AEROVATE THERAPEUTICS, INC. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this Annual Report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs, and involve risks and uncertainties. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking statements as a result of several factors, including those discussed in the section titled "Risk Factors" included under Part I, Item 1A and elsewhere in this Annual Report. See "Special Note Regarding Forward-Looking Statements" in this Annual Report.
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
98
Table of Contents
Recent Developments
Initial Public Offering
In
COVID-19 Pandemic and Future Infectious Disease Outbreaks
We continue to closely monitor the impact of the COVID-19 pandemic on our business, operations and clinical development timelines. In addition, we are actively monitoring its impact on our clinical trial enrollment, trial sites, contract research organizations, or 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 COVID-19 pandemic or any future infectious disease outbreaks is highly uncertain and subject to change.
We continue to actively monitor the impact of infectious disease outbreaks on our business operations and may take future actions that alter our operations, including those that may be required by federal, state or local authorities, or that we determine are in the best interests of our employees and other third parties with whom we do business. The COVID-19 pandemic or any future infectious disease outbreaks may affect our business, operations and clinical development timelines and plans, including the resulting impact on our expenditures and capital needs.
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.
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
? contract research organizations, or 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
99
Table of Contents
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
100
Table of Contents
Results of Operations
Comparison of the Years Ended
The following table summarizes our results of operations for the years ended
Year Ended December 31,
2022 2021 Change
Operating expenses:
Research and development $ 38,622 $ 14,987 $ 23,635
General and administrative 14,615 8,035 6,580
Total operating expenses 53,237 23,022 30,215
Loss from operations (53,237) (23,022) (30,215)
Other income (expense):
Interest income 1,830 65 1,765
Other expense (79) (3) (76)
Total other income 1,751 62 1,689
Net loss before income taxes (51,486) (22,960) (28,526)
Provision for income taxes 25 3 22
Net loss $ (51,511) $ (22,963) $ (28,548) Research and Development Expenses
Research and development expenses for the year ended
General and Administrative Expenses
General and administrative expenses for the year ended
Total Other Income (Expense)
Other income for the year ended
Liquidity and Capital Resources
From our inception through
At-the-Market Offering
On
101
Table of Contents
our common stock, through the Agent, as our sales agent. As of
Future Funding Requirements
We have prepared operating plans and cash flow forecasts which indicate that our
existing cash and cash equivalents and short-term investments 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;
? 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
102
Table of Contents
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.
Contractual Obligations and Commitments
In
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.
Cash Flows
Comparison of the Years Ended
The following table sets forth a summary of the net cash flow activity for
the years ended
Year Ended December 31,
2022 2021
Net cash used in operating activities $ (39,122) $ (27,399)
Net cash provided by (used in) investing activities 6,926 (113,434)
Net cash provided by financing activities 396 190,457
Net (decrease) increase in cash and cash equivalents
Operating Activities
Net cash used in operating activities for the year ended
103
Table of Contents
compensation expense, partially offset by
Net cash used in operating activities for the year ended
Investing Activities
Net cash provided by investing activities for the year ended
Net cash used by investing activities for the year ended
Financing Activities
Net cash provided by financing activities for the year ended
Net cash provided by financing activities for the year ended
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with generally
accepted accounting principles in
See Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and the effect on our consolidated financial statements.
Research and Development Expenses
We are required to estimate our expenses resulting from obligations under contracts with vendors, consultants and CROs, in connection with conducting research and development activities. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. We reflect research and development expenses in our consolidated financial statements by matching those expenses with the period in which services and efforts are expended.
104
Table of Contents
We account for these expenses according to the progress of the preclinical or clinical study as measured by the timing of various aspects of the study or related activities. We determine clinical trial cost estimates through review of the underlying contracts along with preparation of financial models taking into account discussions with research and other key personnel and outsider service providers as to the progress of studies or other services being conducted. During the course of a study, we adjust our rate of expense recognition if actual results differ from our estimates.
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.
Recently Issued Accounting Pronouncements
See Note 2 to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10 K for a summary of recently issued accounting pronouncements.
© Edgar Online, source
