Arbutus Biopharma (ABUS): A hidden gem in COVID-19 that is likely to stake a claim to Moderna’s

COVID-19 vaccine

Signs pointing to victory in upcoming IP battle with Moderna

ABUS may be entitled to royalties on MRNA products (including the COVID-19 vaccine in development)

Recent NEJM article on MNRA Phase 1 study bolsters case on IP issues

Executive Summary

Arbutus (ABUS) currently trades at a very low market capitalization (approximately $125 million) and an
even lower enterprise value (approximately $40 million when one uses the Company’s cash balance on
3/31/2020).

We believe that two interesting catalysts are coming together that could add substantial shareholder
value to Arbutus: 1) we believe the company will at least partially prevail in their third and final inter
partes review (IPR) with Moderna (MRNA) and 2) Moderna is rapidly approaching commercialization with
their COVID-19 vaccine (mRNA-1273).

Moderna’s pipeline of products (including mRNA-1273) utilizes lipid nanoparticles (“LNPs”) to deliver the
drug into cells. Arbutus has substantial intellectual property in the area of LNPs and at one point Moderna
had a limited sublicense to Arbutus’ LNP intellectual property.

Moderna hasn’t revealed much to the public about the LNPs that they use in their individual pipeline
products, but we DO know that they have a problem with some of ABUS’ LNP intellectual property. They
sought inter partes reviews (IPRs) for three separate Arbutus issued patents related to LNPs. Moderna
was victorious in the first IPR but both companies could declare victory in the second (a significant number
of claims from the patent remain intact). The third and final IPR will be decided on or before July 24,
2020.

Based upon a review of the patents and the results from the 2nd IPR in addition to other documents
published by the Patent Trial and Appeal Board (PTAB), we believe ABUS will be at least partially victorious
in the third IPR. Furthermore, we believe that as a result of another partial victory on the third and final
IPR, ABUS shareholders will have a claim on Moderna’s pipeline including mRNA-1273. We expect that
the closer Moderna gets to getting approval for their COVID-19 vaccine, the closer Arbutus will get to filing
an infringement lawsuit against COVID or settling for a large cash payment.

We believe another (at least) partial victory in the upcoming final decision for the third Moderna/Arbutus
IPR sets the stage for Arbutus to seek a royalty from Moderna on its commercial products including their
COVID-19 vaccine. Based upon industry standard royalty rates (approximately 2%), the royalties to
Arbutus could be substantial especially if Moderna’s vaccine gets anywhere near the $10 billion to $20
billion annual revenue estimate recently provided by Jefferies analyst Michael Yee.

The recent publication of the Moderna COVID-19 vaccine Phase 1 results raise our conviction that an
infringement lawsuit by Arbutus is forthcoming. Moderna felt it necessary to heavily redact any mention
of the specific components of the LNP used in their vaccine. In fact 100% of the redactions in the
documents were related to the LNP. There is one company they are actively embroiled in an LNP IP
dispute with Moderna and it is Arbutus. If Moderna was comfortable with the LNP intellectual property
they have, they would have had no problem sharing this information publicly.

We do not believe success at the upcoming IPR final decision and a potential royalty on Moderna
products is built into Arbutus’ stock price currently. We think the near term risk reward heavily favors
ABUS stock as we head into the final decision on the IPR which will then set up even more substantial
shareholder value as Moderna’s COVID-19 vaccine approaches approval.

Introduction

Moderna has said publicly in 2017 that it ‘doesn’t need’ a license from Arbutus for LNPs and disparaged
Arbutus’ technology. However, just one year later they filed IPRs against two Arbutus LNP patents (filed
on 2/21/2018 for the ‘127 patent and 3/5/2018 for the ‘435 patent). Then, in early 2019 they filed an IPR
on a third Arbutus LNP patent (filed 1/9/2019 for the ‘069 patent’).

We do not believe Moderna management when they claim to not require a license to Arbutus LNP IP. If
this was the case, then why file THREE IPRs seeking to invalidate the patents in question. And these are
the ONLY issued LNP patents that Moderna management appears to be worried about: they have filed
an IPR on only four patents and the only one that isn’t against Arbutus has no relevance to LNPs. Here is
a summary of Moderna’s IPRs and the status of each (found here):

What would an LNP royalty for Arbutus shareholders look like?

Arbutus currently has a royalty on Alnylam’s ONPATTRO since Alnylam uses Arbutus LNP technology to
deliver the product. The royalty is between 1.00% and 2.33% depending on product sales with the highest
rate being for annual sales above $500 million.

Analysts are very bullish on Moderna’s prospects with its COVID-19 vaccine. One analyst (Michael Yee at
Jefferies) believes that Moderna may be able to generate annual revenue of $10 billion to $20 billion.

If we use 2% as an average royalty rate on Moderna’s annual sales, we arrive at the following annual
royalties to Arbutus:
 Annual Annual
Royalty Moderna Royalty
Rate Sales to Arbutus
2.0% $3,000,000,000 $60,000,000
2.0% 4,000,000,000 80,000,000
2.0% 5,000,000,000 100,000,000
2.0% 7,500,000,000 150,000,000
2.0% 10,000,000,000 200,000,000
2.0% 20,000,000,000 400,000,000

Even at modest sales compared to estimates, Arbutus shareholders would be entitled to a massive
*annual* royalty.

Timing is everything. Arbutus investors may wonder why—given its stated public opinion that Moderna
is likely infringing on its LNP intellectual property—Arbutus hasn’t moved forward with a lawsuit against
Moderna yet. We believe that prior to COVID-19, there was no business reason for Arbutus to do this.
Back when the companies were bickering publicly about the IP in 2017, Moderna was not remotely close
to having a commercial product on the market. Fast forward to 2020 and suddenly Moderna is (according
to them) on the brink of a commercial COVID-19 vaccine that definitely uses LNP technology. Here is how
we summarize the key points in the situation:

- 2017: Moderna attempts to license the IP in question from Acuitas.

- 2017: Arbutus successfully sues Acuitas to block them from licensing the IP to Moderna.
- 2017: Moderna publicly states they didn’t need a license to Arbutus’ LNP IP and that they thought
the technology ‘was not very good’.
- 2018: Moderna files two IPRs against issued Arbutus LNP patents
- 2019: Moderna files a third IPR against an issued Arbutus LNP patent
- 2020: Moderna says it could have a COVID-19 vaccine on the market by year end 2020

We find that Moderna’s disparaging comments about Arbutus’ LNP IP estate to be highly contradictory of
its actions in the following years with respect to the IPRs. We believe that Moderna knows that there is a
high probability Arbutus would prevail in a claim on its products. And we also know that Moderna has
not been fully successful in invalidating some of Arbutus’ IP.

Until there is a product approaching the market that generates revenue, there is no reason for a patent
holder to aggressively pursue litigation. Now that the third IPR will conclude later this month and
Moderna is rapidly approaching the market, we fully expect Arbutus to sue Moderna for infringement.
There are multiple outcomes of this suit, most of which are favorable to Arbutus shareholders:

1) Moderna and Arbutus could settle, which would almost certainly result in Arbutus getting a
royalty for product sales of the COVID-19 vaccine and possibly other products in the pipeline.
2) The lawsuit is litigated to a ruling in favor of Arbutus, at which time Arbutus would almost certainly
get a royalty plus damages.
3) The lawsuit is litigated to a ruling in favor of Moderna, at which time Arbutus would likely get
nothing.
LNP-related redactions in the recent publication of Moderna’s Phase 1 results for its COVID-19 vaccine
are a big red flag. These redactions provide big clues as to what Moderna is concerned with and what
likely lies ahead.

On 7/14/2020, Moderna along with NIAID published their Phase 1 clinical trial results for its COVID-19
vaccine. There are three separate documents published on the NEJM website: the manuscript itself, the
supplementary data section and the clinical trial’s protocol. The longest and most detailed of these three
is the clinical trial protocol, which is essentially a ‘how to’ manual for the trial itself. We noticed several
redactions (black boxes) in the document—which appear to all be related to descriptions of the LNP used
in the vaccine. Here are two of the redactions as examples:

Below is a summary of all the redactions found in the NEJM publication:

 Document Total LNP related
Section Page Redactions Redactions
Version 1.0 14 1 1
18 1 1
19 6 6
25 1 1
30 2 2
33 1 1
Version 2.0 85 1 1
90 2 2
91 5 5
97 1 1
102 2 2
105 1 1
Statistical plan 159 1 1
164 2 2
27 27

100% of the redactions are related to descriptions of the LNPs. Beyond the specificity and sheer
volume, we find a number of things very curious about these redactions:

- The redactions (intentionally) make it impossible to know what the exact component “recipe” for
the LNPs used in the COVID-19 vaccine
o The “recipe” for an effective LNP to deliver nucleic acids (which is what Moderna is
delivering in their vaccine in the form of RNA) is the subject of both the ‘435 patent and
the ‘069 patent. Recall that several claims remain in the ‘435 patent following the IPR
and even more claims could remain for Arbutus after the upcoming ‘069 IPR final decision.
- If Moderna was comfortable with its own LNP IP estate, and are certain that its COVID-19 LNP
does not infringe on ANY company’s LNP IP, they would be more than comfortable allowing the
LNP details to be made public. Certainly if what they have was proprietary they would already
have their own IP around it and thus sharing it is of no concern. As we pointed out, the LNP details
are the ONLY things that were redacted. It isn’t as though Moderna is acting like everything they
do is a secret—the rest of the details of their product were readily made available.
- Moderna is embroiled in an LNP IP battle with exactly one company: Arbutus. By redacting these
details Moderna is making it painfully obvious that they think there may be a looming IP problem.

We believe that Moderna is only trying to delay the inevitable with these redactions. We believe that
Arbutus will file an infringement shortly and Moderna is obscuring the details of their possible
infringement in order to give less ammunition to Arbutus lawyers.

The three LNP IPRs targeting Arbutus patents and these rampant redactions indicate to us that there is
something Moderna is *very* concerned about with respect to its LNP. No amount of public statements
by management to the contrary will refute their actions which speak loudly that they believe there is an
infringement issue.
Arbutus does not need to prevail in the upcoming ‘069 IPR final decision to file an infringement lawsuit.

Although we believe the upcoming final decision in the ‘069 IPR will be at least a partial victory for Arbutus,
we do not believe a victory is necessary for them to file an infringement lawsuit (technically anyone can
file suit on any matter whenever they like). Arbutus already has at least 19 other issued LNP patents in
its estate. Moderna is on the brink of at least partially losing its third and final LNP IPR and their actions
in the NEJM publication are a confirmatory red flag.

There are some very important claims that Moderna was unable to strike in the ‘435 patent—the status
of which will not be affected by the ‘069 final decision. Here is one example that could pose a huge
problem for Moderna:

“Fully encapsulated”? Based upon their marketing materials (source here under ‘Supporting Materials’),
we believe Moderna is making LNPs that fully encapsulate the nucleic acid (mRNA):

Keep in mind that Arbutus would only need to prevail on a single claim in order to win an infringement
lawsuit against Arbutus. One can no easier ‘partially’ win an infringement lawsuit than one can be
‘partially’ pregnant. Moderna needs to prove it infringed on zero Arbutus claims.

Summary

- We believe that Arbutus shares set up very favorably from a risk/reward standpoint over the
coming weeks.
- We believe that Arbutus will prevail on at least a portion of claims in the upcoming final decision
on the ‘069 patent IPR. We believe Arbutus already can and will file an infringement lawsuit
against Moderna with its existing IP, so a victory is not needed.
- The closer Moderna gets to commercialization of its COVID-19 vaccine, the closer we believe
Arbutus gets to filing an infringement lawsuit against Moderna. The Arbutus CEO has publicly
stated “Moderna can’t escape my intellectual property”.
- In its core hepatitis therapeutic business, Arbutus has multiple catalysts coming in the second half
of 2020 which could add to share value without any contribution from the LNP IP.
Background on the three IPRs

As we stated previously, three out of the four IPRs that PTAB has instituted on behalf of petitioner
Moderna involve Arbutus’ technology. The three Moderna/Arbutus IPRs involve the following issued
Arbutus patents:

1) US Patent 9,404,127 aka ‘127 entitled “Non-liposomal systems for nucleic acid delivery”
2) US Patent 9,364,435 aka ‘435 entitled “Lipid formulations for nucleic acid delivery”
3) US Patent 8,058,069 aka ‘069 entitled “Lipid formulations for nucleic acid delivery”

Here is a summary of the various key dates for the three Moderna/Arbutus IPRs (source here; search
“Moderna” in Party Name box):

Case
Milestone '127 '435 '069
Filing Date 2/21/2018 3/5/2018 1/9/2019
Institution Decision Date 9/12/2018 9/12/2018 7/24/2019
Trial Hearing 6/6/2019 6/6/2019 4/22/2020
Hearing Transcript 6/27/2019 6/27/2019 N/A
Final Decision Date 9/10/2019 9/11/2019 7/24/2020

Based on the chart above, we note the following:

1) The third and final (for now) Moderna/Arbutus IPR will reach a final decision by PTAB (Patent Trial
and Appeal Board) on or before 7/24/2020
2) The PTAB grouped the ‘127 and ‘435 cases together for the purpose of evaluating them
3) There is no hearing transcript available for the ‘069 case, likely due to COVID-19.

Here are what we believe to be the key datapoints for each IPR:

1) Case ‘127
a. Was a clear win for Moderna: claims 1 through 22 (all) were invalidated as being
unpatentable by PTAB
2) Case ‘435
a. Both Arbutus and Moderna could claim victory here: claims 1-6, 9, 12, 14 and 15 were
invalidated but the remainder remain valid (claims 7, 8, 10, 11, 13 and 16-20)
3) Case ‘069
a. Final decision due on or before 7/24/2020
b. Similar to ‘435 and ‘127, Moderna is seeking to invalidate all 22 issued claims

Why we have confidence that Arbutus will prevail in its third IPR

We believe that Arbutus will at least partially prevail at the upcoming final PTAB decision on the ‘069
patent for the following reasons:
 1) The ‘069 patent is the parent of the ‘435 patent (in technical terms the ‘435 patent is a
continuation in part or CIP of the ‘069 patent. Arbutus has already succeeded in getting
numerous claims of this patent family held up by PTAB.
2) There are many similar claims between the ‘069 and ‘435 patent. The green arrows below show
the claims from the ‘435 patent that were upheld in Arbutus’ favor in the ‘435 final decision:

Here are what we believe to be very similar claims in the ‘069 patent that we think stand a very high
chance of being upheld in the upcoming final decision (green arrows):

3) The prior art cited against the ‘435 patent is identical to the prior art cited against the ‘069
patent—a fact that was acknowledged by PTAB when instituting IPR on ‘069.
 a. The key piece of prior art cited against both the ‘435 and ‘069 (referred to as the ‘554
publication in both trials) relies almost entirely on a single LNP formulation (referred to
as the L054 formulation). This L054 formulation utilizes percentages of LNP components
(cationic lipid, etc.) that fall within ranges of those described in the ‘435 and ‘069
independent claim (Claim 1).
b. With respect to the ‘435 IPR decision, PTAB determined that some of the dependent
claims should be upheld where Arbutus narrowed some of the LNP component ranges
based upon data showing these narrower ranges were superior.
c. The L054 formulation describes a single formulation. Similar to the ‘435 patent, the ‘069
describes more specific LNP component ranges that its data show are superior to others
(see green arrows above).

In determining that multiple claims from the ‘435 patent should be upheld, PTAB cited that the mere
publication of the L045 formulation (in the ‘554 publication) does not teach the specific ranges cited by
Arbutus and that someone ‘skilled in the arts’ could not utilize the L045 formulation to come up with the
ranges specified by the ‘435 patent. We believe they will apply the exact same logic to the ‘069 final
decision given the parallels between the two Arbutus patent claim families and the fact that the L045
formulation was the single most important piece of prior art in the ‘435 patent. It is out belief that
Arbutus will prevail in the ‘069 final decision on some key claims, similar to the outcome of the ‘435
final decision.

Why does success by Arbutus in the upcoming ‘069 IPR final decision matter to ABUS shareholders?

There is clearly something about Arbutus’ issued LNP IP estate that bothers Moderna, despite external
claims by Moderna’s CEO to the contrary. Seeking to invalidate three different patents over a two year
period is no minor issue. At this point, we already know that a sizeable portion of the contested
intellectual property has been upheld. We believe that the upcoming ‘069 final decision will add to this
body of upheld LNP IP held by Arbutus. And this doesn’t even consider the fact that Arbutus has at least
19 other issued patents relating to LNP technology that are not the subject of an IPR.