Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes thereto and other financial information appearing elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth in this Form 10-K under “Item 1A. Risk Factors.”

Overview

We are a biopharmaceutical company advancing clinical candidates with the potential to improve the lives of millions of people living with chronic hepatitis B virus (HBV) infection around the world, an early-stage development program targeting high-recurrence genital herpes and research programs focused on the discovery of novel antivirals to treat devastating viral diseases, including hepatitis delta virus (HDV), herpes simplex virus type 2 (HSV-2) and transplant-related herpesviruses.

In July 2022, we implemented a strategic restructuring plan to: (1) discontinue development of our first-generation core inhibitor (CI), vebicorvir (VBR), based on review of interim on-treatment efficacy data from then ongoing triple combination studies that did not support continuation; (2) advance our next-generation CIs, ABI-H3733 (3733) and ABI-4334 (4334), in clinical studies; and (3) prioritize research activities, including our: HBV/HDV entry inhibitor; orally bioavailable, liver-focused interferon-α (IFN-α) receptor (IFNAR) agonist; long-acting HSV-2 helicase inhibitor targeting high-recurrence genital herpes; and programs targeting pan-herpes non-nucleoside polymerase inhibitors (NNPIs) for transplant-associated infections. The strategic plan included a reduction of our workforce by 30 employees, resulting in a total of approximately 70 remaining employees. In connection with the plan, our Chief Medical Officer and Chief Financial Officer stepped down from their roles.

Our HBV and HDV Programs

The World Health Organization (WHO) estimates that 296 million people worldwide are chronically infected with HBV as of 2019, and 1.5 million new infections occur each year. HBV is a leading global cause of chronic liver disease and liver transplants, and the WHO estimates that 820,000 people died in 2019 from HBV, mostly due to cirrhosis and hepatocellular carcinoma. Of the 296 million people living with chronic HBV infection as of 2019, only approximately 30 million were aware of their infection, and only approximately 6.6 million of those diagnosed received treatment. HBV is a highly prevalent disease that infects more than three times the number of people infected with hepatitis C virus and HIV infections combined, according to the WHO, and has a higher morbidity and mortality rate.

The current standard of care for chronic HBV infection, NrtIs, are taken life-long and reduce, but do not eliminate, the virus and result in very low cure rates, leaving an enormous unmet need. No new mechanisms of action (MOA) have been approved for chronic HBV infection in over 25 years. The focus of our HBV program is to improve outcomes and increase the number of patients diagnosed and treated through the development of finite and curative therapies.

We are also progressing two programs with potential application against HDV. HDV is a “satellite virus,” because it can only infect people (1) who are already infected with HBV or (2) at the same time as a person is infected with HBV. HDV impacts a subset of approximately 12 million HBV patients. These patients, which only comprise an estimated 4.5% of hepatitis B surface antigen (HBsAg) positive patients, experience a substantially increased disease burden, as they account for 18% of cirrhosis and 20% of hepatocellular carcinoma associated with HBV. In parallel with our efforts to develop finite therapies and functional cures for HBV, we are also advancing programs targeting HDV given the immediate disease burden facing these patients.

The current standard of care treatment for HDV is off-label pegylated IFN-α injected weekly or, in some regions, a large, complex molecule that requires daily injections. We believe a safe and effective oral small molecule entry inhibitor would be a significant innovation for patients living with HDV.

Core Inhibitors

HBV is a DNA virus that infects hepatocytes and establishes a reservoir of covalently closed circular DNA (cccDNA), a unique viral DNA moiety that resides in the cell nucleus of HBV-infected hepatocytes and is associated with viral persistence and chronic infection. No currently approved oral therapies target cccDNA activity directly, which makes molecules that can modulate cccDNA generation or disrupt its function highly sought in the HBV field. As a result, we have worked to discover and develop compounds targeting the core protein, a viral protein involved in numerous aspects of the HBV replication cycle, including the generation of HBV cccDNA. Through our research efforts, we have discovered several chemically distinct series of small molecule CIs that directly target and allosterically inhibit core protein functions. As a result, we believe that our pipeline offers the potential for both first-in-class and best-in-class compounds that target critical steps involved in cccDNA generation and the HBV viral replication cycle.

A benchmark for therapeutic agents aiming to decrease cccDNA levels is the use of several key viral antigens as surrogate biomarkers of active cccDNA. The same biomarkers can be used in both primary human hepatocyte cells and patients. On this basis, our CIs have shown preclinical proof of principle. In a variety of cell culture models, CIs have demonstrated the ability to reduce production of viral HBV DNA levels as well as the surrogate markers for cccDNA establishment: HBV e antigen (HBeAg), HBV core-related antigen (HBcrAg) and viral pre-genomic RNA (pgRNA).

Our research and development organizations are advancing next-generation CIs through clinical development. These candidates, which exhibit multiple MOAs, have been optimized to potently disrupt both viral replication (MOA #1) and, importantly, prevent the establishment and replenishment of new cccDNA (MOA #2). cccDNA is the viral reservoir that drives HBV’s life-long persistence in patients. First-generation CIs have not demonstrated adequate potency to sufficiently block its formation. Further, the current standard of care, NrtIs, can only inhibit production of new virus—and do so incompletely.

We leveraged our prior experience with our first-generation CI, VBR, which did not have sufficient potency against MOA #2, in the development of our next-generation CIs. VBR was evaluated in a Phase 2 program with treatment for up to 1.5 years across patient populations and exhibited a favorable safety profile. VBR was observed to be potent against MOA #1 but not MOA #2, and, while it demonstrated greater viral suppression in combination with standard-of-care NrtIs than NrtIs alone, it did not achieve functional cure or finite treatment in our clinical studies. As a result, we discontinued development of VBR. Our two next-generation CIs, 3733 and 4334, were developed to optimize activity against both MOAs and show significantly enhanced potency against both mechanisms preclinically.

3733

3733 was internally discovered and developed. The chemical scaffold of 3733 is novel and distinct from 4334 and both of our discontinued first-generation CI product candidates, VBR and ABI-H2158 (2158).

In preclinical studies, 3733 has demonstrated pan-genotypic activity and an improved resistance profile, as well as significantly increased potency against both MOAs and target coverage as compared to both VBR and 2158. In 2020, we initiated and completed a Phase 1a clinical study of 3733 to evaluate safety, tolerability and pharmacokinetics (PK) following single ascending dose and multiple ascending dose administration in healthy subjects in New Zealand. Data indicated that 3733 was generally well-tolerated and had favorable PK. Results detailing 3733’s safety and PK from this study were presented in a poster presentation at the American Association for the Study of Liver Diseases (AASLD) The Liver Meeting® in November 2021 (AASLD 2021). In 2021, following the completion of the Phase 1a trial, our chemistry, manufacturing and controls (CMC) organization developed a new tablet formulation to support Phase 1b for 3733. At the European Association for the Study of the Liver's (EASL) International Liver CongressTM in June 2022 (EASL 2022), we presented 3733’s improved PK profile resulting from the new formulation activities mentioned above.

In addition, at EASL's International Liver CongressTM in June 2021 (EASL 2021), we presented observations on 3733’s enhanced potency and target coverage for both antiviral activity and inhibition of cccDNA generation as compared to VBR and 2158.

In June 2022, we initiated a randomized, multi-center, double-blind and placebo-controlled Phase 1b trial of 3733 evaluating the safety, PK and antiviral activity of 3733 in adults with cHBV infection, including changes in HBV DNA and other viral parameters associated with 3733 treatment in adults with chronic HBV infection who are

treatment naïve or off treatment. Patients were randomized 8:2 between the new tablet formulation of 3733 and placebo for a period of 28 days.

In December 2022, we released interim data from the Phase 1b trial, which consisted primarily of HBeAg negative patients. The dose selected for the first cohort was 50 mg. Given the potent antiviral activity observed at 50 mg, a 25 mg dose was selected for the second cohort to further explore the dose response curve of 3733. A dose of 100 mg was selected for the third cohort. As of mid-December 2022, dosing in the 3733 Phase 1b trial had been completed for all ten patients in the 50 mg first cohort. Nine of ten patients enrolled were HBeAg negative, so efficacy data was provided for these patients. Interim efficacy results from this cohort as of mid-December included HBV DNA, HBV RNA and antigen measurements for all patients for the full 28-day dosing period.

In the 50 mg cohort, six of eight patients receiving 3733 achieved HBV DNA less than the lower limit of quantification (<LLOQ) within 21 days, with a mean decline in HBV DNA over the treatment period of approximately 3.1 logs. Data on HBV RNA declines were limited due to low baseline levels in predominantly e-antigen negative patients.

The second cohort, evaluating a dose of 25 mg, was fully enrolled by December 2022. Nine of ten patients enrolled were HBeAg negative. In the five patients that had completed 28 days of treatment as of mid-December 2022, the mean reduction in HBV DNA was approximately 1.9 logs. Data on HBV RNA levels were not available as of mid-December 2022.

The third cohort, evaluating a dose of 100 mg, was fully enrolled by February 2023. Ten of 11 patients enrolled were HBeAg negative so efficacy data was provided for these patients. Interim efficacy results from this cohort as of mid-March included HBV DNA, HBV RNA, and antigen measurements for the seven HBeAg negative patients receiving 3733 that had completed 28 days of treatment. All seven patients achieved HBV DNA <LLOQ within 21 days. As all of these patients reached <LLOQ, the mean declines in HBV DNA over the treatment period of approximately 3.0 logs reflect baseline DNA levels and the lower limit of the quantifiable range in this cohort. Data on HBV RNA declines were limited due to low baseline levels in predominately HBeAg negative patients. As expected given the 28-day dosing period, limited changes in viral antigens were observed.

In the 25 mg, 50 mg and 100 mg cohorts, all treatment-emergent adverse events (AEs) and laboratory abnormalities reported were Grade 1 or Grade 2. Further, no AEs led to treatment discontinuation, and no clinically significant ECG abnormalities or patterns of AEs or lab abnormalities were noted. The observed PK for the new tablet formulation of 3733 was consistent with predictions from preclinical studies, providing exposure equivalent to the liquid formulation evaluated in the Phase 1a study for 3733. Available PK data indicated that exposures exhibited dose-proportional increases in the dose range from 25 mg to 100 mg.

As expected, given the 28-day dosing period, limited changes in viral antigens were observed.

A 26-week non-clinical chronic toxicology study of 3733 has been ongoing in parallel with the Phase 1b study. This study revealed a toxicity in one species that was not observed in the previous 28-day toxicology study. We continue to evaluate the data; however, proceeding with longer-term dosing of 3733 in a Phase 2 study would require further assessment and likely an additional chronic toxicology study in another species, which would add cost and time to the development timeline for 3733.

In March 2023, based on data to date from the ongoing clinical Phase 1 studies of both 3733 and 4334 and a non-clinical chronic toxicology study of 3733, we have paused core inhibitor candidate 3733 and prioritized core inhibitor candidate 4334.

4334

In mid-2021, we announced the selection of 4334, the second of our next-generation CI product candidates. As with all our CI product candidates nominated after VBR, 4334 was internally discovered and developed. In addition, the chemical scaffold of 4334 is also novel and distinct from VBR, which is licensed from Indiana University, 3733 and 2158.

We nominated 4334 based on a preclinical target drug profile that indicates enhanced target coverage and potency against both MOAs. We believe that 4334 has a best-in-class preclinical profile, with single-digit nanomolar potency

against the production of new virus and the formation of cccDNA. Preclinically to date, 4334 has also demonstrated pan-genotypic activity, an improved resistance profile and a favorable safety profile. Preclinical characterization of 4334 was shared in a poster presentation at AASLD in November 2021. At EASL 2022, we presented preclinical data demonstrating that 4334 promotes formation of empty capsids and prevents cccDNA formation by disrupting incoming capsids. At AASLD in November 2022 (AASLD 2022), we presented preclinical data demonstrating that 4334 also accelerates capsid assembly and inhibits cccDNA formation through multiple pathways and showed that 4334 can prematurely disrupt capsids containing dendrimer-like-DNA, which has the potential to impact HBV integration.

In October 2022, we initiated a Phase 1a clinical study of 4334 to evaluate safety, tolerability and PK following single ascending dose and multiple ascending dose administration in healthy subjects in New Zealand. We shared interim data from this Phase 1a trial at two time points, as of mid-December 2022 for the initial 30 mg single dose cohort and as of mid-March 2023 for all remaining single dose cohorts (100 mg, 200 mg and 400 mg) and the first 100 mg multiple-dose cohort. Dosing has completed for the second and final multiple dose cohort of 200 mg and a food effect cohort at 200 mg is also ongoing. We expect to share safety and PK data from this final multiple dose cohort when available in April 2023.

Based on data available for the single-dose and 100 mg multiple-dose cohorts as of mid-March 2023, 4334 had a mean half-life supporting once-a-day dosing. Based on the PK data from these cohorts and preclinical studies, daily minimum plasma trough concentrations (Cmin) were projected to achieve double-digit multiples of the protein-adjusted EC50 for both MOAs within the dose ranges studied in the Phase 1a study.

Through mid-March 2023, treatment-emergent AEs and laboratory abnormalities were mild to moderate and there were no patterns of AEs or laboratory abnormalities noted and no clinically significant ECG abnormalities were reported.

In March 2023, based on data to date from the ongoing clinical Phase 1 studies of both 3733 and 4334 and a non-clinical chronic toxicology study of 3733, we have prioritized core inhibitor candidate 4334 and paused core inhibitor candidate 3733.

HBV/HDV Entry Inhibitor

In March 2022, we announced our research program focused on a novel, orally bioavailable small molecule approach to inhibit entry of HBV and HDV. While HDV is less prevalent in the United States, it is a significant and serious health problem with inadequate treatment in many parts of Europe, Africa, the Middle East, East Asia and parts of South America. HDV is known to accelerate disease progression and increase the incidence of liver cirrhosis and liver cancer, which results in higher morbidity and mortality rates than HBV alone. The current standard of care treatment for HDV is off-label pegylated IFN-α injected weekly or, in some regions, a large, complex molecule that requires daily injections. We believe a safe and effective oral small molecule entry inhibitor would be a significant innovation for patients living with HDV. Our research team has identified a potential opportunity to develop a safe and effective oral small molecule viral entry inhibitor, which could significantly improve convenience and potentially enhance treatment uptake and diagnosis rates. Based on current progress, our aim is to nominate a product candidate for development in 2023. At AASLD 2022, we presented the preclinical characterization of our novel class of highly potent small molecule HBV/HDV entry inhibitors.

IFNAR Agonist

In July 2022, we introduced our new research program advancing a novel, small molecule IFNAR agonist designed to selectively activate the IFN-α pathway within the liver and offer the convenience of oral dosing. IFN-α is a subcutaneous injectable immune modularity therapy approved for HBV that has demonstrated functional cure in some HBV patients, but its poor tolerability profile significantly limits its use. Substantial side effects include flu-like symptoms, cytopenias, serious depression and psychiatric effects. In addition, multiple contraindications limit its use, and it requires weekly injections that result in systemic exposure for up to a year.

By focusing exposure on the liver, our investigational IFNAR agonist program aims to engage interferon-α’s validated antiviral and immune modulatory mechanisms, retaining the efficacy of IFN-α while reducing systemic exposure to improve tolerability. Lead optimization of multiple agonists is progress. At AASLD 2022, we presented the preclinical characterization of our novel liver-focused small molecule agonists efficiently inhibiting HBV by activating type 1 interferon signaling.

Our Herpesvirus Programs

In August 2022, in addition to announcing our HBV/HDV inhibitor and IFNAR agonist programs, we introduced our first programs outside of hepatitis, which target high-recurrence genital herpes and transplant-associated herpesviruses.

HSV-2

Up to 40% of symptomatic patients with HSV-2 suffer from high-recurrence genital herpes, which results in painful lesions occurring six or more times per year, transmission risk (including neonatal transmission) and increased risk of HIV infection, as well as associated psychological stress.

Helicase-primase inhibitors are antiviral agents with a novel mechanism of action. They inhibit the viral protein complex consisting of helicase, primase, and cofactor subunits, which have functions that are essential for viral DNA replication. These agents are not nucleoside analogues and do not require phosphorylation by the HSV thymidine kinase (TK) to become active drugs; therefore, helicase-primase inhibitors are active immediately upon reactivation of latent HSV. Furthermore, helicase-primase inhibitors are active against TK-deficient HSV, which is a major mechanism of resistance to nucleoside analogues.

Although there are approved antiviral therapies targeting HSV-2, these current therapies are only partially effective in preventing recurrence in patients experiencing high-recurrence genital herpes and require taking one or more pills daily. Due to the limitations of current therapies, we identified an opportunity to develop a potent, long-acting injectable helicase inhibitor with the potential to improve efficacy, convenience and patient compliance. We are targeting long-acting at least monthly dosing and will continue to evaluate longer dosing intervals as development and formulation progress.

In February 2023, we nominated a development candidate for our HSV-2 long-acting helicase inhibitor program, 5366, for progression into IND-enabling studies.

Transplant-Associated Herpesviruses

In a transplant setting, when patients are experiencing immunosuppression, they are at high risk of uncontrolled viral replication and severe disease brought on by one or more members of the herpesvirus family of viruses including cytomegalovirus (CMV), herpes simplex virus type 1, HSV-2 and varicella zoster virus (VZV). Each of these herpesviruses are highly prevalent, as approximately (1) 60% of the population is CMV-positive; (2) 60% of the population is HSV-positive; and (3) 80% of the population is VZV-positive. These viruses establish lifelong latent infections and frequently reactivate in transplant patients due to immune suppression. These uncontrolled viral infections increase risk of serious complications, including organ rejection and death.

As with HSV-2, there are approved antivirals that are administered in a transplant setting, but they are limited by a narrow spectrum (no approved drug is effective against all of the herpesviruses indicated above), potentially serious side effects and significant drug-drug interactions. As a result of these limitations, we identified an opportunity to develop an oral pan-herpes NNPI for these transplant-associated herpesvirus infections, which would greatly simplify treatment. Our research team has discovered multiple series of potent, broad-spectrum herpesvirus polymerase inhibitors.

Operations

We currently have corporate and administrative offices and research laboratory space in South San Francisco, California as well as registrational offices, but no employees, in China.

Since our inception, we have had no revenue from product sales and have funded our operations principally through debt financings prior to our initial public offering in 2010 and through equity financings and collaborations since then. Our operations to date have been primarily limited to organizing and staffing our company, licensing our product candidates, discovering and developing our product candidates, maintaining and improving our patent portfolio and raising capital.

We have generated significant losses to date, and we expect to continue to generate losses as we develop our product candidates. As of December 31, 2022, we had an accumulated deficit of $724.5 million. Because we do not generate revenue from any of our product candidates, our losses will continue as we further develop and seek regulatory approval for, and commercialize, our product candidates. As a result, our operating losses are likely to be substantial over the next several years as we continue the development of our product candidates and thereafter if none are

approved or successfully launched. We are unable to predict the extent of any future losses or when we will become profitable, if at all.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting periods. Note 2 to the Consolidated Financial Statements describes the significant accounting policies and methods used in the preparation of our consolidated financial statements. We evaluate our estimates and judgments, including those described in greater detail below, on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Research and Development Expense and Accruals

As part of the process of preparing our consolidated financial statements, we are required to estimate certain research and development expenses. This process involves reviewing quotations and contracts, reviewing the terms of our license agreements, communicating with our vendors and applicable personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Such payments are evaluated for current or long-term classification based on when they will be realized or consumed. Examples of estimated amortized or accrued research and development expenses include fees to:

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contract research organizations (CROs) and other service providers in connection with clinical studies;

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contract manufacturing organizations (CMOs) in connection with the production of clinical trial materials; and

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vendors in connection with preclinical development activities.

We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In either amortizing or accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the related prepayment or accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period. Adjustments to prior period estimates have not been material for the years ended December 31, 2022 and 2021.

We have and may continue to enter into license agreements to access and utilize certain technology. In each case, we evaluate if the license agreement results in the acquisition of an asset or a business. To date, none of our license agreements have been considered to be acquisitions of businesses. For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments, are immediately recognized as research and development expense when paid, provided there is no alternative future use of the rights in other research and development projects. These license agreements may also include contingent consideration in the form of cash payments to be made for future milestone events. We assess whether such contingent consideration meets the definition of a derivative and to date we have determined that such contingent consideration are not derivatives.

Goodwill and Indefinite-Lived Intangible Asset

Prior to their full impairment in 2021, goodwill and our indefinite-lived intangible asset were reviewed for impairment at least annually in the fourth quarter and more frequently if events or other changes in circumstances indicated the carrying amount of the assets may not have been recoverable.

Goodwill

We have one operating segment and reporting unit. Accordingly, our review of goodwill impairment indicators was performed at the entity-wide level. In performing each annual impairment assessment and any interim impairment assessment, we determined if we should qualitatively assess whether it was more likely than not the fair value of goodwill was less than its carrying amount (the qualitative impairment test). Some of the factors considered in the assessment included general macroeconomic conditions, conditions specific to the industry and market, cost factors, the overall financial performance and whether there had been sustained declines in our share price. If we concluded it was more likely than not the fair value of the reporting unit was less than its carrying amount, or elected not to use the qualitative impairment test, a quantitative impairment test was performed.

We used our market capitalization as an indicator of fair value. We believe that since our reporting unit is publicly traded, the ability of a controlling stockholder to benefit from synergies and other intangible assets which arise from control might cause the fair value of our reporting unit as a whole to exceed our market capitalization. However, we believe the fair value measurement need not be based solely on the quoted market price of an individual share of our common stock, but also can consider the impact of a control premium in measuring the fair value of its reporting unit. The control premium utilized was based on control premiums observed in recent acquisitions of entities similar to us which were made on a non-minority basis. Should our market capitalization have been less than our total stockholders’ equity as of our annual test date or as of any interim impairment testing date, we also considered market comparables, trends in our stock price over a reasonable period and, if appropriate, used an income approach (discounted cash flow) to determine whether the fair value of our reporting unit was greater than our carrying amount. When we used an income approach, we established a fair value by estimating the present value of our projected future cash flows, adjusted for probabilities of technical success, expected to be generated from our business. The discount rate applied to the projected future cash flows to arrive at the present value was intended to reflect all risks of ownership and the associated risks of realizing the stream of projected future cash flows. Our discounted cash flow methodology considered projections of financial performance for a period of several years combined with an estimated residual value.

We elected to perform a quantitative impairment assessment of goodwill for our single reporting unit in 2021 due to a sustained decline in our market capitalization, an increase in negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection. We estimated and reconciled the fair value of our reporting unit using both a market approach, utilizing our market capitalization adjusted for an estimated control premium, and the income approach, discounting future cash flows based on management’s expectations of timelines to complete clinical trials, regulatory and commercial probabilities of technical success as well as future earnings forecast. Before completing our goodwill impairment test, we first tested our indefinite-lived intangible asset then our remaining long-lived assets for impairment. We concluded our indefinite-lived intangible asset was fully impaired and included that impairment within the net carrying value of our reporting unit for purposes of our goodwill impairment test. No impairment was identified for our long-lived assets. We concluded the fair value of our single reporting unit was less than its carrying value and therefore recognized an impairment charge of $12.6 million during 2021 to write off the entire balance of our goodwill. This was primarily due to an increase in discount rates from the standpoint of a market participant and their views on how such aforementioned events increase the risks associated with the Company. The fair value measurements were primarily based on Level 3 inputs. The calculation of the impairment charge included substantial fact-based determinations and estimates including discount rates, future revenues, profitability, cash flows, probabilities of technical success, and fair values of assets and liabilities, and any changes to these assumptions could result in changes to the fair value of our single reporting unit. The goodwill impairment charge is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

Indefinite-Lived Intangible Asset

Our indefinite-lived intangible asset consisted of in-process research and development (IPR&D) associated with small molecule CIs that directly target and allosterically inhibit core protein functions associated with HBV that were

acquired with the acquisition of Assembly Pharmaceuticals, Inc. in 2014. IPR&D represented the fair value assigned to incomplete research projects we acquired through a business combination which, at the time of acquisition, had not reached technological feasibility, regardless of whether they had alternative use. The primary basis for determining the technological feasibility or completion of these projects was obtaining regulatory approval to market the underlying products in an applicable geographic region. We classified IPR&D acquired in a business combination as an indefinite-lived intangible asset until the associated research and development efforts were either completed or abandoned. Upon completion of the associated research and development efforts, we would perform a final test for impairment and would determine the useful life of the technology and begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, we would write off the remaining carrying amount of the associated IPR&D intangible asset.

In performing each annual impairment assessment and any interim impairment assessment, we determined if we should qualitatively assess whether it was more likely than not the fair value of our IPR&D asset was less than its carrying amount (the qualitative impairment test). If we concluded that was the case, or elected not to use the qualitative impairment test, we would proceed with quantitatively determining the fair value of the IPR&D asset and comparing its fair value to its carrying value to determine the amount of impairment, if any (the quantitative impairment test).

In performing the qualitative impairment test, we considered the results of the most recent quantitative impairment test and identified the most relevant drivers of the fair value for the IPR&D asset. The most relevant drivers of fair value we identified were consistent with the assumptions used in the quantitative estimate of the IPR&D asset discussed below. Using these drivers, we identified events and circumstances that may have had an effect on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined. We then weighed these factors to determine and conclude if it was more likely than not the IPR&D asset was impaired. If it was more likely than not the IPR&D asset was impaired, we proceeded with quantitatively determining the fair value of the IPR&D asset.

We used the income approach to determine the fair value of our IPR&D asset. This approach calculates fair value by estimating the after-tax, probability of technical success adjusted, cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value. This estimate included significant assumptions regarding the estimates market participants would make in evaluating the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which were based on estimates of the sales price of the drug, the number of patients who will be diagnosed and treated and our competitive position in the marketplace, and appropriate discount and income tax rates. The fair value of our IPR&D asset could vary based on the significant assumptions described. Any impairment to be recorded was calculated as the difference between the fair value of the IPR&D asset as of the date of the assessment with the carrying value of the IPR&D asset on our consolidated balance sheet.

In 2021, we also completed a quantitative impairment test for our IPR&D asset associated with the Assembly Pharmaceuticals, Inc. acquisition prior to the goodwill impairment test. We utilized the discounted cash flow model of the income approach and determined the carrying value of our IPR&D asset was fully impaired resulting in an impairment charge of $29.0 million during 2021. This was primarily driven by a higher discount rate applied to future cash flows based on a market participant’s view of increased risk associated with a negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection. The fair value measurements were primarily based on Level 3 inputs. Some of the more significant assumptions inherent in the development of the model included the estimated annual cash flows, particularly net revenues, the appropriate discount rate to select in order to measure the risk inherent in the future cash flows, cost to complete the IPR&D project as well as other factors. The impairment charge recorded is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

Results of Operations

General

At December 31, 2022, we had an accumulated deficit of $724.5 million primarily as a result of research and development expenses and general and administrative expenses. While we may in the future generate revenue from a variety of sources, including license fees, milestone payments, research and development payments in connection with strategic partnerships and/or product sales, our product candidates are in the clinical stage of development or in varying stages of nonclinical development and may never be successfully developed or commercialized. Accordingly, we expect to continue to incur substantial losses from operations for the foreseeable future and there can be no assurance we will ever generate significant revenues.

Comparison of the Years Ended December 31, 2022 and 2021

Collaboration Revenue

The following table summarizes the period-over-period changes in our collaboration revenue (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

There was no collaboration revenue for the year ended December 31, 2022. Collaboration revenue for the year ended December 31, 2021 consists of the recognition of deferred revenue allocated to 2158 under our collaboration agreement with BeiGene, Ltd. (the BeiGene Agreement) upon discontinuing development of 2158.

Research and Development Expense

Research and development expenses consist primarily of employee-related expenses, fees paid to CROs and CMOs, lab supplies and other third party expenses that support our research and discovery, nonclinical and clinical activities. We use our employee and infrastructure resources, as well as certain third-party costs, across multiple research and development programs, and we do not specifically allocate these costs to our programs.

The following table summarizes the period-over-period changes in our research and development expenses (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

External expenses:

(1) Microbiome external expenses in 2021 include a $3.0 million gain on the sale of Microbiome assets.

Research and development expenses were $70.0 million for the year ended December 31, 2022 compared to $68.5 million for the year ended December 31, 2021. The $1.5 million increase in research and development expenses was primarily driven by increases in employee and contractor-related expenses of $4.6 million due to the reversal in 2021 of $4.8 million of previously recognized stock-based compensation expense related to forfeited awards of terminated employees, of which $2.7 million resulted from the wind-down of our Microbiome program, as well as increases in

salaries and benefits primarily due to severance costs incurred related to the reorganization announced in July 2022. We also experienced increases in external expenses generated from the advancement of 3733, our research discovery programs, which expand our portfolio beyond CIs, and advancement of 4334 to a Phase 1a trial which was initiated in 2022. This was partially offset by decreases in external expenses due to our discontinuation of the VBR, 2158 and Microbiome programs, net of a $3.0 million gain on the sale of Microbiome assets recognized during the year ended December 31, 2021, and a decrease in facility and other expenses of $1.5 million primarily attributable to asset impairment and other charges incurred in 2021 in connection with the wind-down of the Microbiome program.

General and Administrative Expense

General and administrative expenses consist primarily of salaries and other related costs for personnel in executive, finance, accounting, business development, information technology, legal and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, insurance costs, legal fees relating to patents and corporate matters and fees for accounting and consulting services.

The following table summarizes the period-over-period change in our general and administrative expenses (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

General and administrative expenses were $24.1 million for the year ended December 31, 2022, compared to $28.8 million for the year ended December 31, 2021. The decrease of $4.6 million in general and administrative expenses was primarily due to a $1.7 million decrease in professional fees attributable to reductions in legal and outside consulting-related expenses and the amortization of incremental contract costs under the BeiGene Agreement upon discontinuing development of 2158 in 2021. We also experienced decreases of $1.1 million in stock-based compensation expense in 2022 primarily due to a decrease in the grant date fair value of recent option grants, $0.6 million in salaries and benefits as a result of no bonus being due to our former Chief Executive Officer following his retirement, $0.5 million in facility-related expenses primarily due to termination of lease agreements related to the wind-down of the Microbiome program in 2021 and $0.5 million in recruitment expenses due to hiring of fewer employees during the year ended December 31, 2022 compared to the same period in 2021. The severance costs incurred related to the reorganization announced in July 2022 were offset by a reduction in bonuses for those impacted by the reorganization.

Impairment of Goodwill and Indefinite-Lived Intangible Asset

The following table summarizes the period-over-period change in our impairment of goodwill and indefinite-lived intangible asset (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

In the fourth quarter of 2021, we concluded our goodwill and IPR&D asset were impaired due to a sustained decline in our stock price as well as industry and market factors which caused an increase in the estimated discount rate applied to future cash flows. This resulted in the entire write-off of our goodwill and IPR&D asset of $12.6 million and $29.0 million, respectively.

Interest and Other Income, Net

Interest income consists of interest earned on our cash and cash equivalents and available-for-sale securities.

The following table summarizes the period-over-period changes in our interest and other income, net (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

Interest and other income, net was $1.0 million for the year ended December 31, 2022, compared to $0.3 million for the year ended December 31, 2021. The increase of $0.7 million was primarily due to more interest income earned on marketable securities caused by multiple interest rate increases in 2022.

Income Tax Benefit

The following table summarizes the period-over-period changes in our income tax benefit (in thousands, except for percentages):

Year Ended December 31, $ Change % Change

There was no income tax benefit recognized during the year ended December 31, 2022. During the year ended December 31, 2021, we recognized an income tax benefit of $2.5 million due to the reversal of deferred tax liabilities associated with our IPR&D which was fully impaired in 2021.

Liquidity and Capital Resources

Sources of Liquidity

As a result of our significant research and development expenditures and the lack of any FDA-approved products to generate product sales revenue, we have not been profitable and have generated operating losses since we were incorporated in October 2005. We have funded our operations through December 31, 2022 principally with debt prior to our initial public offering, and thereafter with equity financing, raising an aggregate of $605.0 million in net proceeds from public offerings and private placements from inception to December 31, 2022.

In 2021, we sold an aggregate of 11,234,207 shares of common stock under our “at-the-market” offering program (2020 ATM), resulting in net proceeds of $52.8 million.

In 2022, we sold an aggregate of 300,827 shares of common stock through the 2020 ATM, resulting in net proceeds of $0.3 million.

Future Funding Requirements

We expect our future operating expenses to decrease as we continue to realize cost savings from our strategic reorganization plan we implemented in July 2022. However, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise capital when needed or on attractive terms, we could be forced to delay, reduce or eliminate our research and development programs or future commercialization efforts.

We monitor our cash needs and the status of the capital markets on a continuous basis. From time to time, we opportunistically raise capital and have done so numerous times since our initial public offering by issuing equity securities. We expect to continue to raise capital when and as needed and at the time and in the manner most advantageous to us.

We expect our existing cash, cash equivalents and marketable securities will enable us to fund our operating expenses and capital expenditure requirements for at least the next twelve months. Our contractual obligations include operating lease obligations totaling $3.5 million as of December 31, 2022, of which $3.4 million are short-term. We also enter into contracts in the normal course of business with CROs for clinical trials and CMOs for clinical supply manufacturing and with vendors for preclinical research studies and other services and products for operating purposes, which generally provide for termination within 30 days of notice. Since our inception, we have not engaged in any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Our future capital requirements will depend on many factors, including:

•

our ability to raise capital despite macroeconomic and geopolitical events impacting financial markets, such as rising inflation, market volatility and risk of recession;

•

the scope, progress, results and costs of our ongoing drug discovery, nonclinical development, laboratory testing and clinical studies of our product candidates and any additional clinical studies we may conduct in the future;

•

our ability to manufacture, and to contract with third parties to manufacture, adequate supplies of our product candidates for our clinical studies and any eventual commercialization;

•

the costs, timing and outcome of regulatory review of our product candidates;

•

the costs of preparing, filing and prosecuting patent applications in the United States and abroad, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims; and

•

our ability to establish and maintain collaborations on favorable terms, if at all.

Identifying potential product candidates and conducting nonclinical testing and clinical studies is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. Our commercial revenues, if any, will be derived from sales of medicines that we do not expect to be commercially available for years, if at all. Accordingly, we will need to continue to rely on additional financings to achieve our business objectives. Adequate additional financings may not be available to us on acceptable terms, or at all.

Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt financings, collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends.

If we raise funds through additional collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Cash Flows

A summary of our cash flows for the periods presented was as follows (in thousands):

Year Ended December 31,

Net increase (decrease) in cash and cash equivalents $ 6,791 $ (13,817 )

Net Cash Used in Operating Activities

Net cash used in operating activities was $84.5 million for the year ended December 31, 2022. This was primarily due to our net loss of $93.1 million, adjusted for $6.6 million recognized for stock-based compensation expense.

Net cash used in operating activities was $93.4 million for the year ended December 31, 2021. This was primarily due to our net loss of $129.9 million, which included the recognition of $41.6 million in non-cash charges for the impairment of our goodwill and indefinite-lived intangible asset and $6.3 million in collaboration revenue from deferred revenue allocated to 2158 under the BeiGene Agreement upon discontinuing development of 2158.

Net Cash Provided by Investing Activities

Net cash provided by investing activities for the year ended December 31, 2022 was $90.6 million due to proceeds of $89.2 million from sales and maturities of marketable securities, net of purchases, and proceeds of $1.5 million received in 2022 from the sale of Microbiome assets in 2021.

Net cash provided by investing activities for the year ended December 31, 2021 was $26.5 million. This was due to proceeds of $27.3 million from sales and maturities of marketable securities, net of purchases, and proceeds of $1.5 million from the sale of Microbiome assets. This was partially offset by our purchase of leased equipment for $3.1 million that we then sold for $0.9 million in connection with the wind-down of the Microbiome program.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the year ended December 31, 2022 was $0.6 million resulting from the net proceeds of $0.3 million from the sale of 300,827 shares of our common stock under the 2020 ATM and $0.3 million from the issuance of 225,832 shares of common stock under the Assembly Biosciences Amended and Restated 2018 Employee Stock Purchase Plan (2018 ESPP).

Net cash provided by financing activities for the year ended December 31, 2021 was $53.1 million resulting from the net proceeds of $52.8 million from the sale of 11,234,207 shares of our common stock under the 2020 ATM and $0.3 million from the issuance of 88,820 shares of common stock under the 2018 ESPP.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable.

Item 8. Financial Statements and Supplementary Data

(a)

Financial Statements

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found on page F-1.

(b)

Supplementary Data

Not applicable.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain a system of disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the Exchange Act), that is designed to provide reasonable assurance that information, which is required to be disclosed in our reports filed pursuant to the Exchange Act, is accumulated and communicated to management in a timely manner. At the end of fiscal year ending December 31, 2022, we carried out an evaluation, under the supervision, and with the participation of, our management, including our Chief Executive Officer, who serves as our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer concluded that our disclosure controls and procedures for the fiscal year ending as of December 31, 2022 were effective at reasonable assurance levels.

Management’s Annual Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is designed to provide reasonable assurance to our management and Board of Directors regarding the preparation and fair presentation of published financial statements. A control system, no matter how well designed and operated, can only provide reasonable, not absolute, assurance that the objectives of the control system are met. Because of these inherent limitations, management does not expect that our internal controls over financial reporting will prevent all error and all fraud. Under the supervision and with the participation of our management, including our Chief Executive Officer, who serves as our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting in the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B. Other Information

Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Not applicable.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Except as set forth below, the information required by this item will be contained in our definitive proxy statement to be filed with the SEC in connection with the Annual Meeting of Stockholders (Proxy Statement) within 120 days after the conclusion of our fiscal year ended December 31, 2022 and is incorporated in this Annual Report on Form 10-K by reference.

Code of Ethics

Our Board has adopted a Code of Ethics for our principal executive officer and all senior financial officers and a Code of Conduct applicable to all of our employees and our directors. Both Codes are available under the “Investors—Corporate Governance” section of our website at www.assemblybio.com. If we make any substantive amendments to, or grant any waivers from, the Code of Ethics for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a Current Report on Form 8-K.

Item 11. Executive Compensation

The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Except for the table regarding equity compensation plans, the information required by this item will be contained in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth the indicated information as of December 31, 2022 with respect to our equity compensation plans.

(1)

The weighted average exercise price is calculated solely based on the exercise prices of the outstanding stock options and does not reflect the shares that will be issued upon the vesting of outstanding awards of restricted stock units (RSUs), which have no exercise price.

(2)

This number includes the following: 248,369 shares subject to stock options granted under the 2010 Equity Incentive Plan (2010 Plan); 1,543,737 shares subject to outstanding awards granted under the Assembly Biosciences, Inc. Amended and Restated 2014 Stock Incentive Plan (2014 Plan), of which 1,541,237 were subject to outstanding stock options and 2,500 were subject to outstanding RSUs; 6,864,632 shares subject to outstanding awards granted under the Assembly Biosciences, Inc. 2018 Stock Incentive Plan, as amended (2018 Plan), of which 5,214,008 were subject to outstanding stock options, 1,646,014 were subject to outstanding RSUs and 4,610 are underlying stock appreciation rights (which are not included in column (a) but are reflected in column (c)); and 466,238 options assumed by us in connection with our merger with Assembly Pharmaceuticals. This number excludes purchase rights currently accruing under the Assembly Biosciences, Inc. Amended and Restated 2018 Employee Stock Purchase Plan (2018 ESPP).

(3)

This number includes: no shares under the 2010 Plan, which has been frozen; 966,303 shares available for issuance under the 2014 Plan; 1,044,483 shares available for issuance under the 2018 Plan; and 817,683 shares reserved for issuance under the 2018 ESPP. As of March 9, 2023, assuming each participant purchases the maximum number of shares in the current offering period, no more than 107,500 shares are subject to purchase in the current offering, which ends on May 12, 2023.

(4)

This number includes 575,640 shares subject to outstanding awards granted under the 2017 Inducement Award Plan (2017 Inducement Plan), of which 571,890 were subject to outstanding stock options and 3,750 were subject to outstanding RSUs; 500,000 shares subject to stock options granted under the 2019 Inducement Award Plan (2019 Inducement Plan); and 596,623 shares subject to outstanding awards granted under the 2020 Inducement Award Plan (2020 Inducement Plan), of which 549,123 were subject to outstanding stock options and 47,500 were subject to outstanding RSUs.

(5)

This number includes: 208,588 shares available for issuance under the 2017 Inducement Plan, no shares under the 2019 Inducement Plan and 155,877 shares available for issuance under the 2020 Inducement Plan.

Our stockholder-approved equity compensation plans consist of the 2018 Plan, 2014 Plan, the 2010 Plan, stock options assumed in our merger with Assembly Pharmaceuticals and the 2018 ESPP. Effective on June 2, 2016, the 2010 Plan was frozen, and no further grants will be made under the 2010 Plan. Shares that are forfeited under the 2010 Plan on or after June 2, 2016 will become available for issuance under the 2014 Plan. An “Award” under the 2018 Plan, 2014 Plan or 2010 Plan is any right to receive our common stock consisting of non-statutory stock options, incentive stock options, stock appreciation rights, RSUs, or any other stock award.

In May 2018, our stockholders approved the 2018 ESPP and was amended and restated in May 2021. The 2018 ESPP provides for the purchase by employees of up to an aggregate of 1,300,000 shares of the Company’s common stock. Eligible employees can purchase shares of our common stock at the end of a predetermined offering period at 85% of the lower of the fair market value at the beginning or end of the offering period.

Our outstanding equity compensation arrangements that have not been approved by our stockholders consist of the 2017 Inducement Plan, the 2019 Inducement Plan and the 2020 Inducement Plan. In April 2017, our board of directors adopted the 2017 Inducement Plan and reserved 800,000 shares of our common stock for issuance under 2017 the Inducement Plan. In August 2019, our board of directors adopted the 2019 Inducement Plan and reserved 500,000 shares of our common stock for issuance under the 2019 Inducement Plan. In March 2020, our board of directors adopted the 2020 Inducement Plan and reserved 800,000 shares of our common stock for issuance under the 2020 Inducement Plan. The only persons eligible to receive grants of awards under the 2017 Inducement Plan, the 2019 Inducement Plan or the 2020 Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq Marketplace Rule 5635(c)(4) and the related guidance under Nasdaq IM 5635-1-that is, generally, a person not previously an employee or director of ours, or following a bona fide period of non-employment, as an inducement material to the individual's entering into employment with us. An “Award” is any right to receive our common stock pursuant to the Inducement Plan, consisting of nonstatutory stock options, stock appreciation rights, restricted stock awards, RSUs, or any other stock award.

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.

Item 14. Principal Accountant Fees and Services

The information required by this item will be contained in the Proxy Statement and is incorporated into this Annual Report on Form 10-K by reference.

Item 15. Exhibits, Financial Statement Schedules

(a) Exhibits. The following exhibits are filed as part of this Annual Report on Form 10-K:

4.2 Description of Securities. X

21.1 List of Subsidiaries of Assembly Biosciences, Inc. X

23.1 Consent of Independent Registered Public Accounting Firm. X

24.1 Power of Attorney (included on signature page). X

101.INS Inline XBRL Instance Document.

101.SCH Inline XBRL Taxonomy Extension Schema Document.

101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF Inline XBRL Taxonomy Extension Definitions Linkbase Document.

101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104 Cover Page Interactive Data File (embedded within the Inline XBRL document).

* Certain information in this exhibit has been omitted and filed separately with the Securities and Exchange Commission pursuant to a confidential treatment request.

† The schedules to this exhibit have been omitted pursuant to Item 601(a)(5) of Regulation S-K.

‡ Portions of this exhibit have been omitted pursuant to Item 601(b)(10)(iv) of Regulation S-K.

# Represents management contracts or compensatory plans or arrangements.

** The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is to be deemed furnished and shall not be deemed “filed” with the SEC and is not to be incorporated by reference into any filing of Assembly Biosciences, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Annual Report on Form 10-K, irrespective of any general incorporation language contained in such filing.

Item 16. Form 10-K Summary

None.

SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ASSEMBLY BIOSCIENCES, INC.

Date: March 22, 2023 By: /s/ Jason A. Okazaki

Name: Jason A. Okazaki

Title: Chief Executive Officer and President

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jason A. Okazaki and John O. Gunderson, jointly and severally, his or her attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this report, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his or her substitute or substitutes may do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant in the capacities and on the dates indicated.

Signature Title Date

Jason A. Okazaki (Principal Executive Officer and Principal Financial Officer)

Jeanette M. Bjorkquist (Principal Accounting Officer)

/s/ William R. Ringo, Jr. Chairman of the Board March 22, 2023

William R. Ringo, Jr.

/s/ Anthony E. Altig Director March 22, 2023

Anthony E. Altig

/s/ Gina Consylman Director March 22, 2023

Gina Consylman

/s/ Richard D. DiMarchi, Ph.D. Director March 22, 2023

Richard D. DiMarchi, Ph.D.

/s/ Sir Michael Houghton, Ph.D. Director March 22, 2023

Sir Michael Houghton, Ph.D.

/s/ Lisa R. Johnson-Pratt, M.D. Director March 22, 2023

Lisa R. Johnson-Pratt, M.D.

/s/ Susan Mahony, Ph.D. Director March 22, 2023

Susan Mahony, Ph.D.

/s/ John G. McHutchison, A.O., M.D. Director March 22, 2023

John G. McHutchison, A.O., M.D.

ASSEMBLY BIOSCIENCES, INC.

FINANCIAL STATEMENTS

Page

Report of Independent Registered Public Accounting Firm (PCAOB ID: 42) F-2

Consolidated Balance Sheets as of December 31, 2022 and 2021 F-4

Notes to Consolidated Financial Statements F-8

F-1

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of Assembly Biosciences, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Assembly Biosciences, Inc. (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

F-2

Accrued research and development expenses

/s/ Ernst & Young LLP

We have served as the Company’s auditor since 2015.

San Jose, California

March 22, 2023

F-3

ASSEMBLY BIOSCIENCES, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands except for share amounts and par value)

As of December 31,

ASSETS

Current assets

Accounts receivable from collaboration 944 336

Prepaid expenses and other current assets 4,413 7,241

Marketable securities - long-term — 27,972

Property and equipment, net 743 1,139

Operating lease right-of-use (ROU) assets 3,195 6,042

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Accrued research and development expenses 3,122 3,400

Operating lease liabilities - short-term 3,364 3,151

Operating lease liabilities - long-term 101 3,325

Commitments and contingencies

Stockholders' equity

Accumulated other comprehensive loss (803 ) (419 )

Total liabilities and stockholders' equity $ 101,794 $ 191,060

See Accompanying Notes to the Consolidated Financial Statements

F-4

ASSEMBLY BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands except for share and per share amounts)

Year Ended December 31,

Collaboration revenue $ — $ 6,254

Operating expenses

Impairment of goodwill and indefinite-lived intangible asset — 41,638

Other income

Interest and other income, net 1,022 302

Income tax benefit — 2,531

Other comprehensive loss

Unrealized loss on marketable securities (384 ) (149 )

Net loss per share, basic and diluted $ (1.92 ) $ (3.00 )

See Accompanying Notes to the Consolidated Financial Statements

F-5

ASSEMBLY BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands except for share amounts)

Shares Amount Capital Loss Deficit Equity

Unrealized loss on marketable debt securities — — — (149) — (149)

Stock-based compensation — — 5,291 — — 5,291

Issuance of common stock for settlement of RSUs 247,877 — — — — —

Unrealized loss on marketable debt securities — — — (384) — (384)

Stock-based compensation — — 6,597 — — 6,597

See Accompanying Notes to the Consolidated Financial Statements

F-6

ASSEMBLY BIOSCIENCES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

Year Ended December 31,

Cash flows from operating activities

Adjustments to reconcile net loss to net cash used in operating activities:

Impairment of goodwill and indefinite-lived intangible asset — 41,638

Depreciation and amortization 498 466

Net amortization of investments in marketable debt securities 155 586

Deferred income tax benefit — (2,531 )

Loss on disposal of property and equipment — 1,624

Gain on the sale of Microbiome assets — (3,000 )

Changes in operating assets and liabilities:

Accounts receivable from collaboration (608 ) 894

Prepaid expenses and other current assets 1,328 1,109

Accrued research and development expenses (278 ) (1,044 )

Deferred revenue — (6,254 )

Operating lease liabilities (3,670 ) (3,786 )

Net cash used in operating activities (84,463 ) (93,396 )

Cash flows from investing activities

Proceeds from maturities of marketable securities 88,000 175,200

Proceeds from sale of marketable securities 28,825 12,500

Proceeds from the sale of Microbiome assets 1,500 1,500

Purchases of property and equipment (102 ) (3,096 )

Proceeds from sale of property and equipment — 857

Net cash provided by investing activities 90,640 26,515

Cash flows from financing activities

Proceeds from the issuance of common stock under ESPP 289 258

Net cash provided by financing activities 614 53,064

Net increase (decrease) in cash and cash equivalents 6,791 (13,817 )

Cash and cash equivalents at the beginning of the period 45,627 59,444

Cash and cash equivalents at the end of the period $ 52,418 $ 45,627

Supplemental non-cash investing and financing activities

Operating lease liabilities arising from obtaining ROU assets $ 171 $ 126

See Accompanying Notes to the Consolidated Financial Statements

F-7

ASSEMBLY BIOSCIENCES, INC.

Notes to Consolidated Financial Statements

Note 1 - Nature of Business

Overview

Assembly Biosciences, Inc., together with its subsidiaries (Assembly or the Company), incorporated in Delaware in October 2005, is a biopharmaceutical company advancing clinical candidates for the treatment of chronic hepatitis B virus (HBV) infection, an early-stage development program targeting high-recurrence genital herpes and research programs focused on the discovery of novel antivirals to treat viral diseases, including hepatitis delta virus (HDV), herpes simplex virus type 2 (HSV-2) and transplant related herpesviruses. The Company operates in one segment and is headquartered in South San Francisco, California. Prior to the Company’s wind-down of its Microbiome program in January 2021, the Company also had operations in Connecticut.

Liquidity

The Company has not derived any revenue from product sales to date and currently has no approved products. Once a product has been developed, it will need to be approved for sale by the U.S. Food and Drug Administration (FDA) or an applicable foreign regulatory agency. Since inception, the Company’s operations have been financed primarily through the sale of equity securities, the proceeds from the exercise of warrants and stock options, the issuance of debt, and upfront payments related to collaboration agreements. The Company has incurred losses from operations since inception and expects to continue to incur substantial losses for the next several years as it continues its product development efforts. Management believes the Company currently has sufficient funds to meet its operating requirements for at least the next twelve months following the date that these consolidated financial statements are issued. If the Company cannot generate significant cash from its operations, it intends to obtain any additional funding it requires through strategic relationships, public or private equity or debt financings, grants or other arrangements. The Company cannot assure such funding will be available on reasonable terms, if at all. Market volatility, inflation or other factors could also adversely impact the Company’s ability to access capital when and as needed.

If the Company is unable to secure additional sources of funding, generate revenue from collaborations, or receive full and timely collections of amounts due, it may be necessary to significantly reduce the current rate of spending through reductions in staff and delaying, scaling back, or stopping certain research and development programs, including more costly clinical trials.

Note 2 - Summary of Significant Accounting Policies and Recent Accounting Pronouncements

Basis of Presentation

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) and include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that may affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates inherent in the preparation of the accompanying consolidated financial statements include estimates of costs incurred but not yet invoiced for research and development accruals as well as the estimated fair value of the Company's indefinite-lived intangible asset and the estimated fair value of the Company's reporting unit for purposes of evaluating goodwill impairment, both of which were fully impaired in 2021.

The Company’s estimates could be affected by external conditions, including those unique to the Company and general economic conditions. It is reasonably possible that these external factors could have an effect on the Company’s estimates and could cause actual results to differ from those estimates and assumptions.

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Other Risks and Uncertainties

The Company relies on contract research organizations (CROs), including one located in Ukraine which shut down operations due to Russia’s invasion. Though this CRO has resumed operations, the Company has reallocated certain work to other global CROs in case the CRO shuts down operations again.

U.S. and global financial markets have experienced volatility and disruption due to other macroeconomic and geopolitical events such as rising inflation, the risk of a recession, the ongoing conflict between Russia and Ukraine, as well as the ongoing impact of the COVID-19 pandemic. The Company cannot predict at this time to what extent, if at all, it and its employees, CROs, vendors and/or collaborators could potentially be negatively impacted by these events.

Cash and Cash Equivalents

All highly liquid investments, including money market funds, with original maturities of three months or less at the time of purchase are considered to be cash equivalents. All of the Company’s cash equivalents have liquid markets and high credit ratings. The Company maintains its cash in bank deposits and other accounts, the balances of which, at times as of and during the years ended December 31, 2022 and 2021, exceed federally insured limits.

Investments in Marketable Securities

The Company invests its excess cash in debt securities with high credit ratings including but not limited to money market funds classified as cash equivalents, asset backed securities, securities issued by the U.S. government and its agencies, corporate debt securities and commercial paper. The Company has designated its investments in marketable securities as available-for-sale and measures these securities at their respective fair values. Marketable securities are classified as short-term or long-term based on the maturity date and their availability to meet current operating requirements. Marketable securities that mature in one year or less from the consolidated balance sheet date are classified as short-term available-for-sale securities, while marketable securities with maturities in one year or beyond one year from the consolidated balance sheet date are classified as long-term.

Securities that are classified as available-for-sale are measured at fair value with temporary unrealized gains and losses reported in other comprehensive loss, and as a component of stockholders' equity until their disposition. The Company reviews all available-for-sale securities at each period end to determine if they remain available-for-sale based on their current intent and ability to sell the security if it is required to do so. Realized gains and losses from the sale of marketable securities, if any, are calculated using the specific-identification method.

Marketable securities are subject to a periodic impairment review. The Company may recognize an impairment charge when a decline in the fair value of investments below the cost basis is determined to be other-than-temporary. In determining whether a decline in market value is other-than-temporary, various factors are considered, including the cause, duration of time and severity of the impairment, any adverse changes in the investees’ financial condition, and the Company’s intent and ability to hold the security for a period of time sufficient to allow for an anticipated recovery in market value. To date, there have been no declines in value deemed to be other than temporary for any of the Company’s investments in marketable securities.

Goodwill and Indefinite-Lived Intangible Asset

Prior to their full impairment in 2021, goodwill and indefinite-lived intangible assets were reviewed for impairment at least annually in the fourth quarter, and more frequently if events or other changes in circumstances indicated that the carrying amount of the assets may not have been recoverable.

Goodwill

The difference between the purchase price and the fair value of assets acquired and liabilities assumed in a business combination is allocated to goodwill. Goodwill was evaluated for impairment on an annual basis as of October 1, and more frequently if indicators were present or changes in circumstances suggested impairment may have existed. In performing each annual impairment assessment and any interim impairment assessment, the Company determined if it should qualitatively assess whether it was more likely than not the fair value of goodwill was less than its carrying amount (the qualitative impairment test). If the Company concluded it was more likely than not the fair value of the

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reporting unit was less than its carrying amount, or elected not to use the qualitative impairment test, a quantitative impairment test was performed. The Company’s annual or interim quantitative impairment testing was performed by comparing the estimated fair value of the reporting unit to its carrying value. An impairment charge was recognized for the amount by which the carrying amount exceeded the reporting unit’s fair value, not to exceed the carrying value of goodwill.

Indefinite-Lived Intangible Asset

The Company’s indefinite-lived intangible asset consisted of in-process research and development (IPR&D) associated with small molecule core inhibitors that directly target and allosterically inhibit core protein functions associated with HBV which were acquired with the acquisition of Assembly Pharmaceutics, Inc. in 2014. IPR&D represented the fair value assigned to incomplete research projects the Company acquired through a business combination which, at the time of acquisition, had not reached technological feasibility, regardless of whether they had alternative future use. The primary basis for determining the technological feasibility or completion of these projects was obtaining regulatory approval to market the underlying products in an applicable geographic region. The Company classified IPR&D acquired in a business combination as an indefinite-lived intangible asset until the associated research and development efforts were either completed or abandoned. Upon completion of the associated research and development efforts, the Company would perform a final test for impairment and would determine the useful life of the technology and would begin amortizing the assets to reflect their use over their remaining lives. Upon permanent abandonment, the Company would write-off the remaining carrying amount of the associated IPR&D intangible asset.

Indefinite-lived intangible assets were not amortized, but instead were reviewed for impairment at least annually, or more frequently if events occurred or circumstances changed that would indicate the carrying amount may be impaired. In performing each annual impairment assessment and any interim impairment assessment, the Company determined if it should qualitatively assess whether it was more likely than not the fair value of its IPR&D asset was less than its carrying amount (the qualitative impairment test). If the Company concluded that was the case, or elected not to use the qualitative impairment test, the Company would proceed with quantitatively determining the fair value of the IPR&D asset and compared its fair value to its carrying value to determine the amount of impairment, if any (the quantitative impairment test).

In performing the qualitative impairment test, the Company considered the results of the most recent quantitative impairment test and identified the most relevant drivers of the fair value for the IPR&D asset. The most relevant drivers of fair value identified were consistent with the assumptions used in the quantitative estimate of the IPR&D asset. Using these drivers of fair value, the Company identified events and circumstances which may have had an effect on the fair value of the IPR&D asset since the last time the IPR&D’s fair value was quantitatively determined. The Company then weighed these factors to determine and conclude if it was not more likely than not the IPR&D asset was impaired. If it was more likely than not the IPR&D asset was impaired, the Company proceeded with quantitatively determining the fair value of the IPR&D asset.

When performing the quantitative impairment test, the Company used the income approach to determine the fair value of its IPR&D asset. This approach calculates fair value by estimating the after-tax cash flows attributable to an in-process project over its useful life and then discounting these after-tax cash flows back to a present value. This estimate included judgmental assumptions regarding the estimates that market participants would make in evaluating the IPR&D asset, including the probability of successfully completing clinical trials and obtaining regulatory approval to market the IPR&D asset, the timing of and the expected costs to complete IPR&D projects, future net cash flows from potential drug sales, which were based on estimates of the sales price of the drug, the size of the patient population and cure rate, the Company's competitive position in the marketplace, and appropriate discount and tax rates. Any

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impairment to be recorded was calculated as the difference between the estimated fair value and the carrying value of the IPR&D asset on the Company’s consolidated balance sheet.

Leases

All of the Company’s leases are operating leases for facilities and equipment. The Company recognizes a lease asset for its right to use the underlying asset and a lease liability for the corresponding lease obligation. The Company determines whether an arrangement is or contains a lease at contract inception. Operating leases with a duration greater than one year are included in operating lease ROU assets, operating lease liabilities - short-term, and operating lease liabilities - long-term in the Company’s consolidated balance sheets. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date. The incremental borrowing rate represents the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. The Company considers a lease term to be the noncancelable period that it has the right to use the underlying asset, including any periods where it is reasonably assured the Company will exercise the option to extend the contract. Periods covered by an option to extend are included in the lease term if the lessor controls the exercise of that option.

The operating lease ROU assets also include any lease payments made and exclude lease incentives. Lease expense is recognized on a straight-line basis over the expected lease term. Variable lease expenses are recorded when incurred. The Company has elected not to separate lease and non-lease components for its leased assets and accounts for all lease and non-lease components of its agreements as a single lease component.

Impairment of Long-Lived Assets

The Company monitors the carrying value of long-lived assets, including ROU operating lease assets, for potential impairment and tests the recoverability of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If a change in circumstance occurs, the Company performs a test of recoverability by comparing the carrying value of the asset or asset group to its undiscounted expected future cash flows. If cash flows cannot be separately and independently identified for a single asset, the Company will determine whether impairment has occurred for the group of assets for which the Company can identify the projected cash flows. If the carrying values are in excess of undiscounted expected future cash flows, the Company measures any impairment by comparing the fair value of the asset or asset group to its carrying value. There were no indicators of impairment of long-lived assets during the years ended December 31, 2022 and 2021.

Property and Equipment, Net

Property and equipment are stated at cost and consist of lab and office equipment and leasehold improvements. The Company records depreciation under the straight-line method over the estimated useful lives of its property and equipment ranging from three to seven years.

Leasehold improvements are amortized over the remaining terms of the respective leases or the estimated useful life of the leasehold improvements, whichever is less. Maintenance and repair costs are expensed as incurred.

Fair Value Measurements

The Company follows accounting guidance on fair value measurements for financial instruments measured on a recurring basis, as well as for certain assets and liabilities that are initially recorded at their estimated fair values. Fair value is defined as the exit price, or the amount that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Company uses the following three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs to value its financial instruments:

Level 1: Observable inputs such as unadjusted quoted prices in active markets for identical instruments.

Level 2: Quoted prices for similar instruments that are directly or indirectly observable in the marketplace.

Level 3: Significant unobservable inputs which are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar

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techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The assessment of the significance of a particular input to the fair value measurement in its entirety requires the Company to make judgments and consider factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated fair values. Accordingly, the fair value estimates disclosed or initial amounts recorded may not be indicative of the amount the Company or holders of the instruments could realize in a current market exchange.

The carrying amounts of cash equivalents and marketable securities approximate their fair value based upon quoted market prices. Certain of the Company’s financial instruments are not measured at fair value on a recurring basis but are recorded at amounts which approximate their fair value due to their liquid or short-term nature, such as cash, accounts receivable, accounts payable and accrued expenses.

The following tables present the fair value of the Company’s financial assets measured at fair value on a recurring basis using the above input categories (in thousands):

Level 1 Level 2 Level 3 Fair Value

Cash equivalents

Short-term marketable securities

U.S. and foreign corporate debt securities — 18,597 — 18,597

U.S. and foreign commercial paper — 8,851 — 8,851

Total short-term marketable securities — 39,192 — 39,192

Level 1 Level 2 Level 3 Fair Value

Cash equivalents

Short-term marketable securities

U.S. and foreign corporate debt securities — 7,013 — 7,013

U.S. and foreign commercial paper — 64,928 — 64,928

Long-term marketable securities

U.S. and foreign corporate debt securities — 19,043 — 19,043

Total long-term marketable securities — 27,972 — 27,972

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Money market funds are highly liquid and actively traded marketable securities that generally transact at a stable $1.00 net asset value representing its estimated fair value. The Company estimates the fair value of its U.S. and foreign corporate debt securities, asset backed securities, U.S. treasury securities and U.S. and foreign commercial paper by taking into consideration valuations obtained from third-party pricing services. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities, issuer credit spreads; benchmark securities; prepayment/default projections based on historical data; and other observable inputs.

The Company recognized an impairment charge of $41.6 million for its goodwill and indefinite-lived asset in 2021. The Company considered the fair value used to determine the impairment charge to be a Level 3 measurement. See additional discussion relating to the Company’s impairment of goodwill and indefinite-lived asset in Note 6.

There have been no transfers between Level 1, Level 2 or Level 3 for any of the periods presented. See Note 3 for further information regarding the carrying value of the Company’s investments in marketable securities.

Revenue Recognition and Accounts Receivable from Collaboration

The Company analyzes its collaboration arrangements to assess whether such arrangements, or transactions between arrangement participants, involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities or are more akin to a vendor-customer relationship. In making this evaluation, the Company considers whether the activities of the collaboration are considered to be distinct and deemed to be within the scope of the collaborative arrangement accounting standard and those that are more reflective of a vendor-customer relationship and, therefore, within the scope of the revenue with contracts with customers accounting standard. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

For elements of collaboration arrangements that are not accounted for pursuant to the revenue from contracts with customers accounting standard, an appropriate recognition method is determined and applied consistently, generally by analogy to the revenue from contracts with customers accounting standard. Amounts related to transactions with a counterparty in a collaborative arrangement that is not a customer are presented as collaboration revenue and on a separate line item from revenue recognized from contracts with customers, if any, in the Company’s consolidated statements of operations and comprehensive loss.

Under certain collaborative arrangements, the Company has been reimbursed for a portion of its research and development expenses or participates in the cost-sharing of such research and development expenses. Such reimbursements and cost-sharing arrangements are reflected as a reduction of research and development expense in the Company’s consolidated statements of operations and comprehensive loss, as the Company does not consider performing these activities for reimbursement to be a part of its ongoing major or central operations.

For arrangements or transactions between arrangement participants determined to be within the scope of the contracts with customers accounting standard, the Company evaluates the term of the arrangement and recognizes revenue when the customer obtains control of promised goods or services in a contract for an amount that reflects the consideration the Company expects to receive in exchange for those goods or services. For contracts with customers, the Company applies the following five-step model in order to determine this amount: (1) identification of the promised goods or services in the contract; (2) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (3) measurement of the transaction price, including the constraint on variable consideration; (4) allocation of the transaction price to the performance obligations; and (5) recognition of revenue when (or as) the Company satisfies each performance obligation.

The Company has provided standard indemnification and protection of licensed intellectual property for its customer. These provisions are part of assurance that the licenses meet the agreements, representations and are not obligations to provide goods or services.

The Company only applies the five-step model to contracts when it is probable the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. As part of the accounting for contracts with customers, the Company must develop assumptions that require judgment to determine the estimated relative standalone selling price (SSP) of each performance obligation identified in the contract. The Company then allocates the total transaction price to each performance obligation based on the SSP of each performance obligation.

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The Company recognizes the amount of the transaction price that is allocated to the respective performance obligation when the performance obligation is satisfied or as it is satisfied as revenue.

Upfront License Fees

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from nonrefundable, upfront license fees based on the relative value prescribed to the license compared to the total value of the arrangement. The revenue is recognized when the license is transferred to the collaborator and the collaborator is able to use and benefit from the license. For licenses that are not distinct from other obligations identified in the arrangement, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. If the combined performance obligation is satisfied over time, the Company applies an appropriate method of measuring progress for purposes of recognizing revenue from nonrefundable, upfront license fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

Development and Regulatory Milestone Payments

Depending on facts and circumstances, the Company may record revenues from certain milestones in a reporting period before the milestone is achieved if the Company concludes achievement of the milestone is probable and recognition of revenue related to the milestone will not result in a significant reversal in amounts recognized in future periods. The Company records a corresponding contract asset when this conclusion is reached. Milestone payments that have not been included in the transaction price to date are fully constrained. The Company re-evaluates the probability of achievement of such milestones and any related constraint each reporting period. The Company adjusts its estimate of the overall transaction price, including the amount of collaborative revenue that was recorded, if necessary.

Sales-based Milestone and Royalty Payments

The Company’s customer may be required to pay the Company sales-based milestone payments or royalties on future sales of commercial products. The Company recognizes revenues related to sales-based milestone and royalty payments upon the later to occur of (i) achievement of the collaborator’s underlying sales or (ii) satisfaction of any performance obligation(s) related to these sales, in each case assuming the Company’s licensed intellectual property is deemed to be the predominant item to which the sales-based milestones and/or royalties relate.

The Company receives payments from its customer based on billing schedules established in the contract. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under the arrangement. If the related performance obligation is expected to be satisfied within the next twelve months, these amounts will be classified in current liabilities. The Company recognizes a contract asset relating to its conditional right to consideration that is not subject to a constraint. Amounts are recorded as accounts receivable when the Company’s right to consideration is unconditional.

A net contract asset or liability is presented for each contract with a customer. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

At December 31, 2022 and 2021, all accounts receivable from collaboration are deemed collectible.

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Contract Liabilities

The following tables present changes in the Company’s contract liabilities (in thousands):

Balance atBeginningof Period Additions Deductions Balance atEnd ofPeriod

Contract liabilities:

Balance atBeginningof Period Additions Deductions Balance atEnd ofPeriod

Contract liabilities:

Year Ended December 31,

Collaboration revenue recognized in the period from

Amounts included in deferred revenue at the beginning of the period $ — $ 6,254

Performance obligations satisfied in previous period $ — $ —

Stock-Based Compensation

The Company measures stock-based compensation to employees, consultants, Board members, and non-employees at fair value on the grant date of the award. The fair value of RSUs is determined based on the number of shares granted and the quoted market price of the Company’s common stock on the date of grant. If stock-based awards are granted in contemplation of or shortly before a planned release of material nonpublic information, and such information is expected to result in a material increase in the Company’s share price, the Company considers whether an adjustment to the observable market price is required when estimating fair values. Compensation cost is recognized as expense on a straight-line basis over the requisite service period of the award. Stock-based awards with graded vesting schedules are recognized using the accelerated attribution method on a straight-line basis over the requisite service period for each separately vesting portion of the award. For awards that have a performance condition, compensation cost is measured based on the fair value of the award on the grant date, the date performance targets are established, and is expensed over the requisite service period for each separately vesting tranche when achievement of the performance condition becomes probable. The Company assesses the probability of the performance conditions being met on a continuous basis. For awards that have a market condition, compensation cost is measured based on the grant-date fair value of the award and is expensed over the derived service period regardless of whether the underlying market condition is met. Forfeitures are recognized when they occur.

The Company estimates the fair value of stock option grants that do not contain market-based vesting conditions using the Black-Scholes option pricing model. The assumptions used in estimating the fair value of these awards, such as expected term, expected dividend yield, volatility and risk-free interest rate, represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. The Company uses the Monte-Carlo model to calculate the fair value on the date of grant of awards which contain market-based vesting conditions. This pricing model uses multiple simulations to evaluate the probability of achieving the market condition to calculate the fair value of the awards which includes the recent market price and volatility of the Company's shares.The Company is also required to make estimates as to the probability of achieving the specific performance conditions. If actual results are not consistent with the Company’s assumptions and judgments used in making these estimates, the Company may be required to increase or decrease compensation expense, which could be material to the Company’s consolidated results of operations.

Research and Development Expense and Accruals

Research and development costs include personnel-related costs, outside contracted services including clinical study costs, facilities costs, fees paid to consultants, milestone payments prior to FDA approval, license fees prior to FDA

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approval, professional services, travel costs, dues and subscriptions, depreciation and materials used in clinical trials and research and development and costs incurred under the Company’s collaboration agreements. Research and development costs are expensed as incurred unless there is an alternative future use in other research and development projects. Payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received. Such payments are evaluated for current or long-term classification based on when they will be realized or consumed.

The Company records expenses related to clinical studies and manufacturing development activities based on its estimates of the services received and efforts expended pursuant to contracts with multiple contract research organizations and manufacturing vendors that conduct and manage these activities on its behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows. There may be instances in which payments made to the Company’s vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical study milestones. In amortizing or accruing service fees, the Company estimates the time period over which services will be performed, enrollment of subjects, number of sites activated and the level of effort expended in each period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the Company will adjust the accrued or prepaid expense balance accordingly. To date, there have been no material differences from the Company’s estimates to the amounts actually incurred.

The Company has entered and may continue to enter into license agreements to access and utilize certain technology. In each case, the Company evaluates if the license agreement results in the acquisition of an asset or a business. To date, none of the Company’s license agreements have been considered to be acquisitions of businesses. For asset acquisitions, the upfront payments to acquire such licenses, as well as any future milestone payments, are immediately recognized as research and development expense when paid, provided there is no alternative future use of the rights in other research and development projects. These license agreements may also include contingent consideration in the form of cash payments to be made for future milestone events. The Company assesses whether such contingent consideration meets the definition of a derivative and to date the Company has determined that such contingent consideration are not derivatives.

Restructuring Charges

The Company recognizes restructuring charges related to reorganization plans that have been committed to by management and when liabilities have been incurred. In connection with these activities, the Company records restructuring charges at fair value for (1) contractual employee termination benefits when obligations are associated to services already rendered, rights to such benefits have vested, and payment of benefits is probable and can be reasonably estimated, (2) one-time employee termination benefits when management has committed to a plan of termination, the plan identifies the employees and their expected termination dates, the details of termination benefits are complete, it is unlikely changes to the plan will be made or the plan will be withdrawn and communication to such employees has occurred, and (3) contract termination costs when a contract is terminated before the end of its term.

One-time employee termination benefits are recognized in their entirety when communication has occurred, and future services are not required. If future services are required, the costs are recorded ratably over the remaining period of service. Contract termination costs to be incurred over the remaining contract term without economic benefit are recorded in their entirety when the contract is canceled.

The recognition of restructuring charges requires the Company to make certain judgments and estimates regarding the nature, timing and amount of costs associated with the reorganization plan. To the extent the Company’s actual results differ from its estimates and assumptions, the Company may be required to revise the estimates of future accrued restructuring liabilities, requiring the recognition of additional restructuring charges or the reduction of accrued restructuring liabilities already recognized. Such changes to previously estimated amounts may be material to the consolidated financial statements. Changes in the estimates of the restructuring charges are recorded in the period the change is determined. During the years ended December 31, 2022 and 2021, changes to previous estimates for restructuring charges were not material.

At the end of each reporting period, the Company evaluates the remaining accrued restructuring balances to ensure that no excess accruals are retained, and the utilization of the provisions are for their intended purpose in accordance with developed restructuring plans.

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For gains and losses on the derecognition of nonfinancial assets the Company determines if a contract exists, identifies the distinct non-financial assets, and determines when control transfers and, therefore, when to derecognize the asset. Additionally, the Company applies the measurement principles of revenue from contracts with customers within U.S. GAAP to determine the amount of consideration to include in the calculation of the gain or loss for the non-financial asset. Any gains or losses have been included within research and development expenses.

Variable Interest Entities

The Company reviews agreements it enters into with third party entities, pursuant to which it may have a variable interest in the entity, in order to determine if the entity is a variable interest entity (VIE). If the entity is a VIE, the Company assesses whether or not it is the primary beneficiary of that entity. In determining whether the Company is the primary beneficiary of an entity, the Company applies a qualitative approach that determines whether it has both (1) the power to direct the economically significant activities of the entity and (2) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to that entity. If the Company were to determine it is the primary beneficiary of a VIE, the Company would consolidate the statements of operations and financial condition of the VIE into its consolidated financial statements.

The Company’s determination about whether it should consolidate such VIEs is made continuously as changes to existing relationships or future transactions may result in a consolidation event.

Income Taxes

The Company records income taxes using the asset and liability method. Deferred income tax assets and liabilities are recognized for the future tax effects attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company establishes a valuation allowance if it is more likely than not that the deferred tax assets will not be realized based on an evaluation of objective verifiable evidence. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is greater than 50% likely of being realized. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit.

The Company recognizes and measures uncertain tax positions using a two-step approach set forth in authoritative guidance. The first step is to evaluate the tax position taken or expected to be taken by determining whether the weight of available evidence indicates that it is more likely than not that the tax position will be sustained in an audit, including resolution of any related appeals or litigation processes. The second step is to measure the tax benefit as the largest amount that is more than 50% likely to be realized upon ultimate settlement. Significant judgment is required to evaluate uncertain tax positions. The Company evaluates uncertain tax positions on a regular basis. The evaluations are based on a number of factors, including changes in facts and circumstances, changes in tax law, correspondence with tax authorities during the course of the audit, and effective settlement of audit issues. The provision for income taxes includes the effects of any accruals which the Company believes are appropriate. It is the Company’s policy to recognize interest and penalties related to income tax matters in income tax expense. No interest or penalties related to uncertain tax positions has been incurred or accrued for any periods presented.

In June 2020, Assembly Bill 85 (A.B. 85) was signed into California law. A.B. 85 provides for a three-year suspension of the use of net operating losses for medium and large businesses and a three-year cap on the use of business incentive tax credits to offset no more than $5.0 million of tax per year. A.B. 85 suspends the use of net operating losses for taxable years 2020, 2021 and 2022 for certain taxpayers with taxable income of $1.0 million or more. The carryover period for any net operating losses that are suspended under this provision will be extended. A.B. 85 also requires that business incentive tax credits including carryovers may not reduce the applicable tax by more than $5.0 million for taxable years 2020, 2021 and 2022. On February 9, 2022, Senate Bill No. 113 was enacted that removed the limitations on the use of NOLs and the cap on the business incentive tax credits that were suspended in accordance with AB 85 effective for tax year 2022.

In March 2021, the American Rescue Plan (H.R. 1319) was signed into law. This legislation extends and enhances a number of current-law tax incentives for businesses, but also expands the definition of a “covered employee” as defined by Section 162(m)(1) of the Internal Revenue Code.

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Effective January 1, 2022, a provision of the Tax Cuts and Jobs Act (TCJA) took effect creating a significant change to the treatment of research and experimental expenditures under Section 174 of the Internal Revenue Code (Sec. 174 expenses). Historically, businesses have had the option of deducting Sec. 174 expenses in the year incurred or capitalizing and amortizing the costs over five years. The new TCJA provision, however, eliminates this option and will require Sec. 174 expenses associated with research conducted in the United States to be capitalized and amortized over a five-year period. For expenses associated with research outside of the United States, Sec. 174 expenses are required to be capitalized and amortized over a 15-year period.

The A.B. 85, H.R. 1319 and TCJA provision did not have a material impact on the Company’s consolidated financial statements.

In August 2022, the Inflation Reduction Act (IRA) was enacted into law. The IRA establishes a 15% corporate alternative minimum tax on corporations whose average annual adjusted financial statement income during the most recently completed three-year period exceeds $1 billion and a 1% excise tax on stock repurchases made by certain publicly traded U.S. corporations. These provisions are effective for tax years beginning after December 31, 2022. The Company does not currently qualify for the corporate alternative minimum tax, and these provisions are not expected to have a material impact to the Company's consolidated financial statements.

Net Loss per Share

Basic net loss per common share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted net loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the entity unless inclusion of such shares would be anti-dilutive. Since the Company has only incurred losses, basic and diluted net loss per share is the same.

A reconciliation of the numerators and the denominators of the basic and diluted net loss per common share computations is as follows (in thousands, except per share amounts):

Year Ended December 31,

Numerator:

Denominator:

Net loss per share - basic and diluted $ (1.92 ) $ (3.00 )

Securities excluded from the computation of diluted loss from per share because including them would have been antidilutive are as follows:

December 31,

Common stock subject to purchase under ESPP 71,653 78,740

Comprehensive Loss

Comprehensive loss is comprised of net loss and adjustments for the change in unrealized gains and losses on investments in available-for-sale marketable securities. The Company displays comprehensive loss and its components in the consolidated statements of operations and comprehensive loss, net of tax effects if any.

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Concentrations of Risk

Credit Risk

Financial instruments which potentially subject the Company to credit risk consist primarily of cash, cash equivalents and marketable securities. The Company holds these investments in highly rated financial institutions, and, by policy, limits the amounts of credit exposure to any one financial institution. These amounts at times may exceed federally insured limits. The Company has not experienced any credit losses in such accounts and does not believe it is exposed to any significant credit risk on these funds. The Company has no off-balance sheet concentrations of credit risk, such as foreign currency exchange contracts, option contracts or other hedging arrangements.

Supplier Risk

Certain materials and key components the Company utilizes in its operations are obtained through single suppliers. Since the suppliers of key components and materials must be named in a New Drug Application (NDA) filed with the FDA for a product, significant delays can occur if the qualification of a new supplier is required. If delivery of material from the Company’s suppliers were interrupted for any reason, the Company may be unable to supply any of its product candidates for clinical trials.

Accounting Pronouncements to Be Adopted

In June 2016, the Financial Accounting Standards Board (the FASB) issued ASU 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires that expected credit losses relating to financial assets measured on an amortized cost basis and available-for-sale debt securities be recorded through an allowance for credit losses. ASU 2016-13 limits the amount of credit losses to be recognized for available-for-sale debt securities to the amount by which carrying value exceeds fair value and requires the reversal of previously recognized credit losses if fair value increases. In April, May and November 2019, the FASB issued additional amendments to the new guidance related to transition and clarification. In November 2019, the FASB issued ASU 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, which deferred the effective date of this standard for all entities except SEC filers that are not smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted. The Company does not expect ASU 2016-13 to have a material impact on its consolidated financial statements and related disclosures.

Note 3 - Investments in Marketable Securities

Investments in marketable available-for-sale securities consisted of the following (in thousands):

AmortizedCost GrossUnrealizedGain GrossUnrealizedLoss Fair Value

Cash equivalents

Short-term marketable securities

U.S. and foreign commercial paper 8,851 — — 8,851

Total cash equivalents and marketable securities $ 89,398 $ — $ (530 ) $ 88,868

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AmortizedCost GrossUnrealizedGain GrossUnrealizedLoss Fair Value

Cash equivalents

Short-term marketable securities

U.S. and foreign corporate debt securities 7,015 — (2 ) 7,013

Long-term marketable securities

U.S. and foreign corporate debt securities 19,117 — (74 ) 19,043

Short-term marketable securities held as of December 31, 2022 and 2021 had contractual maturities of less than one year. Long-term marketable securities held as of December 31, 2021 had contractual maturities of at least one year but less than two years.

Realized gains and losses for the years ended December 31, 2022 and 2021 were not material. As of December 31, 2022, investments which were in a continuous unrealized loss position for more than 12 months were determined to be temporary. None of the Company’s investments had been in a continuous unrealized loss position for more than 12 months as of December 31, 2021. The Company determined it has the ability and intent to hold all marketable securities that have been in a continuous loss position until maturity of recovery and that the gross unrealized losses above were caused by changes in interest rates.

See Note 2 for further information regarding the fair value of the Company's investments in marketable securities.

Note 4 - Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

December 31,

Less: Accumulated depreciation (1,687 ) (1,207 )

Property and equipment, net $ 743 $ 1,139

Depreciation expense was $0.5 million for each of the years ended December 31, 2022 and 2021 and was recorded in both research and development expense and general and administrative expense in the consolidated statements of operations and comprehensive loss.

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Note 5 – Other Accrued Expenses

Other accrued expenses consist of the following (in thousands):

December 31,

Accrued expenses:

Accrued restructuring charges 599 —

Accrued professional fees and other 490 437

Note 6 – Goodwill and Indefinite-Lived Intangible Asset Impairment

Goodwill

In 2021, the Company recognized a full impairment of goodwill after performing a quantitative impairment assessment for its single reporting unit in 2021 due to a sustained decline in its market capitalization, an increase in negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection. The Company estimated and reconciled the fair value of its reporting unit using both a market approach, utilizing the Company’s market capitalization adjusted for an estimated control premium, and the income approach, discounting future cash flows based on management’s expectations of timelines to complete clinical trials, regulatory and commercial probabilities of technical success as well as future earnings forecast. Based on this analysis, and after completing an impairment assessment of its indefinite-lived and long-lived assets, the Company concluded the fair value of its single reporting unit was less than its carrying value and therefore recognized a goodwill impairment charge of $12.6 million during the year ended December 31, 2021. The goodwill impairment charge is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

Indefinite-Lived Intangible Asset

In 2021, the Company recognized a full impairment of its indefinite-lived intangible asset after completing a quantitative impairment test for its IPR&D asset associated with the Assembly Pharmaceuticals, Inc. acquisition prior to the goodwill impairment test. The Company utilized the discounted cash flow model of the income approach and determined the carrying value of its IPR&D asset was fully impaired resulting in an impairment charge of $29.0 million during the year ended December 31, 2021. This was primarily driven by a higher discount rate applied to future cash flows based on a market participant’s view of increased risk associated with a negative economic outlook for biotech markets and a fourth quarter unfavorable clinical trial result for a competitor’s curative combination therapy for HBV infection. More significant assumptions inherent in the development of the model included the estimated annual cash flows, particularly net revenues, the appropriate discount rate to select in order to measure the risk inherent in the future cash flows, cost to complete the IPR&D project as well as other factors. The impairment charge recorded is reflected in impairment of goodwill and indefinite-lived intangible asset in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2021.

Note 7 – Restructurings

In December 2020, the Company and its Board of Directors approved the wind-down of its Microbiome program, which was completed in 2021. The Company incurred cumulative restructuring costs of $4.3 million in connection with the wind-down of its Microbiome program, $3.2 million of which relate to asset impairment and other costs and $1.1 million of which relate to employee severance and related benefits.

In July 2022, the Company and its Board of Directors approved a strategic plan to align with its refocused pipeline on its next generation core inhibitors and research programs and reduced its workforce by approximately 30%. The Company expects to incur total restructuring charges of $1.1 million. Restructuring charges consist solely of employee severance and related benefits which include $1.0 million in severance payments to executive officers impacted by the restructuring, $0.8 million in one-time termination severance payments and other employee-related costs associated with the restructuring and a reversal of $0.7 million for previously recognized stock-based compensation

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expense related to forfeited awards based on the Company's policy of recognizing stock-based awards with graded vesting schedules using an accelerated attribution method on a straight-line basis over the requisite service period for each separately vesting portion of the award and to recognize forfeitures when they occur.

The following table presents where the restructuring charges were recognized on the Company's consolidated statements of operations and comprehensive loss (in thousands):

Year Ended December 31,

Research and development $ 869 $ (1,625 )

General and administrative 228 277

The following table presents the activity in accrued restructuring charges, included as a component of other accrued expenses on the Company's consolidated balance sheet, during the period (in thousands):

Accrued balance as of December 31, 2021 $ — $ — $ —

Reductions for cash payments (1,280 ) — (1,280 )

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The Company expects the accrued restructuring charges to be fully paid by mid-2023.

Microbiome Purchase Agreement

In December 2021, the Company entered into an asset purchase agreement (the Microbiome Purchase Agreement) with a third party pursuant to which the Company sold know-how, patents, materials and regulatory filings for the Company’s Microbiome program. The sale included ABI-M201 (M201), which had been the Company’s lead candidate in its Microbiome program. As consideration for the sale, the Company was entitled to receive $3.0 million, of which $1.5 million was received in 2021 and the remaining $1.5 million was received in 2022. The Company is also entitled to receive a $10.0 million milestone payment upon the achievement of a regulatory approval milestone as defined in the purchase agreement.

The Microbiome Purchase Agreement is within the scope of gains and losses from the derecognition of nonfinancial assets guidance since the Company had previously wound-down the Microbiome program, M201 was no longer a part of the Company’s ongoing major or central operations. The Company determined all assets sold under the Microbiome Purchase Agreement represent one distinct nonfinancial asset as individually, they do not have standalone value. The transaction price at the inception of the agreement was limited to the $3.0 million upfront payments. The variable consideration relating to the $10.0 million milestone has not been included in the transaction price as it was fully constrained as of December 31, 2022 and 2021. As part of the Company’s evaluation of the development milestone constraint, it determined the achievement of the milestone is contingent upon success in future clinical studies and regulatory approvals which are not within its control and uncertain at this stage. The assets sold had no carrying value and the full $3.0 million transaction price resulted in the recognition of a gain upon the transfer of control of the assets sold in the year ended December 31, 2021. The $3.0 million gain is included as a reduction of research and development expenses in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2021. The $1.5 million due as of December 31, 2021 was included in prepaid expenses and other current assets on the Company’s consolidated balance sheet.

Note 8 - Stockholders’ Equity

The Company is authorized to issue 5,000,000 shares of preferred stock as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, no shares of preferred stock were issued and outstanding. In May 2022, the Company's stockholders approved the Sixth Amended and Restated Certificate of Incorporation, which increased the authorized number of shares of common stock from 100,000,000 to 150,000,000.

Sale of Common Stock

In August 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, File No. 333-248469, that became effective on September 4, 2020 (the 2020 Registration Statement). The Company may from time to time sell any combination of the securities described in the 2020 Registration Statement in one or more offerings up to an aggregate offering price of $300.0 million. In connection with the filing of the 2020 Registration Statement, the Company entered into a sales agreement under which the Company may offer and sell shares of its common stock having an aggregate offering price of up to $100.0 million through “at-the-market” offerings (2020 ATM), which shares are included in the $300.0 million of securities registered pursuant to the 2020 Registration Statement. During the year ended December 31, 2021, the Company issued and sold 11,234,207 shares of common stock under the 2020 ATM, for which the Company received net proceeds of $52.8 million, after deducting commissions, fees and expenses. During the year ended December 31, 2022, the Company issued and sold 300,827 shares of common stock under the 2020 ATM, for which the Company received net proceeds of $0.3 million, after deducting commissions, fees and expenses.

Common Stock Warrants

In December 2019, the Company sold to various investors an aggregate of 6,287,878 shares of common stock as well as pre-funded warrants to purchase 2,424,242 shares of common stock. The pre-funded warrants were immediately exercisable upon issuance at an exercise price of $0.001 per share and were recorded at the issuance date using a relative fair value allocation method as a component of permanent stockholders' equity within additional paid-in capital. During the year ended December 31, 2021, all 2,424,242 pre-funded warrants were exercised through a cashless exercise, resulting in the issuance of 2,423,634 shares of the Company’s common stock.

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Note 9 - Stock-Based Compensation

Equity Incentive Plans

In May 2021, the Company’s stockholders approved an amendment to the 2018 Stock Incentive Plan (the 2018 Plan) that increased the aggregate number of shares of common stock reserved under the 2018 Plan to 6,600,000 and to the Assembly Biosciences, Inc. Employee Stock Purchase Plan (the 2018 ESPP) that, among other things, increased the number of shares of common stock reserved to an aggregate of 1,300,000.

In May 2022, the Company’s stockholders approved an amendment to the 2018 Plan that increased the aggregate number of shares of common stock reserved under the 2018 Plan to 8,600,000.

As of December 31, 2022, the Company had awards outstanding under the following shareholder approved plans: 2010 Equity Incentive Plan (the 2010 Plan), which has been frozen; the Amended and Restated 2014 Stock Incentive Plan (the 2014 Plan); and the 2018 Plan. Shares of common stock underlying awards that are forfeited under the 2010 Plan on or after June 2, 2016 will become available for issuance under the 2014 Plan. As of December 31, 2022, the Company also had awards outstanding under the Assembly Biosciences, Inc. 2017 Inducement Award Plan, the 2019 Inducement Award Plan and the Assembly Biosciences, Inc. 2020 Inducement Award Plan.

The Company issues new shares of common stock to settle options exercised or vested RSUs. The Company also issues new shares of common stock in connection with purchases of shares of common stock by eligible employees under the Company’s 2018 ESPP.

Stock Plan Activity

Stock Options

The following table summarizes the stock option activity and related information for 2022:

ASMB US Equity

ASMB · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

ASMB US Equity☆

ASMB · 10-K · period ended 2022-12-31

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Item 8. Financial Statements and Supplementary Data

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Item 9A. Controls and Procedures

Item 9B. Other Information

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections

Item 10. Directors, Executive Officers and Corporate Governance

Item 11. Executive Compensation

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Item 13. Certain Relationships and Related Party Transactions, and Director Independence

Item 14. Principal Accountant Fees and Services

Item 15. Exhibits, Financial Statement Schedules

Item 16. Form 10-K Summary

ASMB US Equity