AEROVATE THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our financial statements and
related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the
Prospectus for our initial public offering filed pursuant to Rule 424(b)(4)
under the Securities Act of 1933, as amended, or the Securities Act, with the
Overview
We are a clinical stage biopharmaceutical company focused on developing drugs
that meaningfully improve the lives of patients with rare cardiopulmonary
disease. Our initial focus is on advancing AV-101, our dry powder inhaled
formulation of imatinib for the treatment of pulmonary arterial hypertension, or
PAH, a devastating disease impacting approximately 70,000 people in
We commenced our operations in 2018 and have devoted substantially all of our
resources to date to organizing and staffing our company, business planning,
raising capital, meeting with regulatory authorities, developing and performing
preclinical work for AV-101, preparing for and conducting our Phase 1 clinical
trial of AV-101, establishing our intellectual property portfolio and providing
other general and administrative support for these operations. Our historical
operations have been funded through our initial public offering and the issuance
of convertible preferred stock and convertible promissory notes. From our
inception through
We do not have any products approved for sale and have incurred significant
operating losses since our inception and expect to continue to incur significant
operating losses for the foreseeable future. Our net losses for the three months
ended
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We do not expect to generate any revenue from product sales unless and until we successfully complete development and obtain regulatory approval for AV-101 or any other drug candidate, which will not be for at least the next several years, if ever. In addition, if we obtain regulatory approval for AV-101, we expect to incur significant commercialization expenses related to product sales, marketing, manufacturing and distribution. Accordingly, until such time as we can generate significant revenue from sales of AV-101, if ever, we expect to finance our cash needs through a combination of equity offerings, debt financings, or other capital sources, including potential collaborations and licenses and other similar arrangements. However, we may not be able to secure additional financing or enter into such other arrangements in a timely manner or on favorable terms, if at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional capital when needed, we could be forced to delay, limit, reduce or terminate our research and development programs or future commercialization efforts, or grant rights to develop and market AV-101 even if we would otherwise prefer to develop and market such drug candidate ourselves.
We do not own or operate manufacturing facilities. We currently rely on third-party manufacturers and suppliers for our drug candidate, and we expect to continue to do so to meet our preclinical, clinical and potential commercial activities. Our third-party manufacturers are required to manufacture our drug candidate under current good manufacturing practice, or current GMP, requirements and other applicable laws and regulations. We believe there are multiple sources for all of the materials required for the manufacture of AV-101, and we expect to continue to cost-effectively produce drug candidates at contract manufacturing facilities.
The global coronavirus disease 2019, or COVID-19, pandemic continues to evolve,
and we will continue to monitor the COVID-19 situation. The extent of the impact
of the ongoing COVID-19 pandemic on our business, operations and clinical
development timelines, supply chain and plans remains uncertain, and will depend
on certain developments, including the duration and spread of the outbreak,
including the identification of new variants of the virus, and its impact on our
clinical trial enrollment, trial sites, CROs, third-party manufacturers, and
other third parties with whom we do business, as well as its impact on
regulatory authorities and our key scientific and management personnel. The
ultimate impact of the ongoing COVID-19 pandemic or a similar health epidemic is
highly uncertain and subject to change. To the extent possible, we are
conducting business as usual, with only necessary or advisable modifications to
employee travel. From our inception through
Components of Results of Operations
Revenue
We currently have no products approved for sale, and we have not generated any revenue to date. In the future, we may generate revenue from collaboration or license agreements we may enter into with respect to our drug candidate, as well as product sales from any approved product, which approval we do not expect to occur for at least the next several years, if ever. Our ability to generate product revenue will depend on the successful development and eventual commercialization of AV-101 and any other drug candidates we may pursue. If we fail to complete the development of AV-101 in a timely manner, or to obtain regulatory approval, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.
19 Table of Contents Operating Expenses Research and Development
To date, our research and development expenses have related to the development of AV-101. Research and development expenses are recognized as incurred and payments made prior to the receipt of goods or services to be used in research and development are capitalized until the goods or services are received.
Research and development expenses include:
? external research and development expenses incurred under agreements with CROs
and consultants to conduct and support clinical trials of AV-101 and our
preclinical studies;
? costs related to manufacturing AV-101 for use in clinical trials; and
? personnel-related costs, including salaries, payroll taxes, employee benefits,
and stock-based compensation charges for those individuals involved in
research and development efforts.
Our research and development expenses consist principally of direct costs, such as fees paid to CROs, investigative sites and consultants in connection with our clinical trials, preclinical and non-clinical studies, and costs related to manufacturing clinical trial materials. We deploy our personnel related resources across all of our research and development activities. We track direct expenses on a clinical and non-clinical basis.
We plan to substantially increase our research and development expenses for the foreseeable future as we continue the development of AV-101. We cannot determine with certainty the timing of initiation, the duration or the completion costs of current or future clinical trials and nonclinical studies of AV-101 or any future product candidates due to the inherently unpredictable nature of clinical and preclinical development. Clinical and preclinical development timelines, the probability of success and development costs can differ materially from expectations. We will need to raise substantial additional capital in the future.
Our future clinical development costs may vary significantly based on factors such as:
? per patient trial costs; ? the number of trials required for approval; ? the number of sites included in the trials; ? the countries in which the trials are conducted; ? the length of time required to enroll eligible patients; ? the number of patients that participate in the trials; ? the number of doses evaluated in the trials; ? the drop-out or discontinuation rates of patients; ? potential additional safety monitoring requested by regulatory agencies; ? the duration of patient participation in the trials and follow-up; and ? the efficacy and safety profile of the product candidate. General and Administrative
General and administrative expenses consist primarily of personnel-related
costs, including salaries, payroll taxes, employee benefits, and stock-based
compensation charges for those individuals in executive, finance and other
administrative functions. Other significant costs include legal fees relating to
intellectual property and corporate matters, professional fees for accounting
and consulting services, and insurance costs. We anticipate that our general and
administrative expenses will increase for the foreseeable future to support our
continued research and development activities, pre-commercial preparation
activities and commercialization activities for AV-101. We also anticipate
increased expenses related to audit, legal, regulatory, and tax-related services
associated with maintaining compliance with exchange listing and
20 Table of Contents Interest Income (Expense)
Interest expense consisted of interest on our convertible promissory notes at a
per annum interest rate of 6%. All convertible promissory notes converted into
shares of our Series A redeemable convertible preferred stock in
Change in Fair Value of Convertible Promissory Notes
We issued convertible promissory notes in 2020 and 2019 for which we elected the
fair value option. We adjusted the carrying value of our convertible promissory
notes to their estimated fair value at each reporting date, with any change in
fair value of the convertible promissory notes recorded as an increase or
decrease to change in fair value of convertible promissory notes in our
statements of operations and comprehensive loss. All convertible promissory
notes and related accrued interest converted into shares of Series A redeemable
convertible preferred stock in
Prior to their conversion into our Series A redeemable convertible preferred
stock issued in
Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the three months
ended
Three Months Ended September 30,
2021 2020 Change
(unaudited)
Operating expenses:
Research and development expenses
2,782 277 2,505
Total operating expenses 6,200 2,243 3,957
Loss from operations (6,200 ) (2,243 ) (3,957 )
Other income (expense):
Interest income 16 - 16
Change in fair value of convertible
promissory notes - (64 ) 64
Total other income (expense) 16 (64 ) 80
Net loss and comprehensive loss
Research and Development Expenses
Research and development expenses for the three months ended
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General and Administrative Expenses
General and administrative expenses for the three months ended
Total Other Income (Expense)
Other income for the three months ended
Comparison of the Nine Months Ended
The following table summarizes our results of operations for the nine months
ended
Nine Months Ended September 30,
2021 2020 Change
(unaudited)
Operating expenses:
Research and development expenses
4,813 583 4,230
Total operating expenses 14,754 5,226 9,528
Loss from operations (14,754 ) (5,226 ) (9,528 )
Other income (expense):
Interest income (expense) 18 (75 ) 93
Change in fair value of convertible
promissory notes - (644 ) 644
Other expense (4 ) - (4 )
Total other income (expense) 14 (719 ) 733
Net loss and comprehensive loss
Research and Development Expenses
Research and development expenses for the nine months ended
General and Administrative Expenses
General and administrative expenses for the nine months ended
Total Other Income (Expense)
Other income and expense for the nine months ended
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Liquidity and Capital Resources
From our inception through
Future Funding Requirements
We have prepared operating plans and cash flow forecasts which indicate that our
existing cash and cash equivalents on-hand of
Our future capital requirements will depend on many factors, including:
? the type, number, scope, results, costs and timing of preclinical studies and
clinical trials of AV-101, including changes to our development plan based on
feedback received from regulatory authorities, and preclinical studies or
clinical trials of other potential drug candidates or indications we may
choose to pursue in the future;
? the costs and timing of manufacturing for AV-101 or any other product
candidates, including commercial scale manufacturing;
? the costs, timing and outcome of regulatory review and approval of AV-101 or
any other drug candidates;
? the costs of obtaining, maintaining and enforcing our patents and other
intellectual property rights;
? our efforts to enhance operational systems and hire additional personnel to
satisfy our obligations as a public company, including enhanced internal
controls over financial reporting;
? the costs associated with hiring additional personnel and consultants as our
business grows, including additional clinical development personnel;
? the terms and timing of establishing and maintaining collaborations, licenses
and other similar arrangements;
? the timing and amount of the milestone or other payments we must make to any
future licensors, if we enter into any license agreements;
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Table of Contents
? the costs and timing of establishing or securing sales and marketing
capabilities if AV-101 or any other product candidate is approved;
? our ability to achieve sufficient market acceptance, coverage and adequate
reimbursement from third- party payors and adequate market share and revenue
for any approved products;
? patients' ability and willingness to pay out-of-pocket costs for any approved
products in the absence of coverage and/or adequate reimbursement from
third-party payors; and
? costs associated with any products or technologies that we may in-license or
acquire.
Until such time, if ever, as we can generate substantial product revenue to support our cost structure, we expect to finance our cash needs through equity offerings, debt financings, or other capital sources, potentially including collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt financing and equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise funds through collaborations, or other similar arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or drug candidates or grant licenses on terms that may not be favorable to us and/or may reduce the value of our common stock. Our failure to raise capital or enter into such other arrangements when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market our drug candidates even if we would otherwise prefer to develop and market such drug candidates ourselves.
Cash Flows
Comparison of the Nine Months Ended
The following table sets forth a summary of the net cash flow activity for the
nine months ended
Nine Months Ended September 30,
2021 2020
Net cash used in operating activities
(96 ) -
Net cash provided by financing activities 190,707 8,918
Net increase in cash and cash equivalents
Operating Activities
Net cash used in operating activities for the nine months ended
Net cash used in operating activities for the nine months ended
24 Table of Contents Investing Activities
Net cash used in investing activities for the nine months ended
Financing Activities
Net cash provided by financing activities for the nine months ended
Net cash provided by financing activities for the nine months ended
Contractual Obligations and Commitments
In
As of
We enter into contracts in the normal course of business for contract research services, contract manufacturing services, professional services and other services and products for operating purposes. These contracts generally provide for termination after a notice period, and, therefore, are cancelable contracts and not included above.
Critical Accounting Policies and Significant Judgments and Estimates
Our financial statements are prepared in accordance with generally accepted
accounting principles in
There have been no material changes in our critical accounting policies and
estimates during the nine months ended
Emerging Growth Company Status
As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, we can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to "opt out" of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we will adopt the new or revised standard at the time public companies adopt the new or revised standard. The decision to opt out of the extended transition period under the JOBS Act is irrevocable.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any
off-balance sheet arrangements, as defined in the rules and regulations of the
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Recently Issued Accounting Pronouncements
We have reviewed all recently issued accounting pronouncements by the FASB and other standard-setting bodies and have determined that, other than as disclosed in Note 2 to our financial statements included in Part I, Item 1, "Notes to Unaudited Interim Condensed Financial Statements," of this Quarterly Report on Form 10-Q, such standards that do not require adoption until a future date are not expected to have a material impact on our condensed consolidated financial statements, if adopted, or do not otherwise apply to our operations.
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