Ladies and gentlemen, thank you for standing by, and welcome to the Arbutus Biopharma Corporation 2021 Third Quarter Financial Results Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded.

I would now like to hand the conference over to Lisa Caperelli, Vice President or Investor Relations. Please go ahead..

Thank you, Angi. Good morning, everyone and thank you for joining Arbutus's third quarter financial and business update call. Joining me today from the Arbutus executive team are, Bill Collier, President and Chief Executive Officer; Dave Hastings, Chief Financial Officer; Dr. Gaston Picchio, Chief Development Officer; and Dr.

Mike Sofia, Chief Scientific Officer. Bill will begin with the review of recent accomplishments and clinical developments followed by Mike Sofia, who will provide an update on our research efforts within oral PDL-1 inhibitor. Dave Hastings will then provide a review of the company's third quarter financial results.

After our opening remarks, we will open the call up for Q&A. Gaston Picchio will be available to address clinical development related questions at that time.

Before we begin, we'd like to remind you that some of the statements made during the call today are forward-looking statements, which 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, quarterly report on Form 10-Q and our other periodic reports filed with the SEC from time-to-time.

I'll now turn the call over to Bill.

Bill?.

Thank you, Lisa and thank you everybody for joining us today. We really appreciate your interest in Arbutus Biopharma.

At this moment, we issued a third quarter financial and business update press release, which highlights the significant progress we've achieved this year towards our goal, which is to develop a proprietary portfolio of products with different mechanisms of action that when used in combination results in a functional cure for patients living with chronic hepatitis B.

We're taking a three pronged approach that's intended to; one, reduce HBV surface antigen; two, suppress HBV DNA; and three, boost the host immune system. And intend to accomplish this with our RNAi therapeutic 729, oral capsid inhibitor 836 and our oral PDL-1 program where we recently commenced IND enabling studies.

So I'd like to start by walking through the clinical advancements we've made with this approach starting with reducing surface antigen with our lead compound 729, the RNAi therapeutic.

As you know, 729 is specifically designed to reduce all hepatitis B viral antigens, including hepatitis B surface antigen, and we're seeing this activity in our ongoing Phase 1a/1b clinical trial.

In fact, data to date has shown that AB-729 consistently provides a mean 1.8 log reduction in hep B surface antigen, which is sustained over time in patients with chronic HBV. In addition, 729 continues to show a favorable safety and tolerability profile.

Also in addition to reporting significant drops in S-antigen, some 729 patients have shown increased HBV specific immune responses, which further supports our rationale for combination therapy to include an immunomodulatory agent.

Now next week at AASLD, we will report additional data from additional cohorts of patients in this clinical trial in a poster presentation. And in that presentation, among other things, we will show that 729 repeat dosing remains generally safe and well tolerated.

We'll show that robust mean declines in surface antigen was sustained with repeat dosing of 729 with no meaningful differences observed today between 60 milligram or 90 milligram doses or dosing intervals, which included every four, eight or 12 weeks.

And we'll also show that S-antigen suppression to levels below 100 international units per ML, which is a clinically relevant threshold which could inform when to stop therapies, is maintained in some subjects up to 20 weeks following the last dose of 729.

As we continue to involve more data with 729, we continue to believe that the drug has the potential to be a cornerstone agent in future HBV combination regimens.

Our strategy is to evaluate 729 in combination with our own novel agents and with other approved or investigational agents with complementary mechanisms of action to set the foundation for future trials. Now we've made great progress in advancing 729 in clinical trial development.

This quarter, we initiated and dosed the first patient in our own Phase 2a randomized open label proof of concept clinical trial to evaluate 729 in combination with ongoing standard of care, new therapy and short courses of peg-interferon in 40 patients with chronic HBV infection.

Based on clinical data from our Phase 1 program, we selected 60 milligrams every eight weeks as the dose and dosing schedule for this trial and other trials. We're currently in the process of opening sites, screening patients and we will provide further updates on this trial when appropriate.

And then from a collaboration standpoint, 729 is being evaluated in an ongoing Phase 2a triple combination trial with Assembly Biosciences lead HBV core inhibitor and the nucleoside analog. Assembly is conducting this trial and expecting to see data in 2022.

Also activities to initiate separate Phase 2a clinical trials with Antios and Vaccitech are ongoing. We expect that the arm that will include 729 in the Antios clinical trial will commence this quarter and that the Vaccitech clinical trial will initiate in early 2022.

Both trials are designed to evaluate the triple combination of 729 and nucleoside analog and either the Antios or Vaccitech proprietary agent. I'd now like to move on to the second arm of our approach that's to suppress HBV DNA with our next generation oral capsid inhibitor 836.

Now 836 is specifically designed to completely block viral replication in infected cells by preventing the assembly of functional viral capsids. Preclinical data suggests that 836 may have the potential for increased efficacy and an enhanced resistance profile compared to previous capsid inhibitors.

Preliminary data from healthy volunteers and HBV patients in our Phase 1a/1b clinical trial is on track to report out by the end of this year. And these data may support the initiation of a Phase 2 combination clinical trial with our own proprietary compounds.

The third arm of our approach is to boost the immune system, which we hope to do with our oral PDL-1 program for which we recently commenced IND enabling studies. And after my prepared remarks, I'll turn the call over to Mike Sofia to provide more details about this exciting compound.

Now ultimately, we strive to have a convenient or oral combination treatment for hepatitis B patients. And to achieve that, we're progressing our research efforts with an oral RNA destabilizer program and look forward to providing updates on our lead optimization efforts in 2022.

In addition to our efforts in HBV, our internal research program to identify new antiviral small molecules to treat COVID-19 and future coronavirus outbreaks continues to make progress.

So as you can see, despite the challenging impact of the pandemic, the team at Arbutus has been relentless in their efforts to continue the advancement of our clinical and research programs to meet our corporate goals, to address the needs of patients and to increase shareholder value.

I really am very grateful for the team's commitment and dedication to finding a cure for hepatitis B and for the treatment of coronaviruses. So with that, I'll turn the call over to Mike Sofia for an update on our PDL-1 program.

Mike?.

Thanks, Bill, and good morning, everybody. As Bill mentioned, we are focused on a three pronged approach to develop a cure for chronic hepatitis B and key to that is to boost or reawaken the immune system.

Given this, we have nominated for IND enabling studies and oral PDL-1 inhibitor that could potentially be an important part of a combination therapy for the treatment of HBV. Let me start with an overview of why we believe the PD-1, PDL-1 immune checkpoint access is a viable target for effective immune reawakening in the context of HBV.

It is well established that the immune system in HBV chronically infected individuals is tolerize to the recognition of the virus or infected cells. It is also believed that highly functional HBV specific T cells are required for long term HBV bio-control in the setting of functional cure.

However, HPV specific T cells become functionally defective and greatly reduced in their frequency during chronic HBV infection. Immune checkpoints, such as PD-1, PDL-1 play important role in the induction and maintenance of new tolerance and in T cell activations.

It is well established that the PD-1, PDL-1 signaling pathway in immune cells plays a critical role in the human immune response for foreign pathogens. After the initial immune response to a pathogen and increased expression of PD-1 and assigning to PDL-1 leads to down regulation of the immune response.

In cancer biology, the upregulation of the PD-1, PDL-1 access has been linked to immune tolerance, resulting in the development of several important immune therapies. Similarly to PD-1, PDL-1 access has been implicated as having a role in HBV specific immune tolerance.

It has been shown that HBV specific T cells in the blood and liver from chronically infected HBV patients expressed by PD-1 levels, and this level correlates with S-antigen load. PDL-1 has been shown to be upregulated during viral hepatitis and PD-1 has been shown to be upregulated on HBV specific T cells and S-antigen specific T cells.

Ex vivo studies using HBV patient blood and liver samples has demonstrated that HBV specific T and B cell responses are improved with checkpoint blockade. It has been our long term strategy to combine agents that reduce the HBV specific immune tolerizing antigen, S-antigen, with agents that can further reawaken the immune system.

Therefore, we hypothesized that one approach to reawaken HBV specific T cell is to block the PD-1, PDL-1 protein-protein interaction and hopefully break HBV specific immune tolerance.

Support for this approach was observed in preclinical animal model studies where checkpoint blockade in combination with other direct acting antiviral led to both DNA clearance and sustained viral suppression.

Our research efforts have identified a class of small molecule oral checkpoint inhibitors that we believe will allow for controlled checkpoint blockade, enable oral dosing and mitigate systemic safety issues seen with checkpoint antibody therapies.

From this class of small molecule PDL-1 inhibitors, we nominate a lead candidate based on in vitro potency, immune restoration, in vivo efficacy, selectivity and safety. Let me provide a little more detail in each of these research parameters. Starting with in vitro potency.

The PDL-1 bioassay EC50 was less than 29 or more due to some candidate with external compounds. With respect to new respiration this lead agent displayed primary human T cell activation in a preclinical model and respiration of T cell activity for chronic hepatitis B patient samples in vitro.

The in vivo efficacy showed favorable pharmacokinetic and anti-tumor efficacy in a preclinical tumor arm. From a selectively standpoint, the agent bind to PDL-1 with minimal binding to all target in vitro. The agent has an acceptable safety profile based on progressible in vitro safety pharmacology and in vivo mouse tolerability studies.

This small molecule PDL-1 inhibitor possesses in vitro intrinsic activity and functional activity, both in whole cell systems in animal models that are equivalent filtered to known PDL-1 antibodies. Based on this preclinical work, this compound is now in IND enabling studies.

I'm excited by advances that we've made to identify this lead compound, which we believe has an accessible safety profile and functional activity play a key role in our combination approach to finding a cure for HBV. I'll now turn to Dave Hastings for a brief financial update.

Dave?.

Thanks, Mike and good morning, everybody. As I've mentioned in the past, our key financial metric is cash and financial runway. Our cash, cash equivalents and investments of $151.9 million as of September 30, 2021 that compares to $123.3 million as of December 31, 2020.

Our cash used from operations for the nine months ended September 30, 2021 was $47.9 million, which was offset by $75.4 million of net proceeds from the issuance of common shares under our ATM program.

For all of 2021, we expect our aggregate cash used to range from $70 million to $75 million and therefore, we expect our current cash runway to be sufficient to fund operations into the second quarter of 2023. With that, I will now turn the call back to Bill.

Bill?.

Yes, thanks so much Dave and to you Mike as well. So operator, maybe now is the time to open up the lines for the Q&A session..

Your first question comes from the line of Roy Buchanan with JMP Securities..

I want to start on AB-836. Bill, you mentioned the Phase 1 results, I think, coming at the end of this year, you think can support the start of the combo Phase 2.

Just wondering if you can give a little more details maybe what that Phase 2 would look like? Would you start with an initial 836 plus a new only to do dose finding, or would you go straight to a triple combination with your proprietary compounds? Just kind of what would that look like..

I think we've actually been saying for quite some time that it's always been our aim to have our own internal combination. So kind of logically, in our mind, it makes sense to look at 836, 729 and a new combination trial. And we’ll clearly share more details on that as next year evolves.

I think the important point today is to let everyone know that we're on track to deliver those 836 results by the end of the year..

And then another 836 question. I'm not sure, you’re probably not going to tell me what the chemistry is. But on the side that says it's a unique chemistry, maybe you can confirm it's not a HAP or SBA, and I can try to say the names if you want, but I think you guys know what those are.

So is that possible you could confirm that?.

Yes, I can confirm that. It's neither of those..

And then I had a question, it's kind of early, it's really early. But I want to get you guys thinking about potential pricing for a functional cure. I mean, is there any reason if a functional cure is found that it wouldn't be priced, let's say, similarly to the hepatitis C cures that were developed? Just give us maybe your thoughts around that..

I think as you said in your question maybe a tad early to get into pricing specifics. But I mean, there's obviously benchmarks of existing therapy, you've got benchmarks across other viral diseases. And I think beyond that very difficult for us to say.

I will add though that one of our strategies, as I've mentioned, to have all the components of the functional cure with our own proprietary umbrella, it’s kind of irrelevant here.

Because it allows you to set whatever the price is ultimately going to be without too much worry about economics to a third party or a partner, or role and so on and so forth. So one of the underpinnings of our strategy to find our own internal combo is not unrelated to your question..

Your next question comes from the line of Brian Skorney with Baird..

This is Luke Herrmann on for Brian. We were just hoping you can maybe talk a little about the upcoming refund data that J&J is presenting at AASLD next week. In terms of the implications it has for the field and given the kinetics of response.

What do you think of the stopping criteria 48 weeks, do you think that's a sufficient timeframe?.

Let me make a couple of comments and then maybe Gaston can be available for any additional comments. I think we've seen the abstract as have many other people, I think it may still be a little early for us to comment on competitor data until we see the full presentation and hear what Johnson have to say.

I would maybe just add couple of additional points. Our development strategy is around this three pronged approach that we've talked about, which would include an RNAi therapeutic, the capsid inhibitor and immunotherapy. The day you just referred to the data includes an RNAi therapeutic, a capsid inhibitor and a nuke.

And so it may be that this further supports our strategy that an immunotherapy is needed in the treatment regimen to show continued improvement. I think the second point to make at this early stage is that it appears that the contribution of the capsid inhibitor in the J&J study may have been insufficient, and we clearly need to understand that more.

But our capsid inhibitor, as you you've heard on previous calls, 836 unique and is differentiated from other capsid inhibitors. And in preclinical data, we've shown that therapeutically relevant doses, 836 has increased potency and engages the second mechanism of action. So I think there is some differences when you look from capsid to capsid.

And I think beyond that, we really just have to wait for the presentation next week and hear what the company say and hopefully that will help, not just your question but some of the questions that we have as well.

So with that, Gaston, any additional comments you want to make?.

I think you covered very well. In regards to this stopping rule, I think it was referenced in the question. I think it's just one approach to stopping rules, the composite endpoint that they use, which is reasonable. I think there may be different ones that are being used in the field.

So we look forward to see what happens to patients when they're still based in their criteria after the presentation..

We do have a follow-up question from the line of Roy Buchanan with JMP Securities..

So let's start with the easy one, one for Dave. I guess any ATM use since the -- I think the update was the October 8th prospectus was the last one.

Have you guys used it since then?.

I mean, we'll update everybody during our fourth quarter update in early March on that, Roy. So I think we'll comment on that at that point..

And then a couple maybe more complicated ones and early again, but Bill, your response to the pricing question. What are you guys thinking in terms of partnering? It sounds like you want to retain as much ownership as possible. But if -- presumably you go to regions like Europe and China.

Are you also thinking you're going to retain ownership there or will you likely partner?.

I mean, I think what I was trying to articulate is if we have all of the individual components of a combination underneath in our Arbutus umbrella, it gives us more flexibility on pricing. I think the question that you refer to now which is around how do we access different markets around the world.

Again, at this early stage, what I would say is that we remain open to different strategic approaches.

And our head of BDs and regular contact with lots of different people and my general approach is if we feel that a partnership is going to be the right way to access the market or enable us to meet the needs of patients then that's clearly going to be good for the medicine and good for shareholders as well.

So it may be that the individual components of the cure remain within the Arbutus umbrella, and potentially we partner for different geographies. But we have not -- clearly not talked about that, and I'm giving you a hypothetical answer to your question..

And then another early one, but the regulatory path. What do you guys envision the Phase 3 and initial approvals looking like.

Is potentially 729 going to be approved as monotherapy with a nuke or are you going to go for approvals on the combinations? How do you envision that playing out I guess?.

So right now, what we're really focused on are these four different Phase 2a proof-of-concept studies. And so I think it's really important to underline this. When it comes to our strategy of reduce, suppress and boost, you can do that with different combinations of agents and we're clearly testing out that hypothesis in these four Phase 2a studies.

So I think, again, great question, Roy. But I would like to see how 729 as a cornerstone agent performs in all of these studies and then to move into Phase 2b, Phase 3 accordingly.

But I think you can determine that as we've set out these different proof-of-concept combinations, we are really looking for the combination to move forward to get to a functional cure.

Gaston, do you want to add?.

No, no. Thank you. I think you covered it well..

Your next question comes from the line of Ed Arce with H.C. Wainwright & Company..

Just one for me. On 836, obviously, data coming up here at the end of the year on your Phase 1 study and this would, as you mentioned, allow for Phase 2 presumably next year to really put together your initial combination studies.

Wondering if you could talk a little bit about the data, what you're expecting in particular given the 836, as you mentioned, is a unique capsid inhibitor and utilizes a novel binding site within the core protein dimer-dimer interface.

I wondered if there's anything that you're looking from that data that could help support differential profile that you expect?.

So maybe Mike Sofia first and then Gaston as it relates to the clinical data? Mike?.

So you're right, the 836 is, what we call, our next generation agent and it differentiates itself significantly from earlier generation agents because of the high intrinsic potency it has but also as we commented on many times, the ability to engage the second mechanism.

So that in addition of the retrenchment of the cccDNA, we believe will be a therapeutically relevant dose.

And I think one of the problems with the first generation agents is that the activity at the second mechanism was sufficiently less than the first mechanism activity but at relevant doses that they could give in a clinic they just couldn't engage that.

So when do engage that second mechanism, clearly, we believe we're going to have fairly robust response against reduction on RNA as well as DNA, which is the primary mechanism. So I think we're looking forward to looking at that data.

And looking at other biomarkers, HBV related biomarkers, in fact, that second mechanism is playing an important role in the capsid space. So we have a molecule that we're very excited about as liver exposure. So I think, overall, we're anxious to see the data and see how this translates..

I think that that's basically -- we're going to be looking at depth and speed of both HBV DNA and RNA expression. And then there's a little bit of a wildcard that we may be able to interrogate, which is the activity of the compound against resistant variants.

We're not selectively enrolling patients with resistance but we know that there are resistant variants out there. And if we by chance enroll some of those, we may be able to also primarily reach out to the activity of this new generation recipient variants, but that's a little bit, something that we cannot control really..

Your next question comes from a line of Keay Nakae with Chardan..

Some questions for Mike on the PD-1.

First, Mike, can you point us to any pre-planned data that you've published on your oral checkpoint inhibitor?.

Well, we haven't published any specific preclinical data on the molecule that we nominated. I can point you to a major communication paper that we published looking at the very unique mechanism of how the small molecule works relative to, let's say, an antibody.

So that, I can point that to you, we recently published that, I think, it was toward the middle -- the end of last year came out. And also in that paper we show the small molecule that we used, which was an earlier generation agent, does have that sort of anti tumor effect.

So we were using an anti tumor model, because that was the most readily available model at the time, we've now subsequently developed an HBV model that we're looking at molecules and in animal model.

So you can see that and that work that we've -- these small molecules do have very unique characteristics, both mechanistically and function, and very competitively with antibodies..

I'll circle back with you to get that. And so again just kind of moving on then to both I guess the safety profile. Again, relative to an antibody you should have some advantages there.

But how then think about it, the safety as you move into combo therapies and what would you be on high alert to look for there in terms of safety?.

Well, as you know in sort of the oncology setting antibody based checkpoint blockade does have some adverse events associated with that and one of the things we wanted to do was circumvent that. And the concept that we use was really the small molecule concept.

And the reason why we believe that this is going to be a solution to the potential adverse events is with an antibody you have a very long action occurring. So you get one dose and it acts as sort of onboard for weeks and weeks.

With a small molecule, we can take advantage of PKPD relationships and essentially just dose enough of what we need to get the response. Plus if there's any issue we can actually remove drug because PK washout event. So that's one thing.

The other thing is we have as we always do is look at liver targeting and so we have drugs that have high liver centric character. So these molecules have much reduced systemic exposure and therefore allows us to target HBV versus having sort of that systemic immune activation that we see with a typical antibody.

So I think those characteristics of these molecules, we believe will support a better safety profile. Now we're out to see that in the clinic but I think we're pretty excited about the overall profile of these molecules and the potential..

I guess where I'm going with that, Mike, is with certainly, the destabilizer there was some tox issues, oral compound.

So again, when we get to a point where you're combining these in your eventual oral solution, how should we think about any synergistic toxic issue we might be concerned about?.

So obviously, each of these molecules work by different mechanism of action. They are different chemical entities in themselves, so they'll have different characteristics. We clearly in all our pre-clinical and non-clinical studies are very careful ensuring that we don't have any drug-drug interaction issues associated with that.

Now we can't predict exactly what's going to happen clinically but we do do combination studies in preclinical models to assess the compatibility of these molecules from agonist or antagonistic standpoints. We get some sense of safety read on the combination when we do combination studies in vivo.

So I think we're doing all the things that one needs to do to have a sense of confidence that these molecules will perform in the clinic and perform safely. But really the clinical setting is going to be the of the theory..

Your next question comes from the line of Kelechi Chikere with Jefferies..

I guess a single question from me here. This is going to be as to what the appropriate stopping criteria should be for many of these combination therapies. I was -- for the new component.

Can you opine on discuss a little bit more about that and what you thinks the stopping criteria should be? And I guess related to that with 729, you've demonstrated the ability to increase specific immune responses, could that potentially be added on as a component of what could be criteria for your combination studies?.

I'm going to hand that one over to Gaston..

I think as I was trying to say, I think different groups will come up with different stopping criteria. There is no single, as far as I know, unified stopping criteria. And usually stopping criteria are endpoints. It doesn't just factor, for example, a concentration of S-antigen can include S-antigen plus, for example, HBV DNA and ALT criteria.

I think we will know whether which is the most appropriate stopping criteria once we see what happens to the patients after they stop all therapy.

And for example, if one chooses 100 and then we see that there is a higher relapse but if one chooses 10 as part of the composite 10 points and there's less relapse, and one can conclude, obviously, that 10 would be better than 100, but we're not there yet we don't have that data.

So I think we’ll be, for lack of a better term, I think it will be trial and error, I think, we'll have to try different things. There's no even straight consensus on how to stop standard of care today with no therapies, people use different things.

But as we repeated a number of occasions, for example, 100 in patients who have been for many years on nuke therapy is a criteria used, especially in Asia. Now you're right about what we observe in three out of five patients where we were able to measure incorporate our ongoing 729-001 study.

The challenge there is immune reconstitution would be a criteria. It’s something that cannot be measured really quickly to make that decision. As you know, these T cell assays are very labor intensive, require the collection of peripheral blood mononuclear cells and they cannot be just run like a viral load on automated way and standardized way.

So I think is a very good idea. I hope that we can find maybe some surrogate indicators of T cell reconstitution, you know, perhaps something in line with measurement of soluble cytokines, interfering gamma comes to mind that can be more readily and rapidly around in the clinical in a standardized way.

And that would be the challenge I envision of including T cell T cell immune to HBV as part of the criteria..

Ladies and gentlemen, we’ve reached the allotted time for questions. I would now like to turn the floor back to management for any additional or closing remarks..

Well, thank you, Angi, and thank you, everyone for your questions. We really appreciate you joining us this morning and obviously your continued interest in the company. And look forward to keeping you up to date as we continue to move forward to secure achievement of the milestones that we've shared with you today.

And those obviously include the announcement of additional data from the 729Phase 1a/1b clinical trial at AASLD and the initial data from our 836 Phase 1a/1b trial by the end of the year. So we look forward to being in touch. And operator, that concludes our call. Thank you..

Thank you for participating in today's conference call. You may now disconnect your lines at this time..