advm-10q_20180630.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 June 30, 2018

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: 001-36579

 

Adverum Biotechnologies, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

 

Delaware

 

20-5258327

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

1035 O’Brien Drive,

Menlo Park, CA

(Address of principal executive offices)

94025

(Zip Code)

(650) 272-6269

(Registrant’s telephone number, including area code)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes      No  

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

 

 

 

 

 

 

 

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

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 July 31, 2018 there were 62,694,074 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

 

 

 

 

 

 


 

Adverum Biotechnologies, Inc.

 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I—FINANCIAL INFORMATION

  

3

 

 

 

Item 1. Financial Statements

  

3

Condensed Consolidated Balance Sheets as of June 30, 2018 and December 31, 2017

  

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2018 and 2017

  

4

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017

  

5

Notes to Condensed Consolidated Financial Statements

  

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

  

13

Item 3. Quantitative and Qualitative Disclosures About Market Risk

  

20

Item 4. Controls and Procedures

  

20

 

 

 

PART II—OTHER INFORMATION

  

21

 

 

 

Item 1. Legal Proceedings

  

21

Item 1A. Risk Factors

  

21

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

  

52

Item 3. Defaults Upon Senior Securities

  

53

Item 4. Mine Safety Disclosures

  

53

Item 5. Other Information

  

53

Item 6. Exhibits

  

53

 

 

 

SIGNATURES

  

55

 

 

 

 

 

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements

Adverum Biotechnologies, Inc.

Condensed Consolidated Balance Sheets

(In thousands except share and per share data)

 

 

June 30,

 

 

December 31,

 

 

2018

 

 

2017

 

 

(Unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

155,451

 

 

$

70,519

 

Short-term investments

 

79,425

 

 

 

119,966

 

Prepaid expenses and other current assets

 

3,046

 

 

 

3,256

 

Total current assets

 

237,922

 

 

 

193,741

 

Property and equipment, net

 

2,525

 

 

 

3,024

 

Restricted cash

 

998

 

 

 

 

Deposit and other long-term assets

 

140

 

 

 

140

 

Intangible asset

 

5,000

 

 

 

5,000

 

Total assets

$

246,585

 

 

$

201,905

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

2,125

 

 

$

1,731

 

Accrued expenses and other current liabilities

 

8,350

 

 

 

6,964

 

Deferred rent, current portion

 

146

 

 

 

129

 

Deferred revenue, current portion

 

753

 

 

 

1,850

 

Total current liabilities

 

11,374

 

 

 

10,674

 

Deferred rent, net of current portion

 

146

 

 

 

222

 

Deferred revenue, net of current portion

 

 

 

 

5,250

 

Deferred tax liability

 

1,250

 

 

 

1,250

 

Other noncurrent liabilities

 

368

 

 

 

481

 

Total liabilities

 

13,138

 

 

 

17,877

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value, 5,000,000 shares authorized; no shares issued

   and outstanding

 

 

 

 

 

Common stock, $0.0001 par value, 300,000,000 shares authorized at June 30,

   2018 and December 31, 2017; 62,637,111 and 49,015,339 shares issued and

   outstanding at June 30, 2018 and December 31, 2017, respectively

 

6

 

 

 

5

 

Additional paid-in capital

 

518,275

 

 

 

439,048

 

Accumulated other comprehensive loss

 

(908

)

 

 

(963

)

Accumulated deficit

 

(283,926

)

 

 

(254,062

)

Total stockholders’ equity

 

233,447

 

 

 

184,028

 

Total liabilities and stockholders' equity

$

246,585

 

 

$

201,905

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

3


 

Adverum Biotechnologies, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands except per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

 

(Unaudited)

 

Collaboration and license revenue

 

$

493

 

 

$

463

 

 

$

709

 

 

$

925

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,217

 

 

 

8,492

 

 

 

24,011

 

 

 

17,553

 

General and administrative

 

 

9,179

 

 

 

4,064

 

 

 

14,547

 

 

 

12,053

 

Total operating expenses

 

 

20,396

 

 

 

12,556

 

 

 

38,558

 

 

 

29,606

 

Operating loss

 

 

(19,903

)

 

 

(12,093

)

 

 

(37,849

)

 

 

(28,681

)

Other income, net

 

 

1,093

 

 

 

663

 

 

 

1,839

 

 

 

1,152

 

Net loss

 

 

(18,810

)

 

 

(11,430

)

 

 

(36,010

)

 

 

(27,529

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (loss) gain on marketable securities

 

 

59

 

 

 

(49

)

 

 

76

 

 

 

(137

)

Foreign currency translation adjustment

 

 

54

 

 

 

(141

)

 

 

(21

)

 

 

(259

)

Comprehensive loss

 

$

(18,697

)

 

$

(11,620

)

 

$

(35,955

)

 

$

(27,925

)

Net loss per share -basic and diluted

 

$

(0.30

)

 

$

(0.27

)

 

$

(0.60

)

 

$

(0.65

)

Weighted-average common shares used to compute net loss per share - basic and diluted

 

 

62,366

 

 

 

43,009

 

 

 

59,907

 

 

 

42,579

 

 

See accompanying notes to condensed consolidated financial statements

 

 

 

4


 

Adverum Biotechnologies, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

Six Months Ended June 30,

 

 

2018

 

 

2017

 

 

(Unaudited)

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

$

(36,010

)

 

$

(27,529

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

1,099

 

 

 

1,056

 

Stock-based compensation expense

 

9,255

 

 

 

4,139

 

Other

 

(21

)

 

 

227

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable, net

 

 

 

 

886

 

Prepaid expenses and other current assets

 

(113

)

 

 

576

 

Accounts payable

 

394

 

 

 

(334

)

Accrued expenses and other current liabilities

 

1,322

 

 

 

(1,291

)

Deferred revenue

 

(201

)

 

 

(925

)

Deferred rent

 

(59

)

 

 

(43

)

Net cash used in operating activities

 

(24,334

)

 

 

(23,238

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of marketable securities

 

(46,136

)

 

 

(172,788

)

Maturities of marketable securities

 

86,797

 

 

 

14,000

 

Purchases of property and equipment

 

(382

)

 

 

(732

)

Net cash provided by (used in) investing activities

 

40,279

 

 

 

(159,520

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from offerings of common stock, net of issuance costs

 

70,188

 

 

 

 

Proceeds from issuance of common stock pursuant to option exercises

 

572

 

 

 

342

 

Taxes paid related to net share settlement of restricted stock units

 

(936

)

 

 

 

Proceeds from employee stock purchase plan

 

149

 

 

 

 

Proceeds from a financing arrangement

 

100

 

 

 

 

Repayment of loan

 

(88

)

 

 

 

Net cash provided by financing activities

 

69,985

 

 

 

342

 

Effect of foreign currency exchange rate on cash and cash equivalents

 

 

 

 

(231

)

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

 

85,930

 

 

 

(182,647

)

Cash and cash equivalents and restricted cash at beginning of period

 

70,519

 

 

 

222,170

 

Cash and cash equivalents and restricted cash at end of period

$

156,449

 

 

$

39,523

 

Supplemental schedule of noncash investing and financing information

 

 

 

 

 

 

 

Fixed assets in accounts payable, accrued expenses and other current liabilities

$

38

 

 

$

124

 

 

See accompanying notes to condensed consolidated financial statements.

 

 

 

5


 

Adverum Biotechnologies, Inc.

June 30, 2018

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1. Organization and Basis of Presentation

Adverum Biotechnologies, Inc. (the “Company”) was incorporated in Delaware on July 17, 2006 as Avalanche Biotechnologies, Inc. and changed its name to Adverum Biotechnologies, Inc. on May 11, 2016. The Company is headquartered in Menlo Park, California. The Company is a gene therapy company targeting unmet medical needs in serious rare and ocular diseases. Since the Company’s inception, it has devoted its efforts principally to performing research and development activities, including conducting preclinical studies and early clinical trials, filing patent applications, obtaining regulatory agreements, hiring personnel, and raising capital to support these activities.

The Company has not generated any revenue from the sale of products since its inception. The Company has experienced net losses since its inception and had an accumulated deficit of $283.9 million as of June 30, 2018. The Company expects to incur losses and have negative net cash flows from operating activities as it engages in further research and development activities. The Company believes that it has sufficient funds to continue operations into 2020.

Follow-on Offerings— In February 2018, the Company completed an underwritten public offering for the sale of 10,222,235 shares of its common stock and raised total net proceeds of $64.5 million, after discounts and other issuance costs.  

In August 2017, the Company entered into an at-the-market sales agreement with an agent for the sales of its common stock at market price (the “2017 stock offering agreement”). In January 2018, the Company issued and sold a total of 1,419,893 shares of its common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of $5.7 million, after issuance costs. Since then, during the six months ended June 30, 2018, no additional shares were issued and sold under the 2017 stock offering agreement.

Basis of Presentation—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and follow the requirements of the Securities and Exchange Commission (“SEC”) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These unaudited condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the three and six months ended June 30, 2018, are not necessarily indicative of the results to be expected for the full year or any other future period. The balance sheet as of December 31, 2017 is derived from the audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete consolidated financial statements.

The accompanying unaudited condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC.

2. Summary of Significant Accounting Policies

Use of Estimates— The accompanying consolidated financial statements have been prepared in accordance with U.S. GAAP. The preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent liabilities and the reported amounts of expenses in the consolidated financial statements and the accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to clinical trial accruals, fair value of assets and liabilities, income taxes, and stock-based compensation. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from those estimates.

 

6


 

Accounting Standard Updates Recently Adopted

Accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. Effective January 1, 2018, the Company adopted the new revenue standards under Topic 606 using the modified retrospective approach. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period results are not adjusted and continue to be reported in accordance with the revenue standards under Topic 605. Under Topic 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.  To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

The Company’s license and collaboration arrangements with Regeneron Pharmaceuticals, Inc. (“Regeneron”) and Editas Medicine, Inc. (“Editas”) are within the scope of Topic 606.

Upon the adoption of Topic 606, the Company recorded a net decrease of $6.1 million to its deferred revenue and opening accumulated deficit as of January 1, 2018 for the cumulative effect of the adoption. The effect of the adoption is summarized for the Company’s license and collaboration agreements as follows:

Collaboration Agreement with Regeneron Under Topic 606, the transaction price at contract inception was determined to be $8.0 million, which was related to the non-refundable upfront payment for license and research services. The arrangement also provides for additional payments to the Company when certain development and regulatory milestones are achieved. Because these milestone payments are not within the control of the Company and are not considered probable of being achieved until the events occur, the Company did not include them in the transaction price at contract inception.  The transaction price of $8.0 million at contract inception was allocated to two performance obligations. The Company’s deferred revenue associated with its Regeneron collaboration agreement as of December 31, 2017 under Topic 605 was $6.5 million. As a result of adopting Topic 606, the Company recorded a $6.5 million reduction to its deferred revenue and opening accumulated deficit during the three months ended March 31, 2018 as the performance obligations associated with the Regeneron deferred revenue were satisfied as of January 1, 2018. There was no outstanding deferred revenue associated with Regeneron as of March 31, 2018 or June 30, 2018.

Collaboration Agreement with Editas Under Topic 606, the transaction price at contract inception was determined to be $1.0 million, which was related to the non-refundable upfront payment for license and research services. The arrangement provides for additional payments to the Company when certain development and regulatory milestones are achieved. Because these milestone payments are not within the control of the Company and are not considered probable of being achieved until the events occur, the Company did not include them in the transaction price at contract inception.  The transaction price of $1.0 million at contract inception was allocated to a single performance obligation. The Company’s deferred revenue associated with its Editas collaboration agreement as of December 31, 2017 under Topic 605 was $0.5 million. As a result of adopting Topic 606, the Company recorded an increase of $0.4 million to its deferred revenue and opening accumulated deficit during the three months ended March 31, 2018 due to differences in the timing of recognition under Topic 606.

During the three and six months ended June 30, 2018, we recognized revenue of $0.5 million and $0.7 million, respectively, associated with Editas. Our deferred revenue balance of $0.8 million as of June 30, 2018 was associated with Editas and is expected to be recognized over a period of four months as the research and development services are performed.

Under Topic 605, the Company’s revenue for the three and six months ended June 30, 2018 would have been $0.5 million and 1.1 million, respectively.

Recently-Issued and Not Yet Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-2, Leases, which amends the current guidance on leasing activities to provide more transparency and comparability, and requires that all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, which are currently accounted for as operating leases. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. This ASU will be effective for the Company in the first quarter of 2019 and must be adopted using a modified retrospective transition approach. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.

 

7


 

3. Fair Value Measurements and Fair Value of Financial Instruments

The authoritative guidance on the fair value hierarchy for disclosure of fair value measurements is as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities.

Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. Level 1 securities consist of highly liquid money market funds. Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. U.S. government and agency securities, commercial paper, corporate bond and certificates of deposit are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2. In certain cases where there is limited activity or less transparency around inputs to valuation, securities are classified as Level 3 within the valuation hierarchy.

The following is a summary of the Company’s cash equivalents and short-term investments:  

 

 

 

June 30, 2018

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Loses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

56

 

 

$

 

 

$

 

 

$

56

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

24,606

 

 

 

 

 

 

(86

)

 

 

24,520

 

Commercial paper

 

 

176,101

 

 

 

 

 

 

 

 

 

176,101

 

Corporate bonds

 

 

21,548

 

 

 

 

 

 

(20

)

 

 

21,528

 

Certificates of deposit

 

 

6,120

 

 

 

 

 

 

 

 

 

6,120

 

Total cash equivalents and

   short-term investments

 

 

228,431

 

 

 

 

 

 

(106

)

 

 

228,325

 

Less: cash equivalents

 

 

(148,900

)

 

 

 

 

 

 

 

 

(148,900

)

Total short-term investments

 

$

79,531

 

 

$

 

 

$

(106

)

 

$

79,425

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost Basis

 

 

Unrealized

Gains

 

 

Unrealized

Loses

 

 

Estimated

Fair Value

 

 

 

(In thousands)

 

Level 1:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

65

 

 

$

 

 

$

 

 

$

65

 

Level 2:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

 

58,351

 

 

 

 

 

 

(145

)

 

 

58,206

 

Commercial paper

 

 

71,427

 

 

 

 

 

 

 

 

 

71,427

 

Corporate bonds

 

 

38,354

 

 

 

1

 

 

 

(38

)

 

 

38,317

 

Certificates of deposit

 

 

9,731

 

 

 

 

 

 

 

 

 

9,731

 

Total cash equivalents and

   short-term investments

 

 

177,928

 

 

 

1

 

 

 

(183

)

 

 

177,746

 

Less: cash equivalents

 

 

(57,780

)

 

 

 

 

 

 

 

 

(57,780

)

Total short-term investments

 

$

120,148

 

 

$

1

 

 

$

(183

)

 

$

119,966

 

As of June 30, 2018 and December 31, 2017, the fair value of the Company’s financing liability related to The Alpha-1 Project, Inc. (the “TAP financing”), which is classified within Level 3 in the fair value hierarchy, was $0.2 million. The Company elected the fair

 

8


 

value option to account for this financing arrangement. The fair value of the financing arrangement was determined based on the expected value approach and is classified as Level 3 within the fair value hierarchy. The key unobservable inputs in the valuation model include timing of milestones, probability of achievement of development and commercial milestones, and a discount factor.

There were no transfers within the hierarchy during the three and six months ended June 30, 2018.

The Company’s marketable securities as of June 30, 2018 mature within one year. Management regularly reviews all of the Company’s investments for other-than-temporary declines in estimated fair value. Management’s review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether management has the intent to sell the securities and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. Management determined that the gross unrealized losses of $0.1 million on the Company’s marketable securities as of June 30, 2018 were temporary in nature. Therefore, none of the Company’s marketable securities were other-than-temporarily impaired as of June 30, 2018.

4. Significant Agreements

Editas— In January 2018, the Company entered into an agreement to amend its collaboration, option and license agreement with Editas.  The Company originally entered into an agreement with Editas in August 2016 pursuant to which the Company and Editas collaborate on certain studies using AAV vectors in connection with Editas’ genome editing technology and the Company grants to Editas an exclusive option to obtain certain exclusive rights to use the Company’s proprietary vectors in up to five ophthalmic indications. In January 2018, the Company and Editas extended the research collaboration, option and license agreement. In consideration for extending the agreement, Editas made a one-time, non-refundable cash payment of $0.5 million to the Company in February 2018. In June 2018, the Company and Editas entered into a subsequent amendment to the agreement to extend the Research period and First Option Exercise Date.

Under the terms of the agreement, as amended, Editas may exercise the option with respect to a designated initial indication until November 16, 2018. With respect to the four other indications, Editas may exercise the option until August 8, 2020, provided that the option will expire on August 8, 2019 if Editas has not exercised the option with respect to the initial indication or any other indication by such date. Upon Editas’ timely exercise of the option with respect to the designated initial indication, Editas will pay the Company a $1.3 million fee. For the first additional indication for which Editas timely exercises its option, Editas will pay the Company a $1.5 million fee. Upon each subsequent exercise of the option, Editas will pay the Company a $1.0 million fee per Indication. If Editas elects to develop a product using certain of the Company’s proprietary vectors, the Company will be eligible to receive up to $15.5 million in development and commercialization milestone payments for such product, and tiered royalties between the mid-single digits and low teens on net sales of such product, subject to certain adjustments.

Unless earlier terminated, the agreement will be in effect until the later of the expiration of the option exercise period or the expiration of the royalty term of the last product. At any time after the option is first exercised, Editas may terminate the agreement for convenience in its entirety or on an indication-by indication or country-by-country basis, upon prior written notice to the Company. The Company may also terminate the agreement if Editas challenges the Company’s patents relating to its proprietary vectors and does not withdraw such challenge within a defined period of time. In addition, either party may terminate the agreement with written notice upon a bankruptcy of the other party or upon an uncured material breach by the other party.

Under Topic 606, the transaction price is $1.5 million related to the $1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time, non-refundable cash payment of $0.5 million made by Editas in February 2018 in consideration for extending the agreement. The arrangement provides for additional payments to the Company when certain development and regulatory milestones are achieved. Because these milestone payments are not within the control of the Company and are not considered probable of being achieved until the events occur, the Company did not include them in the transaction price.  The transaction price of $1.5 million was allocated to a single performance obligation, research and development.

During the three and six months ended June 30, 2018, the Company recognized revenue of $0.5 million and $0.7 million, respectively, associated with Editas. The Company’s deferred revenue balance of $0.8 million as of June 30, 2018 was associated with Editas and is expected to be recognized over a period of four months as the research and development services are performed.

 

9


 

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

 

 

June 30, 2018

 

 

December 31, 2017

 

 

 

(In thousands)

 

Accrued professional services

 

$

2,629

 

 

$

2,295

 

Employee compensation

 

 

2,368

 

 

 

2,259

 

Accrued preclinical, clinical and process development costs

 

 

2,213

 

 

 

2,165

 

Other

 

 

1,140

 

 

 

245

 

Total accrued expenses and other current liabilities

 

$

8,350

 

 

$

6,964

 

 

6. Commitments and Contingencies

Leases

On June 28, 2018, the Company entered into a lease for laboratory, office and manufacturing space, which will serve as the Company’s new corporate headquarters. The Company expects to obtain control and access of the facility later in 2018. The term of the lease is ten years and also provides for two options to extend the lease term for a period of seven years each.  The Company is obligated to make lease payments totaling approximately $49.3 million over the initial term of the lease.

Under the lease, the Company will receive a tenant improvement allowance for the costs associated with the design, development and construction of tenant improvements for the leased facility. The Company has provided the landlord with a letter of credit in the amount of $1.0 million. The security for the letter of credit of $1.0 million is classified as restricted cash under long term assets on the balance sheet.

As of June 30, 2018, the aggregate future minimum payments under the Company’s leases are as follows:

Year ending December 31,

 

Future Commitments

 

 

 

(In thousands)

 

2018 (remaining 6 months)

 

$

587

 

2019

 

 

3,344

 

2020

 

 

4,221

 

2021

 

 

4,683

 

2022

 

 

4,846

 

Thereafter

 

 

33,853

 

Total minimum lease payments

 

$

51,534

 

 

Legal Proceedings

From time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.

In July 2015, three securities class action lawsuits were filed against the Company and certain of its officers in the United States District Court for the Northern District of California (“U.S. District Court”), each on behalf of a purported class of persons and entities who purchased or otherwise acquired the Company’s publicly traded securities between July 31, 2014 and June 15, 2015. The lawsuits asserted claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Securities Act of 1933, as amended (the “Securities Act”) and alleged that the defendants made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA-101, a product candidate which is no longer being developed, and the prospects of AVA-101. The complaints sought unspecified damages, attorneys’ fees and other costs.

In December 2015, a putative securities class action lawsuit was filed against the Company, the Company’s board of directors, underwriters of the Company’s January 13, 2015, follow-on public stock offering, and two of the Company’s institutional stockholders, in the Superior Court of the State of California for the County of San Mateo (“San Mateo Superior Court”). The complaint alleged that, in connection with the Company’s follow-on stock offering, the defendants violated the Securities Act by allegedly making materially false and misleading statements and by allegedly omitting material information related to the Phase 2a

 

10


 

clinical trial for AVA- 101 and the prospects of AVA-101. The complaint sought unspecified compensatory and rescissory damages, attorneys’ fees and other costs. The plaintiff has dismissed the two institutional stockholder defendants.

On March 16, 2017, the Company reached an agreement to settle the actions. The aggregate amount of the settlement was $13.0 million, of which $1.0 million was contributed by the Company to cover its indemnification obligations to the underwriters, and the remainder of which was contributed by the Company’s insurers. The Company and the defendants have denied and continue to deny each and all the claims alleged in the actions, and the settlement did not assign or reflect any admission of fault, wrongdoing or liability as to any defendant. Notice of the settlement was provided to stockholders in the fall of 2017, and no stockholder objected to the settlement. On January 19, 2018, the San Mateo Superior Court entered a judgment and order finally approving the settlement. On February 5, 2018, the U.S. District Court entered an order dismissing the consolidated federal action with prejudice. No one appealed either order and the deadline for any such appeal has passed. The Company recorded $1.0 million as general and administrative expense during the three months ended March 31, 2017, when the amount and time of settlement became estimable and probable.

7. Equity Incentive Awards   

The following table summarizes the Company’s option activity and related information:

 

 

Number of

Options

(in thousands)

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-

Average

Remaining

Contractual Life

(in years)

 

 

Aggregate

Intrinsic Value

(in thousands)

 

Balance at December 31, 2017

 

6,695

 

 

$

4.51

 

 

 

 

 

 

 

 

 

Options granted

 

1,589

 

 

 

6.38

 

 

 

 

 

 

 

 

 

Options exercised

 

(1,489

)

 

 

0.38

 

 

 

 

 

 

 

 

 

Options cancelled

 

(518

)

 

 

5.98

 

 

 

 

 

 

 

 

 

Balance at June 30, 2018

 

6,277

 

 

$

5.84

 

 

 

7.4

 

 

$

10,653

 

Exercisable as of June 30, 2018

 

2,754

 

 

$

6.93

 

 

 

5.8

 

 

$

5,705

 

 

Restricted Stock Units (“RSUs”)

The following table summarizes the Company’s RSUs activity and related information:

 

 

 

Number of Units

(in thousands)

 

 

Weighted-

Average Grant-

Date Fair Value

 

 

Weighted-

Average

Remaining

Contractual

Term (in years)

 

Outstanding at December 31, 2017

 

 

2,515

 

 

$

3.24

 

 

 

1.6

 

Granted

 

 

1,076

 

 

 

6.03

 

 

 

 

 

Vested and released

 

 

(571

)

 

 

3.46

 

 

 

 

 

Forfeited

 

 

(424

)

 

 

4.36

 

 

 

 

 

Outstanding at June 30, 2018

 

 

2,596

 

 

$

4.16

 

 

 

1.8

 

Stock-Based Compensation Expense

The following table presents, by operating expense, the Company’s stock-based compensation expense:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

 

(In thousands)

 

Research and development

$

821

 

 

$

1,395

 

 

$

3,199

 

 

$

2,637

 

General and administrative

 

5,005

 

 

 

848

 

 

 

6,056

 

 

 

1,502

 

Total stock-based compensation expense

$

5,826

 

 

$

2,243

 

 

$

9,255

 

 

$

4,139

 

 

 

During the three months ended June 30, 2018, the Company recorded approximately $4.1 million of stock-based compensation expense as a result of the modification of the vesting and exercisability of stock awards associated with the departure of two of its executives.

 

 

11


 

8. Net Loss per Share

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period using the treasury stock method. Outstanding stock options, RSUs, employee stock purchase plan (“ESPP”) and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.  

The Company excluded approximately 9.0 million and 10.3 million shares of potentially dilutive securities as of June 30, 2018 and 2017, respectively, from the computations of diluted weighted-shares outstanding because their effect would be anti-dilutive.

 

 

 

12


 

Item 2.

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

The interim financial statements included in this Quarterly Report on Form 10-Q and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2017, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (SEC) on March 6, 2018. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act). These forward-looking statements are subject to risks and uncertainties, including those discussed in the section titled “Risk Factors,” set forth in Part II – Other Information, Item 1A below and elsewhere in this report that could cause actual results to differ materially from historical results or anticipated results.

Overview

Adverum is a clinical-stage gene therapy company targeting unmet medical needs in serious rare and ocular diseases. Leveraging our next-generation adeno-associated virus (“AAV”)-based directed evolution platform, we generate gene therapy product candidates designed to provide durable efficacy by inducing sustained expression of a therapeutic protein. Our core capabilities include clinical development, novel vector discovery and in-house manufacturing expertise, specifically in process development, assay development, and current Good Manufacturing Practices (“cGMP”) quality control. Our leadership team has significant drug development and gene therapy expertise.

We are advancing our robust pipeline of gene therapy candidates that are respectively designed to treat the rare disease alpha-1 antitrypsin (“A1AT”) deficiency, wet age-related macular degeneration (“wAMD”), and the rare disease hereditary angioedema (“HAE”).

ADVM-043 is designed as a single-administration treatment with the potential to induce stable, long-term A1AT protein levels, or expression. In a preclinical proof-of-concept study, ADVM-043 demonstrated robust protein expression above therapeutic levels in mice following either IV or intrapleural (“IP”) administration. In another study in non-human primates, evidence of stable long-term expression of hA1AT messenger RNA was observed out to one year following IP administration of ADVM-043.

For the treatment of A1AT deficiency, we are advancing our gene therapy product candidate ADVM-043, AAVrh.10-A1AT, in an ongoing Phase 1/2 clinical trial (the “ADVANCE trial”). The ADVANCE trial is a multi-center, open-label, dose-escalation study. The study will include up to 20 patients across four planned dosing cohorts of up to five patients each. In Cohort 1, two patients were dosed and were evaluated following a single intravenous (administration of ADVM-043 at a dose of ~1E12 vg/kg (8E13 total vg). In Cohort 2, two patients were dosed and evaluated with a single intravenous administration of ADVM-043 at a dose of ~5E12 vg/kg (4E14 total vg). Based on a review of the preliminary safety data, the independent data monitoring committee (“DMC”) recommended proceeding to Cohort 3 and we have recently dosed the first patient in Cohort 3. Patients in Cohort 3 will receive a single intravenous administration of ADVM-043 at a dose of ~1.5E13 vg/kg (1.2E15 total vg). Per protocol, patients being treated with standard-of-care weekly intravenous (“IV”) infusions of A1AT protein are required to wash out for at least two months prior to receiving ADVM-043 and are required to remain off of A1AT protein augmentation therapy for a minimum of three months after dosing with ADVM-043. The primary endpoint in the ADVANCE trial is safety and tolerability, and secondary endpoints include changes in plasma concentrations of both total and M-specific A1AT levels. We expect to report preliminary data from patients in Cohorts 1 through 3 in this trial by the end of the year. We plan to use this data to inform next steps, including potential further dose escalation. Further details about the study can be found at ClinicalTrials.gov under trial identifier number NCT02168686.

For wAMD, we are advancing our gene therapy product candidate ADVM-022, AAV.7m8-aflibercept. ADVM-022 utilizes a proprietary vector capsid (AAV.7m8) carrying an aflibercept coding sequence under the control of a proprietary expression cassette and is administered as a single intravitreal injection. Vascular Endothelial Growth Factor (“VEGF”) overexpression can lead to wAMD progression and vision loss and aflibercept is currently used as an anti-VEGF treatment that needs to be administered frequently to patients (every 4-8 weeks). Reduced compliance with the current approved treatment regimen is associated with decreased efficacy. ADVM-022 is designed to provide sustained therapeutic levels of aflibercept and to minimize the burden of frequent anti-VEGF injections. We recently submitted an Investigational New Drug (“IND”) application for ADVM-022 with the U.S. Food and Drug Administration (“FDA”) to initiate a Phase 1 clinical trial in patients with wAMD.

In May 2018, we presented long-term preclinical efficacy data on ADVM-022 at the American Society of Gene & Cell Therapy 21st Annual Meeting. In this preclinical study, in non-human primate models of wAMD, the efficacy of ADVM-022 at 13 months post-administration was consistent with earlier reported data, demonstrating that single intravitreal injection of ADVM-022 was found to be safe and statistically significant (p<0.0001) in preventing the development of Grade IV lesions compared to the untreated vehicle control group. ADVM-022 induced long-term efficacy that was comparable to aflibercept, an anti- VEGF standard-of-care therapy. In this preclinical study, ADVM-022 was well-tolerated, with no serious adverse events.

For treatment of the rare disease HAE, we are advancing our gene therapy product candidate ADVM-053, AAVrh.10-C1EI. ADVM-053 is designed as a single-administration treatment with the potential to provide sustained levels of the C1 esterase inhibitor (“C1EI”)

 

13


 

protein to eliminate protein concentration variability and prevent breakthrough angioedema attacks. In preclinical studies, a single IV administration of ADVM-053 increased C1EI protein expression above therapeutic levels and decreased vascular permeability in a mouse model of HAE. We plan to submit an IND application with the U.S. FDA for ADVM-053 to treat patients with HAE in the fourth quarter of 2018.

Our earlier-stage research programs include gene therapy product candidates targeting cardiomyopathy associated with Friedreich’s ataxia (“FA”) and blue cone monochromacy (“BCM”).

Our partnered programs include vectors we are developing under collaboration agreements. Under an agreement with Editas Medicine, Inc. (“Editas”) we are leveraging our AAV-vectors for use with Editas’ leading CRISPR-based genome editing technologies to treat up to five inherited retinal diseases. Our agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) provides for development of up to eight distinct ocular therapeutic targets, four of which are already identified, including AVA-311 for the treatment of juvenile X-Linked Retinoschisis.

In June 2018 we signed a lease with an initial 10-year term for a new facility in Redwood City, California which we plan to occupy in the second half of 2019. This facility will serve as our new corporate headquarters and will include over 80,000 square feet of office, manufacturing, and laboratory space. We believe this facility will enable us to expand our manufacturing process development activities at the 2000-liter scale, as well as offer the opportunity for future cGMP manufacturing of our clinical trial material.

Financial Overview

Summary

We have not generated positive cash flow or net income from operations since our inception and, as of June 30, 2018, we had an accumulated deficit of $283.9 million. We expect to incur substantial expenses and increasing losses from operations in the foreseeable future as we continue our research and development efforts, advance our product candidates through preclinical and clinical development, manufacture clinical study materials, seek regulatory approval, and prepare for and, if approved, proceed to commercialization. We are at an early stage of development and may never be successful in developing or commercializing our product candidates.

While we may in the future generate revenue from a variety of sources, including license fees, milestone and research and development payments in connection with strategic partnerships, and potentially revenue from product sales if any of our product candidates are approved, to date we have not generated any revenue from product sales.

We entered into our collaboration and license arrangements with Regeneron in May 2014 and Editas in August 2016, which are revenue-generating arrangements. We currently have no clinical or commercial manufacturing facilities, and all of our clinical manufacturing activities are contracted out to third parties. Additionally, we use third-party clinical research organizations (“CROs”) to carry out our clinical development and we do not have a sales organization.

We expect to incur substantial and increasing expenditures in the foreseeable future for the development and potential commercialization of our product candidates. We will need substantial additional funding in the future to support our operating activities as we advance our product candidates through preclinical and clinical development, seek regulatory approval and prepare for and, if approved, proceed to commercialization. Adequate funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, or to do so on acceptable terms, when needed, or to form additional collaboration partnerships to support our efforts, we could be forced to delay, reduce or eliminate our research and development programs or potential commercialization efforts.

In August 2017, we entered into an at-the-market sales agreement with an agent for the sales of our common stock at market price (the “2017 stock offering agreement”). Under the terms and conditions of the 2017 stock offering agreement, we may offer to sell our common stock for an aggregate offering price of up to $50.0 million through the agent from time to time. In January 2018, we sold a total of 1,419,893 shares of our common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of $5.7 million, after issuance costs. Since then, during the six months ended June 30, 2018, no additional shares were issued and sold under the 2017 stock offering agreement. Under the 2017 stock offering agreement, we have sold a total of 6,550,232 shares of our common stock at market prices, raising total net proceeds of $22.5 million, after issuance costs.

In February 2018, we completed an underwritten public offering for the sale of 10,222,235 shares of our common stock and raised total net proceeds of $64.5 million, after discounts and other issuance costs.

As of June 30, 2018, we had $234.9 million in cash, cash equivalents and short-term investments. We believe that we have sufficient funds to continue our operations into 2020.

Revenue

To date we have not generated any revenue from the sale of our products. We generate revenue through research, collaboration and license arrangements with our strategic partners.

 

14


 

Research and Development Expenses

Conducting a significant amount of research and development is central to our business model. Research and development expenses include primarily personnel-related costs, stock-based compensation expense, laboratory supplies, consulting costs, external contract research and development expenses, including expenses incurred under agreements with CROs, the cost of acquiring, developing and manufacturing clinical study materials, and overhead expenses, such as rent, equipment depreciation, insurance and utilities.

We expense research and development costs as incurred. We defer and expense advance payments for goods or services for future research and development activities as the goods are delivered or the related services are performed.

We estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. We estimate the amounts incurred through communications with third party service providers and our estimates of accrued expenses as of each balance sheet date are based on information available at the time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.

At this time, we cannot reasonably estimate the nature, timing or aggregate costs of the efforts that will be necessary to complete the development of any of our product candidates. The successful development and commercialization of a product candidate is highly uncertain, and clinical development timelines, the probability of success, and development and commercialization costs can differ materially from expectations.

General and Administrative Expenses

General and administrative expenses include primarily personnel-related costs, stock-based compensation, professional fees for legal, consulting, audit and tax services, overhead expenses, such as rent, equipment depreciation, insurance and utilities, and other general operating expenses not otherwise included in research and development expenses. Our general and administrative expenses may increase in future periods if and to the extent we elect to increase our investment in infrastructure to support continued research and development activities and potential commercialization of our product candidates. We will continue to evaluate the need for such investment in conjunction with our ongoing consideration of our pipeline of product candidates. We anticipate increased expenses related to audit, legal and regulatory functions, as well as director and officer insurance premiums and investor relations costs associated with being a public reporting company.

Other Income, Net

Other income, net primarily consists of interest income on our cash equivalents and investments in marketable securities.

Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Act”), which significantly reforms the Internal Revenue Code of 1986, as amended. The Act contains broad and complex changes to corporate taxation, including in part reduction of the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously considered permanently reinvested, and creates new taxes on certain foreign sourced earnings.  On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. Because we are still in the process of analyzing certain provisions of the Act including the application of new executive compensation limitation provisions under Internal Revenue Section 162(m) in accordance with SAB 118, we determined that the adjustment to our deferred taxes was a provisional amount.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”).  The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions and conditions.  Except as noted below, there have been no material changes to our critical accounting policies from those described in our Annual Report on Form 10-K (Annual Report) as filed with the SEC, on March 6, 2018.

 

15


 

Revenue

To date we have not generated any revenue from the sale of our products. We generate revenue through research, collaboration and license arrangements with our strategic partners.

Effective January 1, 2018, we adopted accounting Standard Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) using the modified retrospective approach. Our collaboration agreements with Regeneron and Editas were impacted by the adoption of the new revenue standards under Topic 606. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period results are not adjusted and continue to be reported in accordance with the revenue standards under Topic 605.

Upon adoption of Topic 606, we recorded a net decrease of $6.1 million to our deferred revenue and opening accumulated deficit as of January 1, 2018 for the cumulative effect of the adoption. The effect of the adoption is summarized for our license and collaboration agreements as follows:

Collaboration Agreement with Regeneron Under Topic 606, the transaction price at contract inception was determined to be $8.0 million, which was related to the non-refundable upfront payment for license and research services. The arrangement also provides for additional payments to us when certain development and regulatory milestones are achieved. Because these milestone payments are not within our control and are not considered probable of being achieved until the events occur, we did not include them in the transaction price at contract inception.  The transaction price of $8.0 million at contract inception was allocated to two performance obligations. Our deferred revenue associated with Regeneron collaboration agreement as of December 31, 2017 under Topic 605 was $6.5 million. As a result of adopting Topic 606, we recorded a $6.5 million reduction to our deferred revenue and opening accumulated deficit during the three months ended March 31, 2018 as the performance obligations associated with the Regeneron deferred revenue were satisfied as of January 1, 2018. There was no outstanding deferred revenue associated with Regeneron as of March 31, 2018 or June 30, 2018.

Collaboration Agreement with Editas Under Topic 606, the transaction price is $1.5 million related to the $1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time, non-refundable cash payment of $0.5 million made by Editas in February 2018 in consideration for extending the agreement. The arrangement provides for additional payments to us when certain development and regulatory milestones are achieved. Because these milestone payments are not within our control and are not considered probable of being achieved until the events occur, we did not include them in the transaction price.  The transaction price of $1.5 million was allocated to a single performance obligation, research and development. Our deferred revenue associated with Editas collaboration agreement as of December 31, 2017 under Topic 605 was $0.5 million. As a result of adopting Topic 606, we recorded an increase of $0.4 million to our deferred revenue and opening accumulated deficit during the three months ended March 31, 2018 due to differences in the timing of recognition under Topic 606.

During the three and six months ended June 30, 2018, we recognized revenue of $0.5 and $0.7 million, respectively, associated with Editas. Our deferred revenue balance of $0.8 million as of June 30, 2018 was associated with Editas and is expected to be recognized over a period of four months as the research and development services are performed.

Under Topic 605, our revenue for the three and six months June 30, 2018 would have been $0.5 and $1.1 million, respectively.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2018 and 2017

 

 

 

Three Months Ended

June 30,

 

 

 

 

 

 

Six Months Ended

June 30,

 

 

 

 

 

 

 

2018

 

 

2017

 

 

Change

 

 

2018

 

 

2017

 

 

Change

 

 

 

(In thousands)

 

Collaboration and license revenue

 

$

493

 

 

$

463

 

 

$

30

 

 

$

709

 

 

$

925

 

 

$

(216

)

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

11,217

 

 

 

8,492

 

 

 

2,725

 

 

 

24,011

 

 

 

17,553

 

 

 

6,458

 

General and administrative

 

 

9,179

 

 

 

4,064

 

 

 

5,115

 

 

 

14,547

 

 

 

12,053

 

 

 

2,494

 

Total operating expenses

 

 

20,396

 

 

 

12,556

 

 

 

7,840

 

 

 

38,558

 

 

 

29,606

 

 

 

8,952

 

Operating loss

 

 

(19,903

)

 

 

(12,093

)

 

 

(7,810

)

 

 

(37,849

)

 

 

(28,681

)

 

 

(9,168

)

Other income, net

 

 

1,093

 

 

 

663

 

 

 

430

 

 

 

1,839

 

 

 

1,152

 

 

 

687

 

Net loss

 

$

(18,810

)

 

$

(11,430

)

 

$

(7,380

)

 

$

(36,010

)

 

$

(27,529

)

 

$

(8,481

)

 

16


 

Revenue

Our revenue for the three and six months ended June 30, 2018 was related to research services provided to Editas under our collaboration agreement with Editas while our revenue for the three and six months ended June 30, 2017 was related to license and research services under our collaboration agreements with Regeneron and Editas. We recognized our collaboration revenue for the three and six months ended June 30, 2018 under Topic 606, which we adopted effective January 1, 2018. We recognized our collaboration revenue for the three and six months ended June 30, 2017 under Topic 605.  Under Topic 605, our revenue for the three and six months June 30, 2018 would have been $0.5 million and $1.1 million, respectively.

Research and Development Expense

Research and development expense increased to $11.2 million for the three months ended June 30, 2018, from $8.5 million for the three months ended June 30, 2017. This increase was primarily due to an overall increase in research and development activity, including $1.2 million of higher costs associated with our clinical trial for ADVM-043 for A1AT deficiency, $0.6 million of higher material production costs related to our wAMD and HAE programs to support our plans to initiate clinical trials,  $0.6 million of higher outside research and development services and $0.6 million in higher compensation and benefits, offset in part by $0.4 million of lower consultants and contractors costs.

Research and development expense increased to $24.0 million for the six months ended June 30, 2018, from $17.6 million for the six months ended June 30, 2017. This increase was primarily due to an overall increase in research and development activity, including $2.7 million of higher compensation and benefits, $2.7 million of higher material production costs related to our wAMD and HAE programs to support our plans to initiate clinical trials, $0.9 million of higher costs associated with our clinical trial for ADVM-043 for A1AT deficiency.

For the periods presented, our research and development activities are attributable to our A1AT deficiency, wAMD and HAE programs and earlier-stage research programs. We expect that research and development expenses will increase in future periods as we continue to invest in our three lead gene therapy programs and earlier-stage research programs.

General and Administrative Expense

General and administrative expense increased to $9.2 million for the three months ended June 30, 2018, from $4.1 million for the three months ended June 30, 2017. The increase in general and administrative expense was primarily due to $4.4 million in severance-related expenses, predominantly stock-based compensation expenses as a result of the modification of the vesting and exercisability of stock awards associated with the departure of our previous chief executive officer, and $0.7 million in increased compensation and benefit expenses and professional services fees.

General and administrative expense increased to $14.5 million for the six months ended June 30, 2018, from $12.1 million for the six months ended June 30, 2017. The increase in general and administrative expense was primarily due to $5.0 million in severance-related expenses, predominantly stock-based compensation expenses as a result of the modification of the vesting and exercisability of stock awards associated with the departure of our previous chief executive officer, and $0.4 million in increased professional fees, partially offset by lower legal expenses as the six months ended June 30, 2017 included settlement costs associated with the stockholder lawsuit and $2.3 million for the termination of our master service agreement with Cornell.

We expect general and administrative expenses to increase in future periods to support continued research and development initiatives of our product candidates. We will continue to assess such expenses as we advance our three lead gene therapy programs and earlier-stage research programs. We anticipate increased expenses related to audit, legal and regulatory functions, as well as director and officer insurance premiums and investor relations costs associated with being a public reporting company.

Other Income, Net

The increase in other income, net was primarily due to higher interest income from our investments in marketable securities as we invested in higher yield securities, as well as higher average invested balances.

Liquidity and Capital Resources and Plan of Operations

We have not generated positive cash flow or net income from operations since our inception and as of June 30, 2018, we had an accumulated deficit of $283.9 million. As of June 30, 2018, we had $234.9 million in cash, cash equivalents and short-term investments compared to $190.5 million as of December 31, 2017. We believe that our existing cash and cash equivalents as of June 30, 2018 will be sufficient to fund our operations into 2020.

In August 2017, we entered into the 2017 stock offering agreement. Under the terms and conditions of the 2017 stock offering agreement, we may offer to sell our common stock for an aggregate offering price of up to $50.0 million through the agent from time to time. In January 2018, we sold a total of 1,419,893 shares of our common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of $5.7 million, after issuance costs. Since then, during the six months ended June 30, 2018, no additional shares were issued and sold under the 2017 stock offering agreement. We have sold a total of 6,550,232 million shares

 

17


 

of our common stock at market prices pursuant to the 2017 stock offering agreement,  raising total net proceeds of $22.5 million, after issuance costs.

In February 2018, we completed an underwritten public offering for the sale of 10,222,235 shares of our common stock and raised total net proceeds of $64.5 million, after discounts and other issuance costs.

In June 2018, we entered into a lease for a facility located in Redwood City, California, that will serve as our new corporate headquarters and will include over 80,000 square feet of office, manufacturing, and laboratory space. We believe this facility will enable us to expand our manufacturing process development activities at the 2000-liter scale, as well as offer the opportunity for future cGMP manufacturing of our clinical trial material.

We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates and ongoing internal research and development programs, and expenses to build out our new facility. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, in order to complete our planned preclinical trials and current and future clinical trials, and to complete the process of obtaining regulatory approval for our product candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding in the future.

If and when we seek additional funding, we will do so through equity or debt financings, collaborative or other arrangements with corporate sources or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies. To complete development and commercialization of any of our product candidates, we anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:

 

the initiation, progress, timing, costs and results of preclinical studies and any clinical trials for our product candidates;

 

the outcome, timing of and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities, including the potential for the FDA and other regulatory authorities to require that we perform more studies than those that we currently expect;

 

the ability of our product candidates to progress through clinical development activities successfully;

 

our need to expand our research and development activities;

 

the rate of progress and cost of our commercialization of our products;

 

the cost of preparing to manufacture our products on a larger scale;

 

the costs of commercialization activities including product sales, marketing, manufacturing and distribution;

 

the degree and rate of market acceptance of any products launched by us or future partners;

 

the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;

 

our need to implement additional infrastructure and internal systems;

 

our ability to hire additional personnel;

 

our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements, and;

 

the emergence of competing technologies or other adverse market developments.

If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license other technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves.

Cash Flows

 

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2018

 

 

2017

 

 

 

(in thousands)

 

Net cash used in operating activities

 

$

(24,334

)

 

$

(23,238

)

Net cash provided by (used in) investing activities

 

 

40,279

 

 

 

(159,520

)

Net cash provided by financing activities

 

 

69,985

 

 

 

342

 

Effect of foreign currency exchange rate

 

 

 

 

(231

)

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

 

$

85,930

 

 

$

(182,647

)

 

18


 

Cash Used in Operating Activities

During the six months ended June 30, 2018, net cash used in operating activities was primarily as a result of the net loss of $36.0 million, partially offset by $10.3 million of non-cash charges mainly related to stock-based compensation expense and depreciation and amortization expense and $1.3 million of net decrease in operating assets and liabilities.

During the six months ended June 30, 2017, net cash used in operating activities was $23.2 million, primarily as a result of the net loss of $27.5 million and $1.1 million of net decrease in operating assets and liabilities, partially offset by $5.4 million of non-cash charges mainly related to stock-based compensation expense and depreciation and amortization expense.

Cash Provided by (Used in) Investing Activities

Net cash provided by investing activities for the six months ended June 30, 2018 consisted of $86.8 million resulting from the maturities of marketable securities, partially offset by $46.1 million of purchases of marketable securities and $0.4 million of purchases of property and equipment.

Net cash used in investing activities for the six months ended June 30, 2017, was $159.5 million, primarily due to $172.8 million of purchases of marketable securities and $0.7 million of purchases of property and equipment, partially offset by $14.0 million of maturities of marketable securities.

Purchases of property and equipment primarily consisted of the acquisition of laboratory equipment to support our research and development activities.

Cash Provided by Financing Activities

Net cash provided by financing activities for six months ended June 30, 2018 consisted of $70.2 million of the net proceeds from the sales of our common stock, $0.7 million of the proceeds from the exercises of stock options and employee stock purchases and $0.1 million of the proceeds from our financing arrangement with the Alpha-1 Project, Inc., partially offset by $0.9 million in taxes paid relating to net share settlement of restricted stock units and $0.1 million repayment of our Banque Publique d’Investissement (“BPI France”) loan.

Net cash provided by financing activities of $0.3 million for the six months ended June 30, 2017 was a result of the proceeds from exercises of stock options.

Contractual Obligations and Commitments

The following table summarizes our contractual obligations as of June 30, 2018:

 

 

 

Payment Due by Period

 

 

 

Less Than 1 Year

 

 

1 to 3 Years

 

 

3 to 5 Years

 

 

More than 5 Years

 

 

Total

 

 

 

(in thousands)

 

Operating lease obligations

 

$

1,926

 

 

$

13,318

 

 

$

10,034

 

 

$

26,256

 

 

$

51,534

 

Master service agreement with Cornell (1)

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

BPI financing

 

 

121

 

 

 

289

 

 

 

 

 

 

 

 

 

410

 

Contractual obligations (2)

 

 

4,031

 

 

 

 

 

 

 

 

 

 

 

 

4,031

 

Total

 

$

8,078

 

 

$

13,607

 

 

$

10,034

 

 

$

26,256

 

 

$

57,975

 

 

(1)

Costs associated with the termination of the master service agreement with Cornell are recorded within accrued expenses and other current liabilities in our consolidated balance sheet as of June 30, 2018.

(2)

Related to our contract manufacturing with a vendor for materials production for our three programs, ADVM-022, ADVM-043 and ADVM-053.

 

Our contractual obligations have not changed materially from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2017, except as follows:

 

19


 

In June 2018, we entered into a lease for a facility located in Redwood City, California, that will serve as our new corporate headquarters and will include over 80,000 square feet of office, manufacturing, and laboratory space. We believe this facility will enable us to expand our manufacturing process development activities at the 2000-liter scale, as well as offer the opportunity for future cGMP manufacturing of our clinical trial material.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

There were not material changes to our exposure to market risk during the six months ended June 30, 2018.  For additional information regarding market risk, refer to the Qualitative and Quantitative Disclosures About Market Risk section of our Annual Report on Form 10-K.

Item 4.

Controls and Procedures

Evaluation of disclosure controls and procedures. Management, including Leone Patterson, our Chief Financial Officer and Interim President and Chief Executive Officer, who is currently serving as both our Principal Executive Officer and our Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of June 30, 2018. The evaluation of our disclosure controls and procedures included a review of our processes and implementation and the effect on the information generated for use in this Quarterly Report on Form 10-Q. This type of evaluation is done quarterly so that our conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to maintain these disclosure controls and procedures, modifying them as circumstances warrant.

Based on that evaluation, Ms. Patterson concluded that, as of June 30, 2018, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Principal Executive Officer and our Principal Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting during the three months ended June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Controls and Procedures

Our management, including the Principal Executive Officer and the Principal Financial Officer, does not expect that our disclosure controls and procedures and our internal controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can only provide reasonable assurances that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within Adverum have been or will be detected. As these inherent limitations are known features of the financial reporting process, it is possible to design into the process safeguards to reduce, though not eliminate, these risks. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. While our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, there can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis, to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. While our Principal Executive Officer and Principal Financial Officer concluded that, as of June 30, 2018, the design of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, was effective, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

 

20


 

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

In July 2015, three securities class action lawsuits were filed against us and certain of our officers in the United States District Court for the Northern District of California (“U.S. District Court”), each on behalf of a purported class of persons and entities who purchased or otherwise acquired our publicly traded securities between July 31, 2014 and June 15, 2015. The lawsuits asserted claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Securities Act of 1933, as amended (the “Securities Act”) and alleged that the defendants made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA-101, a product candidate which is no longer being developed, and the prospects of AVA-101. The complaints sought unspecified damages, attorneys’ fees and other costs. 

In December 2015, a putative securities class action lawsuit was filed against us, our board of directors, underwriters of our January 13, 2015, follow-on public stock offering, and two of our institutional stockholders, in the Superior Court of the State of California for the County of San Mateo (“San Mateo Superior Court”). The complaint alleged that, in connection with our follow-on stock offering, the defendants violated the Securities Act by allegedly making materially false and misleading statements and by allegedly omitting material information related to the Phase 2a clinical trial for AVA- 101 and the prospects of AVA-101. The complaint also sought unspecified compensatory and rescissory damages, attorneys’ fees and other costs. The plaintiff has dismissed the two institutional stockholder defendants.

On March 16, 2017, we reached an agreement to settle the asserted actions. The aggregate amount of the settlement was $13.0 million, of which $1.0 million was contributed by us to cover our indemnification obligations to the underwriters, and the remainder of which was contributed by our insurers.  We and the defendants have denied and continue to deny each and all of the claims alleged in the actions, and the settlement did not assign or reflect any admission of fault, wrongdoing or liability as to any defendant. Notice of the settlement was provided to stockholders in the fall of 2017, and no stockholder objected to the settlement. On January 19, 2018, the San Mateo Superior Court entered a judgment and order finally approving the settlement. And on February 5, 2018, the U.S. District Court entered an order dismissing the consolidated federal action with prejudice. No one appealed either order and the deadline for any such appeal has passed. We recorded $1.0 million as general and administrative expense during the three months ended March 31, 2017, when the amount and time of settlement became estimable and probable.

Item 1A.

Risk Factors

Risks facing our business have not changed substantively from those discussed in our Annual Report on Form 10-K for the year ended December 31, 2017, except for those risk factors below designated by an asterisk (*). You should consider carefully the risks and uncertainties described below, together with all of the other information in this Quarterly Report on Form 10-Q. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described below are not the only risks facing us. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and prospects.

Risks Related to Our Financial Position and Need for Capital

We have incurred significant operating losses since inception, and we expect to incur significant losses for the foreseeable future. We may never become profitable or, if achieved, be able to sustain profitability.

We have incurred significant operating losses since we were founded in 2006 and expect to incur significant losses for the foreseeable future as we continue development of our product candidates. As of June 30, 2018, we had an accumulated deficit of $283.9 million. Losses have resulted principally from costs incurred in our research and development programs and from our general and administrative expenses. In the future, we intend to continue to conduct research and development, clinical testing, regulatory compliance activities and, if any of our product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in us incurring significant losses for the next several years.

We currently generate no revenue from sales, and we may never be able to commercialize any of our product candidates. We do not currently have the required approvals to market any of our product candidates, and we may never receive such approvals. We may not be profitable even if we or any of our future development partners succeed in commercializing any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

We expect that our cash and cash equivalents will be sufficient to fund our lead gene therapy programs into 2020. If this expectation proves to be wrong, we may be forced to delay, limit or terminate certain of our development efforts.

As of June 30, 2018, our cash, cash equivalents and short-term investments were approximately  $234.9 million. We currently expect this cash, cash equivalents and short-term investments to fund our planned operations into 2020. However, this estimate is based on a

 

21


 

number of assumptions that may prove to be wrong, including our expectations about the timing of planned clinical trials and expected expenses to be incurred in connection with the build out of our new facility, and changing circumstances beyond our control may cause capital to be consumed more rapidly than currently anticipated. As a result, our operating plan may change, and we may need to seek additional funds sooner than planned, through collaboration agreements and public or private financings. If we run low on capital before we are able to achieve meaningful clinical data for some or all of our lead product candidates, we may be unable to successfully raise additional funds, and, consequentially, may need to significantly curtail some or all of our development activities.

We will need to raise additional funding, which may not be available on acceptable terms, or at all. If we fail to obtain additional capital necessary to fund our operations, we will be unable to successfully develop and commercialize our product candidates.

We will require substantial future capital in order to complete the preclinical and clinical development for our product candidates and potentially to commercialize these product candidates. Any future clinical trials of our product candidates would cause an increase in our spending levels, as would other corporate activities. The amount and timing of any expenditure needed to implement our development and commercialization programs will depend on numerous factors, including:

 

the type, number, scope, progress, expansion costs, results of and timing of any future preclinical studies and clinical trials of any of our product candidates which we are pursuing or may choose to pursue in the future;

 

the need for, and the progress, costs and results of, any additional clinical trials or nonclinical studies of our product candidates we may initiate based on the results of any clinical trials that we may plan or discussions with the FDA, including any additional clinical trials or nonclinical studies the FDA or other regulatory agencies may require evaluating the safety of our product candidates;

 

the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights;

 

the costs and timing for process development scale up and for obtaining or maintaining manufacturing for our product candidates, including commercial manufacturing if any product candidate is approved;

 

the costs and timing of establishing sales and marketing capabilities and enhanced internal controls over financial reporting;

 

the terms and timing of establishing collaborations, license agreements and other partnerships;

 

costs associated with any new product candidates that we may develop, in-license or acquire;

 

the effect of competing technological and market developments;

 

our ability to establish and maintain partnering arrangements for development; and

 

the costs associated with being a public company.

Some of these factors are outside of our control. We do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development program through commercial introduction. We expect that we will need to raise additional funds in the future.

We have not sold any products, and we do not expect to sell or derive revenue from any product sales for the foreseeable future. We may seek additional funding through collaboration agreements and public or private financings. Additional funding may not be available to us on acceptable terms or at all and the terms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.

If we are unable to obtain funding on a timely basis, we will be unable to complete any future clinical trials for our product candidates and we may be required to significantly curtail some or all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable to us.

Risks Related to the Discovery and Development of Our Product Candidates

Our business will depend substantially on the success of one or more of ADVM-043, ADVM-022, and ADVM-053, our lead product candidates. If we are unable to develop, obtain regulatory approval for, or successfully commercialize, any or all of our lead product candidates, our business will be materially harmed.

Our lead product candidates are in the early stages of development and will require substantial clinical development and testing, manufacturing process improvement and validation, bridging studies and regulatory approval prior to commercialization. For ADVM-043, we are conducting the ADVANCE trial in patients with A1AT deficiency. For ADVM-022, we have recently submitted an IND application to initiate a Phase 1 clinical trial in wAMD patients. For ADVM-053, we are continuing pre-clinical development to support our planned IND application. It is critical to our business to successfully develop and ultimately obtain regulatory approval for one or more of these lead product candidates. Our ability to commercialize our product candidates effectively will depend on several factors, including the following:

 

successful completion of preclinical studies and clinical trials, including the ability to demonstrate safety and efficacy of our lead product candidates;

 

22


 

 

receipt of marketing approvals for any future products for which we complete clinical trials, including securing regulatory exclusivity to the extent available;

 

establishing commercial manufacturing capabilities, for example, by engaging third-party manufacturers that can provide products and services to support clinical development and the market demand for our product candidates, if approved;

 

successfully launching and commercial sales of the product, whether alone or in collaboration with potential partners;

 

acceptance of the product as a viable treatment option by patients, the medical community and third-party payers;

 

establishing market share while competing with other therapies;

 

a continued acceptable safety profile of our products following regulatory approval;

 

maintaining compliance with post-approval regulation and other requirements; and

 

qualifying for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims covering our product candidates.

If we, or our collaborators, do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to commercialize our product candidates, which would materially and adversely affect our business, financial condition, results of operations and prospects.

Moreover, of the large number of biologics and drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a biologics license application (“BLA”) to the FDA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval to market any of our lead product candidates, any such approval may be subject to limitations on the indicated uses for which we may market the product, or limitations related to its distribution. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, there can be no assurance that any of our product candidates will be successfully developed or commercialized. If we decide to invest in the continued development and potential commercialization of any or all of our lead product candidates and we or any of our future development partners are unable to develop, or obtain regulatory approval for, or, if approved, successfully commercialize, such product candidates, we may not be able to generate sufficient revenue to continue our business.

Our gene therapy platform is based on a novel technology, which makes it difficult to predict the time and cost of product candidate development and subsequently obtaining regulatory approval.

We have concentrated our research and development efforts on our gene therapy platform and our future success depends on the successful development of product candidates based on this platform. There can be no assurance that any development problems we experience in the future related to our platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completing our clinical trials or commercializing our products on a timely or profitable basis, if at all.

In addition, the clinical trial requirements of the FDA, the European Medicines Agency (“EMA”) and other regulatory agencies and the criteria these regulators may use to determine the safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of the potential products. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other product candidates, which are better known or more extensively studied to date. As an example, the FDA has only recently approved the first gene therapy product, LUXTURNATM (voretigene neparvovec-rzyl) for the treatment of patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy.

Regulatory requirements governing gene and cell therapy products have changed and may continue to change in the future. Gene therapy clinical trials may be subject to review by the NIH Office of Science Policy’s Recombinant DNA Advisory Committee (“RAC”). Clinical trial sites in the U.S. that receive NIH funding for research involving recombinant or synthetic nucleic acid molecules are required to follow RAC recommendations, or risk losing NIH funding for such research or risk needing NIH pre-approval before conducting such research. As such, although the FDA decides whether individual gene therapy protocols may proceed, the RAC public review process, if warranted, can impede the initiation of a clinical trial, even if the FDA has reviewed the trial and approved its initiation. Conversely, the FDA can put an IND on clinical hold even if the RAC has provided a favorable review or an exemption from in-depth, public review.  

Also, before a clinical study can begin, that clinical site’s institutional review board (“IRB”) and its Institutional Biosafety Committee will have to review the proposed clinical trial to assess appropriateness to conduct the clinical study at that site. In addition, adverse developments in clinical trials of gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for human research on or for approval of any of our product candidates.

These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we may be required to consult with these regulatory and advisory groups and comply with applicable guidelines or recommendations. If we fail to do so, we may be required to delay or discontinue development of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.

 

23


 

We may not be successful in our efforts to identify or discover additional product candidates.

The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our platform. Our research programs, including those subject to our collaborations with Regeneron and Editas, may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmful side effects or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.