Good day, ladies and gentlemen. And welcome to 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'd now like to turn the call over to Ms. Pam Murphy. Ma'am, you may begin..

Thank you. Good afternoon and thank you all for joining us. On the call today from Arbutus management team are Dr. Mark Murray, CEO; Dr. Mike Sofia, Chief Scientific Officer; Dr. Gaston Picchio, Chief Development Officer and Dave 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 our expectations for Arbutus proprietary HCV pipeline, including clinical timelines and results for the lead compound AB-506 and 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 risk 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 document.

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..

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. Dave Hastings will then describe our financial results, after which we'll open up this call for Q&A.

As you know, we are focused on developing a cure for patients with chronic HBV. We believe this can best be achieved by using a combination regimen of complementary therapeutic agents administered for a finite treatment duration. We believe having control over the discovery and development of these compounds is important.

To that end, we have developed a pipeline of diverse proprietary therapeutic agents that target the aspects of chronic HBV infections 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 have the potential to be used in combination with an approved nucleoside analogue and deliver a meaningful advanced over the current standard of care.

AB-506 is our oral capsid inhibitor, it is pan-genotypic, has a favorable PK profile was quite potent, works against nuc resistant variance, is dosed once daily and is complimentary with respect to Hepatitis B surface antigen targeting compound. AB- 506 is now being evaluated in HBV patients in a 28 day daily dosing mono-therapy clinical trial.

This trial includes the evaluation of several doses of AB-506. It may include a cohort using AB-506 in combination with the nucleotide analogue. 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 2 clinical trial combining AB-506 and a nucleotide analogue in the second half of the year to establish long term safety of AB-506 plus a nuc to support and use of these in future combination trials. Now regarding surface antigen reduction.

As I said, in our third quarter call, we confirm that our first generation LNP enabled RNAi agent AB-1467 reduced Hepatitis B 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 applies 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 Hepatitis 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, have the potential to be an effective well tolerated combination regimen.

Provided the mono-therapy trials of AB-506 and AB-729 perceived as expected, we anticipate initiating a phase 2 combination clinical trials with these two agents together with an approved nucleosides in the first half of 2020.

I'd now like to move to an update on AB-452, our oral RNAi destabilize, which also targets Hepatitis B surface antigen expression but via a very novel mechanism of action. We’ve opted to delay the initiation of our phase 1a/1b clinical trials in order to evaluate a non-clinical safety finding seen in the 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 their proceeding into humans testing with AB-452 as appropriate.

These studies 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 allow us to make this decision.

We are often asked if we were being committed the RNA destabilizer program? And the answer is a resounding yes. In addition to AB-452, we have robust lead optimization efforts underway 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 importance of therapeutic target, and success here could be very meaningful for patients and for Arbutus. I'd now like to turn the call over to Mike Sofia.

Mike?.

Thanks Mark. All our scientific efforts at Arbutus are focused on developing at cure for chronic Hepatitis B using an effective combination of therapeutic agents administered for a finite treatment duration. Our targets focus 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 RNA and thus has affects on many aspects of the viral lifecycle, 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 shorten the viral RNA poly (A) tail, thereby making them susceptible for degradation.

This target/mechanism is novel and is very exciting and could lead to a more effective all 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 non-clinical safety effects we have observed, including determining the effects we have seen are specie specific, if they're AB-452 specific, or if these affects are mechanism based.

At the time of our announcement in late 2018, AB-452 was ready to enter clinical trial based on the complete CTA package, including the 28-day GLP toxicology studies, and the phase 1a/1b clinical trial CPA had been accepted by the regulatory authorities.

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've gained greater insight into how AB-452 works and why is selected for Hepatitis C virus. We are in the midst of testing various hypothesis 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 classic modules 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're advancing several potent backup compounds of different chemo types for similar potent RNA destabilizing activities.

We’re also working on other very interesting early stage research programs with different and potentially complimentary mechanism of actions, including our immuno virology checkpoint inhibitor program. This program is focused on identifying and developing orally available small molecule candidates.

Its 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 Dave..

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 used are our most important financial metrics. At December 31, 2018, we had 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 had previously disclosed, our royalty rate is in the low to mid single digits teared 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..

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?.

[Operator instructions] Our first question comes from the line of Liisa Bayko from JMP Securities. You may begin..

This is John on for Liisa, thanks for taking the questions and congrats on the progress. Just a couple, the first on AB-506, you mentioned in ongoing study, there may be a cohort looking at 506 plus a nuc.

And I was wondering if you could talk more about what would trigger that decision and if that is ongoing now?.

So John, it's a question 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 just need to determine we'll learn something meaningful doing that..

And moving to the destabilize you mentioned again the unknown whether it's BCs, compound or mechanism specific. But given the backups that you're working on and I think it's safe to say you're more confident in the mechanism than the other two. But can you discuss the backups and how they might defer from 452? Thank you..

Maybe, I'll ask the Mike to comment on that.

Mike?.

So we have, we said a very aggressive program in this area, because we believe very strongly in this mechanism of action. All the data that we reproduce and it tells us this is very compelling.

So we've had a continuing large effort in chemistry to look at not only AB-452 like molecules but smaller molecules that are very clinically distinct from mAB-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..

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

I'm just wondering with regard to 729. Can you maybe summarize a little bit your GalNAc conjugate RNAi platform, your potential differentiation from others? And also, to-date the animal talks that you have invested and what you have observed? Thank you..

So Katherine just high level, this is an agency that employs a single RNAi trigger that sequence spans all of the viral transcripts. And it has a unique down lack ligand and linker, which we have specifically designed to be proprietary to us.

And it's the GalNAc moiety specifically binds to the surface of the parasites and mediates the entry into the hepatocytes. We were currently in the process of the IND enabling studies, including the GLP tox studies. And we said we don't have anything specific to say about that is this time..

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

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 view that as evenly spread out throughout the year or more front-end back-end loaded?.

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

And then follow-up question on AB-729 and going to GalNAc.

How much does this allow you to use a more fully modified payload?.

Keay, if I understand you properly. What I would say is using this map route of administration, which is subcutaneous you do end up chemically modifying the trigger sequence to protect it from degradation..

And while in doing that modification.

What is your expectation of the potency and durability impact?.

Well, the product is obviously been designed to be as 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..

Clearly, the trigger is, as Mark said, we have a number of modifications in the triggers that make unique in some ways. But as far as the potency, we certainly disclosed that this molecule demonstrates a very, very potent knockdown HBV as antigen production in animal models more so than 1467.

And also that this molecule has a very nice near extended duration of action, meaning in animal models we've seen a very nice maintenance of S-antigen loss or drop out to one month after our initial dose. So that leads to the belief that we believe this is going to be a once monthly dosing agent in the clinic..

And were you seeing any publications on the preclinical work for this?.

We’ve actually presented some of these work at AASLD and EASL. At the outcome an EASL work also showed 729 combination studies that we've done with other agents, so we have a poster there..

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

Thank you [Operator instructions]. Our next question comes from the line of Mayank Mamtani from B Riley. You may begin..

Just three from me, and tagging along the previous question. For 506, just thinking about the class of drugs.

How do you think about the second quarter 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 then done 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 of the work that you will do for your backup? And once you do learn what you are anticipating to learn around the two hypotheses. How much of that work will be relevant to backup molecules there? And then last minor question, you said immune virology checkpoint inhibitors.

Is there a particular target you guys have identified that you may want to prioritize there?.

Yes, so maybe let's start backwards. Mike, you want to comment on immune virology and maybe we could ask Gaston to comment then on what our expectations are for 506 readout, and then come back to -- maybe we’ll need to get you to repeat the second question, Mayank..

So we've identified a while ago that the checkpoint inhibition was going to be a good approach form in immuno-virology standpoint and HBV. We initiated this program in small molecule area, because we believe the small molecules will be a better modality for HBV as a therapeutic field than a 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're in a position to ultimately in the not too distant future move through one forward it into development. But at this point in time, we are fully engaged in our lead optimization efforts in that space..

Can you talk to the target specifics that you may want to pursue there? Or is that early?.

Well, 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 immuno-virology space. We are looking at other targets in immuno-virology but they're still earlier than our PD-L1 checkpoint program..

Maybe Gaston, you want just set at a high level comment on what we're expecting to see in a couple of cohorts in the 506 study..

So basically, we're looking for the classical biomarkers, surface antigen, HBV DNA, HBV RNA and other, such as correlated antigens and a few more. Also, we're looking at some vertical parameters. So at the minimum we're looking at a rapid decline in HBV DNA and RNA mechanics 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 this is a short-term course is only 28 days. So as others we do not expect to see dramatic changes there..

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

[Operator Instructions].

I don't think we answered the question. Mayank asked about 452..

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 earlier just to be ready to move through the trials.

I was just curious if some of that work is actually relevant for the backup molecule once you are able to identify what the issue. You can move with the backup molecule pretty quickly.

Is that the right way to think about it?.

Yes, I think that's the right way to think about it. We're getting a lot of knowledge and understanding of how this molecule, the mechanism of action for HBV, we're understanding more and more about the observation that we saw pre-clinically what’s caused -- what maybe causing that.

And when it does, it informs us as we now move to our next generation agents and allows us to 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 maybe causing the issue that we observe.

So I can say that definitely it's having a significant impact on how we progress future agent forward in this program..

Thank you. And I am showing no further questions. I’d like to turn the call back to Mr. Mar Murray, CEO, for closing remarks..

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

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..