Company Quick10K Filing
AVROBIO
Price14.38 EPS-2
Shares32 P/E-9
MCap455 P/FCF-9
Net Debt-207 EBIT-50
TEV248 TEV/EBIT-5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-07
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10-K 2018-12-31 Filed 2019-03-25
10-Q 2018-09-30 Filed 2018-11-13
10-Q 2018-06-30 Filed 2018-08-09
S-1 2018-05-25 Public Filing
8-K 2020-06-16
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8-K 2018-06-20

AVRO 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures.
Part II - Other Information
Item 1. Legal Proceedings.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3. Defaults Upon Senior Securities.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
Item 6. Exhibits.
EX-31.1 avro-ex311_7.htm
EX-31.2 avro-ex312_6.htm
EX-32.1 avro-ex321_8.htm

AVROBIO Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 avro-10q_20200331.htm 10-Q avro-10q_20200331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission File Number: 001-38537

 

AVROBIO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

81-0710585

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

One Kendall Square

Building 300, Suite 201

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617) 914-8420

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.0001 par value per share

 

AVRO

 

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of April 30, 2020, the registrant had 36,035,459 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Balance Sheets

1

 

Statements of Operations and Comprehensive Loss

2

 

Statement of Stockholders’ Equity (Deficit)

3

 

Statements of Cash Flows

4

 

Notes to Financial Statements

5

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

15

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

24

Item 4.

Controls and Procedures

25

PART II.

OTHER INFORMATION

26

Item 1.

Legal Proceedings

26

Item 1A.

Risk Factors

26

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

67

Item 3.

Defaults Upon Senior Securities

67

Item 4.

Mine Safety Disclosures

67

Item 5.

Other Information

67

Item 6.

Exhibits

68

 

Signatures

69

 

 

i


Forward-looking Information

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as  “aims,” “anticipates,” “believes,” “continue,” “could,” “designed to,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “strives,” “should,” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

the impact of the COVID-19 outbreak on our clinical trial programs and business generally, as well as our plans and expectations with respect to the timing and resumption of any development activities that may be temporarily paused as a result of the COVID-19 outbreak;

 

the timing, progress and results of preclinical studies and clinical trials for our programs and product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

the existence or absence of side effects or other properties relating to our product candidates which could delay or prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences following any potential marketing approval;

 

the durability of effects from our product candidates;

 

the timing, scope or likelihood of regulatory filings and approvals;

 

our ability to develop and advance product candidates into, and successfully complete, clinical studies;

 

our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use;

 

the implementation of our business model and our strategic plans for our business, product candidates, technology and plato™ platform, including our transition to and expected benefits of a proprietary four-plasmid-produced lentiviral vector and our use of a therapeutic drug monitoring conditioning regimen with busulfan;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

the pricing and reimbursement of our product candidates, if approved;

 

the scalability and commercial viability of our manufacturing methods and processes, including our move to a closed, automated system;

 

the rate and degree of market acceptance and clinical utility of our product candidates, in particular, and gene therapy, in general;

 

our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;

 

our competitive position;

 

the scope of protection we and/or our licensors are able to establish and maintain for intellectual property rights covering our current and future product candidates, as well as any statements as to whether we do or do not infringe, misappropriate or otherwise violate any third-party intellectual property rights;

 

our financial performance;

 

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

developments and projections relating to our competitors and our industry;

 

our expectations related to the use of our cash reserves;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our ability to remediate the material weaknesses that we and our independent registered public accounting firm previously identified and avoid any findings of material weaknesses or significant deficiencies in the future;

 

the impact of laws and regulations, including without limitation recently enacted tax reform legislation;

 

our expectations regarding the time during which we are an emerging growth company under the JOBS Act; and

 

other risks and uncertainties, including those listed under the caption “Risk Factors.”

ii


 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

 

iii


PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

257,695

 

 

$

187,043

 

Prepaid expenses and other current assets

 

 

7,652

 

 

 

8,658

 

Total current assets

 

 

265,347

 

 

 

195,701

 

Property and equipment, net

 

 

3,407

 

 

 

3,696

 

Other assets

 

 

974

 

 

 

1,117

 

Total assets

 

$

269,728

 

 

$

200,514

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,135

 

 

$

3,949

 

Accrued expenses and other current liabilities

 

 

10,638

 

 

 

10,068

 

Total current liabilities

 

 

12,773

 

 

 

14,017

 

Deferred rent, net of current portion

 

 

430

 

 

 

484

 

Total liabilities

 

 

13,203

 

 

 

14,501

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized and no shares

   issued or outstanding as of March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 shares authorized as of March 31,

   2020 and December 31, 2019; 36,031,166 and 31,673,058 shares issued as of

   March 31, 2020 and December 31, 2019, respectively; 36,010,998 and

   31,642,806 shares outstanding as of March 31, 2020 and December 31, 2019,

   respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

427,198

 

 

 

330,714

 

Accumulated deficit

 

 

(170,677

)

 

 

(144,704

)

Total stockholders’ equity

 

 

256,525

 

 

 

186,013

 

Total liabilities and stockholders’ equity

 

$

269,728

 

 

$

200,514

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except share and per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

$

18,274

 

 

$

12,446

 

General and administrative

 

 

8,315

 

 

 

5,254

 

Total operating expenses

 

 

26,589

 

 

 

17,700

 

Loss from operations

 

 

(26,589

)

 

 

(17,700

)

Other income (expense):

 

 

 

 

 

 

 

 

Interest income

 

 

632

 

 

 

657

 

Other expense

 

 

(16

)

 

 

(60

)

Total other income (expense), net

 

 

616

 

 

 

597

 

Net loss

 

$

(25,973

)

 

$

(17,103

)

Comprehensive loss

 

$

(25,973

)

 

$

(17,103

)

Net loss per share attributable to common stockholders—basic and

   diluted (Note 10)

 

$

(0.77

)

 

$

(0.72

)

Weighted-average number of common shares used in computing net loss

   per share attributable to common stockholders—basic and diluted

 

 

33,666,801

 

 

 

23,893,696

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

2


CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(in thousands, except share data)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

31,642,806

 

 

$

3

 

 

$

330,714

 

 

$

(144,704

)

 

$

186,013

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,822

 

 

 

 

 

 

2,822

 

Exercise of stock options

 

 

7,438

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Vesting of restricted stock awards and units

 

 

10,754

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon public

   offering, net of offering costs of $419

 

 

4,350,000

 

 

 

1

 

 

 

93,627

 

 

 

 

 

 

93,628

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,973

)

 

 

(25,973

)

Balance as of March 31, 2020

 

 

36,010,998

 

 

 

4

 

 

 

427,198

 

 

 

(170,677

)

 

 

256,525

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of December 31, 2018

 

 

23,806,628

 

 

 

2

 

 

 

193,921

 

 

 

(71,739

)

 

 

122,184

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,455

 

 

 

 

 

 

1,455

 

Exercise of stock options

 

 

116,859

 

 

 

 

 

 

252

 

 

 

 

 

 

252

 

Vesting of restricted stock awards

 

 

30,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,103

)

 

 

(17,103

)

Balance as of March 31, 2019

 

 

23,954,241

 

 

$

2

 

 

$

195,628

 

 

$

(88,842

)

 

$

106,788

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(25,973

)

 

$

(17,103

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

283

 

 

 

190

 

Stock-based compensation expense

 

 

2,822

 

 

 

1,455

 

Deferred rent expense

 

 

(53

)

 

 

(40

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

976

 

 

 

(1,485

)

Other assets

 

 

319

 

 

 

 

Accounts payable

 

 

(1,443

)

 

 

671

 

Accrued expenses and other current liabilities

 

 

635

 

 

 

(1,426

)

Net cash used in operating activities

 

 

(22,434

)

 

 

(17,738

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(577

)

 

 

(340

)

Net cash used in investing activities

 

 

(577

)

 

 

(340

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

35

 

 

 

252

 

Proceeds from issuance of common shares upon completion of public offering,

   net of offering costs

 

 

93,628

 

 

 

 

Net cash provided by financing activities

 

 

93,663

 

 

 

252

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

70,652

 

 

 

(17,826

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

187,535

 

 

 

126,794

 

Cash, cash equivalents and restricted cash at end of period

 

$

258,187

 

 

$

108,968

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment held for sale

 

$

 

 

$

336

 

Offering costs included in accrued expenses and accounts payable

 

$

249

 

 

$

 

Reconciliation of cash, cash equivalents and restricted cash reported within the

   condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

257,695

 

 

$

108,476

 

Long-term restricted cash (included in other assets)

 

 

492

 

 

 

492

 

Cash, cash equivalents and restricted cash at end of period

 

$

258,187

 

 

$

108,968

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1. Nature of the Business

AVROBIO, Inc. (the “Company” or “AVROBIO”) is a clinical-stage gene therapy company focused on developing potentially curative ex vivo lentiviral gene therapies to treat rare diseases following a single dose treatment regimen.

 

The Company is subject to risks and uncertainties common to clinical-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.               

The Company has incurred recurring losses since its inception, including net losses of $25,973 and $17,103 for the three months ended March 31, 2020 and 2019, respectively. In addition, as of March 31, 2020, the Company had an accumulated deficit of $170,677. The Company has primarily funded these losses through the proceeds from sales of common and preferred stock. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of March 31, 2020 of $257,695 will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the filing date of this Quarterly Report on Form 10-Q with the SEC.  However, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.   

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2019, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of March 31, 2020, and the results of its operations for the three months ended March 31, 2020 and 2019, its statements of stockholders’ equity for the three months ended March 31, 2020 and 2019 and its statement of cash flows for the three months ended March 31, 2020 and 2019.

The results for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of March 31, 2020, there have been no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as it related to the adoption of new accounting standards during the first three months of 2020 as discussed below.

 

5


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, stock-based compensation expense, the valuation of equity and derivative instruments and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering (“IPO”) or such earlier time that it is no longer an “emerging growth company”.

Subsequent Event Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

 

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606, or ASU 2018-18. The amendments in ASU 2018-18 clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. The amendments under ASU 2018-18 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The amendments in ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606. The Company adopted ASU 2018-18 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40), or ASU 2018-15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

In August 2018, The FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments are effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for either the entire ASU or only the provisions that eliminate or modify requirements. The amendments with respect to changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

 

6


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

 

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses” or ASU 2019-11. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in both ASU 2016-13 and ASU 2019-11 are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13 and ASU 2019-11 are effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating ASU 2016-13 and ASU 2019-11 and their impact on its condensed consolidated financial statements and financial statement disclosures.

In February 2016, the FASB issued ASU No. 2016-02, (Topic 842) Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2021, and all interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

.

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of March 31, 2020 and December 31, 2019:

 

 

 

Fair Value Measurements as of March 31, 2020 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

253,588

 

 

$

 

 

$

 

 

$

253,588

 

Restricted cash

 

 

492

 

 

 

 

 

 

 

 

 

492

 

 

 

$

254,080

 

 

$

 

 

$

 

 

$

254,080

 

 

 

 

Fair Value Measurements as of December 31, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

186,797

 

 

$

 

 

$

 

 

$

186,797

 

Restricted cash

 

 

492

 

 

 

 

 

 

 

 

 

492

 

 

 

$

187,289

 

 

$

 

 

$

 

 

$

187,289

 

 

There were no transfers within the hierarchy during the three months ended March 31, 2020 or the year ended December 31, 2019.

 

7


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Tax incentive refund

 

$

2,034

 

 

$

1,916

 

Prepaid research and development costs

 

 

4,006

 

 

 

4,915

 

Prepaid insurance

 

 

410

 

 

 

897

 

Interest income receivable

 

 

149

 

 

 

224

 

Prepaid rent

 

 

87

 

 

 

86

 

Other current assets

 

 

966

 

 

 

620

 

 

 

$

7,652

 

 

$

8,658

 

 

5. Property and Equipment, Net

Property and equipment, net consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Laboratory and office equipment

 

$

3,450

 

 

$

3,456

 

Leasehold improvements

 

 

1,340

 

 

 

1,340

 

Computer equipment and software

 

 

134

 

 

 

134

 

 

 

 

4,924

 

 

 

4,930

 

Less: Accumulated depreciation and amortization

 

 

(1,517

)

 

 

(1,234

)

 

 

$

3,407

 

 

$

3,696

 

 

Depreciation and amortization expense for the three months ended March 31, 2020 and 2019 was $283 and $190, respectively.    

6. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consisted of the following:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Compensation and benefit costs

 

$

1,931

 

 

$

3,028

 

Research and development costs

 

 

6,873

 

 

 

5,794

 

Consulting and professional fees

 

 

974

 

 

 

917

 

Other liabilities

 

 

860

 

 

 

329

 

 

 

$

10,638

 

 

$

10,068

 

 

8


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

7. Stockholders’ Equity         

 

Common Stock

As of March 31, 2020 and December 31, 2019, the authorized capital stock of the Company included 150,000,000 shares of common stock, $0.0001 par value and 10,000,000 shares of undesignated preferred stock. As of March 31, 2020 and December 31, 2019, no undesignated preferred stock was outstanding.

In accordance with the Fourth Amended and Restated Certificate of Incorporation, the holders of the common stock shall have the exclusive right to vote for the election of directors of the Company and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law, holders of common stock, as such, shall not be entitled to vote on any amendment to a certificate of designations of any series of undesignated preferred stock that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of undesignated preferred stock if the holders of such affected series of undesignated preferred stock are entitled to vote, either separately or together with the holders of one or more other such series, on such amendment pursuant to a certificate of designations of any series of undesignated preferred stock.

Through March 31, 2020, no cash dividends have been declared or paid.

Common Stock Reserved for Future Issuance

At March 31, 2020 and December 31, 2019, the Company has reserved the following shares of common stock for future issuance:

 

 

 

March 31,

2020

 

 

December 31,

2019

 

Shares reserved for vesting of restricted stock awards

 

 

20,168

 

 

 

30,252

 

Shares reserved for exercise of outstanding stock options

 

 

5,310,482

 

 

 

3,414,445

 

Shares reserved for vesting of restricted stock units

 

 

1,630

 

 

 

2,300

 

Shares reserved for issuance under the 2018 Stock Option

   and Grant Plan

 

 

202,260

 

 

 

332,513

 

Shares reserved for issuance under the 2018 Employee Stock

   Purchase Plan

 

 

776,325

 

 

 

459,595

 

Shares reserved for issuance under the 2019 Inducement Plan

 

 

1,296,000

 

 

 

1,800,000

 

Total shares of authorized common stock reserved for future

   issuance

 

 

7,606,865

 

 

 

6,039,105

 

 

8. Stock-Based Compensation

Stock Option Valuation

The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and members of the board of directors were as follows, presented on a weighted-average basis:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Expected option life (years)

 

 

6.00

 

 

 

6.00

 

Risk-free interest rate

 

 

0.96

%

 

 

2.53

%

Expected volatility

 

 

75.49

%

 

 

80.57

%

Expected dividend yield

 

 

%

 

 

%

 

9


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

The following table summarizes the Company’s stock option activity for the three months ended March 31, 2020:

 

 

 

Number of

Options

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted-

Average

Remaining

Contractual

Term

(Years)

 

 

Aggregate

Intrinsic

Value

 

Outstanding as of December 31, 2019

 

 

3,414,445

 

 

$

12.08

 

 

 

8.43

 

 

$

29,353

 

Granted

 

 

1,932,713

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercised

 

 

(7,438

)

 

 

 

 

 

 

 

 

 

 

 

 

Cancelled or forfeited

 

 

(29,238

)

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding as of March 31, 2020

 

 

5,310,482

 

 

$

15.25

 

 

 

8.83

 

 

$

17,718

 

Exercisable as of March 31, 2020

 

 

1,319,413

 

 

$

7.66

 

 

 

7.45

 

 

$

11,932

 

 

The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s common stock.

 

The aggregate intrinsic value of options exercised during the three months ended March 31, 2020 and 2019 was $133 and $1,363, respectively.

The weighted-average grant-date fair value of the Company’s stock options granted during the three months ended March 31, 2020 and 2019 was $13.68 and $11.41, respectively.

Restricted Common Stock

The following table summarizes the Company’s restricted common stock activity for the three months ended March 31, 2020:

 

 

 

Number

of Shares

 

 

Weighted-

Average

Grant

Date Fair

Value

 

Issued and unvested as of December 31, 2019

 

 

32,552

 

 

$

1.50

 

Granted

 

 

 

 

 

 

 

Vested

 

 

(10,754

)

 

$

1.37

 

Forfeited, canceled or expired

 

 

 

 

 

 

 

Issued and unvested as of March 31, 2020

 

 

21,798

 

 

$

1.56

 

 

The total fair value of restricted common stock vested during the three months ended March 31, 2020 and 2019 was $15 and $13, respectively.

Stock-Based Compensation

Stock-based compensation expense was allocated as follows:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Research and development

 

$

1,443

 

 

$

860

 

General and administrative

 

 

1,379

 

 

 

595

 

Total stock-based compensation expense

 

$

2,822

 

 

$

1,455

 

 

10


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

As of March 31, 2020, total unrecognized compensation cost related to the unvested stock-based awards was $46,313, which is expected to be recognized over a weighted-average period of 3.46 years.

9. License Agreements

Agreements with UHN

Fabry License Agreement—  

On January 27, 2016, the Company entered into an agreement with UHN, pursuant to which UHN granted the Company an option to enter into an exclusive license under the UHN intellectual property related to Fabry disease in accordance with the pre-negotiated licensing terms. On November 4, 2016, the Company exercised its option and entered into a license agreement with UHN, pursuant to which UHN granted the Company an exclusive worldwide license under certain intellectual property rights and a non-exclusive worldwide license under certain know-how, in each case subject to certain retained rights, to develop, commercialize and sell products for use in the treatment of Fabry disease.

Under this agreement, the Company paid an option fee of CAD $20, an upfront license fee of CAD $75, plus the annual license maintenance fee for the first year. Thereafter, the Company is also required to pay UHN future annual license maintenance fees until the first sale of a licensed product in certain markets. The Company is also obligated to make future milestone payments in an aggregate amount of up to CAD $2,450 upon the achievement of specified milestones as well as royalties on a country-by-country basis of a low to mid-single-digit percentage of annual net sales of licensed products and a lower single-digit royalty percentage in certain circumstances. Additionally, the Company has agreed to pay a low double-digit royalty percentage of all sublicensing revenue.

The agreement requires the Company to meet certain performance milestones within specified timeframes. UHN may terminate the agreement if the Company fails to meet these performance milestones despite using commercially reasonable efforts and the Company is unable to reach agreement with UHN on revised timeframes. The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis upon the latest to occur of the expiration or termination of the last valid claim under the licensed intellectual property rights in such country, the tenth anniversary of the first commercial sale of such licensed product in such country and the expiration of any applicable regulatory exclusivity in such country.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products. UHN can terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain insurance. Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time. The Company can voluntarily terminate the agreement with prior notice to UHN.

For the three months ended March 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of $0 and $194, respectively, which consists of reimbursable funded study trial costs. No milestone or maintenance fees were incurred related to the Fabry license agreement in the three months ended March 31, 2020 and 2019.

Interleukin 12 License Agreement—  

On January 27, 2016, the Company entered into an exclusive license agreement with UHN, pursuant to which UHN granted the Company a license to certain patent rights for the commercial development, manufacture, distribution and use of any products or processes resulting from development of those patent rights related to Interleukin 12. Upon execution of this agreement, the Company paid an upfront license fee of CAD $264. In addition, as part of the initial consideration for the license, the Company issued to UHN 1,161,665 shares of the Company’s common stock. The fair value of the shares issued to UHN of $480 and the upfront fee was expensed upon the execution of the agreement. In addition, the Company agreed to pay UHN up to $2,000 upon the closing of its IPO if certain criteria were met. This obligation was considered a derivative instrument and was initially recorded at fair value. The Company is also required to pay UHN future annual license maintenance fees of CAD $50 on each anniversary of the effective date of the license agreement prior to expiration or termination and potential future milestone payments of up to CAD $19,275 upon the achievement of specified clinical and regulatory milestones. The Company also agreed to pay UHN royalties of a low single-digit percentage of net sales of licensed products sold by the Company. If the Company grants any sublicense rights under the license agreement, the Company has agreed to pay UHN a low double-digit royalty percentage of any sublicense income received by the Company.

11


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

The agreement requires the Company to meet certain diligence requirements based upon specified milestones. The agreement expires on the later of the date the last patent rights expire in the last country or ten years from the date of first sale. UHN can terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain insurance. The Company can voluntarily terminate the agreement with prior notice to UHN. Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

For the three months ended March 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of $35 and $38, respectively, which consists of license maintenance fees.  No milestone fees were incurred related to the IL-12 license agreement in the three months ended March 31, 2020 and 2019.

Agreement with BioMarin Pharmaceutical Inc. (“BioMarin”)

On August 31, 2017, the Company entered into a license agreement with BioMarin, pursuant to which BioMarin granted the Company an exclusive worldwide license under certain intellectual property rights owned or controlled by BioMarin to develop, commercialize and sell products for use in the treatment of Pompe disease. As consideration for this agreement, the Company paid an upfront license fee of $500 in cash and issued 233,765 shares of preferred stock to BioMarin in January 2018.   The Company is also obligated to make future milestone payments of up to $13,000 upon the achievement of certain specified milestones and agreed to pay BioMarin royalties of a low single-digit percentage of net sales of licensed products sold by the Company or its affiliates covered by patent rights in a relevant country  No milestone fees related to the license were recorded for the three months ended March 31, 2020 and 2019.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world. BioMarin and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time. The Company may terminate the agreement at will upon written notice to BioMarin. BioMarin has the right to terminate the agreement upon the Company’s bankruptcy or insolvency, or in the event of any challenge or opposition to the licensed patent rights or related actions brought by the Company or its affiliates or sublicensees, or if the Company, its affiliates or sublicensees knowingly assist a third-party in challenging or otherwise opposing the licensed patent rights, except as required under a court order or subpoena.

Agreement with GenStem Therapeutics, Inc. (“GenStem”)

On October 2, 2017, the Company entered into a license agreement with GenStem, pursuant to which GenStem granted the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights owned or controlled by GenStem to develop, commercialize and sell products for use in the treatment of cystinosis. Under this agreement, the Company paid an upfront license fee of $1,000 and is required to make payments upon completion of certain milestones up to an aggregate of $16,000. In November 2019, the Company made a payment of $2,000 in connection with the dosing of the first patient in the investigator-sponsored Phase 1/2 clinical trial of AVR-RD-04 in cystinosis in the United States. The next anticipated payment under this Agreement is $2,000, which would become due following the dosing of the first patient in the first pivotal clinical trial of AVR-RD-04 in cystinosis in the United States. The Company also agreed to pay GenStem a tiered mid to high single-digit royalty percentage on annual net sales of licensed products as well as a low double-digit percentage of sublicense income received from certain third-party licensees. The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis on the eleventh anniversary of the first commercial sale of such licensed product in such country or the expiration of the last valid claim under the licensed patent rights covering such licensed product in such country, whichever is later. Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world. GenStem and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time. The Company may terminate the agreement at will upon the specified prior written notice to GenStem. No milestone fees related to the license were recorded for the three months ended March 31, 2020 and 2019.

12


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

Agreement with Lund University Rights Holders

On November 17, 2016, the Company entered into a license agreement with affiliates of Lund University, along with certain other relevant rights holders that may be added from time to time, pursuant to which such rights holders granted to the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights to develop, commercialize and sell products in any and all uses relevant to Gaucher disease. As consideration for the license, the Company is required to make payments in connection with the achievement of certain milestones up to an aggregate of $550. The agreement expires on the latest of (i) the twentieth anniversary of the end of a certain research project the Company is funding pursuant to an agreement with Lund University, (ii) the expiration of the term of any patent filed on the licensed rights that covers a licensed product, (iii) the expiration of any applicable marketing exclusivity right and (iv) such time that neither the Company nor any sublicensees, partners or contractors are commercializing a licensed product. Either the Company or the rights holders acting together may terminate the license agreement if the other such party commits a material breach and fails to cure such breach within a certain period of time, or if the other party enters into liquidation, becomes insolvent, or enters into composition or statutory reorganization proceedings. No milestone fees related to the license were recorded for the three months ended March 31, 2020 and 2019.

10. Net Loss per Share Attributable to Common Stockholders 

For purposes of the diluted net loss per share calculation, stock options and unvested restricted stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated:

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

5,310,482

 

 

 

2,986,048

 

Restricted common stock

 

 

21,798

 

 

 

124,821

 

 

11. Commitments and Contingencies

Lease Agreement

On January 12, 2018, the Company entered into a lease agreement for office space located in Cambridge, Massachusetts. The lease agreement expires in January 2023, with a landlord who is an affiliate of the landlord of the Company’s prior lease facility. The annual lease payments are subject to a 3% increase each year. The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent for rent expense incurred but not yet paid. The Company received a tenant incentive allowance of $842 in 2018. Such incentive allowance is being amortized as a reduction of rent expense on a straight-line basis over the lease period. In accordance with the lease agreement, the Company is required to maintain a security deposit of $209, which was recorded in other assets. In contemplation of this agreement, the Company terminated its prior lease agreement.

On August 31, 2018, the Company entered into a sub-lease agreement for lab space located in Cambridge, Massachusetts, United States, which expires in October 2020. The annual lease payments are subject to a 3% increase each year. In accordance with the lease agreement, the Company is required to maintain a security deposit of $283, which was recorded in other assets as of December 31, 2019 and March 31, 2020.

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material legal proceedings during the three months ended March 31, 2020 and 2019 and to the best of its knowledge, no material legal proceedings are currently pending or threatened.

13


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

Other

The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met at March 31, 2020 and December 31, 2019, or royalties on future sales. No milestone or royalty payments under these agreements are expected to be payable in the immediate future, except as disclosed in Note 9. See Note 9 for discussion of these arrangements.

The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products. Further, the Company indemnifies its directors and officers who are, or were, serving at the Company’s request in such capacities. The Company’s maximum exposure under these arrangements is unknown at March 31, 2020. The Company does not anticipate recognizing any significant losses relating to these arrangements. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

12. Related Party Transactions

UHN

In connection with the Company’s entry into a license agreement with UHN on January 27, 2016, the Company issued UHN 1,161,665 shares of its common stock. Upon the closing of the IPO, as UHN’s fully-diluted percentage ownership of the Company was reduced within a range of specified percentages, the Company was obligated to pay UHN an amount up to $2,000, which was paid in July 2018.

For the three months ended March 31, 2020 and 2019, the Company recognized $35 and $232, respectively, of research and development expense related to the license agreements with UHN (Note 9).      

Others

For the three months ended March 31, 2020 and 2019, the Company recorded expenses of $360 and $356, respectively, related to a sublease to rent lab space, provided by an entity affiliated with a member of the Company’s board of directors.

  

 

 

 

14


Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by our subsequent filings with the SEC.

Overview

We are a leading clinical-stage gene therapy company with a mission to free people from a lifetime of genetic disease.  Our company is focused on developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen. Our investigational gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is defective in the target disease. We believe that our approach, which is designed to transform stem cells from patients into therapeutic products, has the potential to provide curative benefit for a range of diseases. Our initial focus is on a group of rare genetic diseases referred to as lysosomal diseases, some of which today are primarily managed with enzyme replacement therapies, or ERTs. These lysosomal diseases have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $4.0 billion in worldwide net sales in 2019.

Our initial pipeline is comprised of four lentiviral-based gene therapy programs, including AVR-RD-01 for the treatment of Fabry disease, AVR-RD-04 for the treatment of cystinosis, AVR-RD-02 for the treatment of Gaucher disease and AVR-RD-03 for the treatment of Pompe disease. AVR-RD-01 is currently being evaluated in an investigator-sponsored Phase 1 clinical trial and a company-sponsored Phase 2 clinical trial, which we refer to as FAB-201. Five patients have been dosed in the investigator-sponsored Phase 1 clinical trial of AVR-RD-01, and enrollment is complete. Four patients have been dosed in our company-sponsored Phase 2 clinical trial of AVR-RD-01. AVR-RD-04 is currently being studied by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and one patient has been dosed. The first patient in our company-sponsored Phase 1/2 clinical trial for AVR-RD-02 has been enrolled and has completed apheresis. Our AVR-RD-03 program for Pompe disease is currently in preclinical development with the first IND-enabling preclinical study initiated in 2019.

 

Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs and planning for potential commercialization. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from the sales of preferred stock and our initial public offering, or IPO, and we have raised additional capital through an underwritten public offering that closed in July 2019, or the July 2019 Follow-On Offering, and an underwritten public offering that closed in February 2020, or the February 2020 Follow-On Offering. Through March 31, 2020, we had received gross cash proceeds of $87.5 million from sales of our preferred stock, and gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $114.7 million, $138.3 million and $100.0 million from sales of our common stock through our IPO, July 2019 Follow-On Offering and February 2020 Follow-On Offering, respectively. In July 2019, we entered into a Sales Agreement with Cowen and Company, LLC, as sales agent, to provide for the offering, issuance and sale of up to $50.0 million of our common stock from time to time in “at-the-market” offerings, or the ATM Facility. As of March 31, 2020, we have not offered, issued or sold any shares of common stock under the ATM Facility.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net losses were $26.0 million and $17.1 million for the three months ended March 31, 2020 and 2019, respectively. As of March 31, 2020, we had an accumulated deficit of $170.7 million. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. Furthermore, we expect to continue incurring additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. 

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As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from sales of equity, including the net proceeds from our IPO and follow-on offerings, and potential proceeds if we offer and sell equity pursuant to the ATM Facility. We also plan to pursue additional funding from outside sources, including our expansion of, or our entry into, new borrowing arrangements; research and development incentive payments from the Australian government; and our entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of March 31, 2020, we had cash and cash equivalents of $257.7 million. We believe that our existing cash and cash equivalents as of March 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.

Update Regarding COVID-19

 

The current COVID-19 pandemic has presented a substantial public health and economic challenge around the world and has affected our employees, patients, communities and business operations, including our ongoing clinical trials, as well as the U.S. economy and financial markets. The full extent to which the COVID-19 pandemic will impact our clinical and preclinical activities, results of operations and financial condition, and business operations generally will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

 

Clinical Programs

 

As the global healthcare community continues to respond to the increase in COVID-19 cases, many hospitals, including our clinical sites, have temporarily paused elective medical procedures, which includes dosing of new patients in clinical trials of our investigational gene therapies. We continue to closely monitor this rapidly evolving situation and the potential impact on our clinical trial programs. Set forth below is a summary of updates for each of our clinical trial programs.

AVR-RD-01 clinical trials in Fabry disease

 

Patient identification activities for the company-sponsored Phase 2 FAB-201 trial continue for our clinical sites in Australia, Canada and the United States.

 

We anticipate patient enrollment and dosing will resume as hospitals allow.

 

Ongoing data collection has continued for dosed patients in both our Phase 1 investigator-sponsored clinical trial and Phase 2 FAB-201 clinical trial, though certain data collection has been delayed by the COVID-19 pandemic. We currently anticipate that these delays will not impact the integrity and interpretation of the study results.

AVR-RD-04 Phase 1/2 clinical trial in cystinosis

 

Patient identification activities continue.

 

A second patient in the study has been enrolled and has completed apheresis. Cryopreserved drug product for that patient has been manufactured and dosing is expected to occur as soon as the UCSD clinical site allows.

 

Ongoing data collection has continued for the first patient dosed in the trial, though certain data collection has been delayed by the COVID-19 pandemic. We currently anticipate that these delays will not impact the integrity and interpretation of the study results.

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AVR-RD-02 Phase 1/2 clinical trial in Gaucher disease

 

The first patient in the trial has been enrolled and has completed apheresis. Cryopreserved drug product for that patient has been manufactured and dosing is currently anticipated for the second quarter of 2020, but is dependent on when the clinical site allows.

 

Subsequent new patient dosing timelines have been impacted by the COVID-19 pandemic. However, patient identification activities continue for our clinical sites in Australia and Canada.

 

We expect to open new clinical sites in the United States and Israel in the fourth quarter of the year.

 

Business Operations

On March 10, 2020, we created an internal, cross-functional COVID-19 Response Team to closely monitor the evolving situation and advise on the company’s activities in response to the evolving COVID-19 pandemic. We have implemented a work-from-home policy for all employees excluding those providing essential services, such as our laboratory staff. For those employees, we have implemented safety measures designed to comply with applicable federal, state and local guidelines in response to the COVID-19 pandemic. We may be required to take additional actions that impact our operations as required by applicable laws or regulations, or which we determine to be in the best interests of our employees. We currently cannot determine how long our work-from-home policy will remain in effect. Any modifications to our current policy will in part be determined by updated guidance from local, state and federal authorities, and we expect that any changes will be implemented gradually and with appropriate safety measures and policies designed to comply with applicable guidelines and regulations. Notwithstanding these changes to our business operations, we have continued to recruit and hire key personnel to support the company’s objectives, increasing our headcount to 112 full-time employees as of March 31, 2020.

Research and Development; Regulatory

Our AVR-RD-03 program for Pompe disease is currently in preclinical development with the first IND-enabling preclinical study initiated in 2019, and we are also continuing early studies for future potential disease indications.

 

We currently do not anticipate any material impact on our regulatory activities for our clinical programs.

 

For additional information regarding the impact of the COVID-19 pandemic on our business, please see the section titled “Risk Factors” in Part II, Section 1.A of this Quarterly Report.

Other Updates

 

In January 2020, we announced that we received notice of clearance from the U.S. Food and Drug Administration, or FDA, regarding an investigational new drug, or IND, application for AVR-RD-02 for the treatment of Gaucher disease. This announcement followed receipt of FDA orphan drug designation status for AVR-RD-02 for Gaucher disease and enables us to expand the Phase 1/2 clinical trial in Gaucher disease to the United States, supported by our plato platform.

 

In February 2020, we presented new clinical data at the 16th Annual WORLDSymposium in Orlando, Florida, including new data on AVR-RD-01 for Fabry disease, initial data on AVR-RD-04 for cystinosis, and initial data from the clinical debut of our plato platform.

 

In February 2020, we sold 4,350,000 shares of our common stock in an underwritten public offering. The aggregate gross proceeds to the company from the offering, before deducting underwriting discounts and commission and estimated offering expenses, totaled approximately $100.0 million.

 

In March 2020, we announced that the FDA granted orphan drug designation to AVR-RD-04 for cystinosis.  

Components of Our Consolidated Results of Operations

Revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, we may generate revenue in the future from product sales.

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Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses consist of costs incurred in connection with the development of our product candidates, including:

 

license maintenance fees and milestone fees incurred in connection with various license agreements;

 

expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, as well as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;

 

manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;

 

employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

 

costs related to compliance with regulatory requirements; and

 

allocated facilities costs, depreciation and other expenses, which include rent and utilities.

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.

Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.

We have modified the presentation within the following tables to include expenses related to other preclinical development activities outside of our already presented programs in our direct research and development expenses, which were previously included as other unallocated research and development expenses. We have adjusted prior period amounts to reflect the changes in presentation made in the current period. The table below summarizes our research and development expenses incurred by program (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Fabry

 

$

1,494

 

 

$

2,221

 

Gaucher

 

 

2,305

 

 

 

2,066

 

Pompe

 

 

1,119

 

 

 

1,498

 

Cystinosis

 

 

360

 

 

 

475

 

Other

 

 

2,206

 

 

 

784

 

Unallocated research and development expenses

 

 

10,790

 

 

 

5,402

 

Total research and development expenses

 

$

18,274

 

 

$

12,446

 

 

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development of our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates.

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The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

 

the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;

 

the impact of the COVID-19 pandemic on our preclinical development activities, clinical trials and other research and development activities;

 

establishing an appropriate safety profile with IND-enabling studies;

 

successful patient enrollment in, and the design, initiation and completion of, clinical trials;

 

the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;

 

establishing and maintaining clinical and commercial manufacturing capabilities or making arrangements with third-party manufacturers;

 

development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;

 

obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;

 

significant and changing government regulation;

 

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; and

 

maintaining a continued acceptable safety profile of the product candidates following approval.

We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials for any reason, including as a result of the ongoing COVID-19 pandemic, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. Identifying potential product candidates and conducting preclinical testing and clinical trials 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.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, related benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We anticipate the additional costs for these services will substantially increase our general and administrative expenses. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on money market funds and other bank deposits.

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Other Expense

Other expense consists of foreign exchange gain or loss.

Consolidated Results of Operations

Comparison of the three months ended March 31, 2020 and 2019

The following table summarizes our consolidated results of operations for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended

March 31,

 

 

 

 

 

 

 

2020

 

 

2019

 

 

Change

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

18,274

 

 

$

12,446

 

 

$

5,828

 

General and administrative

 

 

8,315

 

 

 

5,254

 

 

 

3,061

 

Total operating expenses

 

 

26,589

 

 

 

17,700

 

 

 

8,889

 

Loss from operations

 

 

(26,589

)

 

 

(17,700

)

 

 

(8,889

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

632

 

 

 

657

 

 

 

(25

)

Other expense

 

 

(16