment
Triple Combo Study - IFN
• Interim Phase 2 On-Treatment
Data Triple Combo Study – RNAi
• Initiate Phase 1a Study – 4334
• Interim Phase 1b Data - 3733
combination with other mechanisms to
treat HBV when we announced our clinical
collaboration with Antios Therapeutics. The
collaborative study with Antios will evaluate
a triple combination treatment of ATI-2173,
Antios’ investigational proprietary active site
polymerase inhibitor nucleotide (ASPIN),
along with our lead core inhibitor candidate,
vebicorvir (VBR), and tenofovir disoproxil
fumarate, an NrtI in patients with HBV.
Our two ongoing Phase 2 triple combination
studies of our lead investigational core
inhibitor candidate, vebicorvir (VBR), plus
Nrtl therapy, the first with AB-729 Arbutus
Biopharma’s investigational RNAi candidate,
and the second with interferon, have both
completed enrollment, and we anticipate
initial on-treatment data during the second
half of this year.
Other important goals we accomplished in
2021 include:
• Nominating our fourth core inhibitor
candidate, ABI-4334 (4334), which has
been optimized for potency, to advance
into clinical development with the aim of
initiating clinical studies in 2022
• Presenting two posters and an oral
presentation at AASLD The Liver Meeting™
focusing on:
- preclinical characterization, including
single-digit nanomolar potency for 4334
against both pgRNA encapsidation and
cccDNA formation
- favorable pharmacokinetics and safety
results in our Phase 1a study of our next-
generation core inhibitor ABI-H3733
(3733)
- positive Phase 2 open-label study data
for VBR demonstrating the contribution
of core inhibition to deepen viral
suppression
• Reporting the enhanced potency and target
coverage of both 3733 and our discontinued
core inhibitor, ABI-H2158 (2158), as compared
to VBR for both antiviral inhibition and
cccDNA formation at EASL’s International
Liver Congress™
• Reported Phase 1a safety and
pharmacokinetics data for 3733
In 2021, we also learned from our work
and clinical study results and adapted
our strategy and pipeline advancement
plans accordingly. In September, we
announced our decision to halt the clinical
development of 2158 due to elevated
alanine transaminase (ALT) levels observed
in our Phase 2 study. Patient safety is
paramount and the lessons we gained
from this study are invaluable as they
inform our work and the larger HBV field.
This outcome allowed us to focus on our
next-generation core inhibitor candidates,
3733 and 4334, and continue evaluating the
best and safest candidate to take forward
into later-stage clinical studies.
Expanding our Strategic Focus
Our expanded strategy and pipeline
progress in 2021 have positioned us to
reach several key milestones already in
2022 with both our core inhibitor portfolio
and our research programs beyond core
inhibition and HBV.
We remain focused on advancing our
clinical programs, including the Phase 2
triple combination studies with VBR and
accelerating the clinical development of
our next-generation core inhibitors. Initial
antiviral data for 3733 is anticipated before
year-end 2022, and 4334, our newest core
inhibitor candidate, which we believe has a
best-in-class preclinical profile, is expected
to enter clinical development during the
second half of the year.
We are also building out new research
and development programs that will
leverage our team’s deep virologic drug
development expertise to explore new
targets in HBV as well as other viral
diseases. One such program focuses on
hepatitis delta virus (HDV). Less is known
in the U.S. healthcare landscape about this
virus, but HDV remains a significant and
serious health problem without adequate
treatment in parts of Europe, Af rica, the
Middle East, Asia and parts of South
America.
Referred to as a “satellite virus,” HDV only
infects those already infected with HBV or
individuals when they first acquire hepatitis
B infection. Conservative estimates suggest
that 12 million people suffer from the
added burden of HDV, which is known to
accelerate disease progression and increase
the incidence of liver cirrhosis and liver
cancer. It is ultimately associated with
higher morbidity and mortality rates. In
our mission to deliver curative treatments
for individuals with HBV, we also have a
significant opportunity to address the
urgent need of those also infected with
HDV. Our aim and responsibility is to
improve their quality of life and outcomes.
Further updates on this program and
the introduction of another HBV target
program, as well as R&D initiatives aimed at
other viruses, will be forthcoming.
Looking ahead, I’m excited to see how we
can continue to build upon the strength
of our existing pipeline of potent core
inhibitor candidates—moving more of
them to and through the clinic with
urgency—and expanding our portfolio with
novel approaches for treating viral diseases
more broadly. We truly are pioneers in the
mechanism of core inhibition, and together
we have the potential to change the way
our industry approaches virology treatment
for years to come.
Wishing you good health,
John McHutchison, AO, MD
Chief Executive Officer and President
[This page intentionally left blank]
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File Number: 001-35005
ASSEMBLY BIOSCIENCES, INC.
(Exact name of registrant specified in its charter)
Delaware
(State or Other Jurisdiction of
Incorporation or Organization)
20-8729264
(I.R.S. Employer
Identification No.)
331 Oyster Point Blvd., Fourth Floor
South San Francisco, California 94080
(Address of Principal Executive Offices)
Registrant’s telephone number, including area code: (833) 509-4583
Securities Registered Pursuant to Section 12(b) of the Exchange Act:
Trading Symbol(s)
ASMB
Securities Registered Pursuant to Section 12(g) of the Act: None
Title of Each Class
Common Stock, $0.001 Par Value
Name of Exchange on which Registered
The Nasdaq Global Select Market
No ☒
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐
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 ☒
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 (§ 232.45 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to
submit such files). Yes ☒
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
No ☐
No ☐
☐
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its
internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262 (b)) by the registered public accounting
firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate market value of the voting stock held by non-affiliates of the registrant, as of June 30, 2021, was $168.3 million. Such aggregate
market value was computed by reference to the closing price of the common stock as reported on the Nasdaq Global Select Market on June 30,
2021. For purposes of making this calculation only, the registrant has defined affiliates as including only (1) directors, (2) executive officers and
(3) certain stockholders, if any, that hold greater than 10% of the voting stock of the registrant, in each case, as of June 30, 2021. Shares of
common stock held by other persons, including certain other holders of more than 10% of the registrant’s outstanding common stock, if any, have
not been excluded from the above calculation in that such persons are not deemed to be affiliates. The determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of February 28, 2022, there were 48,120,437 shares of the registrant’s common stock, $0.001 par value per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates information by reference to portions of the definitive proxy statement for the
Company’s Annual Meeting of Stockholders to be held in 2022, to be filed within 120 days of the registrant’s fiscal year ended December 31,
2021.
Auditor Firm Id: 42
Auditor Name: Ernst & Young LLP
Auditor Location:
Redwood City, California
[This page intentionally left blank]
ASSEMBLY BIOSCIENCES, INC.
TABLE OF CONTENTS
PART I
Item 1.
Business.......................................................................................................................................
Item 1A. Risk Factors .................................................................................................................................
Item 1B. Unresolved Staff Comments........................................................................................................
Properties.....................................................................................................................................
Item 2.
Legal Proceedings .......................................................................................................................
Item 3.
Item 4.
Mine Safety Disclosures..............................................................................................................
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities .....................................................................................................................
[Reserved]....................................................................................................................................
Item 6.
Management’s Discussion and Analysis of Financial Condition and Results of Operation.......
Item 7.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk .....................................................
Financial Statements and Supplementary Data ...........................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .....
Item 9A. Controls and Procedures..............................................................................................................
Item 9B. Other Information........................................................................................................................
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ........................................
PART III
Item 10. Directors, Executive Officers and Corporate Governance ..........................................................
Executive Compensation .............................................................................................................
Item 11.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Item 12.
Matters.........................................................................................................................................
Certain Relationships and Related Transactions, and Director Independence............................
Item 13.
Principal Accounting Fees and Services .....................................................................................
Item 14.
Exhibits, Financial Statement Schedules.....................................................................................
Item 15.
Item 16.
Form 10-K Summary...................................................................................................................
Financial Statements ......................................................................................................................................
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F-1
i
References to Assembly Biosciences, Inc.
Throughout this Annual Report on Form 10-K, the “Company,” “Assembly,” “we,” “us,” and “our,” except where
the context requires otherwise, refer to Assembly Biosciences, Inc. and its consolidated subsidiaries, and “our board
of directors” or “the Board” refers to the board of directors of Assembly Biosciences, Inc.
Forward-Looking Statements
This Annual Report on Form 10-K contains “forward-looking statements” that are subject to certain risks and
uncertainties, including, without limitation, those set forth in Part I, Item 1A under the heading “Risk Factors,” that
could cause actual results to materially differ. Such risks and uncertainties include, among other things:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
our ability to initiate and complete clinical studies involving our therapeutic product candidates, including
studies contemplated by our clinical collaboration agreements, in the currently anticipated timeframes;
safety and efficacy data from clinical 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;
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;
continued development and commercialization of our hepatitis B virus (HBV) product candidates, if
successful, in the China territory will be dependent on, and subject to, our collaboration agreement
governing our HBV-related activity in the China territory;
our ability to maintain financial resources necessary to continue our clinical studies and fund business
operations; and
any impact that the COVID-19 pandemic may have on our business and operations, including initiation,
enrollment and continuation of our clinical studies or timing of discussions with regulatory authorities.
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; our ability to successfully complete, and receive favorable
results in, clinical trials for our product candidates; and the expected impact of the COVID-19 pandemic on our
business and operations. 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.
ii
PART I
Item 1. Business
Overview
We are a clinical-stage biotechnology company focused on discovery and development of innovative therapeutics
targeting hepatitis B virus (HBV) and other viral diseases.
The World Health Organization (WHO) estimates that 296 million people worldwide are chronically infected with
HBV as of 2019. Our research and development organizations are pursuing multiple drug candidates designed to
inhibit the HBV replication cycle and block the generation of covalently closed circular DNA (cccDNA), with the
aim of discovering and developing finite and curative therapies for patients with chronic HBV infection. We have
discovered several novel core inhibitors, which are small molecules that directly target and allosterically modulate
the HBV core protein in a way that affects assembly and stability of HBV nucleocapsids. In addition, our research
organization is working on discovering and developing cccDNA disruptors and small molecules targeting two novel
undisclosed HBV targets.
While we continue our efforts to develop finite and curative therapies for patients with chronic HBV infection, our
research organization recently launched an exploratory virology discovery program for compounds directed at a
number of non-HBV viral targets. These targets, currently expected to be disclosed in mid-2022, were selected to
leverage the deep antiviral expertise and experience of our research and development organizations against diseases
with significant unmet medical need.
The ongoing COVID-19 pandemic and its broad, global impacts, including supply chain disruptions, have impacted
certain aspects of our business, including where and how our employees work in our labs and offices and how and
when our nonclinical and clinical studies are conducted. Early in the pandemic, our current and future planned
clinical trials and preclinical studies were largely unaffected, but as the pandemic has continued, we have
experienced enrollment delays for our current clinical studies, particularly our two ongoing multi-drug combination
studies. For more information, see “—Multi-Drug Combination Studies.”
As previously announced, in January 2021, we wound down our Microbiome program to prioritize and focus our
resources on our virology programs.
HBV Background
HBV is a leading global cause of chronic liver disease and liver transplants. The WHO estimates that, as of 2019,
296 million people worldwide were infected with HBV, with 1.5 million new infections occurring each year. The
WHO also estimates that 820,000 people died in 2019 because of HBV, mostly from complications, including
cirrhosis and hepatocellular carcinoma. HBV is a global epidemic and infects more than three times the number of
people infected with hepatitis C virus and HIV infections combined, according to the WHO. Of the 296 million
people living with chronic HBV infection, only approximately 30 million were aware of their infection, and only
approximately 6.6 million of those diagnosed received treatment. Few treated patients exhibit cure, defined herein as
sustained viral suppression (more than six months) of HBV DNA (less than the lower limit of quantification
(LLOQ)) after a finite duration of therapy.
Current Treatments
There have been no new mechanisms used to treat chronic HBV infection approved in over 25 years. Current
therapeutic options for HBV include:
antiviral medications—including
(cid:129) Direct Acting Antiviral medications (Nucelos(t)ide analog reverse transcriptase inhibitors (NrtIs)).
(Hepsera®),
Several
telbivudine (Tyzeka®), tenofovir alafenamide (Vemlidy®), tenofovir disoproxil fumarate (Viread®) and
entecavir (Baraclude®)—effectively reduce circulating virus levels by inhibiting reverse transcription.
Chronic therapy with these agents can result in reduced liver inflammation and fibrosis. Unfortunately,
NrtIs are rarely curative, even after years of therapy, and viral replication resumes when therapy is stopped.
lamivudine
(Epivir®),
adefovir
1
(cid:129)
Pegylated Interferon alfa (Peg-IFNα or interferon). This synthetic version of a substance produced by
the body to fight infection is used mainly for people infected with HBV who do not want to undergo long-
term treatment (e.g., patients who might want to become pregnant within a few years). It is administered by
injection. Cure rates are relatively low and side effects may be severe, including flu-like symptoms and
depression.
HBV Strategy
The goal of our HBV program is to discover and develop finite and curative therapies for those chronically infected
with HBV. Our efforts to forge a new and differentiated path to develop finite and curative therapies for chronic
HBV infection are inspired by the hundreds of millions of people living with this condition worldwide. While we
have learned that combination therapy of our first-generation core inhibitor product candidate, vebicorvir (VBR),
with NrtIs alone will not result in a finite and curative treatment, we believe that a regimen of core inhibitors in
combination with NrtI therapy will be the antiviral backbone of future finite and curative therapies. As a result, our
current business strategy is focused on three parallel paths:
(cid:129) Developing and advancing our next-generation core inhibitors, ABI-H3733 (3733) and ABI-4334 (4334),
which we believe has a best-in-class preclinical profile;
(cid:129) Assessing core inhibitors in multi-drug combination studies, adding nonoverlapping mechanisms of action
to the core inhibitor + NrtI antiviral backbone by utilizing our first-generation core inhibitor VBR; and
(cid:129) Discovering and developing additional compounds beyond core inhibitors, including a cccDNA disruptor
and two other novel preclinical programs.
With respect to our core inhibitor pipeline, we have concise, data-driven development plans that we believe will
enable selection of the optimal core inhibitor to advance for finite and curative combination therapies for HBV. We
intend to further complement our core inhibitor programs with additional new mechanisms of action discovered and
developed internally as well as externally through collaborations, licenses, partnerships and other types of business
arrangements.
Our Primary Focus: Targeting HBV Core Protein to Achieve a Cure
HBV is a DNA virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique viral DNA moiety
that resides in the cell 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 in the HBV field. As a result, most of our
research and development efforts to date have focused on discovering and developing compounds targeting the core
protein, a viral protein involved in numerous aspects of the HBV replication cycle, including the generation of HBV
cccDNA. Through our research efforts, we have discovered several chemically distinct series of small molecule core
inhibitors that directly target and allosterically inhibit core protein functions. As a result, our pipeline offers the
potential for both first-in-class and best-in-class compounds that target critical steps involved in cccDNA generation
and the HBV viral replication cycle. We believe that our approach of targeting viral core protein and its related
functions provides a promising foundation for finite and curative HBV treatment regimens.
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 hepatocyte cells
and patients. On this basis, our core inhibitors have shown preclinical proof of principle. In a variety of cell culture
models, core inhibitors have demonstrated the ability to reduce production of viral HBV DNA levels as well as the
surrogate markers for cccDNA establishment: HBV e antigen (HBeAg), HBV core-related antigen (HBcrAg) and
viral pre-genomic RNA (pgRNA).
Our Core Inhibitor Product Candidates
Our clinical strategy encompasses testing core inhibitors first as a monotherapy in Phase 1, as required by regulatory
agencies, to demonstrate their intrinsic antiviral activity and safety and subsequently in Phase 2 in combination with
NrtI and potentially other classes of HBV therapies.
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Vebicorvir
VBR, our lead core inhibitor product candidate, is licensed from Indiana University. The conduct of our initial Phase
2 studies, Study 201 and 202, is complete. In these studies, VBR administered with NrtI therapy demonstrated a
favorable safety profile and led to greater viral suppression of both HBV DNA and viral pgRNA than NrtI therapy
alone.
Finite Therapy Development
Our most recently completed study for VBR, Study 211, involved transitioning patients who met the requisite
stopping criteria, as determined in collaboration with our lead investigators and the U.S. Food and Drug
Administration (FDA), off of therapy to test for sustained virologic response (SVR). SVR refers to sustained viral
suppression (more than six months) of HBV DNA below LLOQ and would be consistent with a successful finite
treatment for chronic HBV infection. During the trial, it became clear that patients who stopped therapy in Study
211 had not achieved SVR, as all patients relapsed, meaning they had detectable HBV and the dual combination
therapy of VBR + NrtI was insufficient to cure chronic HBV infection in the studied population. Based on these
results, we terminated Study 211 in the fourth quarter of 2020. We presented follow-up data from Study 211 related
to virologic response, safety and resistance following treatment discontinuation, at the European Association for the
Study of the Liver’s (EASL) International Liver CongressTM in June 2021 (EASL 2021). At the American
Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2021 (AASLD 2021), we
presented additional follow-up data from Study 211 demonstrating that patients had increases of HBV DNA and
pgRNA after discontinuation of VBR despite continued NrtI treatment, further supporting that core inhibitors
deepen viral suppression in combination with NrtIs.
We currently have two Phase 2 triple combination studies involving VBR ongoing, with a third expected to be
initiated in the first half of 2022. These studies are detailed below. See “—Multi-Drug Combination Studies.”
Chronic Suppressive Therapy Development
Despite the off-treatment results in Study 211, the Phase 2 studies demonstrated on-treatment that subjects receiving
VBR + NrtI achieved faster and deeper suppression of viral replication as compared to placebo. Based on these data,
we believed that the addition of VBR to NrtI therapy could potentially help two patient populations as a chronic
suppressive treatment (CST): (1) treatment-naïve patients, for whom addition of VBR to NrtI could lead to faster
and deeper viral suppression and (2) partially virologically suppressed patients who continue to have viral levels
above LLOQ by commercial assays, for whom the addition of VBR to NrtI could suppress viral levels below what
could be achieved by NrtI alone.
In connection with preparation for registrational studies for VBR in CST in 2020, we held a number of discussions
with leading viral hepatitis experts regarding use of VBR as a CST. In addition, we initiated an additional Phase 2
study of VBR, Study 205, to evaluate treatment intensification with VBR in patients with chronic HBV infection
who are only partially virologically suppressed on NrtI.
In the second half of 2020, we also held an End-of-Phase 2 meeting with the National Medical Products
Administration, Center for Drug Evaluation, China, and reached agreement on a Phase 3 registrational program for
CST use of VBR plus NrtI. We also had discussions with the FDA regarding the same Phase 3 registrational
program.
Based on discussions with leading viral hepatitis experts, global regulatory discussions and feedback, and, with
respect to the China territory, discussions and agreement with our collaboration partner, BeiGene, Ltd. (BeiGene), in
early 2021, we decided to not move forward with the global registrational studies for VBR as a CST with NrtI. The
decision was made to focus on the greatest unmet medical need of patients, which lies predominantly in cure, rather
than CST. As a result, we terminated Study 205 and began to focus our efforts with VBR in combination with NrtI
and additional mechanisms targeting finite and curative combination therapy.
Next-Generation Core Inhibitors
In pursuit of our goal of developing finite and curative therapies for patients with chronic HBV infection, we plan to
advance the optimal core inhibitor in our portfolio for use as the antiviral backbone with NrtI. While we currently
have VBR, our first-generation core inhibitor product candidate, and 3733, a next-generation product candidate, in
clinical studies, we expect to initiate Phase 1a studies of 4334, our most potent next-generation product candidate in
the second half of 2022. Based on the clinical progress of these candidates, we will apply disciplined, data-driven
analyses to identify the optimal candidate to advance into late-stage clinical trials to produce potentially higher cure
rates than are currently obtainable for patients with chronic HBV infection under the current standard of care.
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ABI-H3733
Our first of two next-generation core inhibitor product candidates, 3733, was internally discovered and developed.
The chemical scaffold of 3733 is novel and distinct from each of VBR, 4334 and our discontinued core inhibitor
product candidate, ABI-H2158 (2158).
In 2020, we initiated and completed a Phase 1a clinical study of 3733 to evaluate safety, tolerability and
pharmacokinetics (PK) following single ascending dose and multiple ascending dose administration in healthy
subjects in New Zealand. Preliminary data indicate that 3733 was generally well-tolerated and had favorable PK.
Results detailing 3733’s safety and PK from this study were presented in a poster presentation at AASLD 2021.
In addition, at EASL 2021, we presented observations on 3733’s enhanced potency and target coverage for both
antiviral activity and inhibition of cccDNA generation as compared to VBR and 2158.
We expect to initiate a Phase 1b study with an improved formulation of 3733 in patients with chronic HBV infection
in the first half of 2022.
ABI-4334
In mid-2021, we announced the selection of 4334, our other next-generation core inhibitor product candidate. As
with all of our core inhibitor product candidates nominated after VBR, 4334 was internally discovered and
developed. In addition, the chemical scaffold of 4334 is also novel and distinct from each of VBR, 3733 and 2158.
We nominated 4334 based on a preclinical target drug profile that indicates enhanced target coverage and potency to
prevent both formation of new virus and cccDNA, which is responsible for maintaining the HBV viral reservoir. We
believe that 4334 has a best-in-class preclinical profile, with single-digit nanomolar potency against the production
of new virus and the formation of cccDNA. Preclinically to date, 4334 has also demonstrated pan-genotypic activity,
an improved resistance profile and a favorable safety profile. Preclinical characterization of 4334 was shared in a
poster presentation at AASLD in November 2021.
Our preclinical work on 4334 is ongoing, with the aim of completing Investigational New Drug (IND) enabling
studies and initiating a Phase 1a clinical study in the second half of 2022.
ABI-2158
In September 2021, we discontinued development of 2158 following the observation of elevated alanine
transaminase (ALT) levels in the Phase 2 clinical study consistent with drug-induced hepatotoxicity.
Core Inhibitor Collaboration and License Agreements
Indiana University Research and Technology Corporation
In September 2013, we entered into an exclusive license agreement (the IURTC License Agreement) with Indiana
University Research and Technology Corporation (IURTC) pursuant to which we acquired, with rights to
sublicense, the rights to develop and commercialize products associated with multiple patents and patent
applications covering aspects of our HBV program held by IURTC. As part of this agreement, we are obligated 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, should all
performance milestones through development be met, is $0.8 million, with a portion related to the first performance
milestone having been paid. Under the IURTC License Agreement, we are also obligated to pay IURTC royalties
based on net sales of the licensed technology ranging from 0.5% to 1.75%. In addition, under the IURTC License
Agreement, we pay annual diligence maintenance fees of $0.1 million. Milestone payments received by IURTC are
fully creditable against the annual diligence maintenance fee for the year in which the milestone payments are
received.
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The IURTC License Agreement may be terminated by us, with or without cause, upon 90 days advance written
notice, by IURTC upon our material breach with 60 days advance written notice or by IURTC, in certain cases,
upon our insolvency or bankruptcy immediately upon written notice.
BeiGene, Ltd.
In July 2020, we entered into a Collaboration Agreement with BeiGene, granting BeiGene an exclusive, royalty-
bearing license to develop and commercialize products containing VBR, 2158 and 3733 (the BeiGene Agreement)
in the People’s Republic of China, Hong Kong, Taiwan and Macau (the Territory).
Under the BeiGene Agreement, we and BeiGene will collaborate on development activities with respect to the
licensed products in accordance with a mutually agreed upon development plan.
Pursuant to the terms of the BeiGene Agreement, BeiGene paid us an upfront amount of $40.0 million, and we were
eligible to receive up to approximately $500.0 million in milestone payments, comprised of up to $113.8 million in
development and regulatory and $385.0 million in net sales milestone payments. In September 2021, we
discontinued development of 2158 following the observation of elevated ALT levels in the Phase 2 clinical study
consistent with drug-induced hepatotoxicity. Due to the discontinuation of development of 2158, the maximum cash
milestone payments we are eligible to receive for VBR and 3733 are $427.5 million, comprised of up to $97.5
million for development and regulatory milestones and up to $330.0 million in net sales milestones. In addition, we
are eligible to receive tiered royalties at percentages ranging from the mid-teens to the low 30s of net sales. BeiGene
has also agreed to pay all development and regulatory costs up to an aggregate of $45.0 million in the Territory for
VBR, 2158 and 3733. Following this initial investment, we and BeiGene will share development costs for the
Territory equally.
The BeiGene Agreement also contains provisions such as representations and warranties of the parties, terms as to
governance of the collaboration, commercialization and regulatory responsibilities of the parties, and manufacturing
and supply, including potential adjustments in the event supply costs exceed certain levels. In addition, during the
term of the BeiGene Agreement, neither party will commercialize any competing products in the Territory.
Under the terms of the BeiGene Agreement, if after 3733 reaches the end of Phase 2 clinical trials we and BeiGene
are unable to mutually agree on the terms of a Phase 3 global study, BeiGene may elect to terminate the BeiGene
Agreement solely as it relates to that compound. Such a termination would result in us regaining all rights to the
applicable compound in the Territory. In addition, BeiGene may terminate the BeiGene Agreement for convenience
at any time upon 90 days’ advance written notice to us. The BeiGene Agreement also contains customary provisions
for termination by either party, including in the event of breach of the BeiGene Agreement, subject to cure.
Multi-Drug Combination Studies
We believe that core inhibitors and NrtI will be central to finite and curative therapies for chronic HBV infection.
Therefore, as we continue to develop and advance our current and future core inhibitors through clinical studies, we
plan to conduct multi-drug combination studies in parallel that add additional drugs (or compounds) with
nonoverlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone. Specifically, we plan on only
incorporating our current and future core inhibitors that have demonstrated they are well-tolerated and effective in
clinical studies in dual combination with NrtI. The 300 mg daily dose of VBR has been observed to be well-
tolerated in all studies conducted to date, with no serious adverse effects or dose-limiting toxicities identified and no
pattern of treatment-emergent clinical or laboratory abnormalities observed. We currently have two ongoing triple
combination studies and a third triple combination study expected to start in the first half of 2022 to study VBR in
combination with NrtI and a third mechanism of action.
Our first triple combination study is being conducted pursuant to a Clinical Trial Agreement with Arbutus
Biopharma Corporation (Arbutus Biopharma) and consists of a randomized, multi-center, open-label Phase 2
clinical study to explore the safety, PK and antiviral activity of the triple combination of VBR, NrtI and AB-729
(Arbutus Biopharma’s investigational RNAi candidate) compared to the double combinations of VBR + NrtI and
AB-729 + NrtI in virologically suppressed patients. This clinical study initiated in the first quarter of 2021 and
completed enrollment in February 2022. We expect to share interim on-treatment results from this study in the
second half of 2022.
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Our second triple combination study evaluates VBR and NrtI in combination with interferon in treatment-naïve
HBeAg positive subjects. This study was also initiated in the first quarter of 2021, and we expect enrollment to be
complete in March 2022. We expect to share interim on-treatment results from this study in the second half of 2022.
Our third triple combination study will be conducted pursuant to a Clinical Trial Collaboration Agreement with
Antios Therapeutics, Inc. (Antios) and will evaluate ATI-2173, Antios’s investigational proprietary active site
polymerase inhibitor nucleotide (ASPIN), VBR and tenofovir disoproxil fumarate, an NrtI. This multi-center,
double-blinded, placebo-controlled study will evaluate the safety, PK and antiviral activity of this all-oral triple
combination. We expect to initiate this study, which will enroll ten treatment-naïve or off-treatment HBeAg negative
or positive patients in a 12-week treatment study, in the first half of 2022. The study plan initially included a site in
Ukraine, but we will no longer be conducting the study there due to the instability resulting from Russia’s recent
invasion of Ukraine. We expect these changes to our study plan to result in a delayed data readout.
In addition to the above studies, we expect to pursue additional multi-drug combinations that include other or
additional nonoverlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone, using our current
and future core inhibitors as they advance in clinical development.
Both our first and second triple combination studies have experienced enrollment delays due to the ongoing
COVID-19 pandemic. The pandemic has impacted patients and study sites through patient screening delays, travel
restrictions and hesitancy to travel to study sites. The pandemic has also impacted our vendors, as our central
laboratories have been unable to meet their contractual obligations, and our vendors have experienced staffing
constraints and supply chain-related challenges as they seek to obtain lab kits, reagents and other items necessary to
enroll patients in our studies. As a result, we were unable to fully enroll our first and second triple combination
studies in 2021 as initially planned; however, based on enrollment to date, we do not believe these delays will
impact interim data readouts for these studies, which remains on schedule in 2022.
Beyond Core Inhibitors
In addition to the development and advancement of our core inhibitor portfolio and our current and future multi-drug
combination studies, our research and development team is working on discovering and developing cccDNA
disruptors and small molecules targeting two novel undisclosed HBV targets, which we expect to announce in the
first half of 2022, to complement our HBV cure strategy.
In November 2020, we entered into an exclusive, two-year collaboration and option agreement with Door
Pharmaceuticals, LLC (Door Pharma) focused on the development of a novel class of HBV inhibitors. Door
Pharma’s discovery platform targets functions of core protein distinct from viral assembly and have the potential to
interfere with viral nucleic acid including intra-nuclear cccDNA, providing a strong complement to our current
portfolio. Together with Door Pharma, we are working on identifying cccDNA disruptors, which will be aimed at
inhibiting different intra-nuclear steps in the viral replication cycle that complement the activity of our core
inhibitors.
Under the terms of the agreement, Door Pharma will build upon its previous efforts to lead and conduct new
discovery research, which we will fund. In return for an up-front payment and success-based milestones and
royalties, we will be granted an exclusive option to license compounds arising from the collaboration and will be
responsible for the continued development and commercialization of optioned compounds.
Additional Antiviral Opportunities
In addition to our work toward developing finite and curative therapies for patients with chronic HBV infection, we
have expanded our research and development organizations’ reach by pursuing exploratory research on novel
compounds targeting other viruses. Our expanded focus leverages the depth and breadth of virology expertise of our
research and development organization to diversify our pipeline into areas of high unmet medical need.
We expect to disclose more information regarding these discovery programs on additional viral targets in mid-2022.
Intellectual Property
In regard to our HBV patent estate, we co-own with and exclusively license from Indiana University two issued U.S.
patents and related foreign patents and patent applications that relate to compositions of matter and methods of using
VBR. The issued U.S. patents are expected to expire in 2035 and 2036. In addition, we own a U.S. patent and
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related foreign applications directed to a process for preparing VBR. The issued U.S. patent is expected to expire in
2038. Finally, we own a U.S. patent application and related foreign applications directed to formulations of VBR;
any patents issuing therefrom are expected to expire in 2040.
We own a U.S. patent application and related foreign patent applications that relate to compositions of matter and
methods of using 3733; any patents issuing therefrom are expected to expire in 2039.
We own an international (PCT) application that relates to compositions of matter and methods of using 4334; any
patents issuing therefrom are expected to expire in 2041.
Finally, we own a U.S. patent and related foreign patents and patent applications that relate to compositions of
matter and methods of using 2158. The issued U.S. patent is expected to expire in 2038.
Government Regulation
Government authorities in the United States, at the federal, state and local level, and in other countries extensively
regulate, among other things, the research, development, testing, manufacture, including any manufacturing
changes, packaging, storage, recordkeeping, labeling, advertising, promotion, distribution, marketing, post-approval
monitoring and reporting, import and export of pharmaceutical products, such as those we are developing.
U.S. drug approval process
In the United States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act (FDCA) and
implementing regulations. The process of obtaining regulatory approvals and subsequent compliance with
appropriate federal, state, local and foreign statutes and regulations requires the expenditure of substantial time and
financial resources. Failure to comply with the applicable U.S. requirements at any time during the product
development process, approval process or after approval may subject an applicant to a variety of administrative or
judicial sanctions, such as the FDA’s refusal to approve pending applications, withdrawal of an approval, license
revocation, imposition of a clinical hold, issuance of warning letters and untitled letters, product recalls, product
seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government
contracts, restitution, disgorgement of profits or civil or criminal penalties.
The process required by the FDA before a drug may be marketed in the United States generally involves the
following:
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completion of nonclinical laboratory tests and animal studies in compliance with the FDA’s good
laboratory practice (GLP) regulations and applicable requirements for the humane use of laboratory
animals or other applicable requirements;
submission to the FDA of an IND which must become effective before human clinical studies may begin;
approval by an independent institutional review board (IRB) or ethics committee at each clinical site before
each trial may be initiated;
performance of adequate and well-controlled human clinical studies in accordance with good clinical
practices (GCP), and any additional requirements for the protection of human research patients and their
health information, to establish the safety and efficacy of the proposed drug for each indication;
submission to the FDA of a new drug application (NDA);
satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product
is produced to assess compliance with current good manufacturing practices (cGMP) requirements and to
assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength,
quality and purity; and
FDA review and approval of the NDA.
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Nonclinical studies and IND
Nonclinical studies include laboratory evaluation of product chemistry and formulation, as well as in vitro and
animal studies to assess the potential for adverse events and in some cases to establish a rationale for therapeutic
use. The conduct of nonclinical studies is subject to federal regulations and requirements, including GLP regulations
for safety/toxicology studies. An IND sponsor must submit the results of the nonclinical tests, together with
manufacturing information, analytical data, any available clinical data or literature and plans for clinical studies,
among other things, to the FDA as part of an IND. Some long-term nonclinical testing, such as animal tests of
reproductive adverse events and carcinogenicity, may continue after the IND is submitted. For some products, the
FDA may waive the need for certain nonclinical tests. An IND automatically becomes effective 30 days after receipt
by the FDA, unless before that time the FDA raises concerns or questions related to one or more proposed clinical
studies and places the trial on clinical hold. If an IND or clinical study is placed on clinical hold, the IND sponsor
and the FDA must resolve any outstanding concerns before the clinical study can begin. As a result, submission of
an IND may not result in the FDA allowing clinical studies to commence.
Clinical studies
Clinical studies involve the administration of the investigational new drug to human subjects under the supervision
of qualified investigators in accordance with GCP requirements, which include, among other things, the requirement
that all research subjects provide their informed consent in writing before their participation in any clinical study.
Clinical studies are conducted under written study protocols detailing, among other things, the objectives of the
study, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated. A protocol for
each clinical study and any subsequent protocol amendments must be submitted to the FDA as part of the IND. In
addition, an IRB at each institution participating in the clinical study must review and approve the plan for any
clinical study before it commences at that institution, and the IRB must conduct continuing review. The IRB must
review and approve, among other things, the study protocol and informed consent information to be provided to
study subjects. An IRB must operate in compliance with FDA regulations. Information about certain clinical studies
must be submitted within specific timeframes to the National Institutes of Health for public dissemination at
www.clinicaltrials.gov.
Human clinical studies are typically conducted in three sequential phases, which may overlap or be combined:
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Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or
condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if
possible, to gain an early indication of its effectiveness.
Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and
safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
Phase 3: The drug is administered to an expanded patient population in adequate and well-controlled
clinical studies to generate sufficient data to statistically confirm the efficacy and safety of the product for
approval, to establish the overall risk-benefit profile of the product and to provide adequate information for
the labeling of the product.
Progress reports detailing the results of the clinical studies must be submitted at least annually to the FDA.
Additionally, IND safety reports must be submitted to the FDA and the investigators within 15 calendar days after
determining that the information qualifies for reporting. IND safety reports are required for serious and unexpected
suspected adverse reactions, findings from animal or in vitro testing or other studies that suggest a significant risk to
humans, and any clinically important increase in the rate of a serious suspected adverse reaction over that listed in
the protocol or investigator brochure. In addition, a sponsor must notify the FDA within seven calendar days after
receiving information concerning any unexpected fatal or life-threatening suspected adverse reaction. Phase 1, Phase
2 and Phase 3 clinical studies may not be completed successfully within any specified period, or at all. Furthermore,
the FDA or the sponsor may suspend or terminate a clinical study at any time on various grounds, including a
finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or
terminate approval of a clinical study at its institution if the clinical study is not being conducted in accordance with
the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.
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A manufacturer of an investigational drug for a serious disease or condition is required to make available, such as by
posting on its website, its policy regarding evaluating and responding to requests for individual patient access to
such investigational drug. This requirement applies on the earlier of the first initiation of a Phase 2 or Phase 3 trial of
the investigational drug or, as applicable, 15 days after the drug receives a designation as a breakthrough therapy,
Fast Track product, or regenerative advanced therapy.
Marketing approval
After the completion of required clinical testing, the results of the nonclinical studies and clinical studies, together
with detailed information relating to the product’s chemistry, manufacture, controls and proposed labeling, among
other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more
indications. Under federal law, the submission of most NDAs is additionally subject to a substantial application user
fee, currently $3.1 million and the sponsor of an approved NDA is also subject to an annual program fee currently
set at $0.4 million through September 30, 2022. These fees are typically adjusted on October 1 each year.
The FDA conducts a preliminary review of all NDAs within the first 60 days after submission before accepting them
for filing to determine whether they are sufficiently complete to permit substantive review. The FDA may request
additional information rather than accept an NDA for filing. In this event, the application must be resubmitted with
the additional information. The resubmitted application is also subject to review before the FDA accepts it for filing.
Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA has agreed to
specified performance goals in the review of NDAs. Under these goals, the FDA has committed to review most
original applications for non-priority products within ten months, and most original applications for priority review
products, that is, drugs for a serious or life-threatening condition that the FDA determines represent a significant
improvement over existing therapy, within six months. For NDAs for novel products, the ten- and six-month time
periods runs from the filing date; for all other original applications, the ten- and six-month time periods run from the
submission date. The review process may be extended by the FDA for three additional months to consider certain
information or clarification regarding information already provided in the submission. Despite these review goals, it
is not uncommon for FDA review of an NDA to extend beyond the goal date. The FDA may also refer applications
for novel drugs or products that present difficult questions of safety or efficacy to an advisory committee, typically a
panel that includes clinicians and other experts, for review, evaluation and a recommendation as to whether the
application should be approved. The FDA is not bound by the recommendations of an advisory committee, but it
considers such recommendations carefully when making decisions.
Before approving an NDA, the FDA typically will inspect the facility or facilities where the product is
manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and
facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product
within required specifications. In addition, before approving an NDA, the FDA will typically inspect one or more
clinical sites to assure compliance with GCP and integrity of the clinical data submitted.
After the FDA’s evaluation of the NDA and inspection of the manufacturing facilities, the FDA may issue an
approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug with
specific prescribing information for specific indications. A complete response letter generally outlines the
deficiencies in the submission and may require substantial additional testing or information in order for the FDA to
reconsider the application. If and when those deficiencies have been addressed to the FDA’s satisfaction in a
resubmission of the NDA, the FDA will issue an approval letter. The FDA has committed to reviewing such
resubmissions in two or six months depending on the type of information included. Even with submission of this
additional information, the FDA ultimately may decide that the application does not satisfy the regulatory criteria for
approval and refuse to approve the NDA. Even if the FDA approves a product, it may limit the approved indications
for use for the product, require that contraindications, warnings or precautions be included in the product labeling,
require that post-approval studies, including Phase 4 clinical studies, be conducted to further assess a drug’s safety
after approval, require testing and surveillance programs to monitor the product after commercialization, or impose
other conditions, including distribution and use restrictions or other risk management mechanisms, including Risk
Evaluation and Mitigation Strategies (REMS), which can materially affect the potential market and profitability of
the product or impose new labeling, testing or distribution and use requirements. The FDA may prevent or limit
further marketing of a product based on the results of post-market studies or surveillance programs. After approval,
some types of changes to the approved product, such as adding new indications, manufacturing changes and
additional labeling claims, are subject to further testing requirements and FDA review and approval.
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Fast Track designation
The FDA is required to facilitate and expedite the development and review of drugs that are intended for the
treatment of a serious or life-threatening disease or condition for which there is no effective treatment and which
demonstrate the potential to address unmet medical needs for the disease or condition. Under the Fast Track
program, the sponsor of a new product candidate may request the FDA to designate the product for a specific
indication as a Fast Track product concurrent with or after the filing of the IND for the product candidate. The FDA
must determine if the product candidate qualifies for fast track designation within 60 calendar days after receipt of
the sponsor’s request.
In addition to other benefits, such as the ability to have greater interactions with the FDA, the FDA may initiate
review of sections of a Fast Track product’s NDA before the application is complete. This rolling review is available
if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the
applicant pays applicable user fees. However, the FDA’s time period goal for reviewing a Fast Track application
does not begin until the last section of the NDA is submitted. In addition, the Fast Track designation may be
withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the
clinical study process. In 2018, the FDA granted Fast Track designation to VBR for the treatment of patients with
chronic HBV infection.
Priority review
Under FDA policies, a product candidate may be eligible for priority review, a review generally within a six-month
time frame from the time a complete application is received or filed. Products generally are eligible for priority
review if they are intended for treatment of a serious or life-threatening disease or condition and provide a
significant improvement in safety or effectiveness compared to marketed products in the treatment, diagnosis or
prevention of a serious disease or condition. A fast track designated product candidate would ordinarily meet the
FDA’s criteria for priority review.
Accelerated approval
Under the FDA’s accelerated approval regulations, the FDA may approve a drug for a serious or life-threatening
illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate
endpoint that is reasonably likely to predict clinical benefit or on a clinical endpoint that can be measured earlier
than irreversible morbidity or mortality (IMM). In clinical studies, a surrogate endpoint is a measurement of
laboratory or clinical signs of a disease or condition that substitutes for a direct measurement of how a patient feels,
functions or survives. Surrogate endpoints can often be measured more easily or more rapidly than clinical
endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical studies to confirm the effect on the
clinical endpoint. Failure to conduct required post-approval studies, or confirm a clinical benefit during post-
marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis. All
promotional materials for drug candidates approved under accelerated regulations are subject to prior review by the
FDA.
Breakthrough therapy designation
A sponsor can request designation of a product candidate as a “breakthrough therapy.” A breakthrough therapy is
defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-
threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate
substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial
treatment effects observed early in clinical development. Drugs designated as breakthrough therapies also may be
eligible for priority review. The FDA must take certain actions, such as holding timely meetings and providing
advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Even if a product qualifies for one or more of these programs, the FDA may later decide that the product no longer
meets the conditions for qualification or decide that the time period for FDA review or approval will not be
shortened.
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Orphan drugs
Under the Orphan Drug Act, as amended, the FDA may grant orphan drug designation to drugs intended to treat a
rare disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000
individuals in the United States or that affects more than 200,000 individuals in the United States and for which
there is no reasonable expectation that the cost of developing and making available the drug for the disease or
condition will be recovered from sales of the product in the United States. Orphan drug designation must be
requested before submitting an NDA or BLA. After the FDA grants orphan drug designation, the identity of the
product and its potential orphan use are disclosed publicly by the FDA. Orphan drug designation does not shorten
the duration of the regulatory review and approval process. The first NDA or BLA applicant to receive FDA
approval for a particular active moiety to treat a particular disease with FDA orphan drug designation is entitled to a
seven-year exclusive marketing period in the United States for that product and indication. During the seven-year
exclusivity period, the FDA may not approve any other applications to market the same drug for the same orphan
indication, except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug
exclusivity. A drug will be considered clinically superior if it is shown to be safer, more effective or makes a major
contribution to patient care. Orphan drug exclusivity does not prevent the FDA from approving a different drug for
the same orphan disease or condition, or the same drug for a different disease or condition. Among the other benefits
of orphan drug designation are tax credits for certain research and a waiver of the NDA/BLA application user fee.
Pediatric information
Under the Pediatric Research Equity Act of 2003, as amended, an NDA or supplement to an NDA for drug with
certain novel features (e.g., new active ingredient, new indication) must contain data that are adequate to assess the
safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations, and to
support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The
FDA may, on its own initiative or at the request of the applicant, grant deferrals for submission of some or all
pediatric data until after approval of the product for use in adults, or full or partial waivers from the pediatric data
requirements. A sponsor of a new drug subject to the above pediatric testing requirements also is required to submit
to the FDA a pediatric study plan generally 60 days after an end-of-Phase 2 meeting with the agency. Generally, the
pediatric data requirements do not apply to products with orphan drug designation.
Other regulatory requirements
Any drug manufactured or distributed by us pursuant to FDA approvals will be subject to pervasive and continuing
regulation by the FDA, including, among other things, requirements relating to recordkeeping, periodic reporting,
product sampling and distribution, advertising and promotion and reporting of adverse experiences with the product.
After approval, most changes to the approved product, such as adding new indications or other labeling claims, are
subject to prior FDA review and approval.
The FDA may impose a number of post-approval requirements, including REMS, as a condition of approval of an
NDA or BLA. For example, the FDA may require post-marketing testing, including Phase 4 clinical studies, and
surveillance to further assess and monitor the product’s safety and effectiveness after commercialization.
In addition, drug manufacturers and other entities involved in the manufacture and distribution of approved drugs
are required to register their establishments with the FDA and state agencies and are subject to periodic
unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to
the manufacturing process are strictly regulated and often require prior FDA approval before being implemented.
FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and
documentation requirements upon us and any third-party manufacturers that we may decide to use. Accordingly,
manufacturers must continue to expend time, money and effort in the areas of production and quality control to
maintain cGMP compliance.
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Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and
standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously
unknown problems with a product, including adverse events of unanticipated severity or frequency, or with
manufacturing processes, or failure to comply with regulatory requirements, may result in revisions to the approved
labeling to add new safety information, imposition of post-market studies or clinical studies to assess new safety
risks or imposition of distribution or other restrictions under a REM program. Other potential consequences include,
among other things:
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restrictions on the marketing or manufacturing of the product, complete withdrawal of the product from the
market or product recalls;
fines, warning letters or holds on post-approval clinical studies;
refusal of the FDA to approve pending applications or supplements to approved applications, or suspension
or revocation of product approvals;
product seizure or detention, or refusal to permit the import or export of products; or
consent decrees, injunctions or the imposition of civil or criminal penalties.
The FDA strictly regulates marketing, labeling, advertising and promotion of products that are placed on the market.
Drugs generally may be promoted only for the approved indications and in accordance with the provisions of the
approved labeling. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion
of off label uses, and a company that is found to have improperly promoted off label uses may be subject to
significant liability.
Physician Drug Samples
As part of the sales and marketing process, pharmaceutical companies frequently provide samples of approved drugs
to physicians. The Prescription Drug Marketing Act (PDMA) regulates the distribution of drug samples at the
federal level and sets minimum standards for the registration and regulation of drug distributors by the states. Both
the PDMA and state laws limit the distribution of prescription pharmaceutical product samples and impose
requirements to ensure accountability in distribution. In addition, the PDMA sets forth civil and criminal penalties
for violations.
Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying
regulatory requirements of other countries regarding safety and efficacy and governing, among other things, clinical
studies, marketing authorization, commercial sales and distribution of our products. Whether or not we obtain FDA
approval for a product, we would need to obtain the necessary approvals by the comparable regulatory authorities of
foreign countries before we can commence clinical studies or marketing of the product in those countries. The
approval process varies from country to country and can involve additional product testing and additional
administrative review periods. The time required to obtain approval in other countries might differ from and be
longer than that required to obtain FDA approval. Regulatory approval in one country does not ensure regulatory
approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the
regulatory process in others.
New Legislation and Regulations
From time to time, legislation is drafted, introduced and passed in Congress that could significantly change the
statutory provisions governing the testing, approval, manufacturing and marketing of products regulated by the
FDA. In addition to new legislation, FDA regulations and policies are often revised or interpreted by the agency in
ways that may significantly affect our business and our products. It is impossible to predict whether further
legislative changes will be enacted or whether FDA regulations, guidance, policies or interpretations will be changed
or what the effect of such changes, if any, may be.
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Pharmaceutical Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any drug products for which we may
obtain regulatory approval. Sales of any of our product candidates, if approved, will depend, in part, on the extent to
which the costs of the products will be covered by third-party payors, including government health programs such as
Medicare and Medicaid, commercial health insurers and managed care organizations. The process for determining
whether a payor will provide coverage for a drug product may be separate from the process for setting the price or
reimbursement rate that the payor will pay for the drug product once coverage is approved. Third-party payors may
limit coverage to specific drug products on an approved list, or formulary, which might not include all of the
approved drugs for a particular indication.
In order to secure coverage and reimbursement for any product that might be approved for sale, we may need to
conduct expensive pharmacoeconomic studies in order to demonstrate the medical necessity and cost-effectiveness
of the product, in addition to the trials required to obtain FDA or other comparable regulatory approvals. Our
product candidates may not be considered medically necessary or cost-effective. A payor’s decision to provide
coverage for a drug product does not imply that an adequate reimbursement rate will be approved. Companies may
also need to provide discounts to purchasers, private health plans or government healthcare programs. Third-party
reimbursement may not be sufficient to enable us to maintain price levels high enough to realize an appropriate
return on our investment in product development. Further, one payor’s determination to provide coverage for a
product does not assure that other payors will also provide coverage and reimbursement for the product, and the
level of coverage and reimbursement can differ significantly from payor to payor.
The containment of healthcare costs has become a priority of federal, state and foreign governments, and the prices
of drugs have been a focus in this effort. Third-party payors are increasingly challenging the prices charged for
medical products and services and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. If these third-party payors do not consider our products to be cost-
effective compared to other available therapies, they may not cover our products after approval as a benefit under
their plans or, if they do, the level of payment may not be sufficient to allow us to sell our products at a profit. The
U.S. government, state legislatures and foreign governments have shown significant interest in implementing cost
containment programs to limit the growth of government-paid health care costs, including price controls, restrictions
on reimbursement and requirements for substitution of generic products for branded prescription drugs. Adoption of
such controls and measures and tightening of restrictive policies in jurisdictions with existing controls and measures,
could limit payments for pharmaceuticals such as the drug candidates that we are developing and could adversely
affect our net revenue and results. Even if favorable coverage and reimbursement status is attained for one or more
products for which we may receive regulatory approval, less favorable coverage policies and reimbursement rates
may be implemented in the future.
Pricing and reimbursement schemes vary widely from country to country. Some countries provide that drug
products may be marketed only after a reimbursement price has been agreed. Some countries may require the
completion of additional studies that compare the cost-effectiveness of a particular product candidate to currently
available therapies. For example, the European Union provides options for its member states to restrict the range of
drug products for which their national health insurance systems provide reimbursement and to control the prices of
medicinal products for human use. European Union member states may approve a specific price for a drug product
or may instead adopt a system of direct or indirect controls on the profitability of us placing the drug product on the
market. Other member states allow companies to fix their own prices for drug products but monitor and control
company profits. The downward pressure on health care costs in general, particularly prescription drugs, has become
very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in
some countries, cross-border imports from low-priced markets exert competitive pressure that may reduce pricing
within a country. There can be no assurance that any country that has price controls or reimbursement limitations for
drug products will allow favorable reimbursement and pricing arrangements for any of our products.
The marketability of any products for which we may receive regulatory approval for commercial sale is dependent
on the availability of adequate coverage and reimbursement from government and third-party payors. In addition,
the emphasis on managed care in the United States has increased and we expect will continue to increase the
pressure on drug pricing. Coverage policies, third-party reimbursement rates and drug pricing regulation may
change at any time. In particular, in the United States, the Affordable Care Act (ACA) and its amendment, the
Health Care and Education Reconciliation Act, contains provisions that may reduce the profitability of drug
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products, including, for example, increased rebates for drugs sold to Medicaid programs, extension of Medicaid
rebates to Medicaid managed care plans, mandatory discounts for certain Medicare Part D beneficiaries and annual
fees based on pharmaceutical companies’ share of sales to federal health care programs.
Among the provisions of the ACA of importance to our potential drug candidates are the following:
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an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription
drugs;
an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate
Program;
expansion of healthcare fraud and abuse laws, including the False Claims Act and the Anti-Kickback
Statute, new government investigative powers, and enhanced penalties for noncompliance;
a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70%
point-of-sale discounts off negotiated prices of applicable brand drugs under the Bipartisan Budget Act of
2018 (BBA);
extension of manufacturers’ Medicaid rebate liability;
expansion of eligibility criteria for Medicaid programs;
expansion of the entities eligible for discounts under the Public Health Service Act pharmaceutical pricing
program;
requirements to report financial arrangements with physicians and teaching hospitals;
a requirement to annually report drug samples that manufacturers and distributors provide to physicians;
and
a Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative
clinical effectiveness research, along with funding for such research.
Since its enactment, there have been many judicial, Presidential, and Congressional challenges to numerous aspects
of the ACA. For example, former President Trump issued several executive orders and other directives designed to
delay, circumvent, or loosen certain requirements or implementation of certain requirements mandated by the ACA.
Concurrently, Congress has considered legislation that would repeal, or repeal and replace all or part of the ACA.
While Congress has not passed comprehensive repeal legislation, several bills affecting the implementation of
certain taxes under the ACA have been signed into law. For example, the Tax Cuts and Jobs Act, signed into law in
2017, effectively repealed the individual health insurance mandate, which is considered a key component of the
ACA. On December 14, 2018, a U.S. District Court Judge in the Northern District of Texas ruled that the individual
mandate is a critical and inseverable feature of the ACA, and because it was repealed as part of the Tax Act, the
remaining provisions of the ACA are invalid as well. In December 2019, the U.S. Court of Appeals for the Fifth
Circuit upheld the lower court decision, which was then appealed to the U.S. Supreme Court. On June 17, 2021, the
U.S. Supreme Court held that state and individual plaintiffs did not have standing to challenge the individual
mandate provision of the ACA; in so holding, the Supreme Court did not consider larger constitutional questions
about the validity of this provision or the validity of the ACA in its entirety. Further, the Trump Administration’s
2020 federal spending package permanently eliminated, effective January 1, 2020, the ACA-mandated “Cadillac”
tax on certain high-cost employer-sponsored insurance plans and, on January 1, 2021, eliminated the health insurer
tax. Moreover, the BBA, among other things, amended the ACA to close the coverage gap in most Medicare drug
plans, commonly referred to as the “donut hole”.
In addition, other legislative changes have been proposed and adopted since the ACA was enacted. These changes
included aggregate reductions to Medicare payments to providers of up to 2% per fiscal year, and, due to subsequent
legislative amendments, will remain in effect through 2030, with the exception of a temporary suspension from May
1, 2020 through March 2021, due to the COVID-19 pandemic. Following the temporary suspension, a 1% payment
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reduction will occur beginning April 1, 2022 through June 30, 2022, and the 2% payment reduction will resume on
July 1, 2022. Further, in January 2013, then President Obama signed into law the American Taxpayer Relief Act of
2012, which, among other things, reduced Medicare payments to several providers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. These laws may
result in additional reductions in Medicare and other healthcare funding.
Additionally, there has been increasing legislative and enforcement interest in the United States with respect to drug
pricing practices. Specifically, there have been several recent United States Congressional inquiries and proposed
and enacted federal legislation designed to, among other things, bring more transparency to drug pricing, reduce the
cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs. For example, at the federal
level, President Biden signed an Executive Order on July 9, 2021 affirming the administration’s policy to (1) support
legislative reforms that would lower the prices of prescription drug and biologics, including by allowing Medicare to
negotiate drug prices, by imposing inflation caps, and, by supporting the development and market entry of lower-
cost generic drugs and biosimilars; and (2) support the enactment of a public health insurance option. Among other
things, the Executive Order also directs HHS to provide a report on actions to combat excessive pricing of
prescription drugs, enhance the domestic drug supply chain, reduce the price that the Federal government pays for
drugs, and address price gouging in the industry; and directs the FDA to work with states and Indian Tribes that
propose to develop section 804 Importation Programs in accordance with the Medicare Prescription Drug,
Improvement, and Modernization Act of 2003, and the FDA’s implementing regulations. In addition, in September
2020, the FDA issued a final rule that sets up a legal framework for allowing the importation of certain prescription
drugs from Canada, and the Centers for Medicare & Medicaid Services (CMS) issued guidance that addresses the
treatment of certain imported drugs under the Medicaid Drug Rebate Program. On December 27, 2021, CMS
rescinded an interim final rule that would have implemented former President Trump’s Most Favored Nation
executive order tying Medicare Part B payments for certain physician-administered drugs to the lowest price paid in
other economically advanced countries.
Additionally, on November 30, 2020, HHS published a regulation removing safe harbor protection for price
reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy
benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price
reductions reflected at the point-of-sale, as well as a safe harbor for certain fixed fee arrangements between
pharmacy benefit managers and manufacturers. Pursuant to court order, the removal and addition of the
aforementioned safe harbors were delayed and recent legislation imposed a moratorium on implementation of the
rule until January 1, 2026. Although a number of these and other proposed measures may require authorization
through additional legislation to become effective, and the Biden administration may reverse or otherwise change
these measures, both the Biden administration and Congress have indicated that they will continue to seek new
legislative measures to control drug costs.
Other Healthcare Laws
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities
in addition to the FDA, including but not limited to, CMS, other divisions of the U.S. Department of Health and
Human Services (e.g., the Office of Inspector General), the U.S. Department of Justice (DOJ), and individual U.S.
Attorney offices within the DOJ, and state and local governments. For example, the Company’s business practices,
including its research and sales, marketing and scientific/ educational grant programs may be required to comply
with federal and state fraud and abuse laws, false claims laws, the data privacy and security provisions of the Health
Insurance Portability and Accountability Act (HIPAA), federal transparency requirements and similar state laws,
each as amended. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting,
receiving, offering or paying any remuneration (including any kickback, bribe, or rebate), directly or
indirectly, overtly or covertly, in cash or in kind, to induce, or in return for, either the referral of an
individual, or the purchase, lease, order or recommendation of any good, facility, item or service for which
payment may be made, in whole or in part, under a federal healthcare program, such as the Medicare and
Medicaid programs. A person or entity can be found guilty of violating the statute without actual
knowledge of the statute or specific intent to violate it. The Anti-Kickback Statute has been interpreted to
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apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers,
and formulary managers on the other;
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federal civil and criminal false claims laws and civil monetary penalty laws, such as the federal False
Claims Act, which impose criminal and civil penalties and authorize civil whistleblower or qui tam actions,
against individuals or entities for, among other things: knowingly presenting, or causing to be presented, to
the federal government, claims for payment that are false or fraudulent; making a false statement or record
material to a false or fraudulent claim or obligation to pay or transmit money or property to the federal
government; or knowingly concealing or knowingly and improperly avoiding or decreasing an obligation to
pay money to the federal government. In addition, the government may assert that a claim including items
and services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or fraudulent
claim for purposes of the False Claims Act. Manufacturers can be held liable under the False Claims Act
even when they do not submit claims directly to government payors if they are deemed to “cause” the
submission of false or fraudulent claims;
(cid:129) HIPAA, which created new federal criminal statutes that prohibit knowingly and willfully executing, or
attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false or
fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the
custody or control of, any healthcare benefit program, regardless of the payor (e.g., public or private) and
knowingly and willfully falsifying, concealing or covering up by any trick or device a material fact or
making any materially false statements in connection with the delivery of, or payment for, healthcare
benefits, items or services relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a
person or entity can be found guilty of violating HIPAA without actual knowledge of the statute or specific
intent to violate it;
(cid:129) HIPAA, as amended by HITECH, and their respective implementing regulations, which impose
requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as
their respective business associates that perform services for them that involve the use, or disclosure of,
individually identifiable health information, relating to the privacy, security and transmission of
individually identifiable health information. HITECH also created new tiers of civil monetary penalties,
amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave
state attorneys general new authority to file civil actions for damages or injunctions in federal courts to
enforce the federal HIPAA laws and seek attorneys’ fees and costs associated with pursuing federal civil
actions;
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the federal false statements statute prohibits knowingly and willfully falsifying, concealing or covering up a
material fact or making any materially false statement in connection with the delivery of or payment for
healthcare benefits, items or services;
the U.S. federal Food, Drug and Cosmetic Act (FDCA), which prohibits, among other things, the
adulteration or misbranding of drugs, biologics and medical devices;
the federal transparency requirements under the ACA, including the provision commonly referred to as the
Physician Payments Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical
supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance
Program to report annually to the U.S. Department of Health and Human Services information related to
payments or other transfers of value made to physicians and teaching hospitals, as well as ownership and
investment interests held by physicians and their immediate family members. Effective January 1, 2022,
these reporting obligations will extend to include transfers of value made to certain non-physician providers
such as physician assistants and nurse practitioners; and
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and
activities that potentially harm consumers.
Additionally, we are subject to state and non-U.S. equivalents of each of the healthcare laws described above,
among others, some of which may be broader in scope and may apply regardless of the payor. Many U.S. states
have adopted laws similar to the federal Anti-Kickback Statute, some of which apply to the referral of patients for
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healthcare services reimbursed by any source, not just governmental payors, including private insurers. In addition,
some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of
Inspector General Compliance Program Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical
Research and Manufacturers of America’s Code on Interactions with Healthcare Professionals. Several states also
impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to
the state. There are ambiguities as to what is required to comply with these state requirements and if we fail to
comply with an applicable state law requirement, we could be subject to penalties.
In addition, regulators globally are also imposing greater monetary fines for privacy violations. The General Data
Protection Regulation (GDPR), which went into effect on May 25, 2018, applies to any company established in the
European Union (EU) as well as to those outside the EU if they collect and use personal data in connection with the
offering goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data
protection obligations for processors and controllers of personal data, including, for example, expanded disclosures
about how personal information is to be used, limitations on retention of information, mandatory data breach
notification requirements and onerous new obligations on services providers. Noncompliance with the GDPR may
result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. The GDPR also
confers a private right of action on data subjects and consumer associations to lodge complaints with supervisory
authorities, seek judicial remedies, and obtain compensation for damages resulting from violations. In addition, the
GDPR includes restrictions on cross-border data transfers. The GDPR may increase our responsibility and liability
in relation to personal data that we process where such processing is subject to the GDPR, and we may be required
to put in place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual
countries.
California enacted the California Consumer Privacy Act (CCPA), which creates new individual privacy rights for
California consumers (as defined in the law) and places increased privacy and security obligations on entities
handling personal data of consumers or households. The CCPA will require covered companies to provide certain
disclosures to consumers about its data collection, use and sharing practices, and to provide affected California
residents with ways to opt-out of certain sales or transfers of personal information. The CCPA went into effect on
January 1, 2020, and the California Attorney General began taking enforcement action against violators beginning
July 1, 2020. While there is currently an exception for protected health information that is subject to HIPAA and
clinical trial regulations, as currently written, the CCPA may impact our business activities. Additionally, the
California Privacy Rights Act (CPRA) was passed in November 2020 and will become effective on January 1, 2023.
Among other things, the CPRA imposes additional obligations on companies covered by the legislation and expands
consumers’ rights with respect to certain sensitive personal information. The CPRA also creates a new state agency
that will be vested with authority to implement and enforce the CCPA and the CPRA. Virginia and Colorado
similarly passed data privacy laws that will go into effect in January 2023 and will regulate how businesses collect
and share personal information.
Competition
The pharmaceutical and biotechnology industry is very competitive, and the development and commercialization of
new drugs is influenced by rapid technological developments and innovation. We face competition from several
companies developing and commercializing products that will be competitive with our drug candidates, including
large pharmaceutical and smaller biotechnology companies. Additionally, new entrants may potentially enter the
market. Potential competitors include Johnson & Johnson, Roche, Gilead Sciences Inc., GlaxoSmithKline plc,
Enanta Pharmaceuticals, Inc., HEC Pharma, Arbutus Biopharma, Vir Bio, Aligos Therapeutics, Antios and Qilu
Pharmaceutical, among others. Additionally, we may face competition from currently available HBV treatments.
Some of the competitive development programs from these companies may be based on scientific approaches that
are similar to our approach, and others may be based on entirely different approaches. Potential competitors also
include academic institutions, government agencies and other public and private research organizations that conduct
research, seek patent protection and establish collaborative arrangements for research, development, manufacturing
and commercialization of products similar to ours or that otherwise target indications that we are pursuing.
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Manufacturing
We currently rely on third-party manufacturers to supply the quantities of VBR, 3733 and 4334 used in our clinical
and nonclinical studies. We currently have no plans to establish any manufacturing facilities for our product
candidates.
Human Capital Management
Employees
As of December 31, 2021, we had 102 total employees and contracts with a number of temporary contractors,
consultants and contract research organizations. The majority of our employees work out of our facility in South San
Francisco, California. We also have a small number of remote employees spread across the United States, two
remote employees in China and one remote employee in the United Kingdom. Following the wind-down of our
Microbiome program on January 31, 2021, we increased our headcount by adding eight additional employees. The
new employees were hired to support, extend and grow our clinical and preclinical pipeline, with new hires in
clinical development and operations, research, manufacturing and general and administrative functions.
We expect to continue to add employees to support our virology programs in 2022, with a focus on continued
expansion of our preclinical research team. We continually evaluate our needs and make strategic choices regarding
whether to hire internal teams or outsource certain functions to contract research organizations (CROs) or contract
manufacturing organizations (CMOs), as appropriate. We currently outsource our clinical study management to
various CROs and utilize certain CMOs to manufacture both the drug substance and the drug product used in our
ongoing and planned clinical studies.
We compete with both large and small companies in our industry for a limited number of qualified applicants to fill
highly specialized needs. We generally target our base salaries and annual performance-based cash bonuses at the
50th percentile of our peers and our long-term equity incentive compensation, which all employees receive, between
the 50th and 75th percentiles of our peers. In certain circumstances, we offer compensation above these levels, based
on a candidate’s experience, criticality, amount of responsibility and either individual or Company-wide
performance. We routinely review our employees’ base salaries to ensure that they remain market competitive. Both
annual performance-based cash bonuses and long-term equity compensation increase as a percentage of total
compensation based on employees’ levels of responsibility. We also offer comprehensive benefits packages to all of
our employees, including: 100% Company-covered medical, dental and vision coverage for employees and their
families; a 401k program with a Company match; a comprehensive employee assistance program, an employee
stock purchase plan; and paid family leave.
A large majority of our employees have advanced degrees, and we also offer an educational assistance program that
reimburses employees up to a maximum amount per year for courses that directly enhance his or her area of
professional work or contribute to his or her immediate career growth. This program demonstrates our commitment
to analytical growth, enhanced knowledge and professional development.
COVID-19 Response
Shortly after the counties in the San Francisco Bay Area implemented a shelter-in-place order, followed quickly by
California’s similar statewide order, we established a COVID-19 Task Force (the Task Force) that held regular
meetings through mid-2021. The Task Force, in conjunction with our Human Resources department, took the
following actions in our effort to curb the pandemic:
(cid:129) Drafting and distributing comprehensive COVID-19 office and exposure policies, and lab and safety
protocols, each of which have been modified as federal, state and local governments have updated their
guidance;
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Implementing a vaccine mandate for all employees as well as any third-party individuals entering our
facility;
Permitting all employees who are able to do so to work remotely;
(cid:129) Holding Company-wide virtual Town Hall meetings at least monthly to foster a sense of community given
that the majority of our employees worked remotely;
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Increasing cleaning protocols at U.S. office and lab facilities;
Providing all employees with cloth face coverings and filter inserts along with increasing availability of
personal protective equipment to lab employees;
Prohibiting all work-related domestic and international travel; and
Following local requirements regarding mask wearing at our facility.
Since the cessation of Task Force meetings in mid-2021 due to the widespread availability of vaccines and then-
declining COVID case numbers, our human resources group and executive leadership team continued to regularly
monitor all local and national guidelines and discuss and update internal guidance and protocols.
Corporate History
We were incorporated in Delaware in October 2005 under the name South Island Biosciences, Inc. (which was
changed to Ventrus Biosciences, Inc. in April 2007). On July 11, 2014, we acquired Assembly Pharmaceuticals,
Inc., a private company, through a merger with our wholly owned subsidiary (the Merger). In connection with the
Merger, we changed our name from Ventrus Biosciences, Inc. to Assembly Biosciences, Inc.
Corporate Information
Our principal executive office is at 331 Oyster Point Blvd., Fourth Floor, South San Francisco, California 94080.
Our telephone number is (833) 409-4583.
Available Information
Our website address is www.assemblybio.com. We routinely post, or have posted, important information for
investors on our website in the “Investors” section. We use this website as a means of disclosing material
information in compliance with our disclosure obligations under Regulation FD. Accordingly, investors should
monitor the “Investors” section of our website, in addition to following our press releases, Securities and Exchange
Commission (SEC) filings, presentations and webcasts. We make available free of charge through our website our
press releases, Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and
all amendments to those reports as soon as reasonably practicable after electronically filed with or furnished to the
SEC.
The information contained on our website is not a part of, and should not be construed as being incorporated by
reference, into this report.
The reports filed with the SEC by us and by our officers, directors and significant shareholders are available for
review on the SEC’s website at www.sec.gov.
Item 1A. Risk Factors
You should carefully consider the following risk factors, together with all other information in this report, including
our consolidated financial statements and notes thereto, and in our other filings with the SEC. If any of the
following risks, or other risks not presently known to us or that we currently believe to not be material, develop into
actual events, then our business, financial condition, results of operations or prospects could be materially
adversely affected. If that happens, the market price of our common stock could decline, and stockholders may lose
all or part of their investment.
Risks Related to Our Business
We have no approved products and depend on the future success of our HBV program. We cannot be certain that
we or our collaborators will be able to obtain regulatory approval for, or successfully commercialize, product
candidates from our current pipeline or any other product candidates that we may subsequently identify, license
or otherwise acquire.
We and our collaborators are not permitted to market or promote any product candidates in the United States,
Europe, China or other countries before we receive regulatory approval from the FDA or comparable foreign
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regulatory authorities, and we may never receive such regulatory approval for our current product candidates. We
have not submitted a new drug application (NDA) to the FDA or comparable applications to other regulatory
authorities and do not expect to be in a position to do so in the near future.
All of our product candidates are in clinical development or in varying stages of nonclinical development. Data
supporting our drug discovery and nonclinical and clinical development programs are derived from laboratory
studies, nonclinical studies and Phase 1 and Phase 2 clinical studies. It may be years before the larger, pivotal
studies necessary to support regulatory approval of our current product candidates are completed, if ever.
In addition to our current product pipeline, we may identify, license or otherwise acquire rights to other technologies
or product candidates. Any such transactions would involve numerous risks, and we may be unsuccessful in entering
into any such transactions or developing any such technologies or product candidates.
For these reasons, our drug discovery and development may not be successful, and we may be unable to continue
clinical development of our product candidates and may not generate product approvals or product revenue, any of
which could have a material adverse impact on our business, results of operations and financial condition.
The COVID-19 pandemic may materially and adversely affect our business.
The continued spread of COVID-19, including through infection by variants of the SARS-CoV-2 virus, could
continue to adversely impact our research and development through delay, modification or suspension of our clinical
and/or nonclinical studies. Other clinical-stage biotechnology companies, like us, have had their clinical and
nonclinical studies affected by the COVID-19 pandemic.
The COVID-19 pandemic has and may continue to: (1) impact patient enrollment, retention or compliance with
clinical study protocols; (2) require modifications to, or deviations from, study protocols and procedures, such as the
use of telehealth and home health visits instead of on-site monitoring and treatment, which could increase the cost
of, and time for, conducting clinical studies; (3) disrupt or suspend the business operations of our third-party CROs,
manufacturers of our drug candidates and the clinical sites conducting our clinical studies; (4) delay regulatory
meetings and filings with regulatory agencies in the United States and other countries; and (5) disrupt supply chains
and cause delays of shipments of critical reagents, PPE and disinfectants, each of which are necessary for our
laboratories and our CROs’ laboratories to maintain normal workflows. Even if we are able to collect timely clinical
data while the pandemic is ongoing, COVID-19 may negatively affect the quality, completeness, integrity,
interpretability and cost of obtaining such clinical study data.
The full extent of the pandemic’s impact on our business will depend on future developments, which are highly
uncertain and cannot be predicted with confidence, such as the duration and severity of the pandemic and the
effectiveness of actions for containment, treatment and prevention of COVID-19. However, any COVID-19-related
business interruptions or delays could materially and adversely affect our ability to conduct our research and
development activities in the manner and on the timelines presently planned as well as negatively affect the accuracy
of our estimates regarding capital requirements, needs for additional financing and our ability to produce accurate
and timely financial statements. Any of these disruptions could have a material adverse impact on our business,
results of operations, financial condition and share price.
As a result of the COVID-19 pandemic, governments around the world implemented significant measures to control
the spread of the virus, including quarantines, travel restrictions, stay-at-home orders and business shutdowns. While
governments have relaxed these measures as case numbers decreased, surges in COVID-19 cases have prompted,
and may in the future prompt, many governments to reimplement these restrictions, including in Europe and the
United States. We continue to take precautionary measures intended to minimize our employees’ potential exposure
to the virus, including temporarily requiring all employees who can do so to work remotely and suspending all non-
essential business travel worldwide for our employees and requiring employees to be fully vaccinated against
COVID-19. The majority of our employees continuing to work remotely may disrupt our operations, increase the
risk of a cybersecurity incident or otherwise negatively affect our business.
In addition to the risks related to the COVID-19 pandemic discussed above, the uncertainty surrounding, and risks
created by, the pandemic may have the effect of heightening many of the other risks discussed in this section
impacting our operations.
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We are not currently profitable and might never become profitable, and we will need additional financing to
complete the development of any product candidates and fund our activities into the future.
We do not have any approved products, and we have a history of losses. We expect to continue to incur substantial
operating and capital expenditures to advance our current product candidates through clinical development, continue
research and discovery efforts to identify potential additional product candidates and seek regulatory approvals for
our current and future product candidates. All operations and capital expenditures will be funded from cash on hand,
securities offerings or debt financings and payments we may receive from out-licensing, collaborations or other
strategic arrangements. However, there is no assurance that we will be successful in raising any necessary additional
capital on terms that are acceptable to us, or at all. If we are unable to develop and commercialize any product
candidates and generate sufficient revenue or raise capital, we could be forced to delay, scale back or discontinue
product development and clinical studies, sacrifice attractive business opportunities, cease operations entirely and
sell, or otherwise transfer, all or substantially all of our remaining assets, which would likely have a material adverse
impact on our business, results of operations, financial condition and share price.
Nonclinical and clinical studies required for our product candidates are expensive and time-consuming and may
fail to demonstrate the level of safety and efficacy necessary for product approval.
Before we or any commercial partners can obtain FDA approval (or other foreign approvals) necessary to sell any of
our product candidates, we must show that each potential product is safe and effective. To meet these requirements,
we must conduct extensive nonclinical and sufficient, well-controlled clinical studies.
The results of nonclinical studies may not be representative of disease behavior in a clinical setting and may not be
predictive of the outcomes of our clinical studies. In addition, the results of early clinical studies of product
candidates may not be predictive of the results of later-stage clinical studies.
Conducting nonclinical and clinical studies is a lengthy, time consuming and expensive process. The length of time
varies substantially according to the type, complexity, novelty, and intended use of the product candidate, and often
can be several years or more. In addition, failure or delays can occur at any time during the nonclinical and clinical
study process, resulting in additional operating expenses or harm to our business.
The commencement and rate of completion of clinical studies might be delayed by many factors, including, for
example:
(cid:129)
(cid:129)
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delays in reaching agreement with regulatory authorities on study design;
delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites;
failure to demonstrate efficacy or the emergence of unforeseen safety issues;
insufficient quantities of qualified materials under cGMP for use in clinical studies due to manufacturing
challenges, delays or interruptions in the supply chain;
slower than expected rates of patient recruitment or failure to recruit a sufficient number of eligible
patients, which may be due to a number of reasons, including the size of the patient population, the
proximity of patients to clinical sites, the eligibility criteria for the study, the design of the clinical study,
and other potential drug candidates being studied;
delays in patients completing participation in a study or return for post-treatment follow-up for any reason,
including, product side effects or disease progression;
(cid:129) modification of clinical study protocols;
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delays, suspension, or termination of clinical studies by the institutional review board or ethics committee
responsible for overseeing the study at a particular study site; and
government or other regulatory agency delays or clinical holds requiring suspension or termination of our
clinical studies due to safety, tolerability or other issues related to our product candidates.
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The failure of nonclinical and clinical studies to demonstrate safety and effectiveness of a product candidate for the
desired indications, whether conducted by us or by a CRO, would harm the development of that product candidate
and potentially other product candidates. This failure could cause us to abandon a product candidate and could delay
development of other product candidates. Any delay in, or failure of, our nonclinical studies or clinical studies could
delay, or preclude, the filing of our NDAs and comparable applications with the FDA and foreign regulatory
agencies, as applicable, and materially harm our business, prospects, financial condition and results of operations.
We rely on CROs to conduct some of our nonclinical and clinical studies due to our lack of suitable facilities and
resources.
We do not have sufficient facilities or resources to conduct all of our anticipated nonclinical and clinical studies
internally. As a result, we contract with CROs to conduct a significant portion of the nonclinical and clinical studies
required for regulatory approval for our product candidates. Our reliance on CROs reduces our control over these
activities but does not relieve us of our responsibilities. For example, we are responsible for ensuring that each of
our studies is conducted in accordance with the applicable protocol, legal and regulatory requirements and scientific
standards, including, in the case of clinical studies, good clinical practices, even if the study is conducted by a CRO.
In the event CROs fail to perform their duties in such a fashion or we are unable to retain or continue with CROs on
acceptable terms, we may be unable to complete our clinical studies and may fail to obtain regulatory approval for
our product candidates.
Furthermore, these CROs may also have relationships with other entities, some of which may be our competitors.
CRO personnel are not our employees, and except for remedies available to us under our agreements with such third
parties, we cannot control whether they devote sufficient time and resources to our clinical and nonclinical studies.
If the CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they
need to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to
adhere to our clinical protocols, regulatory requirements or for other reasons, our research, nonclinical or clinical
studies may be extended, delayed or terminated and we may not be able to obtain, or may be delayed in obtaining,
regulatory approvals for our product candidates, any of which could materially harm our business, prospects,
financial condition and results of operations.
Top-line or preliminary data may not accurately reflect the final results of a particular study.
We may publicly disclose top-line or preliminary data based on analysis of then-available efficacy, tolerability, PK
and safety data, and the results and related findings and conclusions are subject to change following a more
comprehensive review of the data related to the particular study. We also make assumptions, estimates, calculations
and conclusions as part of our data analyses, and we may not have received or had the opportunity to fully and
carefully evaluate all data prior to release. As a result, the top-line or preliminary results that we report may differ
from final results of the same studies or different conclusions or considerations may qualify such results once
additional data have been received and fully evaluated. Top-line data also remains subject to audit and verification
procedures that may result in the final data differing materially from previously published preliminary data. As a
result, top-line and preliminary data should be viewed with caution until the final data are available.
In addition to top-line or preliminary results, the information we may publicly disclose regarding a particular
nonclinical or clinical study is based on extensive information, and you or others may not agree with what we
determine is the material or otherwise appropriate information to include in our disclosure. In addition, any
information we determine not to disclose may ultimately be deemed significant with respect to future decisions,
conclusions, views, activities or otherwise regarding a particular drug, drug candidate or our business. If the top-line
or preliminary data that we report differ from final results, or if others, including regulatory authorities, disagree
with, or do not accept, the data or conclusions reached, our ability to obtain approval for, and commercialize, our
product candidates may be harmed or delayed, which could harm our business, financial condition, operating results
or prospects.
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We rely on third parties to formulate and manufacture our product candidates and products that we study in
combination with our product candidates. Our use of third parties may increase the risk that we will not have
sufficient quantities of our product candidates or other products on time or at an acceptable cost.
We rely on third-party manufacturers to supply the quantities of VBR, 3733 and 4334 used in our clinical and
nonclinical studies. If any product candidate we develop or acquire in the future receives FDA or other regulatory
approval, we expect to continue our reliance on one or more third-party contractors to manufacture our products. If,
for any reason, we are unable to rely on any third-party sources we have identified to manufacture our product
candidates, we would need to identify and contract with additional or replacement third-party manufacturers to
manufacture compounds, drug substances and drug products for nonclinical, clinical and commercial purposes. We
may be unsuccessful in identifying additional or replacement third-party manufacturers, or in negotiating acceptable
terms with any that we do identify. If we are unable to establish and maintain manufacturing capacity, the
development and sales of our products and our financial performance may be materially and adversely affected.
We are exposed to the following risks with respect to the manufacture of our product candidates:
(cid:129) We will need to identify manufacturers for commercial supply on acceptable terms, which we may be
unable to do because the number of potential manufacturers is limited, and the FDA must evaluate and
approve any new or replacement contractor.
(cid:129) Any third-party manufacturers with whom we contract might be unable to formulate and manufacture our
product candidates in the volume and quality required to meet our clinical and, if approved, commercial
needs in a timely manner.
(cid:129) Any third-party manufacturers with whom we contract might not perform as agreed or might not remain in
the contract manufacturing business for the time required to supply our products.
(cid:129) One or more of any third-party manufacturers with whom we contract could be foreign, which increases the
risk of shipping delays and adds the risk of import restrictions.
(cid:129) We do not have complete control over, and cannot ensure, any third-party manufacturers’ compliance with
cGMP and other government regulations and corresponding foreign requirements, including periodic FDA
and state regulatory inspections.
(cid:129) We may be required to obtain intellectual property rights from third parties to manufacture our product
candidates, and if any third-party manufacturer makes improvements in the manufacturing process for our
product candidates, we may not own, or may have to share, the intellectual property rights to the
innovation.
(cid:129) We may be required to share our trade secrets and know-how with third parties, increasing risk of
misappropriation or disclosure of our intellectual property by or to third parties.
(cid:129) When contracting with third-party manufacturers, we might compete with other companies for access to
these manufacturers’ facilities and might be subject to manufacturing delays if the manufacturers give other
clients higher priority than we are given.
Each of these risks could delay our development efforts, nonclinical studies and clinical studies or the approval, if
any, of our product candidates by the FDA or applicable non-U.S. regulatory authorities and the commercialization
of our product candidates. This could result in higher costs or deprive us of potential product revenues and
materially harm our business, financial condition and results of operations.
If we lose key management personnel and cannot recruit and retain similarly qualified replacements, our
business may materially suffer.
We are highly dependent on the services of our executive officers. Our employment agreements with our executive
officers do not ensure their retention. We do not currently maintain, nor do we intend to obtain in the future, “key
person” life insurance that would compensate us in the event of the death or disability of any of the members of our
management team. Our executive officers are critical to our success, and loss of any of these key employees could
have a material adverse impact on our business, financial condition and results of operations.
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The Fact Track Designation for VBR may not result in faster development, regulatory review or approval.
If nonclinical or clinical data demonstrate potential to address unmet medical needs for a serious or life-threatening
condition, the sponsor may apply for FDA Fast Track designation. Fast Track designation provides increased
opportunities for sponsor meetings with the FDA during nonclinical and clinical development, in addition to the
potential for rolling review once a marketing application is filed. VBR has received Fast Track designation for
treatment of patients with chronic HBV infection. However, even with Fast Track designation, we may not
experience a faster development process, review or approval compared to conventional FDA procedures. Fast Track
designation does not assure ultimate approval by the FDA. The FDA may withdraw Fast Track designation if it
believes that the designation is no longer supported by data from our product development program. Any such
withdrawal could adversely affect our business.
We are dependent on an in-license relationship for VBR.
Our license agreement with IURTC imposes diligence requirements on us and requires us to make milestone
payments based upon the successful accomplishment of clinical and regulatory milestones related to VBR, royalty
payments if VBR is approved and diligence maintenance fees. These payments will make it less profitable for us to
develop VBR than if we owned the technology outright. In addition, if we breach any of our obligations under our
license agreement, IURTC may have a right to terminate the license, in which event we could lose our rights to
VBR.
Our collaboration partners might delay, prevent, or undermine the success of our product candidates.
Our operating and financial strategy for the development, nonclinical and clinical testing, manufacture, and
commercialization of drug candidates heavily depends on collaborating with corporations, academic institutions,
licensors, licensees, and other parties. However, there can be no assurance that we will successfully establish or
maintain these collaborations. If a collaboration is terminated, replacement collaborators might not be available on
attractive terms, or at all.
The activities of any collaborator will not be within our control and might not be within our power to influence.
There can be no assurance that any collaborator will perform its obligations to our satisfaction or at all, that we will
derive any revenue or profits from these collaborations, or that any collaborator will not compete with us. If any
collaboration is unsuccessful, we might require substantially greater capital to undertake development and marketing
of our proposed products and might not be able to develop and market these products effectively, if at all. In
addition, a lack of development and marketing collaborations might lead to significant delays in introducing
proposed products into certain markets and/or reduced sales of proposed products in such markets.
We rely on data provided by third parties that has not been independently verified and could prove to be false,
misleading, or incomplete.
We rely on third-party vendors, scientists, investigators and collaborators to provide us with significant data and
other information related to our projects, nonclinical studies and clinical studies, and our business. If these third
parties provide inaccurate, misleading, or incomplete data, our business, prospects, and results of operations could
be materially adversely affected.
Significant disruptions of information technology systems or breaches of data security could materially and
adversely affect our business, results of operations and financial condition.
We collect and maintain information in digital form and are increasingly dependent on information technology
systems and infrastructure to operate our business. In the ordinary course of our business, we collect, store and
transmit large amounts of confidential information, including intellectual property, proprietary business information
and personal information. It is critical that we do so in a secure manner to maintain the confidentiality and integrity
of such confidential information. We have outsourced elements of our information technology infrastructure and, as
a result, a number of third-party vendors may or could have access to our confidential information. Our internal
information technology systems and infrastructure, and those of our current and any future collaborators, contractors
and consultants and other third parties on which we rely, are vulnerable to damage from computer viruses, malware,
natural disasters, terrorism, war, telecommunication and electrical failures, cyberattacks or cyber intrusions over the
Internet, attachments to emails, persons inside our organization, or persons with access to systems inside our
organization.
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The risk of a security breach or disruption, particularly through cyberattacks or cyber intrusion, has escalated as the
number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. In
addition, the prevalent use of mobile devices that access confidential information increases the risk of data security
breaches, which could lead to the loss of confidential information or other intellectual property. The costs to us to
mitigate network security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities
could be significant, and our efforts to address these problems may not be successful. If unsuccessful, these
problems could cause interruptions, delays, cessation of service and other harm to our business and our competitive
position, including material disruption of our product development programs. For example, any loss of clinical study
data from completed or ongoing or planned clinical studies could result in delays in our regulatory approval efforts
and significantly increase our costs to recover or reproduce the data.
If a computer security breach affects our systems or results in the unauthorized release of personally identifiable
information, our reputation could be materially damaged. In addition, such a breach may require notification to
governmental agencies, the media or individuals pursuant to various federal, state and non-U.S. privacy and security
laws, if applicable, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), as amended
by the Health Information Technology for Clinical Health Act of 2009, and its implementing rules and regulations,
as well as regulations promulgated by the Federal Trade Commission, state breach notification law and the General
Data Protection Regulation (GDPR) in the European Union (EU). We would also be exposed to a risk of loss or
litigation and potential liability, which could materially adversely affect our business, results of operations and
financial condition.
Research, development and commercialization goals may not be achieved in the timeframes that we publicly
estimate, which could have an adverse impact on our business and could cause our stock price to decline.
We set goals, and make public statements regarding our expectations, regarding the timing of certain
accomplishments, developments and milestones under our research and development programs. The actual timing of
these events can vary significantly due to a number of factors, including, the amount of time, effort and resources
committed to our programs by us and any collaborators and the uncertainties inherent in the clinical development
and regulatory approval process. As a result, there can be no assurance that we or any collaborators will initiate or
complete clinical development activities, make regulatory submissions or receive regulatory approvals as planned or
that we or any collaborators will be able to adhere to our current schedule for the achievement of key milestones
under any of our programs. If we or any collaborators fail to achieve one or more of the milestones as planned, our
business could be materially adversely affected, and the price of our common stock could decline.
Developments by competitors might render our product candidates or technologies obsolete or non-competitive.
The pharmaceutical and biotechnology industries are intensely competitive. In addition, the clinical and commercial
landscape for HBV is rapidly changing; we expect new data from commercial and clinical-stage products to
continue to emerge. We compete with organizations, some with significantly more resources, who are developing
competitive product candidates. If our competitors develop effective treatments for HBV or any other indication or
field we might pursue, and successfully commercialize those treatments, our business and prospects could be
materially harmed.
Other companies with core inhibitor products may produce negative clinical data, which would adversely affect
public and clinical communities’ perceptions of our product candidates, and may negatively impact regulatory
approval of, or demand for, our potential products.
Our HBV therapy research and development efforts involve therapeutics based on modulating forms of HBV core
proteins with core inhibitors. Negative data from clinical studies using a competitor’s core inhibitors could adversely
impact the perception of the therapeutic use of our product candidates and our ability to enroll patients in clinical
studies.
The clinical and commercial success of our potential products will depend in part on the public and clinical
communities’ acceptance of core inhibitors, a novel class of product candidates. Moreover, our success depends
upon physicians prescribing, and their patients being willing to receive, treatments that involve the use of core
inhibitor product candidates we may develop in lieu of, or in addition to, existing treatments with which they are
already familiar and for which more clinical data may be available. Adverse events in our nonclinical or clinical
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studies or those of our competitors or of academic researchers utilizing core inhibitor therapies, even if not
ultimately attributable to our product candidates, and any resulting publicity could result in increased governmental
regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product
candidates, stricter labeling requirements for our product candidates that are approved, if any, and a decrease in
demand for any such products.
Risks Related to Our Regulatory and Legal Environment
We are and will be subject to extensive and costly government regulation and the failure to comply with these
regulations may have a material adverse effect on our operations and business.
Our product candidates are subject to extensive and rigorous domestic government regulation including regulation
by the FDA, the Centers for Medicare and Medicaid Services, other divisions of the U.S. Department of Health and
Human Services, the U.S. Department of Justice, state and local governments, and their respective foreign
equivalents. Both before and after approval of any product, we and our collaborators, suppliers, contract
manufacturers and clinical investigators are subject to extensive regulation by governmental authorities in the
United States and other countries, covering, among other things, testing, manufacturing, quality control, clinical
studies, post-marketing studies, labeling, advertising, promotion, distribution, import and export, governmental
pricing, price reporting and rebate requirements. Failure to comply with applicable requirements could result in one
or more of the following actions: warning or untitled letters; unanticipated expenditures; delays in approval or
refusal to approve a product candidate; voluntary or mandatory product recall; product seizure; interruption of
manufacturing or clinical studies; operating or marketing restrictions; injunctions; criminal prosecution and civil or
criminal penalties including fines and other monetary penalties; exclusion from federal health care programs such as
Medicare and Medicaid; adverse publicity; and disruptions to our business.
If we or our collaborators obtain regulatory approval for a particular product, the approval might limit the intended
medical uses for the product, limit our ability to promote, sell, and distribute the product, require that we conduct
costly post-marketing surveillance, and/or require that we conduct ongoing post-marketing studies. Once obtained,
any approvals might be withdrawn, including, for example, if there is a later discovery of previously unknown
problems with the product, such as a previously unknown safety issue.
If we, our collaborators, or our contract manufacturers fail to comply with applicable regulatory requirements at any
stage during the regulatory process, such noncompliance could result in delays in the approval of applications or
supplements to approved applications, refusal by a regulatory authority (including the FDA) to review pending
market approval applications or supplements to approved applications, untitled letters or warning letters, fines,
import and export restrictions, product recalls or seizures, injunctions, total or partial suspension of production, civil
penalties, withdrawals of previously approved marketing applications, recommendations by the FDA or other
regulatory authorities against governmental contracts, and/or criminal prosecutions.
The regulatory approval processes of the FDA and comparable foreign authorities are lengthy, time consuming
and inherently unpredictable, and if we or our collaborators are ultimately unable to obtain regulatory approval
for our product candidates, our business will be substantially harmed.
We, or any current or future collaborators, cannot assure you that we will receive the approvals necessary to
commercialize for sale any of our product candidates, or any product candidate we acquire or develop in the future.
We will need FDA approval to commercialize our product candidates in the United States and approvals from
applicable regulatory authorities in foreign jurisdictions to commercialize our product candidates in those
jurisdictions. To obtain FDA approval of any product candidate, we must submit to the FDA an NDA demonstrating
that the product candidate is safe and effective for its intended use. This requires significant research, nonclinical
studies, and clinical studies. Satisfaction of the FDA’s regulatory requirements typically takes many years, depends
upon the type, complexity and novelty of the product candidate and requires substantial resources for research,
development and testing. We cannot predict whether our research and clinical approaches will result in drugs that
the FDA considers safe and effective for their indicated uses. The FDA has substantial discretion in the approval
process and might require us to conduct additional nonclinical and clinical testing, perform post-marketing studies
or otherwise limit or impose conditions on any approval we obtain.
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The approval process might also be delayed by changes in government regulation, future legislation or
administrative action or changes in FDA policy that occur prior to or during our regulatory review. Delays in
obtaining regulatory approvals might: delay commercialization of, and our ability to derive product revenues from,
our product candidates; impose costly procedures on us; and diminish any competitive advantages that we might
otherwise enjoy.
Even if we comply with all FDA requests, the FDA might ultimately reject one or more of our NDAs. We cannot be
sure that we will ever obtain regulatory approval and commercialize any of our current or future product candidates.
In foreign jurisdictions, we are subject to regulatory approval processes and risks similar to those associated with the
FDA described above. We cannot assure you that we will receive the approvals necessary to commercialize our
product candidates for sale outside the United States.
We and our collaborators may be subject, directly or indirectly, to applicable U.S. federal and state anti-kickback,
false claims laws, physician payment transparency laws, fraud and abuse laws or similar healthcare and security
laws and regulations, and health information privacy and security laws, which could expose us or them to
criminal sanctions, civil penalties, contractual damages, reputational harm and diminished profits and future
earnings.
Healthcare providers, physicians and others play a primary role in the recommendation and prescription of any
products for which we obtain regulatory approval. If we obtain FDA approval for any of our drug candidates and
begin commercializing those drugs in the United States, our operations may be subject to various federal and state
fraud and abuse laws, including the federal Anti-Kickback Statute, the federal False Claims Act, and physician
payment sunshine laws and regulations. Additionally, we are subject to state and non-U.S. equivalents of each of the
healthcare laws described above, among others, some of which may be broader in scope and may apply regardless of
the payor. These laws may impact, among other things, our proposed sales, marketing and education programs. In
addition, we may be subject to patient privacy regulation by both the federal government and the states and foreign
jurisdictions in which we conduct our business. If we fail to comply with any applicable federal, state or foreign
legal requirement, we could be subject to penalties.
Regulators globally are imposing greater monetary fines for privacy violations. The GDPR applies to any company
established in the EU as well as to those outside the EU if they collect and use personal data in connection with the
offering goods or services to individuals in the EU or the monitoring of their behavior. The GDPR enhances data
protection obligations for processors and controllers of personal data, including, for example, expanded disclosures
about how personal information is to be used, limitations on retention of information, mandatory data breach
notification requirements and onerous new obligations on services providers. Noncompliance with the GDPR may
result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. The GDPR may
increase our responsibility and liability in relation to personal data that we process and we may be required to put in
place additional mechanisms to ensure compliance with the GDPR, including as implemented by individual
countries. Compliance with the GDPR and other changes in laws or regulations associated with the enhanced
protection of certain types of personal data, such as healthcare data or other sensitive information, could greatly
increase our cost of developing our products or even prevent us from offering certain products in jurisdictions that
we may operate in.
The California Consumer Privacy Act (CCPA) also created new individual privacy rights for California consumers
(as defined in the law) and places increased privacy and security obligations on entities handling personal data of
consumers or households. The CCPA requires covered companies to provide certain disclosures to consumers about
its data collection, use and sharing practices, and to provide affected California residents with ways to opt-out of
certain sales or transfers of personal information. While there is currently an exception for protected health
information that is subject to HIPAA and clinical study regulations, as currently written, the CCPA may impact our
business activities. The uncertainty surrounding the implementation of the CCPA exemplifies the vulnerability of
our business to the evolving regulatory environment related to personal data and protected health information.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is
possible that some of our business activities could be subject to challenge under one or more of such laws.
Violations of these laws may be punishable by criminal and/or civil sanctions, including penalties, fines and/or
exclusion or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment
27
from contracting with the U.S. government. In addition, private individuals have the ability to bring actions on
behalf of the U.S. government under the federal False Claims Act as well as under the false claims laws of several
states.
If any of the physicians or other providers or entities with whom we expect to do business with are found to be not
in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including
exclusions from government funded healthcare programs, which may also adversely affect our business.
We face the risk of product liability claims and might not be able to obtain insurance.
Our business exposes us to the risk of product liability claims that are inherent in drug development. If the use of
one or more of our product candidates or approved drugs, if any, harms people, we might be subject to costly and
damaging product liability claims brought against us by clinical study participants, consumers, health care providers,
pharmaceutical companies or others selling our products. Our inability to obtain sufficient product liability/clinical
study insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the
commercialization of pharmaceutical products we develop. We cannot predict all of the possible harms or side
effects that might result and, therefore, the amount of insurance coverage we maintain might not be adequate to
cover all liabilities we might incur. If we are unable to obtain insurance at an acceptable cost or otherwise protect
against potential product liability claims, we will be exposed to significant liabilities, which might materially and
adversely affect our business and financial position. If we are sued for any injury allegedly caused by our products,
our liability could exceed our total assets and our ability to pay. Any successful product liability claims brought
against us would decrease our cash and may adversely affect our business, stock price and financial condition.
We might be exposed to liability claims associated with the use of hazardous materials and chemicals.
Our research, development and manufacturing activities and/or those of our third-party contractors might involve the
controlled use of hazardous materials and chemicals. Although we will strive to have our safety procedures, and
those of our contractors, comply with federal, state and local laws and regulations for using, storing, handling and
disposing of these materials, we cannot completely eliminate the risk of accidental injury or contamination from
these materials. In the event of such an accident, we could be held liable for any resulting damages, and any liability
could materially and adversely affect our business, financial condition and results of operations. In addition, the
federal, state and local laws and regulations governing the use, manufacture, storage, handling and disposal of
hazardous or radioactive materials and waste products might require us to incur substantial compliance costs that
could materially and adversely affect our business, financial condition and results of operations. We do not carry
hazardous materials liability insurance. We intend to obtain such insurance in the future, if necessary, but cannot
give assurance that we will obtain such coverage.
Our employees, independent contractors, consultants, collaborators and CROs may engage in misconduct or
other improper activities, including noncompliance with regulatory standards and requirements, which could
result in significant liability for us and harm our reputation.
We are exposed to the risk of fraud or other misconduct, including failure to:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
comply with applicable regulations of, and provide accurate information to, the FDA or comparable foreign
regulatory authorities;
comply with federal and state healthcare fraud and abuse laws and regulations and similar laws and
regulations established and enforced by comparable foreign regulatory authorities;
comply with the United States Foreign Corrupt Practices Act (the FCPA), the U.K. Bribery Act 2010, the
PRC Criminal Law, the PRC Anti-unfair Competition Law and other anti-bribery and trade laws;
report financial information and data accurately; or
disclose unauthorized activities.
28
Misconduct could also involve the improper use or misrepresentation of information obtained during clinical studies,
creating fraudulent data in our nonclinical studies or clinical studies or illegal misappropriation of product materials,
which could result in regulatory sanctions, delays in clinical studies, or serious harm to our reputation.
It is not always possible to identify and deter misconduct. The precautions we take to detect and prevent this activity
may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure to comply with such laws or regulations.
Additionally, we are subject to the risk that a person or government could allege such fraud or other misconduct,
even if none occurred. If any such actions are instituted against us and we are not successful in defending ourselves
or asserting our rights, those actions could harm our business, results of operations, financial condition and cash
flows, including through the imposition of significant fines or other sanctions.
We have international operations, including in China, and conduct clinical studies outside of the United States,
including planned studies in Eastern Europe. A number of risks associated with international operations could
materially and adversely affect our business.
We expect to be subject to a number of risks related with our international operations, many of which may be
beyond our control. These risks include:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
different regulatory requirements for drug approvals in foreign countries;
different standards of care in various countries that could complicate the evaluation of our product
candidates;
different U.S. and foreign drug import and export rules;
different reimbursement systems and different competitive drugs indicated to treat the indication for which
our product candidates are being developed;
reduced protection for intellectual property rights in certain countries;
unexpected changes in tariffs, trade barriers and regulatory requirements;
compliance with the FCPA and other anti-corruption and anti-bribery laws;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign taxes, including withholding of payroll taxes;
foreign currency fluctuations and compliance with foreign currency exchange rules, which could result in
increased operating expenses and reduced revenues, and other obligations incident to doing business in
another country; and
business interruptions resulting from geopolitical actions, including tariffs, war and terrorism, natural
disasters or outbreaks of disease.
Risks Related to Our Intellectual Property
Our business depends on protecting our intellectual property.
If we and our licensors do not obtain protection for our respective intellectual property rights, our competitors might
be able to take advantage of our research and development efforts to develop competing drugs. Our success,
competitive position and future revenues, if any, depend in part on our ability and the abilities of our licensors to
obtain and maintain patent protection for our products, methods, processes and other technologies, to preserve our
trade secrets, to prevent third parties from infringing on our proprietary rights and to operate without infringing the
proprietary rights of third parties.
We rely upon a combination of patents, trade secret protection and contractual arrangements to protect the
intellectual property related to our technologies. We will only be able to protect our products and proprietary
29
information and technology by preventing unauthorized use by third parties to the extent that our patents, trade
secrets, and contractual position allow us to do so. We cannot be certain that we will secure any rights to any issued
patents with claims that cover any of our proprietary product candidates and technologies. The patent prosecution
process is expensive and time-consuming, and we may be unable to file and prosecute all necessary or desirable
patent applications at a reasonable cost or in a timely manner. We could fail to identify patentable aspects of our
research and development output before it is too late to obtain patent protection or before our competitors secure
patents covering such discoveries. The patent process also is subject to numerous risks and uncertainties, and there
can be no assurance that we will be successful in protecting our products by obtaining and defending patents.
Composition-of-matter patents relating to the active pharmaceutical ingredient are generally considered to be the
strongest form of intellectual property protection for pharmaceutical products. Such patents provide protection not
limited to any one method of use. Method-of-use patents protect the use of a product for the specified method(s) and
do not prevent a competitor from making and marketing a product that is identical to our product for an indication
that is outside the scope of the patented method. We rely on a combination of these and other types of patents to
protect our product candidates, and there can be no assurance that our intellectual property will create and sustain
the competitive position of our product candidates.
Biotechnology and pharmaceutical product patents involve highly complex legal and scientific questions. Any
patent applications that we own or license may fail to result in issued patents. In addition, the U.S. Patent and
Trademark Office (USPTO) and patent offices in other jurisdictions often require that patent applications concerning
pharmaceutical and/or biotechnology-related inventions are limited or narrowed substantially to cover only the
specific innovations exemplified in the patent application, thereby limiting the scope of protection against
competitive challenges. As a result, even if we or our licensors obtain patents, the patents might be substantially
narrower than anticipated.
If patents do successfully issue from our applications, third parties may challenge their validity or enforceability,
which may result in such patents being narrowed, invalidated, or held unenforceable. Even if our patents and patent
applications are not challenged by third parties, those patents and patent applications may not prevent others from
designing around our claims and may not otherwise adequately protect our product candidates.
Patent and other intellectual property protection is crucial to the success of our business and prospects, and there is a
substantial risk that such protections, if obtained, will prove inadequate. The legal systems of certain countries,
including China, do not always favor the enforcement of patents, trade secrets, and other intellectual property rights,
particularly those relating to pharmaceutical and biotechnology products, which could make it difficult for us to stop
infringement of our patents, misappropriation of our trade secrets, or marketing of competing products in violation
of our proprietary rights.
Beyond the protection afforded by patents, we seek to rely on trade secret protection and confidentiality agreements
to protect proprietary know-how, information, or technology that is not covered by our patents. Although our
agreements require all of our employees to assign their inventions to us, and we require all of our employees,
consultants, advisors, collaborators, contractors and any third parties who have access to our trade secrets,
proprietary know-how and other confidential information and technology to enter into appropriate confidentiality
agreements, we cannot be certain that our trade secrets, proprietary know-how and other confidential information
and technology will not be subject to unauthorized disclosure or that our competitors will not otherwise gain access
to or independently develop substantially equivalent trade secrets, proprietary know-how and other information and
technology. If we are unable to prevent unauthorized disclosure of our intellectual property related to our product
candidates and technology to third parties, we may not be able to establish or maintain a competitive advantage in
our market, which could materially adversely affect our business and operations.
We may incur substantial costs as a result of litigation or other proceedings relating to our patents and other
intellectual property rights.
We may in the future be involved in legal or administrative proceedings involving our intellectual property,
including infringement of our intellectual property by third parties. These lawsuits or proceedings likely would be
expensive, consume time and resources and divert the attention of managerial and scientific personnel, even if we
were successful in stopping the infringement of such patents. There is a risk that these proceedings will decide that
such patents or other intellectual property rights are not valid and that we do not have the right to stop the other
30
party from using our inventions. There is also the risk that, even if the validity of such patents is upheld, the court or
administrative agency will refuse to stop the other party on the ground that such other party’s activities do not
infringe our rights to such patents. If we were not successful in defending our intellectual property, our competitors
could develop and market products based on our discoveries, which may reduce demand for our products.
We may infringe the intellectual property rights of others, which may prevent or delay our product development
efforts and stop us from commercializing or increase the costs of commercializing our product candidates.
Our success will depend in part on our ability to operate without infringing the proprietary rights of third parties.
Our competitors may have filed, and may in the future file, patent applications covering products and technologies
similar to ours. Any such patent application may have priority over our patent applications, which could further
require us to obtain rights from third parties to issued patents covering such products and technologies. We cannot
guarantee that the manufacture, use or marketing of any product candidates that we develop will not infringe third-
party patents.
If a patent infringement suit were brought against us, we may be forced to stop or delay developing, manufacturing,
or selling potential products that are claimed to infringe a third party’s intellectual property, unless that third party
grants us rights to use its intellectual property. In such cases, we may be required to obtain licenses to patents or
proprietary rights of others to continue development, manufacture or sale of our products. If we are unable to obtain
a license or develop or obtain non-infringing technology, or if we fail to defend an infringement action successfully,
or if we are found to have infringed a valid patent, we may incur substantial costs and monetary damages, encounter
significant delays in bringing our product candidates to market and be precluded from manufacturing or selling our
product candidates, any of which could harm our business significantly.
The cost of maintaining our patent protection globally is high and requires continuous review and compliance.
We may not be able to effectively maintain our intellectual property position throughout the major markets of the
world.
The USPTO and foreign patent authorities require maintenance fees, payments and continued compliance with a
number of procedural and documentary requirements. Noncompliance may result in abandonment or lapse of patents
or patent applications and a partial or complete loss of patent rights in the relevant jurisdiction. Such a loss could
reduce royalty payments for lack of patent coverage from our collaboration partners or may result in competition,
either of which could have a material adverse effect on our business.
We have made, and will continue to make, certain strategic decisions in balancing the costs and the potential
protections afforded by the patent laws of certain countries. As a result, we may not be able to prevent third parties
from practicing our inventions in all countries, or from selling or importing products made using our inventions in
and into the United States or other countries. Third parties may use our technologies in territories in which we have
not obtained patent protection to develop their own products and may infringe our patents in territories which
provide inadequate enforcement mechanisms. Such third-party products may compete with our product candidates,
and our patents or other intellectual property rights may not be effective or sufficient to prevent them from
competing. Such competition could materially and adversely affect our business and financial condition.
Intellectual property rights do not address all potential threats to any competitive advantage we may have.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property
rights have limitations, and intellectual property rights may not adequately protect our business or permit us to
maintain our competitive advantage. The following examples are illustrative:
(cid:129) Others may be able to make compounds that are the same as, or similar to, our current or future product
candidates but that are not covered by the claims of the patents that we own or have exclusively licensed.
(cid:129) We or any of our licensors or strategic partners might not have been the first to make the inventions
covered by the issued patents or pending patent applications that we own or have exclusively licensed.
(cid:129) We or any of our licensors or strategic partners might not have been the first to file patent applications
covering certain of our inventions.
31
(cid:129) Others may independently develop similar or alternative technologies or duplicate any of our technologies
without infringing our intellectual property rights.
(cid:129)
The prosecution of our pending patent applications may not result in granted patents.
(cid:129) Granted patents that we own or have exclusively licensed may not provide us with any competitive
advantages, or may be held invalid or unenforceable, because of legal challenges by our competitors.
(cid:129)
Patent protection on our product candidates may expire before we are able to develop and commercialize
the product, or before we are able to recover our investment in the product.
(cid:129) Our competitors might conduct research and development activities in the United States and other countries
that provide a safe harbor from patent infringement claims for such activities, as well as in countries in
which we do not have patent rights and may then use the information learned from such activities to
develop competitive products for sale in markets where we intend to market our product candidates.
The existence of counterfeit pharmaceutical products in pharmaceutical markets may damage our brand and
reputation and have a material adverse effect on our business, operations and prospects.
Counterfeit products, including counterfeit pharmaceutical products, are a significant problem, particularly in China.
Counterfeit pharmaceuticals are products sold or used for research under the same or similar names, or similar
mechanism of action or product class, but which are sold without proper licenses or approvals. The proliferation of
counterfeit pharmaceuticals has grown in recent years and may continue to grow in the future. Such products may be
used for indications or purposes that are not recommended or approved or for which there is no data or inadequate
data with regard to safety or efficacy. Such products divert sales from genuine products, often are of lower cost and
lower quality (having different ingredients or formulations, for example), and have the potential to damage the
reputation for quality and effectiveness of the genuine product.
If counterfeit pharmaceuticals illegally sold or used for research result in adverse events or side effects to
consumers, we may be associated with any negative publicity resulting from such incidents. In addition, counterfeit
products could be used in nonclinical studies or clinical studies or could otherwise produce undesirable side effects
or adverse events that may be attributed to our products as well, which could cause us or regulatory authorities to
interrupt, delay or halt clinical studies and could result in the delay or denial of regulatory approval by the FDA or
other regulatory authorities and potential product liability claims.
In China, although the government has increased the lower and upper limits on penalties on producers of counterfeit
and substandard pharmaceuticals, these penalties have not eliminated counterfeit pharmaceuticals. As a result, we
may be unable to prevent third parties from selling or purporting to sell our products in China. The existence of, and
any increase in, the sales and production of counterfeit pharmaceuticals, or the technological capabilities of
counterfeiters, could negatively impact our revenues, brand reputation, business and results of operations.
Risks Related to Our Common Stock
Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware will be the sole
and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which
could limit our stockholders’ ability to bring a claim in a judicial forum they find favorable for disputes with us
or our directors, officers or other employees.
Our amended and restated bylaws provide that, with certain limited exceptions, unless we consent to the selection of
an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (1) any
derivative action or proceeding brought on our behalf; (2) any action asserting a claim of breach of fiduciary duty
owed by any of our current or former directors, officers or other employees to us or to our stockholders; (3) any
action asserting a claim arising pursuant to the Delaware General Corporation Law, or our certificate of
incorporation or bylaws (as each may be amended from time to time); or (4) any action asserting a claim governed
by the internal affairs doctrine. Alternatively, if such court does not have jurisdiction, the Superior Court of
Delaware, or, if such other court does not have jurisdiction, the United States District Court for the District of
Delaware, will be the sole and exclusive forum for such actions and proceedings. The choice of forum provision
32
may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or
our directors, officers, or other employees, which may discourage such lawsuits against us and our directors,
officers, and other employees. Alternatively, if a court were to find the choice of forum provision contained in our
amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs
associated with resolving such action in other jurisdictions, which could have a material adverse impact on our
business. The choice of forum provision in our amended and restated bylaws will not preclude or contract the scope
of exclusive federal or concurrent jurisdiction for actions brought under the federal securities laws, including the
Exchange Act or the Securities Act, or the respective rules and regulations promulgated thereunder.
The price of our common stock might fluctuate significantly, and you could lose all or part of your investment.
The price of our common stock fluctuates widely. Continued volatility in the market price of our common stock
might prevent a stockholder from being able to sell shares of our common stock at or above the price paid for such
shares. The trading price of our common stock may continue to be volatile and subject to wide price fluctuations in
response to various factors, many of which are beyond our control, such as the progress, results and timing of our
clinical and nonclinical studies and other studies involving our product candidates, the success or failure of our
product candidates, the receipt or loss of required regulatory approvals for our product candidates, the availability of
capital or the other risks discussed in this “Risk Factors” section.
33
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
We lease office space for corporate and administrative functions and laboratory space in South San Francisco,
California under a sub-sublease that expires in December 2023. We also lease office space that was used for
administrative functions in Carmel, Indiana under a lease agreement that expires in August 2023. In February 2021,
we subleased substantially all of the office space under the lease in Carmel, Indiana for the remainder of its term.
Our China subsidiary leases registrational offices in Shanghai and Beijing under leases that expire in May 2022 and
October 2022, respectively.
We believe these leased facilities are adequate for our current needs and that additional space will be available in the
future on commercially reasonable terms as needed.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings at this time. From time to time, we may be subject to various
legal proceedings and claims that arise in the ordinary course of our business activities. Although the results of
litigation and claims cannot be predicted with certainty, we do not believe we are party to any claim or litigation the
outcome of which, if determined adversely to us, would individually or in the aggregate be reasonably expected to
have a material adverse effect on our business. Regardless of the outcome, litigation can have an adverse effect on
us because of defense and settlement costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures
Not applicable.
34
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Market Information for Common Stock
Our common stock is traded under the symbol “ASMB” and is quoted on The Nasdaq Global Select Market.
Holders of Record
As of February 28, 2022, there were 66 stockholders of record, which excludes stockholders whose shares were held
in nominee or street name by brokers.
Dividend Policy
We have never declared or paid any dividends and do not anticipate paying any dividends on our common stock in
the foreseeable future.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table sets forth the indicated information as of December 31, 2021 with respect to our equity
compensation plans.
Number of
securities
to be issued
upon
exercise of
outstanding
options,
warrants
and rights
(a)
Weighted
average
exercise
price of
outstanding
options,
warrants
and
rights(1)
(b)
Number of
securities
remaining
available for
future
issuance
under equity
compensation
plans
(excluding
securities
reflected in
column (a))
(c)
5,114,258 (3)
Plan Category
Equity compensation plans approved by securityholders ............. 5,271,260 (2) $
10.47
Equity compensation plans not approved by securityholders ....... 1,860,980 (4) $
Total .............................................................................................. 7,132,240
14.98
203,248 (5)
5,317,506
(1) The weighted average exercise price is calculated solely based on the exercise prices of the outstanding stock
options and does not reflect the shares that will be issued upon the vesting of outstanding awards of restricted
stock units (RSUs), which have no exercise price.
(2) This number includes the following: 278,369 shares subject to stock options granted under the 2010 Equity
Incentive Plan (2010 Plan); 1,751,322 shares subject to outstanding awards granted under the Assembly
Biosciences, Inc. Amended and Restated 2014 Stock Incentive Plan (2014 Plan), of which 1,743,308 were
subject to outstanding stock options and 8,014 were subject to outstanding RSUs; 2,788,966 shares subject to
outstanding awards granted under the Assembly Biosciences, Inc. 2018 Stock Incentive Plan, as amended (2018
Plan), of which 1,891,756 were subject to outstanding stock options, 883,575 were subject to outstanding RSUs
and 13,635 are underlying stock appreciation rights (which are not included in column (a) but are reflected in
column (c)); and 466,238 options assumed by us in connection with our merger with Assembly
Pharmaceuticals. This number excludes purchase rights currently accruing under the Assembly Biosciences,
Inc. Amended and Restated 2018 Employee Stock Purchase Plan (2018 ESPP).
35
(3) This number includes: no shares under the 2010 Plan, which has been frozen; 733,295 shares available for
issuance under the 2014 Plan; 3,337,448 shares available for issuance under the 2018 Plan; and 1,043,515
shares reserved for issuance under the 2018 ESPP. As of February 28, 2022, assuming each participant
purchases the maximum number of shares in the current offering period, no more than 155,000 shares are
subject to purchase in the current offering, which ends on May 13, 2022.
(4) This number includes 596,690 shares subject to outstanding awards granted under the 2017 Inducement Award
Plan (2017 Inducement Plan), of which 589,190 were subject to outstanding stock options and 7,500 were
subject to outstanding RSUs; 500,000 shares subject to stock options granted under the 2019 Inducement Award
Plan (2019 Inducement Plan); and 764,290 shares subject to outstanding awards granted under the 2020
Inducement Award Plan (2020 Inducement Plan), of which 693,040 were subject to outstanding stock options
and 71,250 were subject to outstanding RSUs.
(5) This number includes: 191,288 shares available for issuance under the 2017 Inducement Plan, no shares under
the 2019 Inducement Plan and 11,960 shares available for issuance under the 2020 Inducement Plan.
Our stockholder-approved equity compensation plans consist of the 2018 Plan, 2014 Plan, the 2010 Plan, stock
options assumed in our merger with Assembly Pharmaceuticals and the 2018 ESPP. Effective on June 2, 2016, the
2010 Plan was frozen, and no further grants will be made under the 2010 Plan. Shares that are forfeited under the
2010 Plan on or after June 2, 2016 will become available for issuance under the 2014 Plan. An “Award” under the
2018 Plan, 2014 Plan or 2010 Plan is any right to receive our common stock consisting of non-statutory stock
options, incentive stock options, stock appreciation rights, RSUs, or any other stock award.
In May 2018, our stockholders approved the 2018 ESPP and was amended and restated in May 2021. The 2018
ESPP provides for the purchase by employees of up to an aggregate of 1,300,000 shares of the Company’s common
stock. Eligible employees can purchase shares of our common stock at the end of a predetermined offering period at
85% of the lower of the fair market value at the beginning or end of the offering period.
Our outstanding equity compensation arrangements that have not been approved by our stockholders consist of the
2017 Inducement Plan, the 2019 Inducement Plan and the 2020 Inducement Plan. In April 2017, our board of
directors adopted the 2017 Inducement Plan and reserved 800,000 shares of our common stock for issuance under
2017 the Inducement Plan. In August 2019, our board of directors adopted the 2019 Inducement Plan and reserved
500,000 shares of our common stock for issuance under the 2019 Inducement Plan. In March 2020, our board of
directors adopted the 2020 Inducement Plan and reserved 800,000 shares of our common stock for issuance under
the 2020 Inducement Plan. The only persons eligible to receive grants of awards under the either the 2017
Inducement Plan, the 2019 Inducement Plan or the 2020 Inducement Plan are individuals who satisfy the standards
for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-
1-that is, generally, a person not previously an employee or director of ours, or following a bona fide period of non-
employment, as an inducement material to the individual's entering into employment with us. An “Award” is any
right to receive our common stock pursuant to the Inducement Plan, consisting of nonstatutory stock options, stock
appreciation rights, restricted stock awards, RSUs, or any other stock award.
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities in 2021.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our registered equity securities during the period covered by this Annual Report on
Form 10-K.
36
Item 6. [Reserved]
37
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our consolidated financial statements and the related notes thereto and other financial information
appearing elsewhere in this Annual Report on Form 10-K. The following discussion 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 in this Form 10-K
under “Item 1A. Risk Factors.”
Overview
We are a clinical-stage biotechnology company focused on discovery and development of innovative therapeutics
targeting hepatitis B virus (HBV) and other viral diseases.
The World Health Organization (WHO) estimates that 296 million people worldwide are chronically infected with
HBV as of 2019. Our research and development organizations are pursuing multiple drug candidates designed to
inhibit the HBV replication cycle and block the generation of covalently closed circular DNA (cccDNA), with the
aim of discovering and developing finite and curative therapies for patients with chronic HBV infection. We have
discovered several novel core inhibitors, which are small molecules that directly target and allosterically modulate
the HBV core protein in a way that affects assembly and stability of HBV nucleocapsids. In addition, our research
organization is working on discovering and developing cccDNA disruptors and small molecules targeting two novel
undisclosed HBV targets,
While we continue our efforts to develop finite and curative therapies for patients with chronic HBV infection, our
research organization recently launched an exploratory virology discovery program for compounds directed at a
number of non-HBV viral targets. These targets, currently expected to be disclosed in mid-2022, were selected to
leverage the deep antiviral expertise and experience of our research and development organizations against diseases
with significant unmet medical need.
The ongoing COVID-19 pandemic and its broad, global impacts, including supply chain disruptions, have impacted
certain aspects of our business, including where and how our employees work in our labs and offices and how and
when our nonclinical and clinical studies are conducted. Early in the pandemic, our current and future planned
clinical trials and preclinical studies were largely unaffected, but as the pandemic has continued, we have
experienced enrollment delays for our current clinical studies, particularly our two ongoing multi-drug combination
studies.
As previously announced, in January 2021, we wound down our Microbiome program to prioritize and focus our
resources on our virology programs. Our Microbiome program had been developing a novel class of oral live
microbial biotherapeutics candidates designed to treat disorders associated with the microbiome.
Our Primary Focus: Targeting HBV Core Protein to Achieve a Cure
HBV is a DNA virus that infects hepatocytes and establishes a reservoir of cccDNA, a unique viral DNA moiety
that resides in the cell 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 in the HBV field. As a result, most of our
research and development efforts to date have focused on discovering and developing compounds targeting the core
protein, a viral protein involved in numerous aspects of the HBV replication cycle, including the generation of HBV
cccDNA. Through our research efforts, we have discovered several chemically distinct series of small molecule core
inhibitors that directly target and allosterically inhibit core protein functions.
Vebicorvir
Vebicorvir (VBR), our lead core inhibitor product candidate, is licensed from Indiana University. The conduct of
our initial Phase 2 studies, Study 201 and 202, is complete. In these studies, VBR administered with NrtI therapy
demonstrated a favorable safety profile and led to greater viral suppression of both HBV DNA and viral pgRNA
than NrtI therapy alone.
Our most recently completed study for VBR, Study 211, involved transitioning patients who met the requisite
stopping criteria, as determined in collaboration with our lead investigators and the U.S. Food and Drug
Administration (FDA), off of therapy to test for sustained virologic response (SVR). SVR refers to sustained viral
suppression (more than six months) of HBV DNA below LLOQ and would be consistent with a successful finite
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treatment for chronic HBV infection. During the trial, it became clear that patients who stopped therapy in Study
211 had not achieved SVR, as all patients relapsed, meaning they had detectable HBV and the dual combination
therapy of VBR + NrtI was insufficient to cure chronic HBV infection in the studied population. Based on these
results, we terminated Study 211 in the fourth quarter of 2020. We presented follow-up data from Study 211 related
to virologic response, safety and resistance following treatment discontinuation, at the European Association for the
Study of the Liver’s (EASL) International Liver CongressTM in June 2021 (EASL 2021). At the American
Association for the Study of Liver Diseases (AASLD) Annual Meeting in November 2021 (AASLD 2021), we
presented additional follow-up data from Study 211 demonstrating that patients had increases of HBV DNA and
pgRNA after discontinuation of VBR despite continued NrtI treatment, further supporting that core inhibitors
deepen viral suppression in combination with NrtIs.
Based on discussions with leading viral hepatitis experts, global regulatory discussions and feedback, and, with
respect to the China territory, discussions and agreement with our collaboration partner, BeiGene, Ltd. (BeiGene), in
early 2021, we decided to not move forward with the global registrational studies for VBR as a CST with NrtI. The
decision was made to focus on the greatest unmet medical need of patients, which lies predominantly in cure, rather
than CST. As a result, we terminated Study 205 and began to focus our efforts with VBR in combination with NrtI
and additional mechanisms targeting finite and curative combination therapy.
We currently have two Phase 2 triple combination studies involving VBR ongoing, with a third expected to be
initiated in the first half of 2022. These studies are detailed below. See “—Multi-Drug Combination Studies.”
Next-Generation Core Inhibitors
In pursuit of our goal of developing finite and curative therapies for patients with chronic HBV infection, we plan to
advance the optimal core inhibitor in our portfolio for use as the antiviral backbone with NrtI. While we currently
have VBR, our first-generation core inhibitor product candidate, and 3733, a next-generation product candidate, in
clinical studies, we expect to initiate Phase 1a studies of 4334, our most potent next-generation product candidate in
the second half of 2022. Based on the clinical progress of these candidates, we will apply disciplined, data-driven
analyses to identify the optimal candidate to advance into late-stage clinical trials to produce potentially higher cure
rates than are currently obtainable for patients with chronic HBV infection under the current standard of care.
ABI-H3733
Our first of two next-generation core inhibitor product candidates, 3733, was internally discovered and developed.
The chemical scaffold of 3733 is novel and distinct from each of VBR, 4334 and our discontinued core inhibitor
product candidate, ABI-H2158 (2158).
In 2020, we initiated and completed a Phase 1a clinical study of 3733 to evaluate safety, tolerability and
pharmacokinetics (PK) following single ascending dose and multiple ascending dose administration in healthy
subjects in New Zealand. Preliminary data indicate that 3733 was generally well-tolerated and had favorable PK.
Results detailing 3733’s safety and PK from this study were presented in a poster presentation at AASLD 2021.
In addition, at EASL 2021, we presented observations on 3733’s enhanced potency and target coverage for both
antiviral activity and inhibition of cccDNA generation as compared to VBR and 2158.
We expect to initiate a Phase 1b study with an improved formulation of 3733 in patients with chronic HBV infection
in the first half of 2022.
ABI-4334
In mid-2021, we announced the selection of 4334, our other next-generation core inhibitor product candidate. As
with all of our core inhibitor product candidates nominated after VBR, 4334 was internally discovered and
developed. In addition, the chemical scaffold of 4334 is also novel and distinct from each of VBR, 3733 and 2158.
We nominated 4334 based on a preclinical target drug profile that indicates enhanced target coverage and potency to
prevent both formation of new virus and cccDNA, which is responsible for maintaining the HBV viral reservoir. We
believe that 4334 has a best-in-class preclinical profile, with single-digit nanomolar potency against the production
of new virus and the formation of cccDNA. Preclinically to date, 4334 has also demonstrated pan-genotypic activity,
an improved resistance profile and a favorable safety profile. Preclinical characterization of 4334 was shared in a
poster presentation at AASLD in November 2021.
Our preclinical work on 4334 is ongoing, with the aim of completing Investigational New Drug (IND) enabling
studies and initiating a Phase 1a clinical study in the second half of 2022.
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ABI-2158
In September 2021, we discontinued development of 2158 following the observation of elevated alanine
transaminase (ALT) levels in the Phase 2 clinical study consistent with drug-induced hepatotoxicity.
Multi-Drug Combination Studies
We believe that core inhibitors and NrtI will be central to finite and curative therapies for chronic HBV infection.
Therefore, as we continue to develop and advance our current and future core inhibitors through clinical studies, we
plan to conduct multi-drug combination studies in parallel that add additional drugs (or compounds) with
nonoverlapping mechanisms of action to the core inhibitor + NrtI antiviral backbone. We currently have two
ongoing triple combination studies and a third triple combination study expected to start in the first half of 2022 to
study VBR in combination with NrtI and a third mechanism of action.
Our first triple combination study is being conducted pursuant to a Clinical Trial Agreement with Arbutus
Biopharma Corporation (Arbutus Biopharma) and consists of a randomized, multi-center, open-label Phase 2
clinical study to explore the safety, PK and antiviral activity of the triple combination of VBR, NrtI and AB-729
(Arbutus Biopharma’s investigational RNAi candidate) compared to the double combinations of VBR + NrtI and
AB-729 + NrtI in virologically suppressed patients. This clinical study initiated in the first quarter of 2021 and
completed enrollment in February 2022. We expect to share interim on-treatment results from this study in the
second half of 2022.
Our second triple combination study evaluates VBR and NrtI in combination with interferon in treatment-naïve
HBeAg positive subjects. This study was also initiated in the first quarter of 2021, and we expect enrollment to be
complete in March 2022. We expect to share interim on-treatment results from this study in the second half of 2022.
Our third triple combination study will be conducted pursuant to a Clinical Trial Collaboration Agreement with
Antios Therapeutics, Inc. (Antios) and will evaluate ATI-2173, Antios’s investigational proprietary active site
polymerase inhibitor nucleotide (ASPIN), VBR and tenofovir disoproxil fumarate, an NrtI. This multi-center,
double-blinded, placebo-controlled study will evaluate the safety, PK and antiviral activity of this all-oral triple
combination. We expect to initiate this study, which will enroll ten treatment-naïve or off-treatment HBeAg negative
or positive patients in a 12-week treatment study, in the first half of 2022. The study plan initially included a site in
Ukraine, but we will no longer be conducting the study there due to the instability resulting from Russia’s recent
invasion of Ukraine. We expect these changes to our study plan to result in a delayed data readout.
Both our first and second triple combination studies have experienced enrollment delays due to the ongoing
COVID-19 pandemic. The pandemic has impacted patients and study sites through patient screening delays, travel
restrictions and hesitancy to travel to study sites. The pandemic has also impacted our vendors, as our central
laboratories have been unable to meet their contractual obligations, and our vendors have experienced staffing
constraints and supply chain challenges as they seek to obtain lab kits, reagents and other items necessary to enroll
patients in our studies. As a result, we were unable to fully enroll our first and second triple combination studies in
2021 as initially planned; however, based on enrollment to date, we do not believe these delays will impact interim
data readouts for these studies, which remains on schedule in 2022.
Beyond Core Inhibitors
In addition to the development and advancement of our core inhibitor portfolio and our current and future multi-drug
combination studies, our research and development team is working on discovering and developing cccDNA
disruptors and small molecules targeting two novel undisclosed HBV targets, which we expect to announce in the
first half of 2022, to complement our HBV cure strategy.
In November 2020, we entered into an exclusive, two-year collaboration and option agreement with Door
Pharmaceuticals, LLC (Door Pharma) focused on the development of a novel class of HBV inhibitors. Door
Pharma’s discovery platform targets functions of core protein distinct from viral assembly and have the potential to
interfere with viral nucleic acid including intra-nuclear cccDNA, providing a strong complement to our current
portfolio. Together with Door Pharma, we are working on identifying cccDNA disruptors, which will be aimed at
inhibiting different intra-nuclear steps in the viral replication cycle that complement the activity of our core
inhibitors.
Under the terms of the agreement, Door Pharma will build upon its previous efforts to lead and conduct new
discovery research, which we will fund. In return for an up-front payment and success-based milestones and
royalties, we will be granted an exclusive option to license compounds arising from the collaboration and will be
responsible for the continued development and commercialization of optioned compounds.
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Additional Antiviral Opportunities
In addition to our work toward developing finite and curative therapies for patients with chronic HBV infection, we
have expanded our research and development organizations’ reach by pursuing exploratory research on novel
compounds targeting other viruses. Our expanded focus leverages the depth and breadth of virology expertise of our
research and development organization to diversify our pipeline into areas of high unmet medical need.
We expect to disclose more information regarding these discovery programs on additional viral targets in mid-2022.
Operations
We currently have corporate and administrative offices and research laboratory space in South San Francisco,
California as well as registrational offices in China.
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 December 31, 2021, we had an accumulated deficit of $631.4 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. 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.
In mid-March 2020, as a result of the COVID-19 pandemic, six San Francisco Bay Area counties announced a
shelter-in-place order, restricting all residents to their homes, with few exceptions. Within a week, California issued
a statewide stay-at-home order. As a biotechnology company, we were exempt from such orders. On June 15, 2021,
California reopened its economy, and all applicable local orders were also lifted on June 15, 2021. In addition, we
have taken the additional step of requiring that all of our employees be fully vaccinated against COVID-19.
There has not been any significant interruption to date of essential activities at our offices, including work in our
laboratories with proper protections and procedures in place. While we have experienced some shipping delays or
shortages of personal protective equipment (PPE) that are important to maintaining normal workflows in our
laboratories, we have been able to continue our critical research activities through schedule shifts, use of PPE on-
hand and reallocation of certain resources that allow our employees to practice “social distancing” and comply with
applicable laws. Substantially all of our U.S.-based non-research employees have been working from their homes
since mid-March 2020. Early in the pandemic, our current and future planned clinical trials and preclinical studies
were largely unaffected, but as the pandemic has continued, we have experienced enrollment delays in our current
clinical studies, particularly our two ongoing multi-drug combination studies. We continually work with our contract
research organizations (CROs) and other vendors to ensure, to the extent possible, that services are provided in a
timely manner while also identifying alternative vendors and strategies to utilize in the event that COVID- or third
party-related delays threaten our ability to meet our timelines. We cannot currently predict the specific extent,
duration or full impact that the COVID-19 pandemic will have on our ongoing and planned research efforts, clinical
studies and other business operations. We continue to monitor the situation regularly for additional potential delays,
or modifications to our ongoing and planned studies and, if circumstances warrant, we may adjust our budget and
operating plan.
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Financial Operations Overview
Research and Development Expense
Research and development expenses consist primarily of costs incurred for our research activities, including our
drug discovery efforts, target validation, lead optimization and the development of our product candidates, which
include:
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(cid:129)
(cid:129)
(cid:129)
(cid:129)
employee-related expenses including salaries, benefits, and stock-based compensation expense;
expenses incurred under agreements with third parties, including CROs that conduct research and
development, nonclinical and clinical activities on our behalf and the cost of consultants, and contract
manufacturing organizations (CMOs) that manufacture all of our drug substance and the drug product used
in our HBV program;
the cost of lab supplies and acquiring, developing, and manufacturing nonclinical and, in the case of our
Microbiome program, early-stage clinical study materials;
fees related to our license agreements; and
facilities, depreciation, and other expenses, which include direct and allocated expenses for rent and
maintenance of facilities, insurance, and other operating costs.
Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services
to be received in the future for use in research and development activities are deferred and capitalized. The
capitalized amounts are expensed as the related goods are delivered or the services are rendered.
We use our employee and infrastructure resources across multiple research and development programs, and we
allocate internal employee-related and infrastructure costs, as well as certain third-party costs, to each of our
programs based on the personnel resources allocated to such program. Our research and development expenses, by
major program, are outlined in the table below (in thousands):
Year Ended December 31,
2021
2020
HBV ................................................................................................................. $
Microbiome ......................................................................................................
Total ............................................................................................................ $
72,616 $
(4,092) (1)
68,524 $
71,957
34,866
106,823
(1) Expenses presented for Microbiome for the year ended December 31, 2021 include a gain of $3.0 million on the
sale of assets under the Asset Purchase Agreement (Microbiome Purchase Agreement) and the reversal of $2.7
million of previously recognized stock-based compensation expense related to forfeited awards of terminated
employees due to the wind-down of the Microbiome program.
The successful discovery and development of our product candidates is highly uncertain. As such, at this time, we
cannot reasonably estimate, or know the nature, timing and estimated costs, of the efforts that will be necessary to
complete the remainder of their development. We are also unable to predict when, if ever, material net cash inflows
will commence from our product candidates. This is due to the numerous risks and uncertainties associated with
developing medicines, including the uncertainty of:
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the timing, progress and success of our clinical trials and research discovery team in identifying new
product candidates;
establishing an appropriate safety profile with IND-enabling toxicology studies sufficient to advance
additional product candidates into clinical development;
successful enrollment in, and completion of, clinical studies;
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(cid:129) making arrangements with third-party manufacturers; and
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obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product
candidates.
A change in the outcome of any of these variables or variables discussed in “Item 1A. Risk Factors” with respect to
the development of any of our product candidates would significantly change the costs and timing associated with
the development of that product candidate.
Research and development activities are central to our business model. Product candidates in later stages of clinical
development generally have higher development costs than those in earlier stages of clinical development, primarily
due to the increased size and duration of later-stage clinical studies. However, we do not believe that it is possible at
this time to accurately project total program-specific expenses through commercialization. There are numerous
factors associated with the successful commercialization of any of our product candidates, including future trial
design and various regulatory requirements, many of which cannot be determined with accuracy at this time based
on our stage of development. Additionally, future commercial and regulatory factors beyond our control will impact
our clinical development programs and plans.
General and administrative expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based
compensation, for personnel in executive, finance, accounting, business development, legal and human resources
functions. Other significant costs include facility costs not otherwise included in research and development
expenses, insurance costs, legal fees relating to patents and corporate matters and fees for accounting and consulting
services.
We anticipate that our general and administrative expenses will increase in the future to support continued research
and development activities, potential commercialization of our product candidates and costs of operating as a public
company. These increases will likely include increased costs related to the hiring of additional personnel and fees to
outside consultants, lawyers and accountants, among other expenses. Additionally, we anticipate increased costs
associated with being a public company, including expenses related to services associated with maintaining
compliance with exchange listing and U.S. Securities and Exchange Commission (SEC) requirements, insurance,
and investor relations costs.
Impairment of goodwill and indefinite-lived intangible asset
Goodwill and our indefinite-lived intangible asset are reviewed for impairment at least annually in the fourth quarter
and more frequently if events or other changes in circumstances indicate the carrying amount of the assets may not
be recoverable. Impairment of goodwill and an indefinite-lived intangible assets is determined to exist when the fair
value is less than the carrying value of the asset being tested. In the fourth quarter of 2021, we concluded both
goodwill and our indefinite-lived intangible asset were fully impaired resulting in the full write-off of these balances
to the statement of operations and comprehensive loss.
Interest income
Interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations is based on our
consolidated financial statements, which we have prepared in accordance with accounting principles generally
accepted in the United States. The preparation of these consolidated financial statements requires us to make
estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses
during the reporting periods. Note 2 to the Consolidated Financial Statements describes the significant accounting
policies and methods used in the preparation of our consolidated financial statements. We evaluate our estimates and
judgments, including those described in greater detail below, 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.
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Goodwill and Indefinite-Lived Intangible Asset
Goodwill and our indefinite-lived intangible asset are reviewed for impairment at least annually in the fourth quarter
and more frequently if events or other changes in circumstances indicate the carrying amount of the assets may not
be recoverable.
Goodwill
We have one operating segment and reporting unit. Accordingly, our review of goodwill impairment indicators is
performed at the entity-wide level. In performing each annual impairment assessment and any interim impairment
assessment, we determine if we should qualitatively assess whether it is more likely than not the fair value of
goodwill is less than its carrying amount (the qualitative impairment test). Some of the factors considered in the
assessment include general macroeconomic conditions, conditions specific to the industry and market, cost factors,
the overall financial performance and whether there have been sustained declines in our share price. If we conclude
it is more likely than not that the fair value of the reporting unit is less than its carrying amount, or elect not to use
the qualitative impairment test, a quantitative impairment test is performed.
We use our market capitalization as an indicator of fair value. We believe that since our reporting unit is publicly
traded, the ability of a controlling stockholder to benefit from synergies and other intangible assets which arise from
control might cause the fair value of our reporting unit as a whole to exceed our market capitalization. However, we
believe the fair value measurement need not be based solely on the quoted market price of an individual share of our
common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting
unit. The control premium utilized is based on control premiums observed in recent acquisitions of entities similar to
us which were made on a non-minority basis. Should our market capitalization be less than our total stockholders’
equity as of our annual test date or as of any interim impairment testing date, we also consider market comparables,
recent trends in our stock price over a reasonable period and, if appropriate, use an income approach (discounted
cash flow) to determine whether the fair value of our reporting unit is greater than our carrying amount. When we
use an income approach, we establish a fair value by estimating the present value of our projected future cash flows,
adjusted for probabilities of technical success, expected to be generated from our business. The discount rate applied
to the projected future cash flows to arrive at the present value is intended to reflect all risks of ownership and the
associated risks of realizing the stream of projected future cash flows. Our discounted cash flow methodology
considers projections of financial performance for a period of several years combined with an estimated residual
value.
We elected to perform a quantitative impairment assessment of goodwill for our single reporting unit in the fourth
quarter of 2021 due to a sustained decline in our market capitalization, an increase in negative economic outlook for
biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy
for HBV infection. We estimated and reconciled the fair value of our reporting unit using both a market approach,
utilizing our market capitalization adjusted for an estimated control premium, and the income approach, discounting
future cash flows based on management’s expectations of timelines to complete clinical trials, regulatory and
commercial probabilities of technical success as well as future earnings forecast. Before completing our goodwill
impairment test, we first tested our indefinite-lived intangible asset then our remaining long-lived assets for
impairment. We concluded our indefinite-lived intangible asset was fully impaired and included that impairment
within the net carrying value of our reporting unit for purposes of our goodwill impairment test. No impairment was
identified for our long-lived assets. We concluded the fair value of our single reporting unit was less than its
carrying value and therefore recognized an impairment charge of $12.6 million to write off the entire balance of our
goodwill. This was primarily due to an increase in discount rates from the standpoint of a market participant and
their views on how such aforementioned events increase the risks associated with the Company. The fair value
measurements were primarily based on Level 3 inputs. The calculation of the impairment charge includes substantial
fact-based determinations and estimates including discount rates, future revenues, profitability, cash flows,
probabilities of technical success, and fair values of assets and liabilities, and any changes to these assumptions
could result in changes to the fair value of our single reporting unit. The goodwill impairment charge is reflected in
impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and
comprehensive loss.
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Indefinite-Lived Intangible Asset
Our indefinite-lived intangible asset consist of in-process research and development (IPR&D) associated with small
molecule core inhibitors that directly target and allosterically inhibit core protein functions associated with HBV that
were acquired with the acquisition of Assembly Pharmaceuticals, Inc. in 2014. IPR&D represents the fair value
assigned to incomplete research projects we acquired through a business combination which, at the time of
acquisition, had not reached technological feasibility, regardless of whether they had alternative use. The primary
basis for determining the technological feasibility or completion of these projects is obtaining regulatory approval to
market the underlying products in an applicable geographic region. We classify in-process research and
development acquired in a business combination as an indefinite-lived intangible asset until the completion or
abandonment of the associated research and development efforts. Upon completion of the associated research and
development efforts, we perform a final test for impairment and will determine the useful life of the technology and
begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we would
write off the remaining carrying amount of the associated IPR&D intangible asset.
In performing each annual impairment assessment and any interim impairment assessment, we determine if we
should qualitatively assess whether it is more likely than not the fair value of our IPR&D asset is less than its
carrying amount (the qualitative impairment test). If we conclude that is the case, or elect not to use qualitative
impairment test, we would proceed with quantitatively determining the fair value of the IPR&D asset and comparing
its fair value to its carrying value to determine the amount of impairment, if any (the quantitative impairment test).
In performing the qualitative impairment test, we consider the results of the most recent quantitative impairment test
and identify the most relevant drivers of the fair value for the IPR&D asset. The most relevant drivers of fair value
we have identified are consistent with the assumptions used in the quantitative estimate of the IPR&D asset
discussed below. Using these drivers, we identify events and circumstances that may have an effect on the fair value
of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined. We then weigh these
factors to determine and conclude if it is more likely than not the IPR&D asset is impaired. If it is more likely than
not the IPR&D asset is impaired, we proceed with quantitatively determining the fair value of the IPR&D asset.
We use the income approach to determine the fair value of our IPR&D asset. This approach calculates fair value by
estimating the after-tax, probability of technical success adjusted, cash flows attributable to an in-process project
over its useful life and then discounting these after-tax cash flows back to a present value. This estimate includes
significant assumptions regarding the estimates market participants would make in evaluating the IPR&D asset,
including the probability of successfully completing clinical trials and obtaining regulatory approval to market the
IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential
drug sales, which are based on estimates of the sales price of the drug, the number of patients who will be diagnosed
and treated and our competitive position in the marketplace, and appropriate discount and income tax rates. The fair
value of our IPR&D asset could vary based on the significant assumptions described. Any impairment to be
recorded is calculated as the difference between the fair value of the IPR&D asset as of the date of the assessment
with the carrying value of the IPR&D asset on our consolidated balance sheet.
During the fourth quarter of 2021 and prior to the goodwill impairment test, we also completed a quantitative
impairment test for our IPR&D asset associated with the Assembly Pharmaceuticals, Inc. acquisition. We utilized
the discounted cash flow model of the income approach and determined the carrying value of our IPR&D asset was
fully impaired resulting in an impairment charge of $29.0 million. This was primarily driven by a higher discount
rate applied to future cash flows based on a market participant’s view of increased risk associated with a negative
economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s
curative combination therapy for HBV infection. The fair value measurements were primarily based on Level 3
inputs. Some of the more significant assumptions inherent in the development of the model included the estimated
annual cash flows, particularly net revenues, the appropriate discount rate to select in order to measure the risk
inherent in the future cash flows, cost to complete the IPR&D project as well as other factors. The impairment
charge recorded is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated
statements of operations and comprehensive loss.
Research and Development Expense and Accruals
Research and development costs include personnel-related costs, outside contracted services including clinical study
costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval, license fees prior to FDA
approval, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials
as well as research and development and costs incurred under our collaboration agreements.
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As part of the process of preparing our consolidated financial statements, we are required to estimate certain
research and development expenses. This process involves reviewing quotations and contracts, reviewing the terms
of our license agreements, communicating with our vendors and applicable personnel to identify services that have
been performed on our behalf and estimating the level of service performed and the associated cost incurred for the
service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service
providers invoice us monthly in arrears for services performed or when contractual milestones are met. Payments
made prior to the receipt of goods or services to be used in research and development are capitalized until the goods
or services are received. Such payments are evaluated for current or long-term classification based on when they
will be realized or consumed. Examples of estimated amortized or accrued research and development expenses
include fees to:
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CROs and other service providers in connection with clinical studies;
CMOs in connection with the production of clinical trial materials; and
vendors in connection with preclinical development activities.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended
pursuant to contracts with multiple research institutions and contract research organizations that conduct and
manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from
contract to contract and may result in uneven payment flows and expense recognition. Payments under some of
these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial
milestones. In either amortizing or accruing service fees, we estimate the time period over which services will be
performed and the level of effort to be expended in each period. If the actual timing of the performance of services
or the level of effort varies from our estimate, we adjust the related prepayment or accrual accordingly. Our
understanding of the status and timing of services performed relative to the actual status and timing of services
performed may vary and may result in our reporting changes in estimates in any particular period. Adjustments to
prior period estimates have not been material for the years ended December 31, 2021 and 2020.
We have and may continue to enter into license agreements to access and utilize certain technology. In each case, we
evaluate if the license agreement results in the acquisition of an asset or a business. To date, none of our license
agreements have been considered to be acquisitions of businesses. For asset acquisitions, the upfront payments to
acquire such licenses, as well as any future milestone payments, are immediately recognized as research and
development expense when paid, provided there is no alternative future use of the rights in other research and
development projects. These license agreements may also include contingent consideration in the form of cash
payments to be made for future milestone events. We assess whether such contingent consideration meets the
definition of a derivative and to date we have determined that such contingent consideration are not derivatives.
Results of Operations
General
At December 31, 2021, we had an accumulated deficit of $631.4 million primarily as a result of research and
development expenses and general and administrative expenses. While we may in the future generate revenue from
a variety of sources, including license fees, milestone payments, research and development payments in connection
with strategic partnerships and/or product sales, our product candidates are in the clinical stage of development or in
varying stages of nonclinical development and may never be successfully developed or commercialized.
Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there
can be no assurance that we will ever generate significant revenues.
46
Comparison of the Years Ended December 31, 2021 and 2020
Collaboration Revenue
The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except
for percentages):
Collaboration revenue........................................ $
6,254 $
79,105 $
(72,851)
(92%)
Year Ended December 31,
2020
2021
$ Change
2021 vs. 2020
% Change
2021 vs. 2020
Collaboration revenue for the year ended December 31, 2021 consists of the recognition of deferred revenue
allocated to 2158 under the BeiGene Agreement upon discontinuing development of 2158. Collaboration revenue
for the year ended December 31, 2020 consists of $31.0 million recognized for the transfer of the VBR License upon
entering into the BeiGene Agreement and the remaining deferred revenue balance of $37.0 million and
reimbursements incurred under the Allergan Agreement, for which AbbVie Inc. (formerly Allergan) gave written
notice of termination in June 2020 following its acquisition of Allergan.
Research and Development Expense
The following table summarizes the period-over-period changes in our research and development expenses (in
thousands, except for percentages):
Year Ended December 31,
$ Change
% Change
Program/Description
HBV program .................................................... $
Microbiome program.........................................
Total research and development expenses ........ $
2021
2020
2021 vs. 2020
72,616 $
(4,092)
68,524 $
71,957 $
34,866
106,823 $
2021 vs. 2020
659
(38,958)
(38,299)
1%
(112%)
(36%)
Research and development expenses were $68.5 million for the year ended December 31, 2021 compared to $106.8
million for the year ended December 31, 2020. The $38.3 million decrease in research and development expenses
was primarily related to the wind-down of the Microbiome program and includes a $3.0 million gain on the sale of
Microbiome assets. The decrease was partially offset by an increase of $0.7 million in research and development
expenses related to the HBV program, which were primarily due to increases in clinical activities, chemistry and
manufacturing control activities to support clinical development of our compounds and increased salary and benefits
due to our hiring of additional employees. Research and development expenses include stock-based compensation
expenses of $0.5 million and $11.4 million for the years ended December 31, 2021 and 2020, respectively. The
decrease in stock-based compensation expense is primarily due to a decrease in the grant date fair value of stock
option awards and reversals of $4.8 million of previously recognized stock-based compensation expense related to
awards forfeited by terminated employees.
47
General and Administrative Expense
The following table summarizes the period-over-period change in our general and administrative expenses (in
thousands, except for percentages):
Year Ended December 31,
2020
2021
$ Change
2021 vs. 2020
% Change
2021 vs. 2020
General and administrative expenses................. $
28,780 $
37,058 $
(8,278)
(22%)
General and administrative expenses were $28.8 million for the year ended December 31, 2021, compared to $37.1
million for the year ended December 31, 2020. General and administrative expenses include stock-based
compensation expense of $4.7 million and $10.5 million for the years ended December 31, 2021 and 2020,
respectively. The decrease in stock-based compensation expense of $5.8 million was due to a decrease in the grant
date fair value of recent stock option awards and a reversal of $2.1 million of previously recognized stock-based
compensation expense during the year ended December 31, 2021 related to awards forfeited by terminated
employees. Additionally, during the year ended December 31, 2020, we recognized $0.7 million as a cumulative
catch-up adjustment of stock-based compensation expense for RSUs with performance-based vesting conditions
granted to an executive officer for which the underlying performance condition was deemed probable. We also
experienced a decrease of $2.6 million in professional fees during the year ended December 31, 2021 compared to
the same period in 2020 due to the amortized incremental contract costs associated with entering into the BeiGene
Agreement in 2020.
Impairment of Goodwill and Indefinite-Lived Intangible Asset
The following table summarizes the period-over-period change in our impairment of goodwill and indefinite-lived
intangible asset (in thousands, except for percentages):
Year Ended December 31,
2020
2021
$ Change
2021 vs. 2020
% Change
2021 vs. 2020
Impairment of goodwill and indefinite-lived
intangible asset................................................... $
41,638 $
— $
41,638
100%
In the fourth quarter of 2021, we concluded our goodwill and IPR&D asset were impaired due to a sustained decline
in our stock price as well as industry and market factors which caused an increase in the estimated discount rate
applied to future cash flows. This resulted in the entire write-off of our goodwill and IPR&D asset of $12.6 million
and $29.0 million, respectively.
Interest and Other Income, Net
The following table summarizes the period-over-period changes in our interest and other income, net (in thousands,
except for percentages):
Year Ended December 31,
2020
2021
$ Change
2021 vs. 2020
% Change
2021 vs. 2020
Interest and other income, net............................ $
302 $
2,624 $
(2,322)
-88%
Interest and other income, net was $0.3 million for the year ended December 31, 2021, compared to $2.6 million for
the year ended December 31, 2020. The decrease was primarily due to less interest income earned on marketable
securities, corporate bonds and money market funds caused by lower yields and a decrease in the total amount
invested in marketable securities in 2021.
Income Tax Benefit
The following table summarizes the period-over-period changes in our income tax benefit (in thousands, except for
percentages):
Income tax benefit.............................................. $
2,531 $
Year Ended December 31,
2020
2021
$ Change
2021 vs. 2020
2,531
— $
% Change
2021 vs. 2020
100%
48
During the year ended December 31, 2021, we recognized an income tax benefit of $2.5 million due to the reversal
of deferred tax liabilities associated with our in-process research and development which was fully impaired in
2021.
Liquidity and Capital Resources
Sources of Liquidity
As a result of our significant research and development expenditures and the lack of any FDA-approved products to
generate product sales revenue, we have not been profitable and have generated operating losses since we were
incorporated in October 2005. We have funded our operations through December 31, 2021 principally with debt
prior to our initial public offering, and thereafter with equity financing, raising an aggregate of $604.6 million in net
proceeds from public offerings and private placements from inception to December 31, 2021.
In December 2019, we sold to various investors an aggregate of 6,287,878 shares of common stock at a public
offering price of $16.50 per share, which included the exercise in full by the underwriters of their option to purchase
1,136,363 shares of common stock, and pre-funded warrants to purchase 2,424,242 shares of common stock at a
public offering price of $16.499. We received aggregate net proceeds of $134.7 million from the offering and the
option exercise, after deducting underwriting discounts and commissions and offering expenses payable.
In December 2020, we sold an aggregate of 892,840 shares of common stock through “at-the-market” offerings
(2020 ATM), resulting in net proceeds of $5.5 million.
In 2021, we sold an aggregate of 11,234,207 shares of common stock through the 2020 ATM, resulting in net
proceeds of $52.8 million.
Future Funding Requirements
We expect our expenses related to HBV program to increase in 2022 and to generally increase over time in
connection with our ongoing activities, particularly as we continue the research, development and clinical studies of
our product candidates and pursue our intellectual property strategy. Accordingly, we will need to obtain substantial
additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on
attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future
commercialization efforts.
We monitor our cash needs and the status of the capital markets on a continuous basis. From time to time, we
opportunistically raise capital and have done so numerous times since our initial public offering by issuing equity
securities, most recently in November 2021. We expect to continue to raise capital when and as needed and at the
time and in the manner most advantageous to us.
We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating
expenses and capital expenditure requirements for at least the next twelve months. Our contractual obligations
include operating lease obligations totaling $6.5 million as of December 31, 2021, of which $3.6 million are short-
term. We are subject to paying milestone, royalty and other contingent fees associated with certain collaboration and
license agreements upon the successful achievement of development and regulatory milestones of our core inhibitor
product candidates. We also enter into contracts in the normal course of business with CROs for clinical trials and
CMO’s for clinical supply manufacturing and with vendors for preclinical research studies and other services and
products for operating purposes, which generally provide for termination within 30 days of notice. Since our
inception, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-
K.
49
Our future capital requirements will depend on many factors, including:
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
(cid:129)
the scope, progress, results and costs of our ongoing drug discovery, nonclinical development, laboratory
testing and clinical studies of our product candidates and any additional clinical studies we may conduct in
the future;
the extent to which we further acquire or in-license other product candidates and technologies;
our ability to manufacture, and to contract with third parties to manufacture, adequate supplies of our
product candidates for our clinical studies and any eventual commercialization;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of preparing, filing and prosecuting patent applications in the United States and abroad,
maintaining and enforcing our intellectual property rights and defending intellectual property-related
claims; and
our ability to establish and maintain collaborations on favorable terms, if at all.
Identifying potential product candidates and conducting nonclinical testing and clinical studies is a time-consuming,
expensive and uncertain process that takes years to complete, and we may never generate the necessary data or
results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if
approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of
medicines that we do not expect to be commercially available for years, if at all. Accordingly, we will need to
continue to rely on additional financings to achieve our business objectives. Adequate additional financings may not
be available to us on acceptable terms, or at all.
Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs
through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing
arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital
through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted,
and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our
common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or
restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or
declaring dividends.
If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties,
we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product
candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds
through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product
development or future commercialization efforts or grant rights to develop and market product candidates that we
would otherwise prefer to develop and market ourselves.
Cash Flows
A summary of our cash flows for the periods presented was as follows (in thousands):
Operating activities ............................................................................................. $
Investing activities ..............................................................................................
Financing activities .............................................................................................
Net (decrease) increase in cash and cash equivalents.................................... $
(93,396) $
26,515
53,064
(13,817) $
(62,957)
68,070
7,599
12,712
Year Ended December 31,
2021
2020
50
Net Cash Used in Operating Activities
Net cash used in operating activities was $93.4 million for the year ended December 31, 2021. This was primarily
due to our net loss of $129.9 million, partially offset by the $41.6 million we recognized for the impairment of our
goodwill and indefinite-lived intangible asset.
Net cash used in operating activities was $63.0 million for the year ended December 31, 2020. This was primarily
due to $62.2 million of net loss and a $28.1 million decrease in deferred revenue from recognition of deferred
revenue under the Allergan Agreement, partially offset by an increase in deferred revenue under the BeiGene
Agreement. These were offset by non-cash adjustments of $21.9 million of stock-based compensation and $5.2
million of amortization of operating lease right-of-use assets.
Net Cash Provided by Investing Activities
Net cash provided by investing activities for the year ended December 31, 2021 was $26.5 million. This was
primarily due to proceeds of $27.3 million from sales and maturities of marketable securities, net of purchases, and
proceeds of $1.5 million from the sale of Microbiome assets. This was partially offset by our purchase of leased
equipment for $3.1 million that we then sold for $0.9 million in connection with the wind-down of the Microbiome
program.
Net cash provided by investing activities for the year ended December 31, 2020 was $68.1 million. This was due
to proceeds of $70.3 million from sales and maturities of marketable securities, net of purchases, used to fund our
operations, offset by $1.8 million from the purchase of in-process research and development.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2021 was $53.1 million resulting from
the net proceeds of $52.8 million from the sale of 11,234,207 shares of our common stock under the 2020 ATM and
$0.3 million from the issuance of 88,820 shares of common stock under the Assembly Biosciences Amended and
Restated 2018 Employee Stock Purchase Plan (2018 ESPP).
Net cash provided by financing activities for the year ended December 31, 2020 was $7.6 million resulting from the
net proceeds of $5.5 million from the sale of 892,840 shares of our common stock under the 2020 ATM, $1.5
million from the exercise of stock options to purchase 175,579 shares of common stock and $0.7 million from the
issuance of 86,812 shares of common stock under our 2018 ESPP.
51
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
(a) Financial Statements
The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of
those financial statements is found on page F-1.
(b) Supplementary Data
Not applicable.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the
Securities and Exchange Act of 1934, as amended (the Exchange Act), that is designed to provide reasonable
assurance that information, which is required to be disclosed in our reports filed pursuant to the Exchange Act, is
accumulated and communicated to management in a timely manner. At the end of fiscal year ending December 31,
2021, we carried out an evaluation, under the supervision, and with the participation of, our management, including
our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures for the fiscal
year ending as of December 31, 2021 were effective at reasonable assurance levels.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting,
as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to
provide reasonable assurance to our management and Board of Directors regarding the preparation and fair
presentation of published financial statements. A control system, no matter how well designed and operated, can
only provide reasonable, not absolute, assurance that the objectives of the control system are met. Because of these
inherent limitations, management does not expect that our internal controls over financial reporting will prevent all
error and all fraud. Under the supervision and with the participation of our management, including our Chief
Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal
control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by
the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the
framework in Internal Control-Integrated Framework, our management concluded that our internal control over
financial reporting was effective as of December 31, 2021.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting in the fourth quarter of 2021 that materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
52
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
Except as set forth below, the information required by this item will be contained in our definitive proxy statement
to be filed with the SEC in connection with the Annual Meeting of Stockholders (Proxy Statement) within 120 days
after the conclusion of our fiscal year ended December 31, 2021 and is incorporated in this Annual Report on Form
10-K by reference.
Code of Ethics
Our Board has adopted a Code of Ethics for our principal executive officer and all senior financial officers and a
Code of Conduct applicable to all of our employees and our directors. Both Codes are available under the
“Investors—Corporate Governance” section of our website at www.assemblybio.com. If we make any substantive
amendments to, or grant any waivers from, the Code of Ethics for our principal executive officer, principal financial
officer, principal accounting officer, controller or persons performing similar functions, or any officer or director,
we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.
ITEM 11. Executive Compensation
The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual
Report on Form 10-K by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
Except for the table regarding equity compensation plans, which is included in Part II, Item 5 of this Annual Report
on Form 10-K, the information required by this item will be contained in the Proxy Statement and is incorporated
into this Annual Report on Form 10-K by reference.
ITEM 13. Certain Relationships and Related Party Transactions, and Director Independence
The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual
Report on Form 10-K by reference.
ITEM 14. Principal Accounting Fees and Services
The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual
Report on Form 10-K by reference.
53
ITEM 15. Exhibits, Financial Statement Schedules
(a) Exhibits. The following exhibits are filed as part of this registration statement:
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10.2*
10.3†
10.4†
10.5†‡
10.6#
10.7#
10.8#
10.9#
10.10#
10.11#
10.12#
10.13#
10.14#
10.15#
10.16#
Description of Document
Fifth Amended and Restated Certificate of Incorporation
dated June 11, 2020.
Amended and Restated Bylaws as amended through
January 22, 2021.
Specimen of Common Stock Certificate.
Description of Securities.
Sub-Sublease, dated as of July 18, 2018, between
Prothena Biosciences, Inc., as Sub-Sublandlord, and
Assembly Biosciences, Inc., as Sub-Subtenant.
Exclusive License Agreement dated September 3, 2013
by and between The Indiana University Research and
Technology Corporation and Assembly Pharmaceuticals,
Inc.
Amendment No. 1 to Exclusive License Agreement, by
and between Assembly Biosciences, Inc. and the Indiana
University Research and Technology Corporation.
Amendment No. 2 to Exclusive License Agreement, by
and between Assembly Biosciences, Inc. and the Indiana
University Research and Technology Corporation.
Collaboration Agreement, dated as of July 17, 2020, by
and between Assembly Biosciences, Inc. and BeiGene,
Ltd.
Employment Agreement, dated August 6, 2019, between
Assembly Biosciences, Inc. and John G. McHutchison,
A.O., M.D.
Amended and Restated Employment Agreement, dated
July 30, 2021, between Assembly Biosciences, Inc. and
Jason A. Okazaki.
Employment Agreement, dated July 30, 2021, between
Assembly Biosciences, Inc. and Michael P. Samar.
Employment Agreement, dated October 22, 2019,
between Assembly Biosciences, Inc. and Luisa M.
Stamm, M.D., Ph.D. effective as of November 6, 2019.
Amendment No. 1 to Employment Agreement, dated
February 26, 2020, between Assembly Biosciences, Inc.
and Luisa M. Stamm, M.D., Ph.D.
Employment Agreement, dated May 1, 2020, between
Assembly Biosciences, Inc. and William E. Delaney IV,
Ph.D., effective as of May 27, 2020.
2010 Equity Incentive Plan.
Assembly Biosciences, Inc. Amended and Restated 2014
Stock Incentive Plan.
Omnibus Amendment to Assembly Biosciences, Inc.
Stock Incentive Plans.
Form of Notice of Stock Option Grant and Stock Option
Agreement under Amended and Restated 2014 Stock
Incentive Plan.
Form of Restricted Stock Unit Award Notice and
Restricted Stock Unit Award Agreement under the
Amended and Restated 2014 Stock Incentive Plan.
Registrant’s
Form
8-K
Dated
06/01/2018
Exhibit
No.
3.1
Filed
Herewith
8-K
01/27/2021
3.1
S-3
12/30/2015
4.1
10-Q
11/08/2018
10.1
X
10-Q
11/17/2014 10.29
10-Q
11/05/2020
10.1
10-Q
11/05/2020
10.2
10-Q
11/05/2020
10.3
10-Q
11/07/2019
10.1
10-Q
11/04/2021
10.1
10-Q
11/04/2021
10.2
10-K
03/04/2020
10.7
10-Q
05/08/2020
10.7
10-K
02/25/2021 10.12
S-1/A
8-K
10/4/2010 10.14
6/6/2016
10.1
10-Q
05/08/2020
10.2
S-8
9/17/2014 10.28
10-Q
11/01/2017
10.1
54
Exhibit
Number
Description of Document
10.17#
10.18#
10.19#
10.20#
10.21#
10.22#
10.23#
10.24#
10.25#
10.26#
10.27#
10.28#
10.29#
10.30#
10.31#
10.32#
10.33#
10.34#
10.35
21.1
23.1
24.1
31.1
31.2
32.1**
32.2**
Assembly Biosciences, Inc. 2017 Inducement Award
Plan.
Form of Notice of Stock Option Grant and Stock Option
Agreement under the 2017 Inducement Award Plan.
Form of Restricted Stock Unit Award Notice and
Restricted Stock Unit Award Agreement under the 2017
Inducement Award Plan.
Assembly Biosciences, Inc. 2018 Stock Incentive Plan.
Amendment No. 1 to Assembly Biosciences, Inc. 2018
Stock Incentive Plan.
Amendment No. 3 to Assembly Biosciences, Inc. 2018
Stock Incentive Plan.
Amendment No. 4 to Assembly Biosciences, Inc. 2018
Stock Incentive Plan.
Form of Notice of Stock Option Grant and Stock Option
Agreement under the 2018 Stock Incentive Plan.
Form of Restricted Stock Unit Award Notice and
Restricted Stock Unit Award Agreement under the 2018
Stock Incentive Plan.
Form of Stock Appreciation Right Award Agreement for
Non-U.S. Grantees under the Assembly Biosciences, Inc.
2018 Stock Incentive Plan.
Form of Performance-Based Stock Appreciation Right
Award Agreement for Non-U.S. Grantees under the
Assembly Biosciences, Inc. 2018 Stock Incentive Plan.
Amended and Restated Assembly Biosciences, Inc. 2018
Employee Stock Purchase Plan.
Assembly Biosciences, Inc. 2019 Inducement Award
Plan.
Form of Notice of Stock Option Grant and Stock Option
Agreement under the 2019 Inducement Award Plan.
Assembly Biosciences, Inc. 2020 Inducement Award
Plan.
Form of Notice of Stock Option Grant and Stock Option
Agreement under the 2020 Inducement Award Plan.
Form of Restricted Stock Unit Award Notice and
Restricted Stock Unit Award Agreement under the 2020
Inducement Award Plan.
Assembly Biosciences, Inc. 2021 Corporate Bonus Plan.
Open Market Sale Agreement by and between Assembly
Biosciences, Inc. and Jefferies LLC.
List of Subsidiaries of Assembly Biosciences, Inc.
Consent of Independent Registered Public Accounting
Firm.
Power of Attorney (included on signature page).
Certification of the Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer Pursuant to
18 U.S.C. Section 1350 as Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer Pursuant to 18
U.S.C. Section 1350 as Adopted Pursuant to Section 906
55
Registrant’s
Form
10-Q
Dated
08/09/2017
Exhibit
No.
10.1
Filed
Herewith
10-Q
08/09/2017
10.2
10-Q
08/09/2017
10.3
8-K
8-K
8-K
8-K
6/1/2018
05/21/2019
10.1
10.2
06/16/2020
10.1
05/25/2021
10.1
8-K
6/1/2018
10.2
8-K
6/1/2018
10.3
8-K
10/12/2018
10.4
8-K
05/25/2021
10.4
10-Q
11/07/2019
10.4
10-Q
11/07/2019
10.5
10-Q
05/08/2020
10.3
10-Q
05/08/2020
10.4
10-Q
05/08/2020
10.5
8-K
S-3
02/17/2021
08/28/2020
10.1
1.2
X
X
X
X
X
X
X
X
Registrant’s
Form
Dated
Exhibit
No.
Filed
Herewith
Exhibit
Number
of the Sarbanes-Oxley Act of 2002.
Description of Document
101.INS Inline XBRL Instance Document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase
Document.
101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase
Document.
101.LAB Inline XBRL Taxonomy Extension Label Linkbase
Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase
104
Document.
Cover Page Interactive Data File (embedded within the
Inline XBRL document).
* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange
Commission pursuant to a confidential treatment request.
The schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.
Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
Represents management contracts or compensatory plans or arrangements.
†
‡
#
** The certifications attached as Exhibits 32.1 and 32.2 that accompany this Annual Report on Form 10-K are to
be deemed furnished and shall not be deemed “filed” with the SEC and are not to be incorporated by reference
into any filing of Assembly Biosciences, Inc. under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K,
irrespective of any general incorporation language contained in such filing.
Item 16. Form 10-K Summary.
None.
56
In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 11, 2022
ASSEMBLY BIOSCIENCES, INC.
/s/ John G. McHutchison, A.O., M.D.
By:
Name:John G. McHutchison, A.O., M.D.
Title: Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and
appoints John G. McHutchison, A.O., M.D. and Jason A. Okazaki, jointly and severally, his or her attorneys-in-fact,
each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report,
and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her
substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
/s/ John G. McHutchison, A.O., M.D. Chief Executive Officer, President and Director
John G. McHutchison, A.O., M.D.
(Principal Executive Officer)
Date
March 11, 2022
/s/ Michael P. Samar
Michael P. Samar
/s/ William R. Ringo, Jr.
William R. Ringo, Jr.
/s/ Anthony E. Altig
Anthony E. Altig
/s/ Gina Consylman
Gina Consylman
/s/ Richard D. DiMarchi, Ph.D.
Richard D. DiMarchi, Ph.D.
/s/ Myron Z. Holubiak
Myron Z. Holubiak
/s/ Sir Michael Houghton, Ph.D.
Sir Michael Houghton, Ph.D.
/s/ Lisa R. Johnson-Pratt, M.D.
Lisa R. Johnson-Pratt, M.D.
/s/ Susan Mahony, Ph.D.
Susan Mahony, Ph.D.
Chief Financial Officer
(Principal Financial and Principal Accounting Officer)
March 11, 2022
Chairman of the Board
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
Director
Director
Director
Director
Director
Director
Director
57
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ASSEMBLY BIOSCIENCES, INC.
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ..............................................................................
Consolidated Balance Sheets as of December 31, 2021 and 2020.....................................................................
Consolidated Statements of Operations and Comprehensive Loss for the Years Ended December 31, 2021
and 2020 .............................................................................................................................................................
Consolidated Statements of Changes in Stockholders’ Equity for the Years Ended December 31, 2021 and
2020....................................................................................................................................................................
Consolidated Statements of Cash Flows for the Years Ended December 31, 2021 and 2020 ..........................
Notes to Consolidated Financial Statements ......................................................................................................
Page
F-2
F-5
F-6
F-7
F-8
F-9
F-1
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Assembly Biosciences, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Assembly Biosciences, Inc. (the Company) as of
December 31, 2021 and 2020, the related consolidated statements of operations and comprehensive loss, changes
in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2021, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated
financial statements present fairly, in all material respects, the financial position of the Company at December 31,
2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended
December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent
with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audits
provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate
to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging,
subjective or complex judgments. The communication of critical audit matters does not alter in any way our
opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical
audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
F-2
Description of
the Matter
How We
Addressed the
Matter in Our
Audit
Accrued research and development expenses
For the year ended December 31, 2021, the Company incurred $68.5 million of research and
development expenses and recorded $3.4 million of accrued research and development
expenses at December 31, 2021. As described in Note 2 to the consolidated financial
statements, the Company’s accrued research and development expenses are based on
estimates of the services received and efforts expended pursuant to contracts with multiple
contract research organizations (CROs) and manufacturing vendors that conduct and manage
these activities on its behalf. When billing terms under such contracts do not coincide with the
timing of when the work is performed, management is required to make estimates of
outstanding obligations to those third parties as of period end. The accrual is based on a
number of factors, including the time period over which services will be performed, enrollment
of subjects, number of sites activated, and the level of effort to be expended in each period. At
period end, accrued research and development expenses are recorded based upon estimates of
the proportion of work completed over the term of the individual clinical trial and
manufacturing activities in accordance with signed agreements with the third parties. If
possible, the Company obtains information regarding unbilled services directly from these
service providers and performs procedures to challenge these estimates based on their internal
understanding of the services provided to date. However, the Company may also be required to
estimate these services based on information available to its internal clinical or administrative
staff if such information is not able to be obtained timely from its services providers.
Auditing accrued research and development expenses is complex because of the judgments
applied by management to determine the commencement and completion date of vendor
tasks and the cost and extent of work performed during the reporting period for services not
yet billed by contracted third-party vendors. The testing of the Company’s accrued research
and development expense models also involves a high level of effort to test the high volume of
data used to determine the estimated accrual.
To test the completeness of accrued research and development expenses, we performed audit
procedures that included, among others, direct confirmation of contract terms and conditions
with a sample of the Company’s third-party vendors. We also confirmed the progress of
contracted clinical activities with these third-party vendors and compared such data to the
Company’s estimates of progress as reflected in their accrual models. We further tested the
accuracy of the calculations, the completeness of the data utilized, and the reasonableness of
the assumptions used in management’s accrual models by testing actual invoices paid to date,
agreeing inputs back to contractual terms and holding discussions with clinical or administrative
staff outside of the finance function. Procedures were performed to evaluate the reliability,
completeness and relevance of management’s data by testing actual invoices paid and holding
discussions with clinical or administrative staff outside of the finance function to corroborate
progress and estimated level of expended effort incurred by the Company’s third-party
vendors. Further, we inspected material invoices received from third parties after the balance
sheet date and evaluated whether services performed prior to the consolidated balance sheet
date had been properly included in the accrual.
F-3
Impairment of goodwill and indefinite-lived intangible asset
Description of
the Matter
As discussed in Note 2 of the consolidated financial statements, both goodwill and the
indefinite-lived intangible asset are tested for impairment at least annually. To determine the
estimated fair value of the Company’s single reporting unit and the indefinite-lived intangible
asset included within it, management considered both market and income valuation
approaches. As further discussed in Note 5, in the fourth quarter of 2021 the Company recorded
impairment of goodwill and IPR&D of $12.6 million and $29.0 million, respectively.
Auditing management’s impairment tests for goodwill and its indefinite-lived intangible asset
was complex and highly judgmental due to the significant assumptions used in determining the
fair value of the Company’s single reporting unit and the indefinite-lived intangible asset
included within it. Significant assumptions used include (i) estimating the expected timing and
amount of projected future revenues; (ii) costs to complete the in-process research and
development; and (iii) the discount rates used to estimate future cash flows which are affected
by probabilities of technical success.
How We
Addressed the
Matter in Our
Audit
To test the estimated fair value of the single reporting unit and the indefinite-lived intangible
asset included within it, we performed audit procedures that included, among others, assessing
the methodologies used by the Company, comparing the significant assumptions to current
industry peers and economic trends, historical financial results, and other relevant factors that
would affect the significant assumptions. We involved valuation specialists to assist with
assessing the methodologies and evaluating certain significant assumptions described above,
such as projected future revenues, costs to complete the in-process research and development
project and the discount rates. We also performed sensitivity analyses of significant assumptions
to evaluate the changes in the fair value of the reporting unit and indefinite-lived intangible
asset that would result from changes in the assumptions.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2015.
Redwood City, California
March 11, 2022
F-4
ASSEMBLY BIOSCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except for share amounts and par value)
ASSETS
Current assets
Cash and cash equivalents ........................................................................................................... $
Marketable securities - short-term...............................................................................................
Accounts receivable from collaborations ....................................................................................
Prepaid expenses and other current assets...................................................................................
Total current assets.............................................................................................................................
Marketable securities - long-term................................................................................................
Property and equipment, net........................................................................................................
Operating lease right-of-use (ROU) assets..................................................................................
Other assets..................................................................................................................................
Indefinite-lived intangible asset ..................................................................................................
Goodwill ......................................................................................................................................
Total assets ........................................................................................................................................ $
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable......................................................................................................................... $
Accrued research and development expenses .............................................................................
Other accrued expenses ...............................................................................................................
Operating lease liabilities - short-term ........................................................................................
Total current liabilities .......................................................................................................................
Deferred tax liabilities .................................................................................................................
Deferred revenue .........................................................................................................................
Operating lease liabilities - long-term .........................................................................................
Total liabilities ..................................................................................................................................
Commitments and contingencies
Stockholders' equity
As of December 31,
2021
2020
45,627 $
101,000
336
7,241
154,204
27,972
1,139
6,042
1,703
—
—
191,060 $
2,659 $
3,400
6,863
3,151
16,073
—
2,733
3,325
22,131
59,444
156,969
1,230
6,850
224,493
—
1,600
9,131
6,392
29,000
12,638
283,254
4,598
4,444
11,987
3,404
24,433
2,531
8,987
6,725
42,676
Preferred stock, $0.001 par value; 5,000,000 shares authorized; no shares issued or
outstanding ..................................................................................................................................
Common stock, $0.001 par value; 100,000,000 shares authorized as of December 31, 2021
and December 31, 2020; 48,120,437 and 34,026,680 shares issued and outstanding as of
December 31, 2021 and December 31, 2020, respectively .........................................................
Additional paid-in capital ............................................................................................................
Accumulated other comprehensive loss ......................................................................................
Accumulated deficit.....................................................................................................................
Total stockholders' equity............................................................................................................
Total liabilities and stockholders' equity........................................................................................ $
—
—
48
800,728
(419)
(631,428)
168,929
191,060 $
34
742,387
(270)
(501,573)
240,578
283,254
See Accompanying Notes to the Consolidated Financial Statements
F-5
ASSEMBLY BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands except for share and per share amounts)
Year ended December 31,
2020
2021
Collaboration revenue ........................................................................................ $
6,254 $
79,105
Operating expenses
Research and development..............................................................................
General and administrative..............................................................................
Impairment of goodwill and indefinite-lived intangible asset ........................
Total operating expenses ......................................................................................
Loss from operations ..........................................................................................
68,524
28,780
41,638
138,942
(132,688)
Other income
Interest and other income, net .........................................................................
Total other income................................................................................................
Loss before income taxes....................................................................................
302
302
(132,386)
Income tax benefit ................................................................................................
Net loss ................................................................................................................. $
2,531
(129,855) $
106,823
37,058
—
143,881
(64,776)
2,624
2,624
(62,152)
—
(62,152)
Other comprehensive loss
Unrealized loss on marketable securities ........................................................
Comprehensive loss ............................................................................................ $
(149)
(130,004) $
(69)
(62,221)
Net loss per share, basic and diluted..................................................................... $
Weighted average common shares outstanding, basic and diluted.......................
(3.00) $
43,280,383
(1.75)
35,427,120
See Accompanying Notes to the Consolidated Financial Statements
F-6
ASSEMBLY BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands except for share amounts)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive Accumulated
Loss
Deficit
Total
Stockholders'
Equity
32 $
712,807 $
(201 ) $
(439,421 ) $
273,217
86,812
892,840
175,579
Balance as of December 31, 2019....................... 32,558,307 $
Issuance of common stock under ATM equity
offering program, net of issuance costs ................
Issuance of common stock upon exercise of
stock options .........................................................
Issuance of common stock under Employee
Stock Purchase Plan (ESPP) .................................
Issuance of common stock for settlement of
313,142
restricted stock units (RSUs) ................................
—
Unrealized loss on marketable debt securities......
—
Stock-based compensation....................................
Net loss .................................................................
—
Balance as of December 31, 2020....................... 34,026,680 $
Issuance of common stock under ATM equity
offering program, net of issuance costs ................ 11,234,207
Issuance of common stock under ESPP................
88,820
Issuance of common stock for settlement of
RSUs .....................................................................
Issuance of common stock upon cashless
2,423,634
exercise of pre-funded warrants............................
—
Unrealized loss on marketable debt securities......
—
Stock-based compensation....................................
Net loss .................................................................
—
Balance as of December 31, 2021....................... 48,120,437 $
347,096
1
1
5,451
1,466
—
680
—
—
—
—
34 $
11
—
1
—
—
21,983
—
742,387 $
52,795
258
(1 )
—
—
—
—
(69 )
—
—
(270 ) $
—
—
—
—
—
—
—
—
—
(62,152 )
(501,573 ) $
—
—
—
—
—
—
(129,855 )
(631,428 ) $
5,452
1,467
680
—
(69 )
21,983
(62,152 )
240,578
52,806
258
—
—
(149 )
5,291
(129,855 )
168,929
2
—
—
—
48 $
See Accompanying Notes to the Consolidated Financial Statements
(2 )
—
5,291
—
800,728 $
—
(149 )
—
—
(419 ) $
F-7
ASSEMBLY BIOSCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net loss .............................................................................................................................. $
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment of goodwill and indefinite-lived intangible asset.....................................
Depreciation and amortization ....................................................................................
Non-cash in-process research and development (IPR&D) expense............................
Stock-based compensation ..........................................................................................
Net accretion and amortization of investments in marketable debt securities ............
Non-cash rent expense.................................................................................................
Deferred income tax benefit ........................................................................................
Loss on disposal of property and equipment...............................................................
Gain on the sale of Microbiome assets........................................................................
Changes in operating assets and liabilities:
Accounts receivable from collaboration ...............................................................
Prepaid expenses and other current assets.............................................................
Other assets ...........................................................................................................
Accounts payable ..................................................................................................
Accrued research and development expenses .......................................................
Other accrued expenses .........................................................................................
Deferred revenue ...................................................................................................
Operating lease liabilities ......................................................................................
Net cash used in operating activities .................................................................................
Cash flows from investing activities
Purchases of property and equipment ...................................................................
Proceeds from sale of property and equipment .....................................................
Purchase of IPR&D from an acquisition of assets ................................................
Proceeds from the sale of Microbiome assets .......................................................
Purchases of marketable securities........................................................................
Proceeds from maturities of marketable securities ...............................................
Proceeds from sale of marketable securities .........................................................
Net cash provided by investing activities..........................................................................
Cash flows from financing activities
Proceeds from the issuance of common stock under ATM equity offering
program, net of issuance costs...............................................................................
Proceeds from the issuance of common stock under ESPP ..................................
Proceeds from the exercise of stock options .........................................................
Net cash provided by financing activities .........................................................................
Net increase (decrease) in cash and cash equivalents .......................................................
Cash and cash equivalents at the beginning of the period.................................................
Cash and cash equivalents at the end of the period ..................................................... $
Supplemental non-cash investing and financing activities
Operating lease liabilities arising from obtaining ROU assets.......................................... $
Remeasurement of lease liabilities arising from modification of ROU assets.................. $
Receivable from sale of Microbiome assets included in prepaid expenses and other
current assets ..................................................................................................................... $
Year Ended December 31,
2020
2021
(129,855) $
(62,152)
41,638
466
—
5,237
586
3,840
(2,531)
1,624
(3,000)
894
1,109
4,689
(1,939)
(1,044)
(5,070)
(6,254)
(3,786)
(93,396)
(3,096)
857
—
1,500
(160,446)
175,200
12,500
26,515
52,806
258
—
53,064
(13,817)
59,444
45,627 $
126 $
(788) $
(1,500) $
—
691
1,750
21,853
(13)
5,214
—
9
—
2,144
(1,487)
(4,708)
2,867
(382)
3,831
(28,061)
(4,513)
(62,957)
(470)
—
(1,750)
—
(193,188)
221,617
41,861
68,070
5,452
680
1,467
7,599
12,712
46,732
59,444
1,302
—
—
See Accompanying Notes to the Consolidated Financial Statements
F-8
ASSEMBLY BIOSCIENCES, INC.
Notes to Consolidated Financial Statements
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 clinical-stage biotechnology company focused on discovery and development of novel
therapeutics for the treatment of hepatitis B virus (HBV) infection and other viral diseases. The Company operates
in one segment and is headquartered in South San Francisco, California, with operations in California and China.
Prior to the Company’s wind-down of its Microbiome program in January 2021, the Company also had operations in
Connecticut.
The Company’s research and development programs are pursuing multiple drug candidates that inhibit the HBV
replication cycle and block the generation of covalently closed circular DNA (cccDNA), with the aim of discovering
and developing finite and curative therapies for patients with HBV. The Company has discovered several novel core
inhibitors, which are small molecules that directly target and allosterically modify the HBV core (HBc) protein in a
way that affects assembly and stability of HBV nucleocapsids.
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 primarily
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 that these consolidated financial statements are
issued. If the Company cannot generate significant cash from its operations, it intends to obtain any additional
funding it requires through strategic relationships, public or private equity or debt financings, grants or other
arrangements (see Note 8 for recent sales of common stock). The Company cannot assure such funding will be
available on reasonable terms, if at all. Market volatility resulting from the novel coronavirus disease (COVID-19)
pandemic or other factors could also adversely impact the Company’s ability to access capital when and as needed.
If the Company is unable to generate enough revenue from its collaborations, secure additional sources of funding or
receive full and timely collections of amounts due, it may be necessary to significantly reduce the current rate of
spending through reductions in staff and delaying, scaling back, or stopping certain research and development
programs, including more costly clinical trials.
Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements
Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally
accepted in the United States (U.S. GAAP) and include the accounts of the Company and its wholly owned
subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of 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 consolidated financial statements include
estimates of costs incurred but not yet invoiced for research and development accruals, the estimated fair value of
F-9
our indefinite-lived intangible asset and the estimated fair value of our reporting unit for purposes of evaluating
goodwill impairment.
The Company’s estimates could be affected by external conditions, including those unique to the Company and
general economic conditions. It is reasonably possible that these external factors could have an effect on the
Company’s estimates and could cause actual results to differ from those estimates and assumptions.
Other Risks and Uncertainties
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The ongoing COVID-
19 pandemic and its broad, global impacts, including supply chain disruptions, have impacted certain aspects of the
Company’s business, including where and how the Company’s employees work in its labs and offices and how and
when the Company’s nonclinical and clinical studies are conducted. Early in the pandemic, the Company’s current
and future planned clinical trials and preclinical studies were largely unaffected, but as the pandemic has continued,
the Company has experienced enrollment delays for its current clinical studies, particularly its two ongoing multi-
drug combination studies. However, the Company cannot at this time predict the specific extent, duration, or full
impact the COVID-19 pandemic will have on its business, operations, strategy, prospects and financial condition
and results. The impact of the COVID-19 pandemic on the Company’s financial performance will depend on future
developments, including the duration and spread of the outbreak and related governmental advisories and
restrictions. These developments and the impact of the COVID-19 pandemic on the financial markets and the overall
economy are highly uncertain. If the financial markets and/or the overall economy are impacted for an extended
period, the Company’s results may be adversely affected.
In addition, the study design of an upcoming triple combination study initially included a site in Ukraine. The
Company will no longer be conducting the study there due to the instability resulting from Russia’s recent invasion
of Ukraine. These changes to the Company’s study plan will result in a delayed data readout.
Cash and Cash Equivalents
All highly liquid investments, including money market funds, with original maturities of three months or less at the
time of purchase are considered to be cash equivalents. All of the Company’s cash equivalents have liquid markets
and high credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which,
at times as of and during the years ended December 31, 2021 and 2020, exceed federally insured limits.
Investments in Marketable Securities
The Company invests its excess cash in debt securities with high credit ratings including but not limited to money
market funds classified as cash equivalents, asset backed securities, securities issued by the U.S. government and its
agencies, corporate debt securities and commercial paper. The Company has designated its investments in
marketable securities as available-for-sale and measures these securities at their respective fair values. Marketable
securities are classified as short-term or long-term based on the maturity date and their availability to meet current
operating requirements. Marketable securities that mature in one year or less from the consolidated balance sheet
date are classified as short-term available-for-sale securities, while marketable securities with maturities in one year
or beyond one year from the consolidated balance sheet date are classified as long-term.
Securities that are classified as available-for-sale are measured at fair value with temporary unrealized gains and
losses reported in other comprehensive loss, and as a component of stockholders' equity until their disposition. The
Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale
based on their current intent and ability to sell the security if it is required to do so. Realized gains and losses from
the sale of marketable securities, if any, are calculated using the specific-identification method.
Marketable securities are subject to a periodic impairment review. The Company may recognize an impairment
charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary.
In determining whether a decline in market value is other-than-temporary, various factors are considered, including
the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition,
and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated
F-10
recovery in market value. To date, there have been no declines in value deemed to be other than temporary for any
of the Company’s investments in marketable securities.
Goodwill and Indefinite-Lived Intangible Asset
Goodwill and indefinite-lived intangible asset are reviewed for impairment at least annually in the fourth quarter,
and more frequently if events or other changes in circumstances indicate that the carrying amount of the assets may
not be recoverable.
Goodwill
The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business
combination is allocated to goodwill. Goodwill is evaluated for impairment on an annual basis as of October 1, and
more frequently if indicators are present or changes in circumstances suggest impairment may exist. In performing
each annual impairment assessment and any interim impairment assessment, the Company determines if it should
qualitatively assess whether it is more likely than not the fair value of goodwill is less than its carrying amount (the
qualitative impairment test). If the Company concludes it is more likely than not the fair value of the reporting unit
is less than its carrying amount, or elect not to use the qualitative impairment test, a quantitative impairment test is
performed. The Company’s annual or interim quantitative impairment testing is performed by comparing the
estimated fair value of the reporting unit to its carrying value. An impairment charge is recognized for the amount
by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the carrying value of goodwill.
Indefinite-Lived Intangible Asset
The Company’s indefinite-lived intangible asset consists of IPR&D associated with small molecule core inhibitors
that directly target and allosterically inhibit core protein functions associated with HBV which were acquired with
the acquisition of Assembly Pharmaceutics, Inc. in 2014. IPR&D represents the fair value assigned to incomplete
research projects the Company acquired through a business combination which, at the time of acquisition, had not
reached technological feasibility, regardless of whether they had alternative future use. The primary basis for
determining the technological feasibility or completion of these projects is obtaining regulatory approval to market
the underlying products in an applicable geographic region. The Company classifies IPR&D acquired in a business
combination as an indefinite-lived intangible asset until the completion or abandonment of the associated research
and development efforts. Upon completion of the associated research and development efforts, the Company
performed a final test for impairment and will determine the useful life of the technology and begin amortizing the
assets to reflect their use over their remaining lives. Upon permanent abandonment, the Company would write-off
the remaining carrying amount of the associated IPR&D intangible asset.
Indefinite-lived intangible assets are not amortized, but instead are reviewed for impairment at least annually, or
more frequently if events occur or circumstances change that would indicate the carrying amount may be impaired.
In performing each annual impairment assessment and any interim impairment assessment, the Company determines
if it should qualitatively assess whether it is more likely than not the fair value of its IPR&D asset is less than its
carrying amount (the qualitative impairment test). If the Company concludes that is the case, or elects not to use the
qualitative impairment test, the Company would proceed with quantitatively determining the fair value of the
IPR&D asset and comparing its fair value to its carrying value to determine the amount of impairment, if any (the
quantitative impairment test).
In performing the qualitative impairment test, the Company considers the results of the most recent quantitative
impairment test and identifies the most relevant drivers of the fair value for the IPR&D asset. The most relevant
drivers of fair value identified are consistent with the assumptions used in the quantitative estimate of the IPR&D
asset. Using these drivers of fair value, the Company identifies events and circumstances which may have an effect
on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined. The
Company then weighs these factors to determine and conclude if it is not more likely than not the IPR&D asset is
impaired. If it is more likely than not the IPR&D asset is impaired, the Company proceeds with quantitatively
determining the fair value of the IPR&D asset.
When performing the quantitative impairment test, the Company uses the income approach to determine the fair
value of its IPR&D asset. This approach calculates fair value by estimating the after-tax cash flows attributable to an
F-11
in-process project over its useful life and then discounting these after-tax cash flows back to a present value. This
estimate includes judgmental assumptions regarding the estimates that market participants would make in evaluating
the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory
approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net
cash flows from potential drug sales, which are based on estimates of the sales price of the drug, the size of the
patient population and cure rate, our competitive position in the marketplace, and appropriate discount and tax rates.
Any impairment to be recorded is calculated as the difference between the estimated fair value and the carrying
value of the IPR&D asset on the Company’s consolidated balance sheet.
Leases
All of the Company’s leases are operating leases for facilities and equipment. The Company recognizes a lease asset
for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company
determines whether an arrangement is or contains a lease at contract inception. Operating leases with a duration
greater than one year are included in operating lease right-of-use assets, operating lease liabilities - short-term, and
operating lease liabilities - long-term in the Company’s consolidated balance sheets. Operating lease right-of-use
assets and liabilities are recognized at the lease commencement date based on the present value of lease payments
over the lease term. In determining the net present value of lease payments, the Company uses its incremental
borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate
represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease
payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the
noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably
assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are
included in the lease term if the lessor controls the exercise of that option.
The operating lease right-of-use assets also include any lease payments made and exclude lease incentives. Lease
expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded
when incurred. The Company has elected not to separate lease and non-lease components for its leased assets and
accounts for all lease and non-lease components of its agreements as a single lease component.
Impairment of Long-Lived Assets
The Company monitors the carrying value of long-lived assets, including ROU operating lease assets, for potential
impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of
recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash
flows. If cash flows cannot be separately and independently identified for a single asset, the Company will
determine whether impairment has occurred for the group of assets for which the Company can identify the
projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company
measures any impairment by comparing the fair value of the asset or asset group to its carrying value. In conjunction
with the decision to wind down the Microbiome program in December 2020, the Company evaluated its ROU assets
and property and equipment used in the Microbiome program for impairment. The Company determined the
carrying value was no longer recoverable and, based on the fair value of the assets determined from market quotes,
recorded an impairment loss of $0.7 million included in research and development expenses in 2020. There were no
indicators of impairment of long-lived assets during the year ended December 31, 2021.
Property and Equipment, Net
Property and equipment are stated at cost and consist of lab and office equipment, leasehold improvements and
computer hardware and software. The Company records depreciation under the straight-line method over the
estimated useful lives of its property and equipment ranging from three to seven years.
Leasehold improvements are amortized over the remaining terms of the respective leases or the estimated useful life
of the leasehold improvements, whichever is less. Maintenance and repair costs are expensed as incurred.
Fair Value Measurements
The Company follows accounting guidance on fair value measurements for financial instruments measured on a
recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values.
F-12
Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. 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 which 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.
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is
significant to the fair value measurement. The assessment of the significance of a particular input to the fair value
measurement in its entirety requires the Company to make judgments and consider factors specific to the asset or
liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated
fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the
amount the Company or holders of the instruments could realize in a current market exchange.
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 which approximate their fair value due to their liquid or short-term nature, such as cash,
accounts receivable, accounts payable and accrued expenses.
The following tables present the fair value of the Company’s financial assets measured at fair value on a recurring
basis using the above input categories (in thousands):
Cash equivalents
Money market fund ................................................ $
Total cash equivalents..................................................
Short-term marketable securities
U.S. and foreign corporate debt securities .............
Asset-backed securities ..........................................
U.S. and foreign commercial paper........................
Total short-term marketable securities.........................
Long-term marketable securities
U.S. and foreign corporate debt securities .............
U.S. treasury securities ...........................................
Total long-term marketable securities .........................
Total assets measured at fair value .............................. $
Level 1
Level 2
Level 3
Fair Value
December 31, 2021
42,507 $
42,507
— $
—
— $
—
42,507
42,507
—
—
—
—
7,013
29,059
64,928
101,000
—
—
—
42,507 $
19,043
8,929
27,972
128,972 $
—
—
—
—
—
—
—
— $
7,013
29,059
64,928
101,000
19,043
8,929
27,972
171,479
F-13
Level 1
Level 2
Level 3
Fair Value
December 31, 2020
Cash equivalents
Money market fund ................................................ $
U.S. and foreign commercial paper........................
Total cash equivalents..................................................
Short-term marketable securities
U.S. and foreign corporate debt securities .............
Asset-backed securities ..........................................
U.S. treasury securities ...........................................
U.S. and foreign commercial paper........................
Total short-term marketable securities.........................
Total assets measured at fair value .............................. $
47,553 $
—
47,553
—
—
—
—
—
47,553 $
— $
6,498
6,498
16,939
12,675
23,999
103,356
156,969
163,467 $
— $
—
—
—
—
—
—
—
— $
47,553
6,498
54,051
16,939
12,675
23,999
103,356
156,969
211,020
Money market funds are highly liquid and actively traded marketable securities that generally transact at a stable
$1.00 net asset value representing its estimated fair value. The Company estimates the fair value of its U.S. and
foreign corporate debt securities, asset backed securities, U.S. treasury securities and U.S. and foreign commercial
paper 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
issuer credit spreads; benchmark securities;
prepayment/default projections based on historical data; and other observable inputs.
the same or similar securities,
During the quarter ended December 31, 2021, there was a triggering event that required the Company to perform an
impairment analysis for both its goodwill and indefinite-lived asset. As a result, the Company recognized an
impairment charge of $41.6 million for its goodwill and indefinite-lived asset. The Company considers the fair value
used to determine the impairment charge to be a Level 3 measurement. See additional discussion relating to the
Company’s impairment of goodwill and indefinite-lived asset in Note 5.
There have been no transfers between Level 1, Level 2 or Level 3 for any of the periods presented. See Note 3 for
further information regarding the carrying value of the Company’s investments in marketable securities.
Revenue Recognition and Accounts Receivable from Collaborations
The Company analyzes its collaboration arrangements to assess whether such arrangements, or transactions between
arrangement participants, involve joint operating activities performed by parties that are both active participants in
the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or
are more akin to a vendor-customer relationship. In making this evaluation, the Company considers whether the
activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative
arrangement accounting standard and those that are more reflective of a vendor-customer relationship and, therefore,
within the scope of the revenue with contracts with customers accounting standard. This assessment is performed
throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.
For elements of collaboration arrangements that are not accounted for pursuant to the revenue from contracts with
customers accounting standard, an appropriate recognition method is determined and applied consistently, generally
by analogy to the revenue from contracts with customers accounting standard. Amounts related to transactions with
a counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and on a
separate line item from revenue recognized from contracts with customers, if any, in the Company’s consolidated
statements of operations and comprehensive loss.
Under certain collaborative arrangements, the Company has been reimbursed for a portion of its research and
development expenses or participates in the cost-sharing of such research and development expenses. Such
reimbursements and cost-sharing arrangements are reflected as a reduction of research and development expense in
the Company’s consolidated statements of operations and comprehensive loss, as the Company does not consider
performing these activities for reimbursement to be a part of its ongoing major or central operations.
F-14
For arrangements or transactions between arrangement participants determined to be within the scope of the
contracts with customers accounting standard, the Company evaluates the term of the arrangement and recognizes
revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects
the consideration the Company expects to receive in exchange for those goods or services. For contracts with
customers, the Company applies the following five-step model in order to determine this amount: (1) identification
of the promised goods or services in the contract; (2) determination of whether the promised goods or services are
performance obligations, including whether they are distinct in the context of the contract; (3) measurement of the
transaction price, including the constraint on variable consideration; (4) allocation of the transaction price to the
performance obligations; and (5) recognition of revenue when (or as) the Company satisfies each performance
obligation.
The Company has provided standard indemnification and protection of licensed intellectual property for its
customer. These provisions are part of assurance that the licenses meet the agreements, representations and are not
obligations to provide goods or services.
The Company only applies the five-step model to contracts when it is probable the Company will collect the
consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the
accounting for contracts with customers, the Company must develop assumptions that require judgment to determine
the SSP of each performance obligation identified in the contract. The Company then allocates the total transaction
price to each performance obligation based on the estimated standalone selling price (SSP) of each performance
obligation. The Company recognizes the amount of the transaction price that is allocated to the respective
performance obligation when the performance obligation is satisfied or as it is satisfied as revenue.
Upfront License Fees
If a license to the Company’s intellectual property is determined to be distinct from the other performance
obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license
fees based on the relative value prescribed to the license compared to the total value of the arrangement. The
revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and
benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, the
Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the
combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation
is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of
recognizing revenue from nonrefundable, upfront license fees. The Company evaluates the measure of progress
each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Development and Regulatory Milestone Payments
Depending on facts and circumstances, the Company may record revenues from certain milestones in a reporting
period before the milestone is achieved if the Company concludes achievement of the milestone is probable and
recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in
future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone
payments that have not been included in the transaction price to date are fully constrained. The Company re-
evaluates the probability of achievement of such milestones and any related constraint each reporting period. The
Company adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that was
recorded, if necessary.
Research and Development Service Payments
Under the Research, Development, Collaboration and License Agreement (Allergan Agreement) with Allergan
Pharmaceuticals International Limited (Allergan), the Company was reimbursed at a certain percentage for
performing research and development services based on hours worked by the Company’s employees, at a fixed
contractual rate per hour, and third-party pass-through costs the Company incurred on a quarterly basis. Research
and development service payments were included in the transaction price in the reporting period the Company
concluded it was probable that recording revenue in the period would not result in a significant reversal in amounts
recognized in future periods. Accounts receivable were recorded when the right to the research and development
service payment consideration became unconditional. The Company recorded the full reimbursed portion of these
expenses as collaboration revenue associated with the Allergan Agreement in its consolidated statements of
operations as the Company consider performing research and development services to be a part of its ongoing and
central operations.
F-15
Sales-based Milestone and Royalty Payments
The Company’s customer may be required to pay the Company sales-based milestone payments or royalties on
future sales of commercial products. The Company recognizes revenues related to sales-based milestone and royalty
payments upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any
performance obligation(s) related to these sales, in each case assuming the Company’s licensed intellectual property
is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.
The Company receives payments from its customer based on billing schedules established in the contract. Upfront
payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its
obligations under the arrangement. If the related performance obligation is expected to be satisfied within the next
twelve months, these amounts will be classified in current liabilities. The Company recognizes a contract asset
relating to its conditional right to consideration that is not subject to a constraint. Amounts are recorded as accounts
receivable when the Company’s right to consideration is unconditional.
A net contract asset or liability is presented for each contract with a customer. The Company does not assess
whether a contract has a significant financing component if the expectation at contract inception is such that the
period between payment by the customer and the transfer of the promised goods or services to the customer will be
one year or less.
At December 31, 2021 and 2020, all accounts receivable from collaborations are deemed collectible.
Contract Liabilities
The following tables present changes in the Company’s contract liabilities (in thousands):
Balance at
Beginning
of Period Additions Deductions
Balance at
End of
Period
Year Ended December 31, 2021
Contract liabilities:
Deferred revenue.................................................... $
8,987 $
— $
(6,254) $
2,733
Year Ended December 31, 2020
Contract liabilities:
Deferred revenue.................................................... $
37,048 $
40,000 $
(68,061) $
8,987
Year Ended December 31,
2020
2021
Collaboration revenue recognized in the period from
Amounts included in deferred revenue at the beginning of the period....... $
Performance obligations satisfied in previous period.................................
6,254 $
—
37,048
—
Stock-Based Compensation
The Company measures stock-based compensation to employees, consultants, Board members, and non-employees
at fair value on the grant date of the award. The fair value of RSUs is determined based on the number of shares
granted and the quoted market price of the Company’s common stock on the date of grant. Compensation cost is
recognized as expense on a straight-line basis over the requisite service period of the award. Stock-based awards
with graded vesting schedules are recognized using the accelerated attribution method on a straight-line basis over
the requisite service period for each separately vesting portion of the award. For awards that have a performance
condition, compensation cost is measured based on the fair value of the award on the grant date, the date
performance targets are established, and is expensed over the requisite service period for each separately vesting
tranche when achievement of the performance condition becomes probable. The Company assesses the probability
of the performance conditions being met on a continuous basis. Forfeitures are recognized when they occur.
F-16
The Company estimates the fair value of stock option grants that do not contain market-based vesting conditions
using the Black-Scholes option pricing model. The assumptions used in estimating the fair value of these awards,
such as expected term, expected dividend yield, volatility and risk-free interest rate, represent management’s best
estimates and involve inherent uncertainties and the application of management’s judgment. The Company is also
required to make estimates as to the probability of achieving the specific performance conditions. If actual results
are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company
may be required to increase or decrease compensation expense, which could be material to the Company’s
consolidated results of operations.
Research and Development Expense and Accruals
Research and development costs include personnel-related costs, outside contracted services including clinical study
costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval, license fees prior to FDA
approval, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials
and research and development and costs incurred under the Company’s collaboration agreements. Research and
development costs are expensed as incurred unless there is an alternative future use in other research and
development projects. Payments made prior to the receipt of goods or services to be used in research and
development are capitalized until the goods or services are received. Such payments are evaluated for current or
long-term classification based on when they will be realized or consumed. Assets acquired as part of an asset
acquisition that are used in research and development or are IPR&D are immediately expensed as research and
development unless there is an alternative future use in other research and development projects.
The Company records expenses related to clinical studies and manufacturing development activities based on its
estimates of the services received and efforts expended pursuant to contracts with multiple contract research
organizations (CROs) and manufacturing vendors that conduct and manage these activities on its behalf. The
financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in
uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the
level of services provided and result in a prepayment of the expense. Payments under some of these contracts
depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In
amortizing or accruing service fees, the Company estimates the time period over which services will be performed,
enrollment of subjects, number of sites activated and the level of effort to be expended in each period. If the actual
timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will
adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the
Company’s estimates to the amounts actually incurred.
The Company has entered and may continue to enter into license agreements to access and utilize certain
technology. In each case, the Company evaluates if the license agreement results in the acquisition of an asset or a
business. To date, none of the Company’s license agreements have been considered to be acquisitions of businesses.
For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments, are
immediately recognized as research and development expense when paid, provided there is no alternative future use
of the rights in other research and development projects. These license agreements may also include contingent
consideration in the form of cash payments to be made for future milestone events. The Company assesses whether
such contingent consideration meets the definition of a derivative and to date the Company has determined that such
contingent consideration are not derivatives.
Restructuring Charges
The Company recognizes restructuring charges related to reorganization plans that have been committed to by
management and when liabilities have been incurred. In connection with these activities, the Company records
restructuring charges at fair value for (1) contractual employee termination benefits when obligations are associated
to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be
reasonably estimated, (2) one-time employee termination benefits when management has committed to a plan of
termination, the plan identifies the employees and their expected termination dates, the details of termination
benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and
communication to such employees has occurred, and (3) contract termination costs when a contract is terminated
before the end of its term.
F-17
One-time employee termination benefits are recognized in their entirety when communication has occurred, and
future services are not required. If future services are required, the costs are recorded ratably over the remaining
period of service. Contract termination costs to be incurred over the remaining contract term without economic
benefit are recorded in their entirety when the contract is canceled.
The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding
the nature, timing and amount of costs associated with the planned reorganization plan. To the extent the Company’s
actual results differ from its estimates and assumptions, the Company may be required to revise the estimates of
future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction
of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be
material to the consolidated financial statements. Changes in the estimates of the restructuring charges are recorded
in the period the change is determined.
At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure
that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance
with developed restructuring plans.
For gains and losses on the derecognition of nonfinancial assets the Company determines if a contract exists,
identifies the distinct non-financial assets, and determines when control transfers and, therefore, when to
derecognize the asset. Additionally, the Company applies the measurement principles of revenue from contracts
with customers within U.S. GAAP to determine the amount of consideration to include in the calculation of the gain
or loss for the non-financial asset. Any gains or losses have been included within research and development
expenses.
Variable Interest Entities
The Company reviews agreements it enters into with third party entities, pursuant to which we may have a variable
interest in the entity, in order to determine if the entity is a variable interest entity (VIE). If the entity is a VIE, the
Company assesses whether or not it is the primary beneficiary of that entity. In determining whether the Company is
the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both
(1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of,
or the right receive benefits from, the entity that could potentially be significant to that entity. If the Company were
to determine it is the primary beneficiary of a VIE, the Company would consolidate the statements of operations and
financial condition of the VIE into its consolidated financial statements.
The Company’s determination about whether it should consolidate such VIEs is made continuously as changes to
existing relationships or future transactions may result in a consolidation event. As of December 31, 2021, the
Company did not consolidate any entities it had determined to be VIEs.
Income Taxes
The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities
are recognized for the future tax effects attributable to temporary differences between the financial statement
carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax
credit carryforwards. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income
in the period that includes the enactment date. The Company establishes a valuation allowance if it is more likely
than not that the deferred tax assets will not be realized based on an evaluation of objective verifiable evidence. For
tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount
of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of
being sustained upon audit, the Company does not recognize any portion of the benefit.
The Company recognizes and measures uncertain tax positions using a two-step approach set forth in authoritative
guidance. The first step is to evaluate the tax position taken or expected to be taken by determining whether the
weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an
audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax
benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant
judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax positions on a regular
basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in
tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues.
F-18
The provision for income taxes includes the effects of any accruals which the Company believes are appropriate. It
is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. No
interest or penalties related to uncertain tax positions has been incurred or accrued for any periods presented.
In March 2020, the Families First Coronavirus Response Act (FFCR Act) and the Coronavirus Aid, Relief, and
Economic Security Act (CARES Act) were each enacted in response to the COVID-19 pandemic. The FFCR Act
and the CARES Act contain numerous income tax provisions relating to refundable payroll tax credits, deferment of
employer side social security payments, net operating loss carryback periods, alternative minimum tax credit
refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods
for qualified improvement property.
In June 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year
suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of
business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net
operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or
more. The carryover period for any net operating losses that are suspended under this provision will be extended.
A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by
more than $5.0 million for taxable years 2020, 2021 and 2022. On February 9, 2022, Senate Bill No. 113 was
enacted that removed the limitations on the use of NOLs and the cap on the business incentive tax credits that were
suspended in accordance with AB 85 effective for tax year 2022.
In December 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. The CAA included
additional funding through tax credits as part of its economic package for 2021.
In March 2021, the American Rescue Plan (H.R. 1319) was signed into law. This legislation extends and enhances a
number of current-law tax incentives for businesses, but also expands the definition of a “covered employee” as
defined by Section 162(m)(1) of the Internal Revenue Code.
The FFCR Act, CARES Act, A.B. 85, CAA and H.R. 1319 did not have a material impact on the Company’s
consolidated financial statements.
Net Loss per Share
Basic net loss per common share excludes dilution and is computed by dividing net loss by the weighted average
number of common shares outstanding during the period. Diluted net loss per common share 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. Since the Company has only incurred losses, basic and diluted net
loss per share is the same.
The Company had pre-funded warrants to purchase up to 2,424,242 shares of common stock outstanding as of
December 31, 2020. All 2,424,242 of the pre-funded warrants were exercised through a cashless exercise (see Note
8) in 2021. Prior to these exercises, the pre-funded warrants were exercisable for shares of common stock at a price
of $0.001 per share. The shares of common stock into which the then outstanding pre-funded warrants could be
exercised were considered outstanding for the purposes of computing earnings per share because the shares were
issuable for little or no consideration, they were fully vested, and were exercisable after the original issuance date.
F-19
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 per share amounts):
Year Ended December 31,
2021
2020
Numerator:
Net loss .................................................................................................. $
(129,855) $
(62,152)
Denominator:
Weighted average common shares and
pre-funded warrants outstanding - basic and diluted ........................
Net loss per share - basic and diluted.......................................................... $
43,280,383
(3.00) $
35,427,120
(1.75)
Securities excluded from the computation of diluted loss from per share because including them would have been
antidilutive are as follows:
Options to purchase common stock ............................................................
Common stock subject to purchase under our ESPP ..................................
Unvested RSUs ...........................................................................................
Total ............................................................................................................
Comprehensive Loss
Year Ended December 31,
2021
6,161,901
78,740
970,339
7,210,980
2020
6,696,592
44,223
746,868
7,487,683
Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on
investments in available-for-sale marketable securities. The Company displays comprehensive loss and its
components in the consolidated statements of operations and comprehensive loss, net of tax effects if any.
Concentrations of Risk
Credit Risk
Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash
equivalents and marketable securities. The Company holds these investments in highly rated financial institutions,
and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may
exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not
believe it is exposed to any significant credit risk on these funds. The Company has no off-balance sheet
concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging
arrangements.
F-20
Supplier Risk
Certain materials and key components the Company utilizes in its operations are obtained through single suppliers.
Since the suppliers of key components and materials must be named in a New Drug Application (NDA) filed with
the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of
material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any
of its product candidates for clinical trials.
Adoption of Recent Accounting Pronouncements
On January 1, 2021, the Company adopted Accounting Standards Update (ASU) 2020-10, Codification
Improvements – Disclosures (ASU 2020-10). ASU 2020-10 improves consistency by amending the codification to
include all disclosure guidance in the appropriate disclosure sections and clarifies application of various provisions
in the codification by amending and adding new headings, cross referencing to other accounting standards and
refining or correcting termination. The adoption of this standard had no material impact on the Company’s
consolidated financial statements and related disclosures.
Accounting Pronouncements to Be Adopted
In June 2016, the Financial Accounting Standards Board (the FASB) issued ASU 2016-13, Financial Instruments –
Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires that
expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt
securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be
recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and
requires the reversal of previously recognized credit losses if fair value increases. In April, May and November
2019, the FASB issued additional amendments to the new guidance related to transition and clarification. In
November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives
and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which deferred the effective date of this standard
for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after
December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company
is currently evaluating the timing and impact of adopting ASU 2016-13 on its consolidated financial statements and
related disclosures.
In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible
Instruments and Contracts in an Entity’s Own Equity (ASU 2020-06), which simplifies the accounting for certain
financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on
an entity’s own equity. Specifically, ASU 2020-06 simplifies accounting for convertible instruments by removing
major separation models in ASC 470-20 that require separate accounting for embedded conversion features. ASU
2020-06 also removes certain settlement conditions in ASC 815-40 that are required for equity contracts to qualify
for the derivative scope exception, which will permit more equity contracts to qualify for the scope exception and
simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for interim and
annual periods beginning after December 15, 2021, with early adoption permitted. Adoption of ASU 2020-06 can
either be on a modified retrospective or full retrospective basis. The Company does not expect ASU 2020-06 to have
a material impact on its consolidated financial statements and related disclosures.
In May 2021, the FASB issued ASU 2021-04, Issuer's Accounting for Certain Modifications or Exchanges of
Freestanding Equity-Classified Written Call Options (ASU 2021-04), which requires issuers to account for a
modification or exchange of freestanding equity-classified written call options that remain equity classified after the
modification or exchange based on the economic substance of the modification or exchange. Specifically, under
ASU 2021-04, an issuer determines the accounting for the modification or exchange based on whether the
transaction was done to issue equity, issue and or modify debt, or for other reasons. The result is a change in the fair
value of the written call option dependent on the reason for the modification. ASU 2021-04 is effective for interim
and annual periods beginning after December 15, 2021, with early adoption permitted. Adoption of ASU 2021-04 is
applied on a prospective basis. The Company does not expect ASU 2021-04 to have a material impact on its
consolidated financial statements and related disclosures.
F-21
Note 3 - Investments in Marketable Securities
Investments in marketable available-for-sale securities consisted of the following (in thousands):
Amortized
Cost
December 31, 2021
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value
Cash equivalents
Money market funds ............................................... $
Total cash equivalents ..................................................
Short-term marketable securities
U.S. and foreign corporate debt securities..............
Asset-backed securities...........................................
U.S. and foreign commercial paper ........................
Total short-term marketable securities .........................
Long-term marketable securities
U.S. and foreign corporate debt securities..............
U.S. treasury securities ...........................................
Total long-term marketable securities..........................
Total cash equivalents and marketable securities ........ $
42,507 $
42,507
7,015
29,097
64,929
101,041
19,117
8,960
28,077
171,625 $
— $
—
—
—
—
—
—
—
—
— $
— $
—
42,507
42,507
(2)
(38)
(1)
(41)
(74)
(31)
(105)
(146) $
7,013
29,059
64,928
101,000
19,043
8,929
27,972
171,479
Amortized
Cost
December 31, 2020
Gross
Unrealized
Gain
Gross
Unrealized
Loss
Fair Value
Cash equivalents
Money market funds ............................................... $
U.S. and foreign commercial paper ........................
Total cash equivalents ..................................................
Short-term marketable securities
U.S. and foreign corporate debt securities..............
Asset-backed securities...........................................
U.S. treasury securities ...........................................
U.S. and foreign commercial paper ........................
Total short-term marketable securities .........................
Total cash equivalents and marketable securities ........ $
47,553 $
6,498
54,051
16,939
12,674
23,997
103,356
156,966
211,017 $
— $
—
—
3
2
2
—
7
7 $
— $
—
—
(3)
(1)
—
—
(4)
(4) $
47,553
6,498
54,051
16,939
12,675
23,999
103,356
156,969
211,020
Short-term marketable securities held as of December 31, 2021 had contractual maturities of less than one year.
Long-term marketable securities held as of December 31, 2021 had contractual maturities of at least one year but
less than two years.
Realized gains and losses for the years ended December 31, 2021 and 2020 were not significant. None of the
Company’s investments have been in a continuous unrealized loss position for more than 12 months as of December
31, 2021.
See Note 2 for further information regarding the fair value of our investments in marketable securities.
F-22
Note 4 - Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
December 31,
2021
2020
Lab equipment ........................................................................................
Office equipment ....................................................................................
Leasehold improvement..........................................................................
Total property and equipment ......................................................................
Less: Accumulated depreciation ..................................................................
Property and equipment, net......................................................................... $
18
699
1,629
2,346
(1,207)
1,139 $
247
699
2,490
3,436
(1,836)
1,600
Depreciation expense for the years ended December 31, 2021 and 2020 was $0.5 million, and $0.7 million,
respectively, and was recorded in both research and development expense and general and administrative expense in
the consolidated statements of operations and comprehensive loss. Primarily all of the Company’s property and
equipment is located in the U.S.
Note 5 - Goodwill and Indefinite-Lived Intangible Asset Impairment
Goodwill
The Company elected to perform a quantitative impairment assessment of goodwill for its single reporting unit in
the fourth quarter of 2021 due to a sustained decline in its market capitalization, an increase in negative economic
outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative
combination therapy for HBV infection. The Company estimated and reconciled the fair value of its reporting unit
using both a market approach, utilizing the Company’s market capitalization adjusted for an estimated control
premium, and the income approach, discounting future cash flows based on management’s expectations of timelines
to complete clinical trials, regulatory and commercial probabilities of technical success as well as future earnings
forecast. Based on this analysis, and after completing an impairment assessment of its indefinite-lived and long-lived
assets, the Company concluded the fair value of its single reporting unit was less than its carrying value and
therefore recognized a goodwill impairment charge of $12.6 million. This was primarily driven by increased risks
impacting the Company that, from the standpoint of a market participant, were captured through an increase in
estimated discount rates. The calculation of the impairment charge includes substantial fact-based determinations
and estimates including discount rates, future revenue, profitability, cash flows, probabilities of technical success
and fair values of assets and liabilities, and any changes to these assumptions could result in changes to the fair
value of our single reporting unit. The goodwill impairment charge is reflected in impairment of goodwill and
indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss.
No goodwill impairment charges were recorded in 2020.
Indefinite-Lived Intangible Asset
During the fourth quarter of 2021 and prior to the goodwill impairment test, the Company also completed a
quantitative impairment test for its IPR&D asset associated with the Assembly Pharmaceuticals, Inc. acquisition.
The Company utilized the discounted cash flow model of the income approach and determined the carrying value of
its IPR&D asset was fully impaired resulting in an impairment charge of $29.0 million. This was primarily driven by
a higher discount rate applied to future cash flows based on a market participant’s view of increased risk associated
with a negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a
competitor’s curative combination therapy for HBV infection. More significant assumptions inherent in the
development of the model included the estimated annual cash flows, particularly net revenues, the appropriate
discount rate to select in order to measure the risk inherent in the future cash flows, cost to complete the IPR&D
project as well as other factors. The impairment charge recorded is reflected in impairment of goodwill and
indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss.
No indefinite-lived intangible asset impairment charges were recorded in 2020.
F-23
Note 6 – Other Accrued Expenses
Other accrued expenses consist of the following (in thousands):
Accrued expenses:
Accrued compensation............................................................................ $
Accrued restructuring charges ................................................................
Accrued professional fees and other.......................................................
Total accrued expenses................................................................................. $
6,426 $
—
437
6,863 $
7,016
4,164
807
11,987
December 31,
2021
2020
Note 7 – Restructurings
Restructuring charges relate to the Company’s decision to relocate its headquarters to South San Francisco,
California, which was approved by the Board of Directors effective January 2020 and the December 2020 wind-
down of the Company’s Microbiome program.
The following table summarizes the Company’s costs incurred (in thousands):
Total
Restructuring
Cost
Employee
Severance
and Related
Benefits
Asset
Impairment
and Other
Costs
Cumulative restructuring costs incurred through
December 31, 2021 .................................................................. $
Restructuring costs incurred for the year ended December
31, 2021.................................................................................... $
Restructuring costs incurred for the year ended December
31, 2020.................................................................................... $
6,430 $
3,240 $
3,190
(1,348) $
(2,959) (1) $
1,611
5,684 $
4,105 $
1,579
(1) The reversal of $3.0 million in employee severance and related benefits recognized during the year ended
December 31, 2021 reflects the reversal of previously recognized stock-based compensation expense related to
forfeited awards based on the Company’s policy of recognizing stock-based awards with graded vesting
schedules using an accelerated attribution method on a straight-line basis over the requisite service period for
each separately vesting portion of the award and to recognize forfeitures when they occur.
The cumulative restructuring costs incurred through December 31, 2021 represents all costs to be incurred.
The following table presents where the restructuring charges were recognized (in thousands):
Research and development........................................................................... $
General and administrative...........................................................................
Total ............................................................................................................. $
(1,625) $
277 $
(1,348) $
5,486
198
5,684
Year Ended December 31,
2020
2021
F-24
The following table presents the activity in the accrued restructuring charges during the period (in thousands):
Total
Restructuring
Cost
Employee
Severance
and Related
Benefits
Asset
Impairment
and Other
Costs
Accrued balance as of December 31, 2019 .............................. $
Costs incurred .....................................................................
Reductions for cash payments ............................................
Accrued balance as of December 31, 2020 .............................. $
Costs incurred .....................................................................
Reductions for cash payments ............................................
Accrued balance as of December 31, 2021 .............................. $
2,094 $
3,843
(1,773)
4,164 $
1,611
(5,775)
— $
2,094 $
3,843
(1,773)
4,164 $
—
(4,164)
— $
—
—
—
—
1,611
(1,611) (1)
—
(1) Cash payments are presented net of proceeds received from the sale of assets of $0.9 million.
The asset impairment and other costs includes $1.4 million for the remaining payment obligations of leased
equipment the Company purchased and sold to third parties.
Microbiome Purchase Agreement
In December 2021, the Company entered into an asset purchase agreement (the Microbiome Purchase Agreement)
with a third party pursuant to which the Company sold know-how, patents, materials and regulatory filings for the
Company’s Microbiome program. The sale included ABI-M201 (M201), which had been the Company’s lead
candidate in its Microbiome program. As consideration for the sale, the Company was entitled to receive $3.0
million, of which $1.5 million was received in December 2021 and the remaining $1.5 million was received in
February 2022. The Company is also entitled to receive a $10.0 million milestone payment upon the achievement of
a regulatory approval milestone as defined in the purchase agreement.
The Microbiome Purchase Agreement is within the scope of gains and losses from the derecognition of nonfinancial
assets guidance since the Company had previously wound-down the Microbiome program, M201 was no longer a
part of the Company’s ongoing major or central operations. The Company determined all assets sold under the
Microbiome Purchase Agreement represent one distinct nonfinancial asset as individually, they do not have
standalone value. The transaction price at the inception of the agreement was limited to the $3.0 million upfront
payments. The variable consideration relating to the $10.0 million milestone has not been included in the transaction
price as it was fully constrained as of December 31, 2021. As part of the Company’s evaluation of the development
milestone constraint, it determined the achievement of the milestone is contingent upon success in future clinical
studies and regulatory approvals which are not within its control and uncertain at this stage. The assets sold had no
carrying value and the full $3.0 million transaction price resulted in the recognition of a gain. The Company
determined the transfer of control of the assets sold was completed in December 2021. The $3.0 million gain is
included as a reduction of research and development expenses in the Company’s consolidated statements of
operations and comprehensive loss. The $1.5 million due as of December 31, 2021 is included in prepaid expenses
and other current assets on the Company’s consolidated balance sheet.
Note 8 - Stockholders’ Equity
The Company is authorized to issue 5,000,000 shares of preferred stock as of December 31, 2021 and 2020. As of
December 31, 2021 and 2020, no shares of preferred stock were issued and outstanding. The Company is authorized
to issue 100,000,000 shares of common stock as of December 31, 2021 and 2020.
Sale of Common Stock
In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, File No. 333-248469,
that became effective on September 4, 2020 (the 2020 Registration Statement). The Company may from time to time
sell any combination of the securities described in the 2020 Registration Statement in one or more offerings up to an
F-25
aggregate offering price of $300.0 million. In connection with the filing of the 2020 Registration Statement, 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), which
shares are included in the $300.0 million of securities registered pursuant to the 2020 Registration Statement. During
the year ended December 31, 2020, the Company issued and sold 892,840 shares of common stock under the 2020
ATM, for which the Company received net proceeds of $5.5 million, after deducting commissions, fees and
expenses. During the year ended December 31, 2021, the Company issued and sold 11,234,207 shares of common
stock under the 2020 ATM, for which the Company received net proceeds of $52.8 million, after deducting
commissions, fees and expenses.
Common Stock Warrants
In December 2019, the Company sold to various investors an aggregate of 6,287,878 shares of common stock at a
public offering price of $16.50 per share, which included the exercise in full by the underwriters of their option to
purchase 1,136,363 shares of common stock, and pre-funded warrants to purchase 2,424,242 shares of common
stock at a public offering price of $16.499. The Company received aggregate net proceeds of $134.7 million from
the offering and the option exercise, after deducting underwriting discounts and commissions and offering expenses
payable by the Company. The pre-funded warrants became immediately exercisable upon issuance at an exercise
price of $0.001 per share, but under their terms, the outstanding pre-funded warrants to purchase shares of the
Company’s common stock generally may not be exercised if the holder’s ownership of the Company’s common
stock would exceed 19.99% following such exercise. The exercise price and number of shares of common stock
issuable upon the exercise of the pre-funded warrants (Warrant Shares) are subject to adjustment in the event of any
stock dividends and splits, reverse stock split, recapitalization, reorganization or similar transaction, as described in
the pre-funded warrant agreements. Under certain circumstances, the pre-funded warrants may be exercisable on a
“cashless” basis. Both the pre-funded warrants and the Warrant Shares are registered securities.
The pre-funded warrants were classified as a component of permanent stockholders’ equity within additional paid-
in-capital and were recorded at the issuance date using a relative fair value allocation method. The Company valued
the pre-funded warrants at issuance, concluding their sales price approximated their fair value, and allocated net
proceeds from the sale proportionately to the common stock and pre-funded warrants of which $37.5 million
allocated to the pre-funded warrants and recorded as a component of additional paid-in-capital.
The following warrants to purchase shares of the Company’s common stock were issued and outstanding:
Issue date
December 16, 2019
Expiration
date
None
Exercise Price
per Share
As of December 31,
2021
As of December 31,
2020
$
0.001
—
2,424,242
During the year ended December 31, 2021, there were 2,424,242 pre-funded warrants exercised through a cashless
exercise, resulting in the issuance of 2,423,634 shares of the Company’s common stock. There were no pre-funded
warrants exercised during the year ended December 31, 2020. During the year ended December 31, 2020, 15,296
warrants to purchase common stock expired unexercised.
Note 9 - Stock-Based Compensation
Equity Incentive Plans
In June 2020, the Company’s stockholders approved an amendment to the Assembly Biosciences, Inc. 2018 Stock
Incentive Plan (the 2018 Plan) that increased the aggregate number of shares of common stock reserved under the
2018 Plan to 4,600,000.
In May 2021, the Company’s stockholders approved an amendment to the 2018 Plan that increased the aggregate
number of shares of common stock reserved under the 2018 Plan to 6,600,000 and the Assembly Biosciences, Inc.
Employee Stock Purchase Plan (the 2018 ESPP) that, among other things, increased the number of shares of
common stock reserved to an aggregate of 1,300,000.
As of December 31, 2021, the Company had awards outstanding under the following shareholder approved plans:
2010 Equity Incentive Plan (the 2010 Plan), which has been frozen; the Amended and Restated 2014 Stock
Incentive Plan (the 2014 Plan); and the 2018 Plan. Shares of common stock underlying awards that are forfeited
under the 2010 Plan on or after June 2, 2016 will become available for issuance under the 2014 Plan. As of
December 31, 2021, the Company also had awards outstanding under the Assembly Biosciences, Inc. 2017
F-26
Inducement Award Plan (the 2017 Plan), the 2019 Inducement Award Plan (the 2019 Plan) and the Assembly
Biosciences, Inc. 2020 Inducement Award Plan (the 2020 Plan).
The Company issues new shares of common stock to settle options exercised or vested RSUs. The Company also
issues new shares of common stock in connection with purchases of shares of common stock by eligible employees
under the Company’s 2018 ESPP.
Stock Plan Activity
Stock Options
The following table summarizes the stock option activity and related information for 2021:
Weighted
Average
Exercise
Price
Per Share
Number
of Shares
Outstanding as of December 31, 2020....................... 6,696,592 $
Granted....................................................................... 1,521,370
Forfeited..................................................................... (2,046,861)
(9,200)
Expired.......................................................................
Outstanding as of December 31, 2021....................... 6,161,901 $
Options vested and exercisable as of December 31,
2021............................................................................ 3,805,841 $
15.70
4.24
18.93
30.00
11.77
13.53
Weighted
Average
Remaining
Contractual
Term
(Years)
Total
Intrinsic
Value (in
thousands)
6.9 $
1,856
6.4 $
5.0 $
53
51
The weighted-average grant-date fair value of options granted was $3.05 and $10.64 during the years ended
December 31, 2021 and 2020, respectively. The total intrinsic value of options exercised in 2020 was $2.0 million.
There were no options exercised in 2021.
RSUs
The following table summarizes RSU activity and related information for 2021:
Nonvested as of December 31, 2020 ...........................................................
Granted.........................................................................................................
Vested ..........................................................................................................
Forfeited.......................................................................................................
Nonvested as of December 31, 2021 ...........................................................
Number
of RSUs
886,868 $
721,341
(347,096)
(290,774)
970,339
$
Weighted
Average Fair
Value Per RSU
at Grant Price
20.36
3.78
27.97
14.64
7.04
The total fair value of RSUs vested and settled during 2021 and 2020 was $3.7 million and $7.8 million,
respectively. The total intrinsic value of RSUs vested and settled during 2021 and 2020 was $1.4 million and $4.4
million, respectively.
F-27
In September 2019, the Company granted 100,000 RSUs with performance-based vesting conditions to its chief
executive officer. On March 31, 2021, 25,000 of these awards were forfeited back to the Company due to the
expiration of the time period to complete one of the performance conditions. On July 31, 2021, an additional 25,000
of these awards were forfeited back to the Company due to the expiration of the time period to complete one of the
performance conditions. The outstanding 50,000 awards with an aggregate fair value of $0.4 million vest upon
performance conditions not yet deemed probable. Accordingly, no stock-based compensation expense has been
recognized as of December 31, 2021.
In July 2020, the performance condition for 45,000 RSUs granted in December 2017 to a former executive officer
was met associated with the execution of an HBV business development transaction. The Company recognized $0.7
million as a cumulative catch-up adjustment of stock-based compensation expense for this award for the year ended
December 31, 2020.
In July 2021, the Company granted a total of 324,214 RSUs with performance-based vesting conditions upon the
achievement of clinical milestones to the majority of employees, including executive officers. The awards had a
grant date fair value of $1.2 million and vest upon performance conditions not yet deemed probable. Accordingly,
no stock-based compensation expense has been recognized as of December 31, 2021.
Employee Stock Purchase Plan
The 2018 ESPP provides for the purchase by employees of up to an aggregate of 1,300,000 shares of the Company’s
common stock at a discount to the market price. Eligible employee may participate through payroll deductions of up
to 15% of such employee’s compensation for each pay period subject to annual statutory limits and the 2018 ESPP’s
limit, which the Company’s stockholders approved in May 2021 to increase from 1,000 to 2,500 shares of common
stock per offering.
Eligible employees can purchase the Company’s common stock at the end of a predetermined offering period at
85% of the lower of the fair market value at the beginning or end of the offering period. Under the 2018 ESPP, the
offering periods end on the last business day occurring on or before May 14 or November 14. The ESPP is
compensatory and results in stock-based compensation expense.
In May and November 2020, employees purchased 42,266 and 44,546 shares of common stock, respectively, under
the 2018 ESPP. In May and November 2021, employees purchased 42,803 and 46,017 shares of common stock,
respectively, under the 2018 ESPP. As of December 31, 2021, 1,043,515 shares of common stock are available for
future sale under the Company’s 2018 ESPP. Stock-based compensation expense recorded in connection with the
2018 ESPP was $0.1 million and $0.5 million for the years December 31, 2021 and 2020, respectively.
Valuation Assumptions
The Company used the Black-Scholes option-pricing model for determining the estimated fair value and stock-based
compensation related to stock options and ESPP purchase rights.
A summary of the assumptions used to estimate the fair values of stock options grants for the years presented is as
follows:
Exercise price ...............................................................................................
Expected volatility........................................................................................
Risk-free rate ................................................................................................
Expected term (years)...................................................................................
Expected dividend yield ...............................................................................
Year Ended December 31,
2021
$2.24 - $5.79
79.7% - 91.2%
0.50% - 1.37%
5.5 - 7.5
0%
2020
$5.62 - $23.30
66.4% - 92.3%
0.26% - 1.44%
5.5 - 7.5
0%
The risk-free interest rate assumption was based on the rates for U.S. Treasury zero-coupon bonds with maturities
similar to those of the expected term of the stock option being valued. The expected dividend yield was zero as the
Company currently does not intend to pay dividends in the foreseeable future. The weighted average expected term
of options was calculated using the simplified method as prescribed by accounting guidance for stock-based
compensation due to the Company’s limited history of relevant stock option exercise activity. The expected
F-28
volatility was calculated based on the Company’s historical stock prices, supplemented as necessary with historical
volatility of the common stock of several peer companies with characteristics similar to those of the Company.
The fair value of ESPP purchase rights were not material for any period presented.
Stock-Based Compensation Expense
The Company recognized stock-based compensation expense included in the consolidated statement of operations
and comprehensive loss for the years presented (in thousands):
Research and development .......................................................................... $
General and administrative ..........................................................................
Total stock-based compensation expense .................................................... $
Year Ended December 31,
2021
2020
548 $
4,689
5,237 $
11,380
10,473
21,853
Stock-based compensation expense for the year ended December 31, 2021 includes the reversal of previously
recognized stock-based compensation expense related to awards forfeited by terminated employees of $4.8 million
and $2.1 million included in research and development expenses and general and administrative expenses,
respectively. As of December 31, 2021, there was $9.7 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 1.6 years.
Note 10 - Collaboration Agreements
Allergan Agreement
In January 2017, the Company and Allergan Pharmaceuticals International Limited (Allergan) entered into the
Research, Development, Collaboration and License Agreement (the Allergan Agreement) to develop and
commercialize select microbiome gastrointestinal disease therapies. In June 2020, following its acquisition of
Allergan, AbbVie Inc. (AbbVie), on behalf of Allergan, gave written notice of termination of the Allergan
Agreement, which subsequently became effective in October 2020. Upon termination, the licenses granted by the
Company and its know-how reverted to the Company.
For the year ended December 31, 2020, the Company recognized $48.1 million in collaboration revenue associated
with the Allergan Agreement. A contract asset balance of $1.0 million was recorded as of December 31, 2020. There
were no deferred revenue contract liabilities as of December 31, 2020 and no revenue, contract assets or contract
liabilities recognized as of and for the year ended December 31, 2021 due to the termination of the Allergan
Agreement in 2020.
BeiGene Agreement
In July 2020, the Company and BeiGene, Ltd. (BeiGene) entered into a Collaboration Agreement (the BeiGene
Agreement) to develop and commercialize the Company’s novel core inhibitor product candidates VBR, ABI-
H2158 and ABI-H3733 for chronic HBV infection (the Licensed Product Candidates) in the People’s Republic of
China, Hong Kong, Taiwan and Macau (the Territory). Under the agreement, the Company and BeiGene are
collaborating on certain global clinical studies and both the Company and BeiGene will independently conduct other
clinical studies in their own respective territories.
BeiGene agreed to pay all development and regulatory costs for the Licensed Product Candidates in the Territory up
to an aggregate of $45.0 million. Development and regulatory costs for the Licensed Product Candidates for the
Territory in excess of $45.0 million will be shared equally by the Company and BeiGene. If the Company conducts
certain ancillary trials outside of the plan to develop these candidates in the Territory, BeiGene may elect to obtain
access to the know-how and clinical data resulting for such ancillary trials and shall reimburse the Company
proportionally for the Territory of the costs of such trials. Activities under the BeiGene Agreement will be governed
by a joint steering committee (JSC) consisting of equal representatives from each party to the agreement. All
decisions of the JSC are to be made by consensus with final decision-making authority granted to each party based
on key areas of the collaboration for which they are responsible. During the term of the BeiGene Agreement, neither
F-29
party will commercialize any competing products in the Territory. The Company will be responsible for
manufacturing and supply of the candidates to be used in and outside of the Territory, although the parties may
approve BeiGene to take on some or all of the commercial supply activities of the applicable Licensed Products in
the Territory.
The Company is not obligated to perform pre-phase 3 clinical trial development work outside the Territory on ABI-
H2158 and ABI-H3733 but must provide BeiGene pre-Phase 3 clinical trial know-how and development results if
and when such development efforts are completed. If, after ABI-H2158 and ABI-H3733 reach the end of Phase 2
clinical trials, the Company and BeiGene are unable to mutually agree on the terms of a Phase 3 global study,
BeiGene may elect to terminate the BeiGene Agreement solely as it relates to that compound, as applicable. Such a
termination would result in the Company regaining all rights to the applicable compound in the Territory. In
addition, BeiGene may terminate the BeiGene Agreement for convenience at any time upon 90 days’ advance
written notice to Assembly. The BeiGene Agreement also contains customary provisions for termination by either
party, including in the event of breach of the BeiGene Agreement, subject to cure.
Pursuant to the terms of the BeiGene Agreement, the Company received an upfront cash payment of $40.0 million
from BeiGene for the delivery of exclusive, royalty-bearing licenses to develop and commercialize the Licensed
Product Candidates in the Territory, and the Company was eligible to receive up to approximately $500.0 million in
cash milestone payments, comprised of up to $113.8 million for development and regulatory milestones and up to
$385.0 million in net sales milestones. In addition, the Company is eligible to receive tiered royalties at percentages
ranging from the mid-teens to the low thirties of net sales. In September 2021, the Company discontinued
development of ABI-H2158 following the observation of elevated alanine transaminase levels in the Phase 2 clinical
study consistent with drug-induced hepatotoxicity. Due to the discontinuation of development of ABI-H2158, the
maximum cash milestone payments the Company is eligible to receive for VBR and ABI-H3733 is $427.5 million,
comprised of up to $97.5 million for development and regulatory milestones and up to $330.0 million in net sales
milestones.
The BeiGene Agreement is within the scope of the collaborative arrangements guidance as both parties are active
participants and are exposed to significant risks and rewards dependent on the success of commercializing the
Licensed Product Candidates in the Territory but that the unit of account related to the delivery of Licensed Product
Candidates is within the scope of the contract with customers guidance. The remaining units of account related to
participation on the JSC and subcommittees, clinical supply and other in Territory and global development activities
(the Collaboration Activities) are within the scope of the collaborative arrangements guidance. Commercial supply
will be evaluated as a separate contract when the agreement is executed and a purchase order is received from
BeiGene.
The Company identified the following material promises related to the contract with customers unit of account
under the BeiGene Agreement: 1) the transfer of the VBR License, 2) the transfer of the ABI-H2158 License, and 3)
the transfer of the ABI-H3733 License. The Company concluded each of these licenses to be functional as they have
significant standalone functionality and grants BeiGene the right to use the Company’s intellectual property as it
exists on the effective date of the license. The ABI-H2158 and ABI-H3733 Licenses have a continuing technology
transfer obligation that is considered to be an attribute of these licenses. The agreed upon prices for the clinical and
commercial supply of the Licensed Product Candidates to BeiGene do not represent material rights, and therefore
are not performance obligations, and such pricing on an aggregate basis represents the SSP an entity would typically
pay for such a product in that region or market. There are also no minimum purchase commitments.
The Company estimated the SSP of the Licenses using an income-based valuation approach for the estimated value
a licensor of the compounds would receive considering the stage of the compound’s development. The Company
believes a change in the assumptions used to determine its best estimate of SSP would not have a significant value
or significant impact on the allocation of consideration received.
The transaction price at the inception of the agreement was limited to the $40.0 million upfront payment. The
variable consideration related to the remaining development and commercialization milestone payments has not
been included in the transaction price as these were fully constrained as of December 31, 2021 and 2020. As part of
the Company’s evaluation of the development and commercialization milestones constraint, the Company
determined the achievement of such milestones are contingent upon success in future clinical trials and regulatory
approvals which are not within its control and uncertain at this stage. Any variable consideration related to sales-
based milestones (including royalties) will be recognized when the related sales occur as they were determined to
relate predominantly to the Licensed Product Candidates granted to BeiGene. The Company will reevaluate the
transaction price in each reporting period as uncertain events are resolved or other changes in circumstances occur.
F-30
During the year ended December 31, 2020, the Company recognized $31.0 million as collaboration revenue for the
amount allocated to the VBR License as substantial completion of the license technology transfer had occurred. The
remaining transaction price allocated to the ABI-H2158 and ABI-H3733 Licenses of $9.0 million was recorded as a
long-term deferred revenue contract liability on the consolidated balance sheet as of December 31, 2020. Following
the discontinuation of development of ABI-H2158 in September 2021, the obligation related to the technology
transfer associated with the license of ABI-H2158 was considered to be complete. Accordingly, the Company
recognized $6.3 million as collaboration revenue for the amount allocated to ABI-H2158 during the year ended
December 31, 2021. The remaining transaction price allocated to the ABI-H3733 License of $2.7 million was
recorded as a long-term deferred revenue contract liability on the consolidated balance sheet as of December 31,
2021. Revenue for the remaining performance obligation will be recognized when the Company provides pre-Phase
3 clinical study know-how and development results for ABI-H3733 to BeiGene or a termination of the BeiGene
Agreement for ABI-H3733.
Payments to, or reimbursements from, BeiGene related to the Collaboration Activities will be accounted for as an
increase to or reduction of research and development expenses when incurred or realized, respectively. During the
years ended December 31, 2021 and 2020, the Company did not recognize any increase or reduction of research and
development expense under the BeiGene Agreement.
The Company incurred $3.5 million in incremental costs of obtaining the BeiGene Agreement. These contract costs
have been capitalized and are being recognized consistent with the pattern of recognition of revenue associated with
the Licensed Product Candidates. As of December 31, 2021 and 2020, the remaining unamortized contract costs are
$0.2 million and $0.8 million, respectively, and are included in other assets on the consolidated balance sheet.
Arbutus Agreement
In August 2020, the Company and Arbutus Biopharma Corporation (Arbutus) entered into a Collaboration
Agreement (Arbutus Agreement) to conduct a randomized, multi-center, open-label Phase 2 clinical trial to explore
the safety, PK and antiviral activity of the triple combination of VBR, AB-729 and an NrtI compared to the double
combinations of VBR with an NrtI and AB-729 with an NrtI. Assembly and Arbutus will share responsibility for the
costs of the trial equally, excluding manufacturing supply which will be the burden of each company to supply their
respective drugs VBR and AB-729.
The Arbutus Agreement is within the scope of the collaborative arrangements guidance as both parties are active
participants and are exposed to significant risks and rewards dependent on the success of the collaborative activity.
Arbutus is not a customer as it does not obtain an output from the collaborative activities as they were not provided
an exclusive license to VBR or the ability to manufacture VBR, and the Company does not consider performing
such collaborative activities to be a part of its ongoing activities.
The revenue from contracts with customers guidance was considered by analogy in determining the unit of account,
and the recognition and measurement of such unit of account for collaborative activities under the Arbutus
Agreement and concluded there is one activity, to run an open-label Phase 2 clinical trial, which is akin to
performance obligation related to collaborative activities. Reimbursements and cost-sharing portions of this
performance obligation will be reflected as a reduction of research and development expense when realized in the
Company’s consolidated statements of operations, as the Company does not consider performing research and
development services for reimbursement to be a part of its ongoing major or central operations. The Company
recognized a reduction of research and development expense of $2.0 million and $0.2 million under the Arbutus
Agreement during the years ended December 31, 2021 and 2020, respectively.
F-31
Antios Agreement
In July 2021, the Company and Antios Therapeutics, Inc. (Antios) entered into a Clinical Trial Collaboration
Agreement (the Antios Agreement) to collaborate on a clinical trial of a combination therapy using either or both of
the Company’s core inhibitors, VBR and ABI-H2158, and Antios’s active site polymerase inhibitor nucleotide ATI-
2173 for the treatment of HBV. Assembly and Antios will individually be responsible for the study’s manufacturing
costs but will equally share the remaining costs of the study. The Antios Agreement does not bind either party to
conducting a collaboration trial or collaboration trial cohort unless and until a Joint Development Committee (the
JDC) formed by both parties decides to initiate a collaboration trial or collaboration trial cohort. Due to the
discontinuation of development of ABI-H2158 in September 2021, any study under the Antios Agreement would be
with VBR.
The Antios Agreement is within the scope of the collaborative arrangements guidance as both parties are active
participants and are exposed to significant risks and rewards dependent on the success of the collaborative activity.
Antios is not a customer as it does not obtain an output from the collaborative activities as they were not provided an
exclusive license to ABI-H2158 or VBR or the ability to manufacture ABI-H2158 or VBR, and the Company does
not consider performing such collaborative activities to be a part of its ongoing activities.
In October 2021, the JDC agreed to initiate a collaboration trial cohort to evaluate a triple combination treatment in
patients with chronic HBV infection. There were no costs incurred during the year ended December 31, 2021.
Note 11 – Milestones and Research Agreements
HBV Research Agreement with Indiana University
Since September 2013, the Company has been party to an exclusive License Agreement dated September 3, 2013
with Indiana University Research and Technology Corporation (IURTC) from whom it has licensed aspects of the
Company’s HBV program held by IURTC. The license agreement requires 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, should all milestones through
development be met, is $0.8 million, with a portion related to the first performance milestone having been paid. The
Company is obligated to pay IURTC royalty payments based on net sales of the licensed technology as well as a
portion of any sublicensing revenue Assembly receives. The Company is also required to pay diligence maintenance
fees each year to the extent that the royalty, sublicensing, and milestone payments to IURTC are less than the
diligence maintenance fee for that year. A performance milestone totaling $0.1 million was determined to have
occurred under this agreement and was paid during the year ended December 31, 2020. Additionally, the Company
paid IURTC $0.7 million as a sublicensing fee during the year ended December 31, 2020. No milestone payments
were incurred or accrued under the License Agreement during the year ended December 31, 2021. The milestone
and license fees are included in research and development expenses in the consolidated statements of operations and
comprehensive loss.
Microbiome Targeted Colonic Delivery Platform
In November 2013, the Company entered into a License and Collaboration Agreement with Therabiome, LLC
(Therabiome), for all intellectual property and know-how owned or controlled by Therabiome relating to the oral
delivery of pharmaceutical drugs to specific sites in the intestine, using a pH sensitive controlled release capsule-in-
capsule technology. The Company will be solely responsible for all research and development activities with respect
to any product it develops under the license.
The Company was obligated to pay Therabiome clinical and regulatory milestones for each product or therapy
advanced from the platform for U.S. regulatory milestones. In addition, the Company was obligated to pay
Therabiome lesser amounts for foreign regulatory milestones, which varied by country and region. The Company
was also required to pay Therabiome royalties on annual net sales of a product in the low to mid-single
digit percentages plus, once annual net sales exceeded certain thresholds, a one-time cash payment upon reaching
such thresholds.
F-32
Therabiome was obligated to pay the Company royalties on annual net sales of any product Therabiome was
permitted to develop using the intellectual property in the low double to mid-double-digit percentages, depending on
the level of development or involvement the Company had in the product.
No amounts were incurred or accrued for this agreement as of and for the years ended December 31, 2021 and 2020.
In connection with the wind-down of the Microbiome program, the License and Collaboration Agreement with
Therabiome was terminated in January 2021, and the termination became effective in April 2021.
Door Agreement
In November 2020, the Company and Door Pharmaceuticals, LLC (Door Pharma) entered into an exclusive, two-
year Collaboration Agreement and Sublicense Agreement (collectively, the Door Pharma Agreement) focused on
the development of a novel class of HBV inhibitors. Under the terms of the agreement, Door Pharma will build upon
its previous efforts to lead and conduct new discovery research, which the Company will fund. In return for an up-
front payment of $1.8 million, success-based milestones up to $35.0 million, exercise and annual fees ranging from
$0.1 million to $2.0 million and royalties in the low to mid-single digits, the Company will be granted an exclusive
option to license compounds arising from the collaboration and will be responsible for the continued development
and commercialization of optioned compounds.
During the years ended December 31, 2021 and 2020, the Company incurred research and development funding of
$1.8 million and $0.3 million, respectively. Additionally, a performance milestone totaling $0.2 million was
determined to have occurred under this agreement and was paid during the year ended December 31, 2021.
Under the consolidation accounting standard, the Company determined that Door Pharma is a VIE. The Company
does not have the power to direct the activities that most significantly affect the economic performance of Door
Pharma and as such the Company is not the primary beneficiary and consolidation is not required. As of December
31, 2021, the Company has not provided financial or other support to Door Pharma that was not contractually
required.
Note 12 - Income Taxes
Income tax benefit is as follows (in thousands):
Federal:
Current ........................................................................
Deferred ......................................................................
$
State:
Current ........................................................................
Deferred ......................................................................
$
Income tax benefit.......................................................... $
As of December 31,
2021
2020
—
1,160
1,160 $
—
1,371
1,371 $
2,531 $
—
—
—
—
—
—
—
F-33
The effective tax rate of our provision for income taxes differs from the federal statutory rate as follows:
As of December 31,
2021
2020
Statutory federal income tax rate...................................
State taxes, net of federal tax benefit.............................
Research and development tax credits ..........................
Return to provision adjustments....................................
Other ..............................................................................
Uncertain tax positions ..................................................
Impairment of goodwill.................................................
Stock-based compensation ............................................
Change in valuation allowance......................................
Income taxes benefit......................................................
21.0%
5.8
2.3
(0.2)
(0.6)
(0.5)
(2.0)
(4.5)
(19.4)
1.9%
Significant components of the Company’s deferred taxes are as follows (in thousands):
As of December 31,
2021
2020
Deferred tax assets:
Federal and state-operating loss carryforwards........ $
Stock-based compensation .......................................
Operating lease liabilities .........................................
Research and development credits ...........................
Other .........................................................................
Total deferred tax assets.................................................
Valuation allowance.......................................................
Deferred tax asset, net of valuation allowance .............. $
Deferred tax liabilities:
In-process research and development....................... $
Operating lease right-of-use assets...........................
Total deferred tax liabilities ...........................................
Net deferred tax liability ................................................ $
133,671 $
11,082
1,656
11,106
1,125
158,640
(157,095)
1,545 $
— $
(1,545)
(1,545)
— $
21.0%
6.1
2.2
4.3
0.1
2.2
—
0.7
(36.6)
0.0%
108,236
16,563
2,600
8,872
2,317
138,588
(131,332)
7,256
(7,443)
(2,344)
(9,787)
(2,531)
The Company maintains a valuation allowance on deferred tax assets due to the uncertainty regarding the ability to
utilize these deferred tax assets in the future. The valuation allowance increased by $25.8 million and $22.8 million
for the years ended December 31, 2021 and 2020, respectively, primarily due to an increase in the Company’s
federal and state-operating loss carryforwards. The in-process research and development deferred tax liability was
recorded in connection with the merger with Assembly Pharmaceuticals, Inc. in 2014 and relates to the difference
between the carrying amount of in-process research and development for financial statement purposes relative to the
amount used for income tax purposes. The impairment of the Company’s in-process research and development asset
resulted in the deferred tax liability related to this indefinite-lived intangible asset no longer being considered a
source of income when assessing the realizability of the Company’s deferred tax assets. This resulted in the
recognition of a $2.5 million income tax benefit with a corresponding reduction to the Company’s valuation
allowance during the year ended December 31, 2021.
F-34
Net operating loss and tax credit carryforwards as of December 31, 2021 are as follows (in thousands):
Net operating losses, federal (post December 31, 2017) .......... $
Net operating losses, federal (pre January 1, 2018) ..................
Net operating loss, state (Indefinite) .........................................
Net operating loss, state (Definite) ...........................................
Research and development tax credits, federal .........................
Research and development tax credits, state.............................
Amount
346,847
123,552
880
545,256
10,845
4,174
Expiration Years
Indefinite
2027 - 2037
Indefinite
2031 - 2041
2028 - 2041
Indefinite
Pursuant to Internal Revenue Code (IRC), Section 382 and 383, use of the Company’s U.S. federal and state net
operating loss and research and development income tax credit carryforwards may be limited in the event of a
cumulative change in ownership of more than 50.0% within a three-year period. The Company has performed an
ownership change study through December 31, 2020 and has determined that a “change in ownership” as defined by
IRC Section 382 and the rules and regulations promulgated thereunder, did occur in December 2010, January 2013
and October 2014. The Company has adjusted its net operating loss carryovers to appropriately reflect any attributes
which will expire due to the limitation. The Company has not performed any additional analysis for IRC
Sections 382 and 383 and there is a risk that additional changes in ownership could have occurred since December
31, 2020. If a change in ownership were to have occurred, additional net operating loss and tax credit carryforwards
could be eliminated or restricted. If eliminated, the related asset would be removed from the deferred tax asset
schedule with a corresponding reduction in the valuation allowance.
The following table summarizes activity related to the Company’s gross unrecognized tax benefits (in thousands):
Balances as of beginning of year ................................... $
Increases related to prior year tax positions...................
Decreases related to prior year tax positions .................
Increases related to current year tax positions ...............
Balances as of end of year ............................................. $
As of December 31,
2021
2020
2,655 $
1
(82)
663
3,237 $
6,070
—
(4,162)
747
2,655
The unrecognized tax benefits, if recognized, would not have an impact on the Company’s effective tax rate
assuming the Company continues to maintain a full valuation allowance position. Based on prior year’s operations
and experience, the Company does not expect a significant change to its unrecognized tax benefits over the next
twelve months. The unrecognized tax benefits may increase or change during the next year for unexpected or
unusual items for items that arise in the ordinary course of business. In subsequent periods, any interest and
penalties related to uncertain tax positions will be recognized as a component of income tax expense.
F-35
The Company files income tax returns in the U.S. federal, California and other state and foreign jurisdictions and is
not currently under examination by federal, state, or local taxing authorities for any open tax years. Due to net
operating loss carryforwards, all years effectively remain open for income tax examination by tax authorities in the
U.S. and states in which the Company files tax returns.
Note 13 - Leases
Operating Leases
The Company leases office and laboratory space in South San Francisco, California under a sub-sublease that
expires in December 2023. The sub-sublease contains scheduled rent increases over the lease term. The Company
also leases office space in Carmel, Indiana under a lease agreement that expires in August 2023. In February 2021,
the Company subleased substantially all of the office space under lease in Carmel, Indiana for the remainder of its
term. The Company also leased office and laboratory space in Groton, Connecticut that supported the Microbiome
program under a lease that expired in June 2021. Due to the wind-down of the Microbiome program, the lease was
not renewed. The Company’s China subsidiary leased office space and lab space in Shanghai, which the Company
let expire in March 2021 and December 2020, respectively. The Company’s also leased office space in Beijing
under a lease agreement which the Company let expire in December 2021. The Company’s China subsidiary leases
registrational offices in Shanghai and Beijing under leases which expire in May 2022 and October 2022,
respectively. Certain lease contracts contain renewal clauses that the Company assesses on a case-by-case basis. The
Company also leases certain laboratory equipment accounted for as operating leases expiring at various dates, with
the final lease expiring in 2024. In February 2021, the Company purchased substantially all of the leased equipment
used for the Microbiome program from its leasing agency and sold this equipment to third parties (see Note 7).
When the Company cannot determine the implicit rate in its leasing arrangements, the Company uses its incremental
borrowing rate as the discount rate when measuring operating lease liabilities. The incremental borrowing rate
represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount
equal to the lease payments on a collateralized basis over the term of a lease within a particular currency
environment.
At December 31, 2021, the Company had operating lease liabilities of $6.5 million and right-of-use assets of $6.0
million.
The following summarizes quantitative information about the Company’s operating leases (in thousands):
Lease cost
Operating lease cost ................................................................. $
Short-term lease cost................................................................
Variable lease cost ...................................................................
Sublease income.......................................................................
Total lease cost, net ....................................................................... $
3,840 $
268
1,317
(142)
5,283 $
Year Ended December 31,
2021
2020
Operating cash flows from operating leases.................................. $
ROU assets exchanged for new operating lease liabilities ............ $
3,786 $
126 $
Year Ended December 31,
2021
2020
5,214
401
1,468
—
7,083
4,513
1,302
As of December 31, 2021, the weighted-average remaining lease term for operating leases was 1.9 years and the
weighted-average discount rate for operating leases was 9.7%.
F-36
As of December 31, 2021, the maturities of the Company’s operating lease liabilities were as follows (in thousands):
2022.............................................................................................................................
2023.............................................................................................................................
2024.............................................................................................................................
Total ............................................................................................................................
Less: present value discount .......................................................................................
Operating lease liabilities............................................................................................ $
3,643
3,491
10
7,144
(668)
6,476
Note 14 - Employee Benefit Plan
In January 2018, the Company established a defined contribution 401(k) plan (the Plan) for all employees who are at
least 21 years of age. Employees are eligible to participate in the Plan upon commencement of employment. Under
the terms of the Plan, employees may make voluntary contributions as a percentage of compensation. The Plan also
permits the Company to make discretionary matching contributions. In both 2021 and 2020, the Company made
discretionary matching contributions of $0.9 million.
F-37
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CORPORATE INFORMATIONDirectors William R. Ringo, Jr.Former Chairman of the Board, Five Prime Therapeutics, Inc.Anthony E.AltigFormer Chief Financial Officer, Biotix Holdings, Inc.Gina ConsylmanChief Financial Officer,Vedere Bio II, Inc.Richard D. DiMarchi, Ph.D.Distinguished Professor of Biochemistry and Gill Chair in Biomolecular Sciencesat Indiana UniversityMyron Z. HolubiakPresident and Chief Executive Officer, Citius Pharmaceuticals, Inc.Sir Michael Houghton, Ph.D.La Ka Shing Professor, Department of Medical Microbiology at the University of AlbertaLisa R. Johnson-Pratt, M.D.Senior Vice President, Commercial, Ionis Pharmaceuticals, Inc.Susan Mahony, Ph.D.Former Senior Vice President andPresident of Lilly Oncology, Eli Lilly and CompanyJohn G. McHutchison, A.O., M.D.Chief Executive Officer and President, Assembly Biosciences, Inc.Corporate Headquarters331 Oyster Point Blvd., Fourth FloorSouth San Francisco, California 94080+1.833.509.4583Websitewww.assemblybio.comStock ListingAssembly Biosciences, Inc. common stock is listed on The Nasdaq Global Select Market and quoted under the symbol “ASMB”Executive OfficersJohn G. McHutchison, A.O., M.D.Chief Executive Officer and PresidentMichael P. SamarChief Financial OfficerJason A. OkazakiChief OperatingOfficerLuisa M.Stamm, M.D., Ph.D.Chief Medical OfficerWilliam E. Delaney IV, Ph.D.Chief Scientific OfficerTransfer AgentAmerican Stock Transfer & Trust Company6201 15thAvenueBrooklyn, New York 11219 331 Oyster Point Boulevard4th FloorSouth San Francisco, CA 94080assemblybio.com2021 Annual Report