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Arbutus Biopharma Corp  (NASDAQ:ABUS)
Q4 2018 Earnings Conference Call
March 07, 2019, 4:30 p.m. ET

Contents:

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Arbutus Biopharma Fourth Quarter and 2018 Year-End Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions) As a reminder, today's conference is being recorded.

I'll now like to turn the call over to Ms. Pam Murphy. Ma'am, you may begin.

Pam Murphy -- Investor Relations Consultant

Thank you. Good afternoon and thank you all for joining us. On the call today from the Arbutus management team are Dr. Mark Murray, CEO; Dr. Mike Sofia, Chief Scientific Officer; Dr. Gaston Picchio, Chief Development Officer, and David Hastings, Chief Financial Officer.

Before we begin, we'd like to remind you that some of the statements made during the call today are forward-looking statements including statements regarding expectations for Arbutus as our proprietary HCV pipeline including clinical timelines and results for the lead compounds AB-506, AB-729 and AB-452, our expected cash runway and expected revenues from our current and potential licensing agreement. These forward-looking statements are subject to a number of risks and uncertainties that may cause our actual results to differ materially, including those described in our most recent Annual Report on 10-K and from time to time in our SEC documents. Any forward-looking statements that we make on this call are based on assumptions as of today, and we undertake no obligation to update these statements as a result of new information or future events.

I'd now like to pass the call to Mark Murray.

Mark J. Murray -- President and Chief Executive Officer

Thanks, Pam, and thank you to everyone for joining us on the call today. I'm going to focus my remarks on our key objectives for 2019. Mike Sofia will follow with an update on AB-452 and the HBV RNA Destabilizer Program. David Hastings will then describe our financial results, after which we'll open up the call for Q&A. As you know, we are focused on developing a cure for patients with chronic HBV. We believe that industry achieved by using a combination regimen of complementary therapeutic agents administered for a finite frequent duration. We believe having control over the discovery and development of these compounds is important. To that essence, we have developed a pipeline of diverse proprietary therapeutic agents that target the abscess of chronic HBV infection, we believe, are the most important and are therefore the ones we are focused on, including HBV replication, Hepatitis B surface antigen expression and immune reawakening. Our two lead compounds, AB-506 and AB-729 of the potential to be used in combination with an approved nucleoside analogue and deliver a meaningful events over the current standard of care. AB-506 is our oral capsid inhibitor. It is pan-genotypic, is a favorable PK profile, is quite potent. works against Nuc-resistant variance, is dosed once daily and is complementary with respect to Hepatitis B surface antigen part of the compound. AB-506 is now being evaluated in HBV patients in a 28-day daily dosing monotherapy clinical trial.

This trial includes the evaluation of several doses of AB-506 and may include the cohorts using AB-506 in combination into the nucleoside analogues. We intend to report top-line results of the completed cohorts in this phase 1a/1b study late in the second quarter with full results presented later in the year at an appropriate scientific meeting. We also plan to initiate a Phase II clinical trial combining AB-506 and a nucleoside analogue in the second half of the year to establish long-term safety of AB-506 plus the Nuc to support use of the -- in future combination trials.

Now, regarding surface antigen reduction, as I said in our third quarter call, we confirmed that our first-generation LNP enabled RNAi agent AB-1467 reduced Hepatitis C surface antigen to very low levels in some patients.

We are now focused on our GalNAc conjugated subcutaneously delivered RNAi agent, AB-729. AB-729 employs a single RNAi trigger that spans all of the HBV transcripts, thus reducing all the viral antigens and inhibits HBV replication. This compound employs our proprietary GalNAc, hepatosite targeting technology, which not only allows for subcutaneous dosing, but also provides the important benefit of less frequent dosing, potentially once a month dosing. We are currently completing IND enabling studies and believe AB-729 is on track to begin a Phase 1a/1b clinical trial in the second quarter of this year. We believe that these two agents AB-506, the capsid Inhibitor, which inhibits HBV replication, and AB-729, which reduces Hepatitis B surface antigen will when combined with an approved Nuc has the potential to be an effective, well-tolerated combination regimen.

Provided the monotherapy trials of AB-506 and AB-729 proceed as expected, we anticipate initiating Phase II combination clinical trial with these two agents together with an approved nucleoside in the first half of 2020. I would now like to move to an update on AB-452, our oral RNA destabilizer, which also targets Hepatitis B surface antigen expression, but via a very novel mechanism of action.

We opted to delay the initiation of our Phase 1a/1b clinical trial in order to evaluate a non-clinical safety finding seen in longer term safety studies. Since that announcement, we have initiated a number of studies designed to further characterize these findings, the compound itself and its mechanism of action and to determine the proceeding in the human testing with AB-452 is appropriate. These studies which are still ongoing and we expect to be able to make a go, no-go decision with respect to AB-452 itself in the second half of the year. In a moment, Mike Sofia will describe some of the activities going on to make -- that'll allow us to make this decision.

We are often asked if we remain committed the RNAi-Destabilizer Program. And the answer is a resounding, yes. In addition to AB-452, we have a robust lead optimization efforts under way for other distinct compounds with this novel biological activity. We are confident the RNA destabilizing mechanism we are focused on represents a very relevant and important therapeutic target. And success here could be very meaningful for patients and for Arbutus.

I'd now like to call -- turn the call over to Mike Sofia. Mike?

Michael J. Sofia -- Chief Scientific Officer

Thanks, Mark. All our scientific efforts at Arbutus are focused on developing a cure for chronic hepatitis B using an effective combination of therapeutic agents administered for a finite treatment duration. My target is focused on fully blocking HBV DNA replication and reducing, even eliminating surface antigen and reawakening the host immune response.

Through our work, we have identified a novel, very compelling target, which very selectively destabilizes or degrades all HBV RNAs and thus has effects on many aspects to the viral life cycle, including DNA replication and surface antigen production.

We've also identified a series of molecules exemplified by AB-452, which are potent and highly selective for Hepatitis B virus. These molecules, when in the presence of the Hepatitis B virus PRE sequence, shortened the viral RNA poly A tail, thereby making them susceptible for degradation. This target/mechanism is novel and very exciting and could lead to a more effective oral regimen for HBV patients, a regimen that would include our RNA destabilizer, our capsid Inhibitor and an approved Nuc. We have initiated a series of in vivo and in vitro studies designed to fully understand the nine clinical safety effects we have observed, including determining the effects we had seen are species specific if they're AB-452 specific or if these effects are mechanism-based.

At the time of our announcement in late 2018, AB-452 was ready to enter clinical trials based on a complete CTA (ph) passage, including the 28-day GLP toxicology studies,in the Phase 1a/1b clinical trial CTA had been accepted by the regulatory authority. The nine clinical safety effects that led us to pause the program were observed in a long-term non-clinical study initiated early in order to accelerate the program.

Some of these studies we are conducting will require several months to complete. But we are encouraged by the progress we're making and the data we have seen thus far. We have gained greater insight into how AB-452 works and why is selective for Hepatitis B virus.

We are in the midst of testing various hypotheses that might explain the in vivo safety findings we have observed and whether they have any relevance to the future development of AB-452, the class of molecules or the mechanism of action. We believe, we will be in a position to make a go, no-go decision regarding the clinical development of AB-452 in the second half of this year. In parallel, because we believe that this is an important target. We are advancing several potent (ph) backup compounds of different genotypes (ph) to similar potent RNA-destabilizing activity.

We are also working on other very interesting early stage research programs with different and potentially complementary mechanism of action, including our immuno virology checkpoint inhibitor program.

This program is focused on identifying and developing orally available small molecule candidate. So effects here could complement and strengthen our pipeline, provide additional opportunities to form effective combination treatment regimens for a broad HBV patient population.

I would like now to turn the call over to David.

David C. Hastings -- Chief Financial Officer

Thanks, Mike, and good afternoon, everybody.

I'll start today by discussing the Company's cash position, 2019 cash guidance and our runway. As a reminder, cash and cash use are most important financial metrics. At December 31, 2018, we had a cash and investments balance of $125 million. Our cash used in operating activities during 2018 was $68 million, which was on the lower end of our guidance.

For 2019, we expect to use between $70 million and $75 million in cash, which allows our current cash balance to fund us into 2020. The only other area I would like to touch on today is our Onpattro royalty entitlement. As we have previously disclosed, our royalty rate is in the low-to-mid single-digits tier based on net sales.

Because of that tiering, we do not expect our royalty income to be material this year. However, we are pleased with the trajectory of the launch and the long-term potential of this product. Additionally, while we can't predict when or if a deal may happen, we are still open to monetizing this royalty stream for an upfront cash payment and possible downstream retention of economics, as long as we feel such a transaction aligns with the product's potential.

So, with that, I'll turn the call back to Mark.

Mark J. Murray -- President and Chief Executive Officer

Thanks, Dave.

As you heard, we are in a strong financial position to proceed with advancing our HBV pipeline. We believe we have a very strong team with the skills, experience and commitment to developing a curative combination regimen for HBV patients.

At this point, I'd like to turn the call over for questions. Operator?

Questions and Answers:

Operator

(Operator Instructions) Our first question comes from the line of Liisa Bayko from JMP Securities. You may begin.

Liisa Bayko -- JMP Securities -- Analyst

Hi, this is John on for Liisa. Thanks for taking the questions and congrats on the progress.

Mark J. Murray -- President and Chief Executive Officer

Thank you.

Liisa Bayko -- JMP Securities -- Analyst

I've just a couple, the first on AB-506. You mentioned in the ongoing study, there may be a cohort looking at 506 plus and Nuc and I was wondering if you could talk more about what would trigger that decisions if that is ongoing now.

Mark J. Murray -- President and Chief Executive Officer

Yeah. So, John, it's a question of if we think we can learn something important with that cohort that we are not able to learn, either from the data we see from others or we do see to determine we learned something meaningful during that.

Liisa Bayko -- JMP Securities -- Analyst

Okay. And moving to the destabilizer, you mentioned again the unknown whether it's DCUs, compound or mechanism-specific. But given the backup that you're working on, I think it's safe to say you're more confident in the mechanism of the other two. But can you discuss kind of the backup and how they might differ from 452. Thank you.

Mark J. Murray -- President and Chief Executive Officer

Sure. Maybe I'll ask Mike to comment on that. Mike?

Michael J. Sofia -- Chief Scientific Officer

Sure. So, we have a, as you said, a very aggressive program in this area, because we believe very strongly in this mechanism of action. All the data that we've produced, you know, tells us this is very compelling. So, we've had a continuing large effort in chemistry to look at, not only AB-452 life molecules, but other molecules that are very chemically distinct from AB-452 that have the same mechanism of action and work very similarly. So, I can say is that you have a number of different series that we're working on, all of them work like AB-452. But they're extremely chemically distinct.

Liisa Bayko -- JMP Securities -- Analyst

Great. Thanks again for taking the questions.

Operator

And our next question comes from line of Katherine Xu from William Blair. You may begin.

Katherine Xu -- William Blair -- Analyst

Hi, good afternoon. I'm just wondering, with regards to 729. Can you maybe summarize little bit your donor conjugate RNAi kind of platform, your potential differentiation from others and also to date the animal talk that you have conducted and what you have observed. Thank you.

Mark J. Murray -- President and Chief Executive Officer

Yes. So Katherine, just sort of high level, this is an agent that employs a single RNAi trigger that sequence spans all of the viral transcripts and it has a unique GalNAc ligand and linker, which we had specifically designed to be proprietary to us and it's -- the GalNAc (inaudible) specifically finds to the surface of hepatosites mediates the entry into the hepatosite. We are currently in the process of the IND-enabling studies, including the GLP tox studies and we don't have anything specific to say about that at this time.

Katherine Xu -- William Blair -- Analyst

Thank you.

Operator

Thank you. And our next question comes from the line of Keay Nakae from Chardan. You may begin.

Keay Nakae -- Chardan -- Analyst

I guess question for Dave in terms of the cash burn, how should we think about that in terms of how it's spread out in each of the quarters, should we see that is evenly spread out throughout the year or more front and back-end-loaded?

David C. Hastings -- Chief Financial Officer

Yeah, Keay. Okay, I think it's probably a slight hockey stick in the second half of the year, as our clinical spending ramps, but not dramatic.

Keay Nakae -- Chardan -- Analyst

Okay. Great. And then just follow up question on AB-729 and (inaudible) GalNAc, how much this is allowed you to use a more fully modified scale of?

Mark J. Murray -- President and Chief Executive Officer

Keay. If I understand you properly, what I would say is using this method -- route of administration, which is subcutaneous, you end up chemically modifying the trigger sequence to protect it from degradation.

Keay Nakae -- Chardan -- Analyst

Right. And while -- in doing that modification, what is your expectation of the potency and durability impact?

Mark J. Murray -- President and Chief Executive Officer

Well, the product has obviously been designed (inaudible) potent and durable as we can make it, So, we have looked at a variety of ways to do this and are comfortable that we have found one that is potent and durable.

Michael J. Sofia -- Chief Scientific Officer

So -- this is Mike. So, clearly the triggers as Mark said, we have a number of modifications in the triggers that make it unique in some ways, but as far as the potency, we've certainly disclosed that this molecule demonstrates a very, very potent knockdown in HBV as antigen production in animal models more so than 1467 and also that this molecule has a very nice extended duration of action meeting in the animal models. We've seen a very nice maintenance of S antigen loss or drop after -- one month after the initial dose. So that sort of leads to the belief that we believe this is going to be a once-monthly dosing agent in the clinic.

Keay Nakae -- Chardan -- Analyst

Okay. Yeah, that's helpful, Mike, and will we be seeing any publications on the preclinical work finished?

Mark J. Murray -- President and Chief Executive Officer

We thought actually presented some of this work at ASLD (ph) and EASL at the upcoming EASL work for also 729 combination studies that we've done with other agents. So we have a poster there.

Keay Nakae -- Chardan -- Analyst

Okay, very good. Thanks.

Michael J. Sofia -- Chief Scientific Officer

And Keay, you can find some of the past work on our website.

Keay Nakae -- Chardan -- Analyst

Okay. Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from line of Mayank Mamtani from B Riley. You may begin.

Mayank Mamtani -- B. Riley -- Analyst

Hey, guys. Congrats on the progress and thanks for taking my question. Just three from me and tagging along the previous question, for 506, just thinking about the class of drug, how do you think about the second goiter readout that we should have and also contextualizing what we may learn at EASL and others in the meanwhile?

And then on 452, I was just curious you said nine clinical studies that you went down the path of just obviously keeping in mind that you may have to move through the clinic. So how much of that is relevant to some other work that you will do for your backup, and once you do learn, what are you anticipating to learn around the two hypotheses, how much of that work would be relevant to back them out molecule there?

And then last minor question, you said immune virology's checkpoint inhibitors, is there a particular target you guys have identified that you may want to prioritize this?

Mark J. Murray -- President and Chief Executive Officer

Yes. So maybe let's start backwards. Mike, do you want to comment on the immune virology and maybe get ask Gaston to comment then on what our expectations are for 506 readout and then you may come back to us, maybe we'll get -- we'll need to get you and repeat the question -- the second question last?

Mayank Mamtani -- B. Riley -- Analyst

Okay, I'll do that needed.

Mark J. Murray -- President and Chief Executive Officer

Let's start with the immunovirology.

Michael J. Sofia -- Chief Scientific Officer

Sure. So, we've identified a while ago that the checkpoint inhibition was going to be a good approach from an immunovirology standpoint and an HBV. We initiated this program in the small molecule area, because we believe the small molecules to be a better modality for HBV as a therapeutic field than an antibody would be. So we've made a lot of progress in our lead optimization on our small molecule program and we believe that we have -- we're in a position to ultimately, you know, in the not too distant future, move one forward into development, but at this point in time we are fully engaged in our lead optimization efforts in that space. Hope I answered your question.

Mayank Mamtani -- B. Riley -- Analyst

Yeah, yeah, no, it does. Can you talk to the target specifically that you may want to pursue there or is that too early?

Michael J. Sofia -- Chief Scientific Officer

Well, yeah, no, no. We've, I think publicly said that we're very interested in PD-L1 as the target. And that's where much of our effort is currently engaged in immunovirology space. We are looking at other targets in immunovirology, but they're still earlier than our PD-L1 checkpoint progress.

Mayank Mamtani -- B. Riley -- Analyst

Great. Thanks.

Mark J. Murray -- President and Chief Executive Officer

Maybe Gaston, do you want to just add a high-level comment on, you know, sort of what we're expecting to see in a couple of cohorts in the 506 study?

Gaston Picchio -- Chief Development Officer

Sure. Yeah. Thank you. So basically we're looking for the classical biomarkers surface antigen, HBV DNA, HVB RNA and others such as correlated antigen and a few more. Also, we're looking at immunological parameters. So at the minimum, we're looking at, say, rapid declines in HBV DNA and RNA mechanism we should go down or a capsid inhibitor and then we'll see what happens with the most precious marker if you wish surface antigen, although you have to remember that this is a short-term course, this is only 28 days. So as others, we do not expect to see dramatic changes there.

Mark J. Murray -- President and Chief Executive Officer

Mayank, did we cover them or did we lose any of your questions?

Operator

(Operator Instructions).

Pam Murphy -- Investor Relations Consultant

I don't think we answered the question Mayank asked about 452. Again, let me go ahead and open his line again. Go ahead, Mayank.

Mayank Mamtani -- B. Riley -- Analyst

Sorry about that. I got cut off. The question on 452 again, happy to repeat. I was just curious about some of the work that you're already doing to characterize the three components. And I was just curious how some of that work, like you said that was basically you were doing earlier than expected like just to be ready to move through that route. I was just curious if that -- some of that work is actually relevant for the backup molecules once you are able to identify what the issue is, you can move with the backup molecules really quickly. Is that the right way to think about it?

Michael J. Sofia -- Chief Scientific Officer

Yes, all right.

Mark J. Murray -- President and Chief Executive Officer

Go ahead, Mike.

Michael J. Sofia -- Chief Scientific Officer

Yeah, I think that's the right way to think about it. We are gaining a lot of knowledge and understanding of how this molecule, the mechanism of action for HBV, we are understanding more and more about the observation that we saw preclinically what's caused -- what maybe causing that and what it does, it informs us as we now move to our next-generation agents and allows us to let's say work around maybe some of the issues that we've seen before, because we know more about how the molecule works and know more about what may be causing the issues that we observed. So I can say that definitely it's having no significant impact on how we progress future agents forward in this program.

Mayank Mamtani -- B. Riley -- Analyst

Great. Thank you for taking my questions.

Operator

Thank you. And I'm showing no further questions. I'd like to turn the call back to Mr. Mark Murray, CEO for closing remarks.

Mark J. Murray -- President and Chief Executive Officer

Thank you, operator. We appreciate your participation in the call today. 2019 promises to be an important and very eventful year and we will fold it sharing our updates on our progress with you in the months ahead. Operator, back to you.

Operator

Thank you. Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.

Mark J. Murray -- President and Chief Executive Officer

Thank you.

Pam Murphy -- Investor Relations Consultant

Thank you.

Duration: 29 minutes

Call participants:

Pam Murphy -- Investor Relations Consultant

Mark J. Murray -- President and Chief Executive Officer

Michael J. Sofia -- Chief Scientific Officer

David C. Hastings -- Chief Financial Officer

Liisa Bayko -- JMP Securities -- Analyst

Katherine Xu -- William Blair -- Analyst

Keay Nakae -- Chardan -- Analyst

Mayank Mamtani -- B. Riley -- Analyst

Gaston Picchio -- Chief Development Officer

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