Whitefort Capital Sends Letter to Arbutus Biopharma Board of Directors
Believes Now Is the Logical Time for Arbutus to Pursue a License and Collaboration Agreement With a Strategic Partner and Explore All Options for HBV Portfolio
Urges Arbutus to Commit to No Dilutive Equity Issuances or ATM Use for Another Year
Whitefort Formally Requests Meeting With the Board to Ensure Alignment of Views on Path Forward
Whitefort Capital Management, LP (together with its affiliates, "Whitefort Capital," "us" or "we"), which is a long-term investor and the third largest shareholder of Arbutus Biopharma Corp. (NASDAQ:ABUS) ("Arbutus" or the "Company") with an ownership interest of approximately 6.8% of the Company's outstanding shares, today published a letter to the Company's Board of Directors (the "Board") outlining its views on the actions Arbutus must take in order to preserve and maximize shareholder value.
The full text of the letter is below:
Arbutus Biopharma Corporation
701 Veterans Circle
Warminster, PA 18974
Attn: Board of Directors
Re: Company's Direction Following Announcement of a Functional Cure for Hepatitis B (HBV)
Dear Members of the Board,
Whitefort Capital Management, LP (together with its affiliates, "Whitefort Capital" or "we") is a significant shareholder of Arbutus Biopharma Corporation ("Arbutus" or the "Company") with ownership of approximately 6.8% of the Company's outstanding shares. In our public letter to fellow shareholders dated May 17, 2024, and reiterated in our private letter to the Company's Board of Directors (the "Board") dated July 16, 2024, we expressed our view that, provided the data from the Company's IM-PROVE I Phase 2a clinical trial remained confirmatory, the Company would be well positioned to pursue a license and collaboration agreement with a strategic partner and should explore all strategic options for its HBV portfolio at that time. Following the confirmatory results presented by the Company at AASLD – The Liver Meeting® on November 18, 2024 (pre-announced to the market on November 15), which reported that in Cohort A1 of the IM-PROVE I trial, 50% of patients who had baseline HBsAg levels less than 1000 IU/mL and 25% of patients overall achieved functional cure, we believe that time has now come.
It is noteworthy that the Company's share price did not react positively to the announcement of the trial results on November 15, 2024, and was down over 5% in the following days. We previously expressed our view that Phase 2b and Phase 3 trials for a combination therapy enrolling many additional patients will be large, expensive and complicated such that to maximize the probability of success of its HBV program, the Company should partner with a larger biopharmaceutical company with an existing hepatitis franchise that has the clinical expertise, commercial infrastructure and capital necessary to commercialize a complex combination therapy. We believe that the market's negative, or at best muted, reaction to the positive data from the IM-PROVE I trial reflects investors' concerns over a possible self-funding of the Phase 2b trial, resulting in further shareholder dilution. While the Company may have sufficient cash to fund substantially all of Phase 2b, with cash balances affording it runway to the end of 2026, we reiterate our view that the Board must avoid further diluting shareholders and should clearly communicate to the market that it will not pursue further dilution by self-funding a Phase 2b trial.
To the extent the Board has any doubt as to what the Company's shareholders want, we would encourage you to review the stock performance on November 7, 2024, the day immediately after the Company filed its shelf registration statement for up to $300 million, including a prospectus supplement for up to $100 million common shares pursuant to an at-the-market (ATM) offering, incremental to the approximately $25 million remaining availability under the Company's existing ATM program. That day alone the Company's stock was down 5%, and since that announcement, the Company's share price has declined over 10% despite the positive IM-PROVE I trial data. Since the prior shelf registration statement would have expired on November 18, 2024, the $300 million shelf seems like reasonable housekeeping, but the $100 million ATM prospectus supplement rubbed salt in an unhealed wound. Arbutus shareholders freshly recollect that the number of shares outstanding increased by more than 3.4 times since 2018. While we were encouraged to hear Interim CEO Michael McElhaugh's public statement at an investor conference in May 2024 that, given the Company's substantial cash balance and sufficient liquidity, the Company does not "anticipate the need to further utilize the ATM this year," it is now necessary to extend this commitment for another year, particularly given the importance of preserving the value of the Company's lipid nanoparticle (LNP) patent estate.
We continue to believe that Arbutus' economic stake in the patent infringement claims against Moderna, Inc. ("Moderna") and Pfizer Inc. ("Pfizer")/BioNTech SE ("BioNTech") potentially represents significant value worth multiples of the Company's current market capitalization. We await the upcoming Pfizer/BioNTech claim construction hearing on December 18, 2024 with great interest. The Company should publicly commit to preserving the value of its LNP patent estate by avoiding any further share dilution. Furthermore, as the Company evaluates internally and engages regulator feedback on the Phase 2b trial design, now is the time to engage with potential strategic partners. Indeed, at the recent Jefferies London Healthcare Conference, Mr. McElhaugh commented that with "functional cure rates to meaningful numbers, which we have now… there are plenty of [pharma] players out there who may become interested in the [HBV] space."
We look forward to the Company engaging now and over the next few quarters in strategic partnership discussions regarding its HBV program and urge the Company to make a public announcement committing to no dilutive equity issuances or ATM use for another year. Additionally, we hereby formally request a meeting with the full Board in the coming weeks to ensure that there is full alignment of views regarding the path forward for the Company.
Sincerely,
David Salanic
Co-Managing Partner
Whitefort Capital Management, LP
About Whitefort Capital
Founded in 2017, Whitefort Capital is an investment firm that pursues a value event-driven approach across the capital structure globally, including stressed/distressed credit and legal/process oriented special situations.
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