Adam Cutler - SVP, Corporate Affairs Mark Murray - CEO, President and Executive Director Michael Abrams - Former MD Bruce Cousins - CFO and EVP, Finance.

Madhu Kumar - Chardan Capital Markets.

Good day, ladies and gentlemen and welcome to Arbutus Biopharma 2017 Second Quarter Financial Results. [Operator Instructions]. And as a reminder, this conference is being recorded. Now I turn the conference over to your host, Adam Cutler. Please begin..

Good afternoon and thank you for joining us as we review our second quarter 2017 financial results and provide a corporate update. Speaking on today's call are Dr. Mark Murray, Arbutus' CEO; Dr. Mike Sofia, Arbutus' Chief Scientific Officer; and Bruce Cousins, Arbutus' CFO. Mark will provide some opening comments.

Mike will provide an update on 2 exciting new product candidates to emerge from our research organization. Bruce will provide summary comments on our first quarter financial results and then Mark will provide some closing comments.

I'd like to remind everyone that certain statements made on today's call constitute forward-looking statements under applicable securities laws.

Forward-looking statements discussed in this conference call include, but are not limited to, our clinical plans for ARB-1467 and AB-423 along with our potential efficacy and timing of reported results, plans for our preclinical assets and expected revenues from our current and potential licensing agreements.

All of these statements involve certain assumptions, risks and uncertainties that are beyond our control and can cause our actual results to differ materially. A description of these risks can be found in our latest disclosure documents and recent press releases.

In addition, Arbutus does not undertake any obligation to update any forward-looking statements made during this call. This call is being webcast live and the archive will be available on our website, www.arbutusbio.com following today's call. At the end of the prepared remarks, we'll open the call up to your questions.

I'll now turn the call over to Mark..

Thanks, Adam and thank you to everyone who is joining us on the call and the webcast today. We're very pleased with the HBV product pipeline progress that we're making at Arbutus.

Our lead candidate, ARB-1467, is an RNA interference agent which targets all of the viral proteins and has generated very promising data in an ongoing Phase II clinical trial and will yield more efficacy data from so-called Cohort 4 in September. These data have set a high bar for our follow-on RNA interference agent, ARB-1740.

And we're announcing today that we're no longer investing in ARB-1740 development because it does not provide a sufficient clinical potency advantage over ARB-1467 in HBV patients.

Our lead capsid inhibitor, AB-423 is progressing through an ongoing Phase I study in healthy volunteers which will enable the start of multiple ascending dose study in HBV patients by the end of this year. We're also making significant progress in our preclinical pipeline.

I'm very pleased to announce today, that we recently nominated 2 new development candidates, AB-506, from our second-generation capsid inhibitor program; and AB-452 from our HBV RNA destabilizer program. We have previously referred to this compound as a small molecule S-antigen inhibitor. You would hear more about these programs from Dr.

Michael Sofia later in the call. As you know, we at Arbutus are committed to developing therapeutic solutions to chronic HBV, based on combinations of drugs with complementary mechanisms of action.

We believe that the first step toward improved curates for patients could be the development of a proprietary product, such as an agent that reduces S-antigen to very low, possibly undetectable levels, thereby benefiting patients that can be approved for use in combination with the current standard of care.

Beyond this, we will continue to advance our other development stage products in combination with approved and proprietary products to further improve curates. Our current development efforts focus on direct-acting antiviral mechanisms designed to improve curates for patients by durably eliminating HBV S-antigen in DNA.

Now given the importance of HBV S-antigen in the chronic infection and the need for its elimination, on the path to a cure, we have made a commitment targeting S-antigen that is a represented by multiple assets in our pipeline.

First and foremost is ARB-1467 which has already shown the ability to significantly reduce serum S-antigen levels in 3-month dosing studies. Now to ensure that we have ever choose to eliminate S-antigen, we have nominated and will take into the clinic AB-452, our orally active agent which reduces S-antigen levels.

We expect that to enter the clinic next year. We will also bring forward a subcutaneously substantive delivered HBV GalNAc RNAi, an agent which we expect to nominate for developments early next year.

All of these direct acting antiviral agents have multiple effects on several aspects of the HBV life cycle, including a significant reduction in S-antigen production. This profile offers the potential for each of these drugs to improve the current standard of care and potentially form the backbone of future combinations with other new agents.

But before I provide an update on the clinical development of ARB-1467, I would like to address one of the most frequently asked questions posed to us by investors. And that is, what is a meaningful threshold of S-antigen reduction. I'm sure we would all agree with, the greater the reduction in S-antigen, the better.

We're focused on an absolute level of reduction. We believe that reducing S-antigen to low levels close to the level of detection, rather than an arbitrary log drop will be the most important end point. And that is what we're trying to achieve with ARB-1467.

At the EASL Conference in April, we presented results from Cohorts 1,2 and 3 of our Phase II study of ARB-1467 and showed significant S-antigen reduction with 3 monthly doses of ARB-1467 in combination with new treatment.

These results showed an additive step-wise reduction in S-antigen, but suggested that we could see greater reductions in S-antigen if we dosed more frequently or longer. Cohort 4 is testing just that with 3 months of bi-weekly dosing. We will provide top line results from this cohort in September.

These results will be factored into the line of a new ARB-1467 study to be initiated later this year which will include NUCs in the course of interferon treatment as an immune stimuli. Now I would like to briefly review our decision to discontinue development of our follow-on RNAi agent, ARB-1740. We dosed patients in 2 dose per host of ARB-1740.

There were no safety concerns associated with ARB-1740, but the lack of a strong potency advantage relative to ARB-1467 has led us leverage to conclude that our investment should go to ARB-1467, a very promising product candidate which is further ahead in development. Now I'll turn over the call to Mike to discuss our recent pipeline.

Mike?.

Thanks, Mark. We have several active research programs to identify new direct-acting antiviral agents as well as immunomodulator agents that we believe will contribute to the cure of chronic hepatitis B infection. Today, I will discuss our 3 most advanced research programs.

Our second-generation capsid inhibitor, our small molecule HBV RNA destabilizer and our GalNAc RNAi agent. Our first capsid inhibitor, AB-423 is currently progressing through a Phase I single and multiple ascending dose study in healthy volunteers. AB-423 is designed to reduce HBV DNA replication and to reduce new cccDNA formation.

We expected to be competitive with other capsid inhibitors that are in the clinic. We have made significant improvements in our second-generation capsid inhibitor and we're expected to demonstrate this in patients. As Mark noted, we recently nominated a second-generation capsid inhibitor development candidate, refer to as AB-506.

AB-506 is 5 to 10x more potent than AB-423 and we have demonstrated significant HBV DNA reductions in our preclinical studies AB-506 also has a superior pharmacokinetic profile that we believe will support once daily dosing. We believe that AB-506 has the potential to be a best-in-class capsid inhibitor.

We have initiated the IND-enabling studies and expect this compounds enter the clinic in 2018. We plan to present preclinical data on this compound at the upcoming AASLD meeting in October.

We're continuing to invest in development of both AB-423 and AB-506 and truly have a sufficient clinical information on both compounds to award the decision to advance the best candidate. We also recently nominated a second development candidate, that we call AB-452. AB-452 has a very exciting in novel mechanism of actions.

It acts by degrading all the HBV RNAs, thereby reducing all the viral proteins as well as pregenomic RNA. We previously referred to this compound as a small molecule S-antigen inhibitor.

We have initiated IND-enabling studies for AB-452 which is a very potent compound and it acts very specifically on only HBV RNAs, not only reducing S-antigen but also other viral antigens. We expect to enter the clinic in 2018 with AB-452, an orally deliver agent that leads to direct reduction of S-antigen as well as other viral products.

In order to enable us with a continuously delivered RNAi agent, we have developed a proprietary GalNAc conjugate platform in-house. Leveraging our expertise with LNP HBV products, we have designed a number of highly potent HBV-targeting siRNA payloads suitable for use with this platform.

The resulting subcutaneously administered conjugates having been screened in several models of HBV infection. Our models display acute knockdown of viral proteins with durational factors highly competitive in the field. As with LNP, we observed a nice dose response in a step-wise reduction in viral proteins when multi-dozing.

We've several clinical candidates to choose from. We expect to nominate a clinical development candidate in early 2018. As these programs progress, we will look for opportunities to present preclinical data at medical or scientific meetings later this year or early next year. I would now like to turn the call over to Bruce..

Thanks, Mike. I'd like to touch now on the financial highlights for the second quarter of 2017. First on the income statement. Arbutus' net loss for Q2 '17 was $18.3 million or $0.33 per share as compared to $130 million or $2.47 per share in Q2 2016.

Significant reduction in net loss was driven large part to an impairment charge of $91.5 million, net of deferred taxes recognized in Q2 2016 whereas we have not had any such impairments in 2017.

In Q2 2017, we recorded revenues of $1 million versus revenues of $300,000 in Q2 2016, primarily from the licensing agreement of our LNP technology with Alexion which was initiated in March of this year.

We recently announced that as part of a strategic review of its R&D activities, Alexion has discontinued its development as a mRNA therapeutics which has resulted in Alexion concluding its license agreement with Arbutus.

We expect to record the revenue for the remaining deferred portion of the $7.5 million nonrefundable up-front payment as well as services performed through to windup of this arrangement in the third quarter. Now turning to expenses.

Total research, development, collaborations and contracts expenses were increased to $15.4 million from $15.2 million in Q2 of the prior year. As we continue to invest in our clinical assets and preclinical pipeline, as described by doctors Murray and Sophia earlier in this call.

G&A expenses decreased from $23.8 million in Q2 '16 to $4.6 million in Q2 '17, primarily due to the recognition in Q2 '16 of $18.5 million in noncash compensation expense driven by the departure of 2 of the 4 former Arbutus Biopharma Inc. founders in June of 2016.

In Q2 2017, we recognized $1.5 million in G&A expense related to the vesting of the remaining repurchase rights. Note that the vesting period of these rights ends in the third quarter of this year. Other income increased from $400,000 in Q2 '16 to $1.2 million in Q2 '17.

The most significant item in other income is foreign currency gains and losses on investment holdings, denominated in Canadian dollars which fluctuates with exchange rate changes from quarter-to quarter. Foreign currency gains increased by approximately $750,000 from Q2 '16 to Q2 '17.

At the end of Q2, we had a total cash and investments balance of $115.6 million compared to $143.2 million at the end of 2016 and $123 million at the end of Q1. Our Q2 operating cash burn was $13.6 million.

In addition to which we generated $8.5 million from net working capital changes which was primarily driven by the $7.5 million Alexion up-front payment. We also used $3.1 million for capital expenditures related to the completion of our new facility in Warminster, Pennsylvania which has now completed and we moved into the facility in April.

We continue to believe that our cash position provides sufficient runway to fund the company into late 2018.

In addition to the upcoming Arbutus pipeline milestones, that Mark will review in a moment, we continue to expect that further LNP transactions as well as a royalty entitlement on as Alnylam's patisiran drug provide the opportunity for further runway extension.

Note that Alnylam has communicated that it expects to provide top line data on its Phase III pivotal trial for patisiran in Q3 of this year. I would now like to turn the call back over to Mark..

Thanks, Bruce. Before we go to Q&A, I just want to review a few key expected milestones for the balance of the year. We will announce top line results from Cohort 4 of ARB-1467 in September followed by a presentation of detailed results from the study in the fourth quarter at AASLD.

Presentation of clinical and preclinical data from multiple Arbutus pipeline programs will also occur in October at AASLD where we have had 6 abstracts accepted for presentation. We expect to complete the capsid inhibitor healthy-volunteers study and advance AB-423 into multi-dozing patient study by the end of the year.

And we will initiate a new study in Q4 to evaluate the dozing of ARB-1467 in combination with NUCs and a course of interferon. The goal of this is to drive sustained reduction of S-antigen in HBV DNA to very low, possible undetectable levels. Operator, please open the call for questions..

[Operator Instructions]. We have a question from Madhu Kumar of Chardan..

So what kind of -- primarily what is the kind of aim for the triple combination study in terms of -- do think you are going to need to get clearance, 1 log, specially.

Like how you're thinking about end points for the triple combination study with the 1467 NUC and interferon?.

Madhu as I said a moment ago, we think that the critical -- the most important end point here is driving S-antigen to very low, possibly undetectable levels as opposed to at some arbitrary log reduction. So our objective of the study is to try to get HBV surface antigen patients close to undetectable levels..

[Operator Instructions]. And I'm showing no further questions at this time. I'd like to turn the call over to Adam Cutler for any closing remarks..

All right. Thank you much to everybody for joining us on the call today. We look forward to updating you with some abstracts, as Mark mentioned that will be presented at AASLD and on future conference calls. If you have any further questions, please feel free to reach out to us directly. Thank you..

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program. You may now disconnect. Have a wonderful day..