AVIDITY BIOSCIENCES, INC. The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with our unaudited condensed financial
statements and related notes thereto included elsewhere in this quarterly report
on Form 10-Q and with our audited financial statements and notes thereto and
management's discussion and analysis of financial condition and results of
operations, both of which are contained in our annual report on Form 10-K for
the year ended
Cautionary Note Regarding Forward-Looking Statements
This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategies and plans, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and clinical trials for our product candidates, the timing and likelihood of regulatory filings and approvals for our product candidates, the impact of COVID-19 on our business, the timing and likelihood of success, plans and objectives of management for future operations and future results of anticipated product development efforts, are forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "could," "expect," "intend," "plan," "anticipate," "believe," "estimate," "predict," "potential," "continue," or the negative of these terms or other comparable terminology. These forward-looking statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this quarterly report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, "Risk Factors." The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a biopharmaceutical company committed to delivering a new class of RNA
therapeutics called Antibody Oligonucleotide Conjugates, or AOCs. Our
proprietary AOC platform is designed to combine the specificity of monoclonal
antibodies, or mAbs, with the precision of RNA therapeutics to target the root
cause of diseases previously untreatable with such therapeutics. We are
initially focused on muscle diseases to demonstrate the capabilities of our
AOCs, and we expect to have three muscle programs in clinical development by the
end of 2022. Our lead product candidate, AOC 1001, is designed to treat myotonic
dystrophy type 1, or DM1, a rare monogenic muscle disease. AOC 1001 has
commenced clinical testing with the ongoing Phase 1/2 MARINA trial, a trial
designed to evaluate the safety and tolerability of single and multiple
ascending doses of AOC 1001 administered intravenously in adults with DM1. The
Part A single dose cohort of MARINA is fully enrolled, and dosing is complete.
In Part A, there were no serious adverse events observed and any adverse events
were mild to moderate. The Part B multidose cohort is now enrolling. In the
fourth quarter of 2022, we plan to conduct a preliminary assessment of safety,
tolerability and key biomarkers in approximately half of the trial participants.
The
Our advancing and expanding pipeline also includes AOC 1044, the lead of three programs for the treatment of Duchenne Muscular Dystrophy, or DMD, and AOC 1020, designed to treat facioscapulohumeral muscular dystrophy, or FSHD. We anticipate that both AOC 1044 and AOC 1020 will enter the clinic by the end of 2022 following additional preparatory preclinical studies and regulatory clearance. In addition to our muscle franchise, we are also broadening the development of AOCs beyond muscle tissues through both internal discovery efforts and key partnerships that are focused on immune cells, cardiac tissue and other cell types.
Since our inception in 2012, we have devoted substantially all of our resources
to organizing and staffing our company, business planning, raising capital,
developing our proprietary AOC platform, identifying potential product
candidates, establishing our intellectual property portfolio, conducting
research, preclinical and clinical studies, and providing other general and
administrative support for these operations. We have not generated any revenue
from product sales. In
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of underwriting discounts, commissions and offering costs. In
We have incurred operating losses in each year since inception. Our net losses
were
Based upon our current operating plans, we believe that our existing cash, cash
equivalents and marketable securities will be sufficient to fund our operations
for at least 12 months from the date of the filing of this Form 10-
COVID-19
The COVID-19 outbreak in
Research Collaboration and License Agreement with Eli Lilly and Company
In
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payments per target. We are eligible to receive a tiered royalty ranging from the mid-single to low-double digits from Lilly on worldwide annual net sales of licensed products, subject to specified and capped reductions for the market entry of biosimilar products, loss of patent coverage of licensed products and for payments owed to third parties for additional rights necessary to commercialize licensed products in the territory.
Components of Results of Operations
Revenue
Our revenue to date has been derived from payments received under the Lilly Agreement and other license and research agreements. For the foreseeable future, we may generate revenue from reimbursements of services under the Lilly Agreement, as well as a combination of upfront payments and milestone payments under our current and/or future collaboration agreements. We do not expect to generate any revenue from the sale of products unless and until such time that our product candidates have advanced through clinical development and regulatory approval, if ever. We expect that any revenue we generate, if at all, will fluctuate from quarter-to-quarter as a result of the timing and amount of payments relating to such services and milestones and the extent to which any of our products are approved and successfully commercialized. If we fail to complete preclinical and clinical development of product candidates or obtain regulatory approval for them, our ability to generate future revenues and our results of operations and financial position would be adversely affected.
Operating Expenses
Research and Development
Research and development expenses consist of external and internal costs associated with our research and development activities, including our discovery and research efforts, and the preclinical and clinical development of our product candidates. Our research and development expenses include:
• external costs, including expenses incurred under arrangements with third
parties, such as contract research organizations, contract manufacturers,
consultants and our scientific advisors; and
• internal costs, including;
• employee-related expenses, including salaries, benefits and stock-based
compensation;
• the costs of laboratory supplies and acquiring, developing and
manufacturing preclinical study materials; and
• facilities, information technology and depreciation, which include direct
and allocated expenses for rent and maintenance of facilities and
depreciation of leasehold improvements and equipment.
Research and development costs, including costs reimbursed under the Lilly Agreement, are expensed as incurred, with reimbursements of such amounts being recognized as revenue. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received.
At any one time, we are working on multiple programs. Our internal resources, employees and infrastructure are not directly tied to any one research or drug discovery program and are typically deployed across multiple programs. As such, we do not track internal costs on a specific program basis. The following table summarizes our external costs and internal costs for the periods presented (in thousands):
Three Months Ended March 31,
2022 2021
External costs $ 14,583 $ 12,378
Internal costs:
Employee-related expenses 10,182 6,473
Facilities, lab supplies and other costs 2,923 1,826
Total internal costs 13,105 8,299
Total research and development expenses
We expect our research and development expenses to increase for the foreseeable future as we continue to conduct our ongoing research and development activities, advance our preclinical research programs toward clinical development,
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including conducting IND-enabling studies, and conduct clinical trials. The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time consuming. We may never succeed in achieving marketing approval for any of our product candidates.
The timelines and costs associated with research and development activities are uncertain, can vary significantly for each product candidate and development program, and are difficult to predict. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to preclinical and clinical results, regulatory developments, ongoing assessments as to each program's commercial potential, and our ability to maintain or enter into new collaborations, to the extent we determine the resources or expertise of a collaborator would be beneficial for a given program. We will need to raise substantial additional capital in the future. In addition, we cannot forecast which development programs may be subject to future collaborations, when such arrangements will be secured, if at all, and to what degree such arrangements would affect our development plans and capital requirements.
Our development costs may vary significantly based on factors such as:
• the number and scope of clinical, preclinical and IND-enabling studies; • 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 that patients receive; • 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; • the cost and timing of manufacturing our product candidates; • the phase of development of our product candidates; and • the efficacy and safety profile of our product candidates.
General and Administrative
General and administrative expenses consist primarily of employee-related expenses, including salaries, benefits and stock-based compensation, for employees in our executive, finance, accounting, legal, business development and support functions. Other general and administrative expenses include allocated facility, information technology and depreciation related costs not otherwise included in research and development expenses and professional fees for auditing, tax, intellectual property and legal services. Costs related to filing and pursuing patent applications are recognized as general and administrative expenses as incurred since recoverability of such expenditures is uncertain.
We expect our general and administrative expenses will increase for the foreseeable future to support our increased research and development and other corporate activities.
Other Income (Expense) Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents and marketable securities.
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Results of Operations
Comparison of the Three Months Ended
The following table summarizes our results of operations for the periods
presented (in thousands):
Three Months Ended March 31, Increase
2022 2021 (decrease)
Revenue $ 1,795 $ 2,704 $ (909 )
Research and development expenses 27,688 20,677 7,011
General and administrative expenses 8,567 5,884 2,683
Other income (expense) 225 13 212
Revenue
Revenue was
Research and Development Expenses
Research and development expenses were
General and Administrative Expenses
General and administrative expenses were
Liquidity and Capital Resources
Sources of Liquidity
In
In
Future Capital Requirements
As of
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conducting preclinical studies and testing product candidates in clinical trials is costly, and the timing of progress and expenses in these studies and trials is uncertain.
Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
• the type, number, scope, progress, expansions, results, costs and timing of
discovery, preclinical studies and clinical trials of our product candidates
that we are pursuing or may choose to pursue in the future;
• the costs and timing of manufacturing for our product candidates and
commercial manufacturing if any product candidate is approved;
• the costs, timing and outcome of regulatory review of our product candidates;
• the terms and timing of establishing and maintaining collaborations,
licenses and other similar arrangements;
• the costs of obtaining, maintaining and enforcing our patents and other
intellectual property rights;
• the costs associated with hiring additional personnel and consultants as our
preclinical and clinical activities increase;
• the timing and amount of the milestone or other payments made to us under
the Lilly Agreement or any future collaboration agreements;
• the costs and timing of establishing or securing sales and marketing
capabilities if any 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; and
• costs associated with any products or technologies that we may in-license or
acquire.
While we may generate revenue under our current and/or future collaboration agreements, we do not expect to generate any revenues from product sales until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and may never occur. If we obtain regulatory approval for any of our product candidates, 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 our product candidates, if ever, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including current and potential future 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. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table summarizes our cash flows for the periods presented (in thousands):
Three Months Ended March 31,
2022 2021
Net cash provided by (used in):
Operating activities $ (29,574 ) $ (19,681 )
Investing activities (175,475 ) (525 )
Financing activities 24,113 17
Net decrease in cash, cash equivalents
and restricted cash$ (180,936 ) $ (20,189 ) Operating Activities
Net cash used in operating activities was
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used in operating activities was
Investing Activities
Net cash used in investing activities was
Financing Activities
Net cash provided by financing activities was
Critical Accounting Policies and Estimates
Our management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements, which have been
prepared in accordance with
Contractual Obligations and Commitments
As of
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