Stockholders’ equity

9 Months Ended

Sep. 30, 2020

Stockholders' Equity Note [Abstract]

Open Market Sales Agreement

In December 2018, the Company entered into an Open Market Sale Agreement with Jefferies LLC (“Jefferies”) (the “Sale Agreement”), under which it could issue and sell common shares, from time to time, for an aggregate sales price of up to $50.0 million. In December 2019, the Company entered into an amendment to the Sale Agreement with Jefferies (the “2019 Amendment”) in connection with the filing of a shelf registration statement on Form S-3 (File No. 333-235674), filed with the SEC on December 23, 2019 (the “Shelf Registration Statement”). The 2019 Amendment revised the original Sale Agreement to reflect that the Company could sell its common shares, without par value, from time to time, for an aggregate sales price of up to $50 million, under the Shelf Registration Statement. In July 2020, the Company fully utilized the remaining availability under the Sale Agreement, as amended by the 2019 Amendment. In August 2020, the Company entered into a new amendment to the Sale Agreement (the “2020 Amendment”) with Jefferies. Pursuant to the 2020 Amendment, the Company can issue and sell common shares, from time to time, for an aggregate sales price of up to $75 million under the Sale Agreement, as amended.

For the nine months ended September 30, 2019, the Company issued 1,208,090 common shares pursuant to the Sale Agreement resulting in net proceeds of approximately $5.2 million. There were no shares issued under the Sale Agreement during the three months ended September 30, 2019.

During the three and nine months ended September 30, 2020, the Company issued 13,258,096 and 19,696,361 common shares pursuant to the Sale Agreement, as amended, resulting in net proceeds of approximately $48.8 million and $66.1 million, respectively.

As of September 30, 2020, there was approximately $62.3 million available under the Sale Agreement, as amended.

Stock-based compensation

The table below summarizes information about the Company’s stock based compensation for the three and nine months ended September 30, 2020 and 2019 and the expense recognized in the condensed consolidated statements of operations:


	Three Months Ended September 30, 2020		Three Months Ended September 30, 2019		Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019
	(in thousands, except share and per share data)
Options granted during period	188,600		242,400		2,856,150		3,018,000
Weighted average exercise price	$	2.25	$	1.57	$	3.21	$	3.41

Research and development	$	808	$	817	$	2,341	$	2,361
General and administrative	880		699		2,389		4,461
Total stock compensation expense	$	1,688	$	1,516	$	4,730	$	6,822

Awards with performance conditions are expensed when it is probable that the performance condition will be achieved. For each of the three and nine months ended September 30, 2020, $0.3 million was expensed for stock option awards with performance conditions. These expenses are included in the table above.

Employee Stock Purchase Plan

In May 2020, the Company’s stockholders approved the 2020 Employee Stock Purchase Plan which became effective on May 28, 2020. A total of 1.5 million common shares were reserved for issuance under the ESPP. Company employees contribute funds via payroll deductions, which are used to buy Company common shares at a discount of up to 15% based on the lower of the price at the start of the offering period and at the end of the relevant purchase period within such offering period. The initial offering period under the ESPP is September 1, 2020 through August 31, 2021 with purchase dates set on February 26, 2021 and August 31, 2021. All 1.5 million common shares remained available for future issuance under the plan at September 30, 2020. For the three and nine months ended September 30, 2020, the Company recognized less than $0.1 million of stock-based compensation expense related to the ESPP, which is included in the table above.

Series A Preferred Shares

In October 2017, the Company entered into a subscription agreement with Roivant for the sale of 1,164,000 Preferred Shares for gross proceeds of $116.4 million. These Preferred Shares are non-voting and accrue an 8.75% per annum coupon in the form of additional Preferred Shares, compounded annually, until October 16, 2021, at which time all the Preferred Shares will be subject to mandatory conversion into common shares (subject to limited exceptions in the event of certain fundamental corporate transactions relating to Arbutus’s capital structure or assets, which would permit earlier conversion at Roivant’s option). The conversion price is $7.13 per share, which will result in the Preferred Shares being converted into approximately 23 million common shares. After conversion of the Preferred Shares into common shares, based on the number of common shares outstanding as of September 30, 2020, Roivant will hold approximately 36% of the Company’s common shares. Roivant agreed to a four year lock-up period for this investment and its existing holdings in the Company. Roivant also agreed to a four year standstill whereby Roivant will not acquire greater than 49.99% of the Company’s common shares or securities convertible into common shares. The initial investment of $50.0 million closed in October 2017, and the remaining amount of $66.4 million closed in January 2018 following regulatory and shareholder approvals.

The Company records the Preferred Shares wholly as equity under ASC 480, Distinguishing Liabilities From Equity, with no bifurcation of the conversion feature from the host contract, given that the Preferred Shares cannot be cash settled and the redemption features are within the Company’s control, which include a fixed conversion ratio with predetermined timing and proceeds. The Company accrues for the 8.75% per annum compounding coupon at each reporting period end date as an increase to preferred share capital, and an increase to deficit (see Condensed Consolidated Statement of Stockholders’ Equity).