Tiffany Tolmie - Manager, Investor Relations Mark Murray - Chief Executive Officer William Symonds - Chief Development Officer Koert VandenEnden - Interim CFO.

Katherine Xu - William Blair Keay Nakae - Chardan.

Good day, ladies and gentlemen, and welcome to the Arbutus Biopharma Corporation 2018 First Quarter Financial Results and Corporate Update. [Operator Instructions] As a reminder today's program is being recorded. And now I'd like to introduce your host for today's program, Tiffany Tolmie, Manager of Investor Relations. Please go ahead..

Good afternoon and thank you for joining us as we review our first quarter 2018 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; Dr. Bill Symonds, Arbutus' Chief Development Officer; and, Koert VandenEnden, Arbutus' Interim CFO.

Mark will provide some opening comments. Mike will provide detail on our three preclinical HBV agents and elaborate on recent [indiscernible] results.

Bill will provide an update on our triple combination study our living RNAi agent ARB-1467, Koert 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, developing our delivery technologies with Roivant Sciences, and the potential of the co-owned company Genevant Sciences, expected benefit for consolidating our operations in Warminster, Pennsylvania, our clinical plans for ARB-1467 along with its potential efficacy and timing of reported results, plans for our preclinical assets such as AB-506 and AB-452, and AB-729, timing of regulatory filings, our expected cash run rate 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 conference call is being webcast live, and the archive will be made available on our website, at www.arbutusbio.com, following today's call. At the end of the prepared comments, we'll open up the call for questions.

I will now turn the call over to Mark..

Thank you, Tiffany. And thank you everyone for joining us on the call today.

Our strategy at Arbutus is to develop a cure for Chronic HBV using a combination of therapeutic agents with complementary mechanisms of action, starting with combinations of our proprietary agents, added to current standards of care to improve treatment options for HBV patients.

Stepping further towards this objective, we have initiated a phase II combination study with our RNAi agent, ARB-1467 plus tenofovir and pegylated interferon.

This study will determine a driving down hepatitis B surface antigen, with an agent such as ARB-1467 followed by immune stimulation with the interferon can drive HBV DNA and hepatitis B surface antigen to undetectable levels.

Interim on-treatment results from this study are expected in the second half of this year 2018, followed by full clinical results in 2019. Bill Symonds will discuss the status of this study later in the call.

Three of our new therapeutic agents and preclinical combination studies with them, were described last month at EASL, the International Liver conference. Scientists in our research group, presented these results in two oral presentations.

But the results demonstrate that AB-506, our capsid inhibitor, AB-452, our HBV RNA destabilizer and AB-729, our GalNAc conjugated RNAi agent, exhibited complementary antiviral activities that support inclusion in future clinical combination regiments for HBV. Mike Sofia will provide more detail on the data in a few minutes.

In addition, this quarter, we launched the new company, Genevant Sciences, jointly owned by us with Roivant Sciences. Genevant will employ our Arbutus' LNP and Conjugate delivery technologies to develop RNA therapeutics.

Roivant was the right partner for Arbutus in this venture because of their commitment to the technology and support of aggressive product development.

As joint owners of Genevant, we believe this transaction has the potential to create significant value for Arbutus and its shareholders, by enabling more rapid and strategic development of products based on our delivery assets, in a variety of clinical indications outside of hepatitis B.

Arbutus will retain all rights to HBV while Genevant will have broad rights to these technologies for applications outside of HBV. In addition to our ownership stake in Genevant, Arbutus will receive royalties from Genevant based on global sales of products.

This partnership also adds value by allowing Arbutus to focus entirely on our goal of curing HBV and advancing our robust pipeline of novel HBV agents. I'll now turn the call over to Mike to elaborate on our novel HBV agents, and the recent data presented on these programs at this year's EASL conference.

Mike?.

I think we may have lost Mike so perhaps I'll step in until Mike dials back in. This is Bill Symonds, Chief Development Officer. So, our product pipeline is centered on our strategy to cure chronic hepatitis B virus infections and employing a combination of therapeutic agents with complementary mechanisms of action.

We are conducting preclinical combination studies to evaluate combinations of our proprietary candidates with HBV standard of care therapies and with other Arbutus owned assets.

Our team recently presented two preclinical studies supporting our drug combination approach at the 53rd annual International Liver Congress or EASL as Mark described earlier which provided further validation of our combination strategy and endorsed the breadth and quality of our preclinical candidates.

Our next-generation capsid inhibitor, AB-506 and a novel HBV RNA destabilizer, AB-452 were studied in combination with our leading LNP enabled RNAi agent, ARB-1467, and approved HBV therapies nucleotide analogs, Entecavir, tenofovir disoproxil fumarate and tenofovir alafenamide.

In these studies, when AB-506 and AB-452 were combined, they exhibited distinct and complementary antiviral activities. The in vitro dual combinations of AB-506 or AB-452 with approved nucleoside analogs and nucleotide analogs or with ARB-1467 ranged from additive to moderately synergistic at reducing HBV RC-DNA and HBS antigen levels.

After a once-daily-7-day oral treatment period in HDI HBV mice, dual combinations of AB-506 plus AB-452, AB-506 plus tenofovir and AB-452 plus tenofovir, demonstrated a strong antiviral activity with mean 1.4, 1.9 and 2.2 log reductions in serum HBV DNA versus control respectively, whereas the triple combination of AB-506, AB-452 and a nuc resulted in greater serum HBV DNA reductions, 2.8 log versus the vehicle control.

All AB-506 and AB-452 treated groups demonstrated more robust reductions in liver HBV DNA compared to tenofovir alone. Serum Hepatitis B surface antigen reduction was detected in AB-452 treated groups and when combined with AB-506 and/or tenofavir, there was no adverse effect on the ability of AB-452 to reduce hepatitis B surface antigens.

These studies suggest that when combined, these agents have distinct but mechanistically compatible antiviral activities and thus may [synctively] be used in future combination therapeutic regimens. We expect to file an IND or CTA for both of these molecules in mid-2018 to enable a Phase I study of healthy volunteers in the second half of the 2018.

Expanding on our commitment to hepatitis B surface antigen reduction, we have developed an N-Acetylgalactosamine or GalNAc enabled RNAi conjugate technology that we are applying to hepatitis B virus and recently nominated a promising new RNAi candidate, AB-729, that is targeted to hepatitis using our novel covalently conjugated GalNAc-delivery technology.

This Arbutus proprietary technology enables subcutaneous administration of an RNAi therapeutic. AB-729 is a single triggered RNAi agent that targets the multiple HBV transcripts, enabling an inhibition of viral replication and suppression of hepatitis B surface antigen and all other hepatitis B viruses antigens.

AB-729 showed more durable in vivo preclinical activity than earlier generation RNAi agents for the treatment of chronic HBV infections supporting infrequent dosing regimens.

One dose of AB-729 was sufficient to achieve mean maximum hepatitis B surface antigen reductions of 1.4, 2.8 and 3.9 log10 at either at 1, 3 or 9 mg/kg respectively and AAV-HBV mouse model.

In vivo AB-729 suppression of hepatitis B surface antigen was highly durable with 83%, 89% and 99% respectively of the mean maximal effect remaining at week 10 after a single dose. This GalNAc HBV agent has the potential to complement our small molecule agents with a convenient subcu dose administration.

These results support the design and execution of clinical combination studies in patients with chronic hepatitis B virus infections to improve upon the current standard of care.

In totality, our next generation capsid inhibitor, novel HBV RNA destabilizer and GalNAc enabled RNAi, have demonstrated strong feasibility for inclusion in a drug combination regiment with approved therapies in other Arbutus agents supporting our goal of delivering a curative HBV therapeutic combination regimen.

We anticipate completing IND or CTA enabling studies for AB-506 and AB-452 by the middle of this year and to plan to file an IND or CTA on AB-729 in the first half of 2019. Now moving onto the clinical study with ARB-1467. We have initiated a phase II triple combination study with ARB-1467, tenofovir and pegylated interferon.

As a reminder, the LNP enabled ARB-1467 facilitates potent knock down of all viral messenger RNA or mRNA transcripts and viral antigens across a broad range of HBV genotypes and reduces the risk of developing antiviral resistance.

ARV-1467 simultaneously targets 3 sites on the HBV genome, including the hepatitis B surface antigen coding region which increases the likelihood of affecting the HBV infection. Reducing hepatitis B surface antigen is thought to be a key prerequisite to enable a patient's immune system, to raise an adequate immune response against the virus.

In order to evaluate the role of the immune system in patients with reduced hepatitis B surface antigen levels, patients in this study who meet predetermined criteria with ARB-1467 treatment, will qualify for the addition of weekly pegylated interferon treatments.

Patients who do not reach the predefined response criteria by week 6 will discontinue all medications. The study will conclude with a 24-week post treatment follow-up period to evaluate the treatment response. Partial or interim on-treatment results from this study are expected in the second half of 2018, followed by complete results in 2019.

Results from this study will help inform the design of future combination studies with the small molecule agents l I described earlier. I would now like to turn the call over to Koert..

Thank you, Bill. I'll review the financial highlights for the first quarter of 2018. First, we closed the second tranche of $116 million strategic investment by Roivant Sciences, as a result of which we received net proceeds of $66 million early in Q1.

We also announced and embarked on a site consolidation plan to consolidate our operations into our site in Warminster, Pennsylvania as part of which we are closing our Burnaby facility and reducing our workforce by approximately 35%. I'll address the effect of these two initiatives in the highlights of our financial results.

Starting with our income statement. Arbutus' net loss for Q1 2018 was $15.7 million or $0.33 per common share as compared to $18.6 million in Q1 of 2017.

The reduction in net loss was due to increased revenues compared to the comparable quarter in the prior year and a decrease of the fair value of contingent consideration offset by new expenses related to our site consolidation.

In Q1 2018, we recorded revenues of $1.4 million compared to revenues of $200,000 in the first quarter of 2017, due to revenues earned under license and service arrangements with Gritstone.

On the expense side; total research, developments, collaborations and contract expenses were steady at $13.9 million as we continue to invest in our clinical development and preclinical pipeline as described by doctors Murray and Symonds earlier on the call.

CNA expense of $3.7 million was later reduced from $4.3 million in Q1 of 2017 as a result of reduced stock-based compensation cost but offset by increased legal and administrative expense related to our site's consolidation and formation of our Genevant Sciences.

In Q1 of 2018, we recognized $1.6 million of new expense related to our site consolidation plans. We expect to incur total cash expenditures of approximately $5 million consisting of employee severance, employee relocation and facility related costs.

We expect that this strategic initiative will result in increased efficiency, a more flexible variable cost structure and additional preservation of the company's cash reserves going forward.

Other income increased from a loss of $300,000 in Q1 of 2017 to income of $1 million in Q1 of 2018, driven by changes in foreign-exchange, and the change in estimated fair value of contingent consideration. Our cash used in operating activities during Q1 of 2018, was $20 million compared to $17.5 million in the comparative quarter of Q1 2017.

At March 31, 2018, we had an aggregate cash and investments balance of $172.6 million, which was an increase from $139 million at December 31, as a result of the $66 million proceeds from the sale of convertible and preferred shares to Roivant closed during in Q1. I'd now turn the call back over to Mark..

Thanks, Koert. We've made substantial progress this quarter and continue to expand and advance our HBV pipeline. Before we go to Q&A, I'd like to reiterate some key points and milestones for the coming months.

Our LNP licensee, Alnylam, has projected regulatory approval for its Patisiran product in the second half of 2018, which could result in Arbutus receiving royalty payments as early as this year.

Our ARB-1467 phase II combination study is open and enrolling patients and we anticipate sharing interim on treatment data from this study in the second half of this year.

During this year, we plan to complete regulatory filings for both our Novel, next-generation capsid inhibitor, AB-506 and our HBV RNA destabilizer, AB-452 to enable the start of Phase I studies in healthy volunteers this year.

By next year, we plan to complete regulatory filings for our novel GalNAc enabled RNAi agent, AB-729, pending successful enabling studies.

Our site consolidation in Warminster, Pennsylvania should be completed in Q2 of this year and is expected to result in increased efficiency, a more flexible variable cost structure and additional preservation of our cash reserves.

With the completion of the total $116 million strategic investment from Roivant, as well as the formation of Genevant, we continue this year, with a complete focus on our HBV mission supported by our strong balance sheet. Operator, please open the line for questions..

[Operator Instructions] Our first question comes from the line of Katherine Xu from William Blair..

So, I'm just wondering for AB-452, have you looked at potency compared to the RNAi such as ARB-46 -- ARB-1467 and also the AB-729 GalNAc candidate? And also, for the interim look that we are going to see later in the year, for ARB-1467 plus interferon, plus nuc, can you talk about how many patients for how long and what kind of bar you're looking at to meet at that interim look?.

So, Katherine, maybe what I'll do is I'll ask Bill to answer the clinical question first, and then I think, we've got Mike. He can comment on the relative potencies of the GalNAc and the other agents..

Sure. Thanks, Mark and hi Katherine. So, the readout we expect to see in the fall is from that first six week, really, induction period, if you want to call it that way, with ARB-1467 plus daily tenofovir in patients -- we're going to be looking at the number of patients who actually make it into the next part of the study to add interferon.

So, we want to see how the initial response is in these patients who are either treatment naive or experienced but are currently not on therapy. I'll hand it over to Mike..

Yes. On the relative potency, so we do see with the RNAi agents in an animal model like an HDI or AAV mouse model, we do see a much more deep drop in s-antigen levels than we do see with the RNA destabilizer molecule. Exactly why you see that different phenomenology in the animal models relative to the two different agents is not yet clear..

Our next question comes from the line of Keay Nakae from Chardan..

Yes, the data for ARB-729 looks pretty impressive at this point. Maybe it's actually better than ARB-1467.

Talk about the strategy for how you developed this in the humans? If you start your first study in mid-2019, do you do this simply to evaluate safety at different dose levels, then move into some sort of combo study? Or how do we think about 729 versus the future of 1467?.

So Keay, this is Mark. I think -- what I think the way for you to think about this is we have an articulated commitment to reduce surface antigen, we believe that's an important element in any sort of therapeutic regimen.

Right? So, we have a number of agents in the portfolio that do that, 1467, the 452 agent, that we discussed, that we'll bring to the clinic this year and the GalNAc RNAi. So, we will have an eye toward looking at all of these agents and their ability to reduce surface antigen alone and in combination with other agents.

So -- does that answer your question?.

Yes, well I guess what I'm really getting at is how far do you push 1467 if 729 is significantly better?.

Well, I think that's a good question. I think we just need to see what the data looks like..

Sure..

We'll have a much better answer for that once we've completed the 1467 study..

Then just a question on the remaining recognition of the upfront from Gritstone.

Should we think of that number being less in subsequent quarters? Or should we straight-line it based on this Q1 result?.

Koert, do you want to take that one?.

Sure. I think Q1 will be roughly indicative of our next quarter's results on that one. But again, it's an estimate that may change from period to period..

[Operator Instructions] Our next question comes from the line of Madhu Kumar from B. Riley FBR. Your question please..

This is Jennifer on for Madhu.

First in light of data from other Hepatitis B RNA programs, have you followed previously treated ARB-1467 patients after treatment? And did you see what happened to viral biomarkers once they were off RNAi therapy? And then second, based on the existing data for ARB-1467 and other RNAi programs in Hep B, what do you believe to be the threshold degree of viral-marker knockdown required to achieve additional viral suppression of all therapies?.

Bill, do you want to take those?.

Sure. In the early studies, we did not follow people long-term, but we did follow people for a period of weeks to a few months, after they stopped therapy and viral-markers tended returned back towards baseline in the early study with ARB-1467.

In terms of a target number or some sort of threshold reduction that one would think they would need to be successful, I don't think anyone knows the answer to that question yet. And that's part of their rational behind our impact study as well, to really get to the bottom of how much suppression do you need in hepatitis B surface antigen.

And then, what effect does that have on the immune system. So, I think the jury is still out in terms of what that number is but hopefully we'll shed some light on that in our studies..

And this does conclude the question-and-answer session of today's program. I'd like to hand the program back to Tiffany Tolmie for any further remarks..

Great. Thank you, operator. We appreciate your participation on today's call. And we look forward to sharing updates on our progress with you in the months ahead. This concludes our call today. Thank you, everyone, for joining..

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day..