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, 2021 included in our Annual Report on Form 10-K for the year ended December 31, 2021. Some of the information contained in this discussion and analysis or set forth elsewhere in this Quarterly 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, 2021, as supplemented by our subsequent filings with the SEC.

Overview

We are a leading clinical-stage gene therapy company with a shared purpose to free people from a lifetime of genetic disease. Our company is focused on developing potentially curative HSC gene therapies (which we sometimes refer to as ex vivo lentiviral-based gene therapies) to treat patients with rare diseases following a single dose treatment regimen. Our 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 mutated 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 disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs. These lysosomal disorders have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $3.4 billion in worldwide net sales in 2021.

Our pipeline is currently comprised of four HSC gene therapy programs: AVR-RD-02 for the treatment of Gaucher disease, including Gaucher disease type 1 and type 3; AVR-RD-04 for the treatment of cystinosis; AVR-RD-05 for the treatment of neuronopathic mucopolysaccharidosis type II, or nMPS-II, or Hunter syndrome; and AVR-RD-03 for the treatment of Pompe disease.

AVR-RD-02 is currently being studied for the treatment of Gaucher disease type 1 in a Company-sponsored Phase 1/2 clinical trial, which we refer to as the Guard1 clinical trial. Four patients have been dosed to date in the Guard1 clinical trial, and we have enrolled six patients to date and we are actively recruiting additional potential patients for our currently active sites. We plan to provide updated interim clinical trial data on December 7, 2022, at which time we also plan to provide an update on discussions with regulatory authorities regarding Gaucher disease type 3, including our plans for further clinical development.

AVR-RD-04 is currently being studied for the treatment of cystinosis by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 collaborator-sponsored clinical trial. Enrollment of this clinical trial is complete with a total of six patients dosed. In May 2022, we reported updated interim data from the Phase 1/2 clinical trial of AVR-RD-04 at the 25th Annual Meeting of American Society for Gene and Cell Therapy, or ASGCT in Washington D.C. We plan to engage with regulatory agencies on the pre-clinical, chemistry, manufacturing, and controls, or CMC, and clinical plans for AVR-RD-04. In August 2022, we submitted a meeting request to the U.K. Medicines and Healthcare products Regulatory Agency, or MHRA regarding a Company-sponsored clinical trial for AVR-RD-04 and expect a scientific advice meeting with the MHRA in the first quarter of 2023. We are also planning to engage with other regulatory authorities as we expand this anticipated global trial. Pending the outcome of this and other regulatory interactions, we are planning to initiate a Company-sponsored Phase 1/2 clinical trial in the second half of 2023. Clinical sites are anticipated in the United Kingdom, Europe and the United States. Our current plan involves a two-part strategy, including both a pre-renal transplant population and a post-renal transplant population.

AVR-RD-05 is our preclinical program for the treatment of Hunter syndrome. In September 2022 we announced that the MHRA, Research Ethics Committee, or EC, and Health Research Authority, or HRA, have accepted the clinical trial application, or CTA submitted by our collaborators at The University of Manchester for initiation of a Phase 1/2 collaborator-sponsored clinical trial of investigational autologous HSC gene therapy in infants diagnosed with nMPS-II, or Hunter Syndrome, in the United Kingdom. We currently expect the Phase 1/2 collaborator-sponsored clinical trial will dose the first patient in the first half of 2023.

AVR-RD-03 is our preclinical program for the treatment of Pompe disease, and we are planning to engage with regulatory authorities this year to discuss a potential path to the clinic. While we are continuing to advance AVR-RD-03, we are prioritizing our cystinosis and Gaucher disease clinical programs. As a result, we no longer expect to initiate a clinical trial for AVR-RD-03 in 2023.

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. To date, we have not



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generated any product revenue and have financed our operations primarily through the private placement of our securities and through public offerings of our common stock. Through September 30, 2022, we had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering and follow-on offerings; and gross cash proceeds, before deducting commissions and expenses, of $23.5 million from sales of our common stock through our "at-the-market," or ATM, facility.

Additionally, 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 $80.9 million and $90.9 million for the nine months ended September 30, 2022 and 2021, respectively. As of September 30, 2022, we had an accumulated deficit of $464.4 million. We expect to continue to incur significant expenses for at least the next several years as we advance our current and future product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. We currently have a total of four investigational gene therapy programs in our pipeline, two of which are currently in clinical development. Further development of these programs will require us to expend significant resources to advance these 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.

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 follow-on offerings and sales of common stock under our ATM facility, as well as proceeds from our Loan and Security Agreement dated as of November 2, 2021, or the Term Loan Agreement, with the lenders party thereto from time to time, or the Lenders, and Silicon Valley Bank, as administrative agent and collateral agent for the Lenders, or the Agent. Pursuant to the Term Loan Agreement, the Company has access to a term loan in an aggregate principal amount of up to $50.0 million (the "Term Loan Facility"), available to the Company in three tranches, subject to certain terms and conditions. However, due to the deprioritization of our Fabry program, we can no longer draw on the second and third tranches, which total $20.0 million. We may also pursue additional funding from outside sources, including our expansion of, or our entry into, new borrowing arrangements; research and development incentive payments from governmental entities ; 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 September 30, 2022, we had cash and cash equivalents of $116.0 million. We believe that our existing cash and cash equivalents on hand as of September 30, 2022, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024. 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.

Other Updates

On July 8, 2022, we moved our corporate headquarters to 100 Technology Square, 6th Floor, Cambridge, MA 02139. We had previously subleased space in this location for laboratory facilities, and in January 2022, we amended our sublease agreement to, among other things, expand the square footage to include office space. In September 2022, we entered into an agreement providing for an early termination of our lease and continuing rent obligations for our former office space at One Kendall Square, Building 300, Suite 201, Cambridge, MA 02139, and we have since vacated the premises.

On July 13, 2022, we announced that the Food and Drug Administration, or FDA, has granted orphan drug designation for AVR-RD-05 for the treatment of nMPS-II, or Hunter syndrome.




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Components of Our Consolidated Results of Operations

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:

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

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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;

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

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costs of purchasing lab supplies and non­capital equipment used in our preclinical activities;

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

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costs related to compliance with regulatory requirements; and

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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.

The table below summarizes our research and development expenses related to our product candidates (in thousands):



                                                 Three Months Ended           Nine Months Ended
                                                   September 30,                September 30,
                                                 2022          2021           2022          2021
Fabry                                         $    1,568     $   3,356     $    5,464     $   9,143
Gaucher                                            2,085         1,409          4,998         5,887
Pompe                                                (29 )       1,705            569         2,413
Cystinosis                                           752         2,243          4,462         3,270
Hunter                                             2,634         1,520          4,577         1,872
Other research activities                             40             -             65           116

Unallocated research and development expenses 8,869 12,810 33,914 41,413 Total research and development expenses $ 15,919 $ 23,043 $ 54,049 $ 64,114

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:

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

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establishing an appropriate safety profile with IND-enabling studies;

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

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

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

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

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

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significant and changing government regulation;

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

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

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the risks disclosed in the section entitled "Risk Factors" of this Quarterly Report on Form 10-Q.

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, 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 (Expense) Income, Net

Other (expense) income, net primarily consists of interest income earned on our cash and cash equivalents and changes in foreign currency, and interest expense related to our Term Loan Agreement.



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