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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 September 30, 2020

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: 001-38537

 

 

AVROBIO, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

 

81-0710585

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

One Kendall Square

Building 300, Suite 201

Cambridge, MA

 

02139

(Address of principal executive offices)

 

(Zip Code)

Registrant’s telephone number, including area code: (617914-8420

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, $0.0001 par value per share

 

AVRO

 

Nasdaq Global Select Market

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 every Interactive Data File required to be submitted 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 such files).    Yes      No  

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

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 October 30, 2020, the registrant had 36,450,950 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 

 

 


Table of Contents

 

 

 

Page

PART I.

FINANCIAL INFORMATION

1

Item 1.

Condensed Consolidated Financial Statements (Unaudited)

1

 

Balance Sheets

1

 

Statements of Operations and Comprehensive Loss

2

 

Statements of Stockholders’ Equity

3

 

Statements of Cash Flows

4

 

Notes to Financial Statements

5

Item 2.

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

16

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

Controls and Procedures

28

PART II.

OTHER INFORMATION

29

Item 1.

Legal Proceedings

29

Item 1A.

Risk Factors

29

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

71

Item 3.

Defaults Upon Senior Securities

71

Item 4.

Mine Safety Disclosures

71

Item 5.

Other Information

71

Item 6.

Exhibits

72

 

Signatures

73

 

 


i


Summary of the Material Risks Associated with Our Business

Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

 

 

We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain profitability.

 

 

We will need additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed may force us to delay, limit or terminate our product development efforts or other operations.

 

 

Business interruptions resulting from the coronavirus disease (COVID-19) pandemic or similar public health crises have caused and may continue to cause a disruption of the development of our product candidates and adversely impact our business.

 

 

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

 

 

Our product candidates and the process for administering our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following any potential marketing approval.

 

 

Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.

 

 

We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our product candidates.

 

 

We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable regulatory authorities.

 

 

Even if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to commercialize a product candidate and the approval may be for a narrower indication than we seek.

 

 

Only certain of our clinical trials, including the Phase 2 clinical trial of AVR-RD-01 for Fabry disease and the Phase 1/2 clinical trial of AVR-RD-02 for Gaucher disease, utilize our commercial-scale plato platform. While we have submitted and intend to continue to submit comparability studies to the FDA and other regulatory agencies, as needed, with respect to our implementation of our commercial-scale plato platform in these and future clinical trials sponsored by us, there can be no assurance that the FDA or other regulatory agencies will not in the future require us to conduct additional preclinical studies or clinical trials that could result in delays and additional costs in our development or commercialization programs for our product candidates, which could adversely affect our business.

 

 

We face significant competition in our industry and there can be no assurance that our product candidates, if approved, will achieve acceptance in the market over existing established therapies. In addition, our competitors may develop therapies that are more advanced or effective than ours, which may adversely affect our ability to successfully market or commercialize any of our product candidates.

 

 

Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our development or commercialization programs or otherwise adversely affect our business.

 

 

We expect to rely on third parties to conduct some or all aspects of our vector production, product manufacturing, protocol development, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.

 

 

We are dependent on a limited number of suppliers for some of our components and materials used in our product candidates.

 

 

Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.

 

 

Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by others. In particular, we have in-licensed certain intellectual property rights and know-how relevant to AVR-RD-01 for our Fabry program, AVR-RD-02 for our Gaucher program and AVR-RD-05 for our Hunter program, but do not own or license any patents or patent applications covering these product candidates.

 

 

We and our independent registered public accounting firm have identified material weaknesses in our internal control over financial reporting. While we have taken numerous steps to address these material weaknesses and believe we have made progress toward remediating them, if we are unable to remedy these material weaknesses, or if we fail to establish and

ii


 

maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and our stock price.

The summary risk factors described above should be read together with the text of the full risk factors below, in the section entitled “Risk Factors” and the other information set forth in this Quarterly Report on Form 10-Q, including our consolidated financial statements and the related notes, as well as in other documents that we file with the Securities and Exchange Commission (the “SEC”). The risks summarized above or described in full below are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, results of operations and future growth prospects.

iii


Note Regarding Forward-looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements which are made pursuant to the safe harbor provisions of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may be identified by such forward-looking terminology as  “aims,” “anticipates,” “believes,” “continue,” “could,” “designed to,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “strives,” “should,” or the negative of these terms or other comparable terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including the risks and uncertainties inherent in our statements regarding:

 

the impact of the COVID-19 pandemic on our clinical trial programs, clinical supply and business generally, as well as our plans and expectations with respect to the timing and resumption of any development activities that were or may be temporarily paused as a result of the COVID-19 pandemic;

 

the timing, progress and results of preclinical studies and clinical trials for our programs and product candidates, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the trials will become available and our research and development programs;

 

the existence or absence of side effects or other properties relating to our product candidates which could delay or prevent their regulatory approval, limit their commercial potential, or result in significant negative consequences following any potential marketing approval;

 

the durability of effects from our product candidates;

 

the timing, scope or likelihood of regulatory filings and approvals;

 

our ability to develop and advance product candidates into, and successfully complete, clinical studies;

 

our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use;

 

the implementation of our business model and our strategic plans for our business, product candidates, technology and plato® platform;

 

our commercialization, marketing and manufacturing capabilities and strategy;

 

the pricing and reimbursement of our product candidates, if approved;

 

the scalability and commercial viability of our manufacturing methods and processes, including our move to a closed, automated system;

 

the rate and degree of market acceptance and clinical utility of our product candidates, in particular, and gene therapy, in general;

 

our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;

 

our competitive position;

 

the scope of protection we and/or our licensors are able to establish and maintain for intellectual property rights covering our current and future product candidates, as well as any statements as to whether we do or do not infringe, misappropriate or otherwise violate any third-party intellectual property rights;

 

our financial performance;

 

our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;

 

developments and projections relating to our competitors and our industry;

 

our expectations related to the use of our cash reserves;

 

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

our ability to remediate the material weaknesses that we and our independent registered public accounting firm previously identified and avoid any findings of material weaknesses or significant deficiencies in the future;

 

the impact of laws and regulations, including without limitation recently enacted tax reform legislation;

 

our expectations regarding the time during which we are an emerging growth company under the JOBS Act; and

 

other risks and uncertainties, including those listed under the caption “Risk Factors.”

iv


 

All of our forward-looking statements are as of the date of this Quarterly Report on Form 10-Q only. In each case, actual results may differ materially from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Quarterly Report on Form 10-Q or included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange Commission (the “SEC”) could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates or projections or other circumstances affecting such forward-looking statements occurring after the date of this Quarterly Report on Form 10-Q, even if such results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us following this Quarterly Report on Form 10-Q that modify or impact any of the forward-looking statements contained in this Quarterly Report on Form 10-Q will be deemed to modify or supersede such statements in this Quarterly Report on Form 10-Q.

 

Note Regarding Trademarks

 

All brand names or trademarks appearing in this report are the property of their respective holders. Unless the context requires otherwise, references in this report to the “Company,” “we,” “us,” and “our” refer to AVROBIO, Inc.

 

 

v


PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except per share data)

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

219,546

 

 

$

187,043

 

Prepaid expenses and other current assets

 

 

9,440

 

 

 

8,658

 

Total current assets

 

 

228,986

 

 

 

195,701

 

Property and equipment, net

 

 

3,312

 

 

 

3,696

 

Restricted cash

 

 

492

 

 

 

492

 

Other assets

 

 

465

 

 

 

625

 

Total assets

 

$

233,255

 

 

$

200,514

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,311

 

 

$

3,949

 

Accrued expenses and other current liabilities

 

 

22,525

 

 

 

9,854

 

Deferred rent

 

 

216

 

 

 

214

 

Total current liabilities

 

 

25,052

 

 

 

14,017

 

Deferred rent, net of current portion

 

 

331

 

 

 

484

 

Total liabilities

 

 

25,383

 

 

 

14,501

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000 shares authorized; no shares

   issued or outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000 shares authorized; 36,449 and 31,643 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively

 

 

4

 

 

 

3

 

Additional paid-in capital

 

 

444,153

 

 

 

330,714

 

Accumulated deficit

 

 

(236,285

)

 

 

(144,704

)

Total stockholders’ equity

 

 

207,872

 

 

 

186,013

 

Total liabilities and stockholders’ equity

 

$

233,255

 

 

$

200,514

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

1


CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

(in thousands, except per share data)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

28,509

 

 

$

13,042

 

 

$

67,649

 

 

$

37,755

 

General and administrative

 

 

8,209

 

 

 

5,022

 

 

 

24,515

 

 

 

14,621

 

Total operating expenses

 

 

36,718

 

 

 

18,064

 

 

 

92,164

 

 

 

52,376

 

Loss from operations

 

 

(36,718

)

 

 

(18,064

)

 

 

(92,164

)

 

 

(52,376

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

12

 

 

 

925

 

 

 

706

 

 

 

2,146

 

Other expense

 

 

(74

)

 

 

(6

)

 

 

(123

)

 

 

(73

)

Total other income (expense), net

 

 

(62

)

 

 

919

 

 

 

583

 

 

 

2,073

 

Net loss

 

$

(36,780

)

 

$

(17,145

)

 

$

(91,581

)

 

$

(50,303

)

Comprehensive loss

 

$

(36,780

)

 

$

(17,145

)

 

$

(91,581

)

 

$

(50,303

)

Net loss per share attributable to common stockholders—basic and

   diluted (Note 10)

 

$

(1.01

)

 

$

(0.57

)

 

$

(2.59

)

 

$

(1.93

)

Weighted-average number of common shares outstanding used in computing net loss per share attributable to common stockholders—basic and diluted

 

 

36,444

 

 

 

30,297

 

 

 

35,409

 

 

 

26,019

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

 

 

2


CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands)

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2019

 

 

31,643

 

 

$

3

 

 

$

330,714

 

 

$

(144,704

)

 

$

186,013

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

2,822

 

 

 

 

 

 

2,822

 

Exercise of stock options

 

 

7

 

 

 

 

 

 

35

 

 

 

 

 

 

35

 

Vesting of restricted stock awards and units

 

 

11

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock upon public offering, net of offering costs of $419

 

 

4,350

 

 

 

1

 

 

 

93,627

 

 

 

 

 

 

93,628

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(25,973

)

 

 

(25,973

)

Balance as of March 31, 2020

 

 

36,011

 

 

$

4

 

 

$

427,198

 

 

$

(170,677

)

 

$

256,525

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

3,899

 

 

 

 

 

 

3,899

 

Exercise of stock options

 

 

25

 

 

 

 

 

 

61

 

 

 

 

 

 

61

 

Vesting of restricted stock awards and units

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock under ATM facility, net of offering costs of $67

 

 

384

 

 

 

 

 

 

8,130

 

 

 

 

 

 

8,130

 

Issuance of common stock under the 2018 employee stock purchase plan

 

 

2

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(28,828

)

 

 

(28,828

)

Balance as of June 30, 2020

 

 

36,432

 

 

$

4

 

 

$

439,288

 

 

$

(199,505

)

 

$

239,787

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,805

 

 

 

 

 

 

4,805

 

Exercise of stock options

 

 

7

 

 

 

 

 

 

60

 

 

 

 

 

 

60

 

Vesting of restricted stock awards and units

 

 

10

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(36,780

)

 

 

(36,780

)

Balance as of September 30, 2020

 

 

36,449

 

 

$

4

 

 

$

444,153

 

 

$

(236,285

)

 

$

207,872

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance as of December 31, 2018

 

 

23,807

 

 

$

2

 

 

$

193,921

 

 

$

(71,739

)

 

$

122,184

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,455

 

 

 

 

 

 

1,455

 

Exercise of stock options

 

 

117

 

 

 

 

 

 

252

 

 

 

 

 

 

252

 

Vesting of restricted stock awards and units

 

 

30

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,103

)

 

 

(17,103

)

Balance as of March 31, 2019

 

 

23,954

 

 

$

2

 

 

$

195,628

 

 

$

(88,842

)

 

$

106,788

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,663

 

 

 

 

 

 

1,663

 

Exercise of stock options

 

 

110

 

 

 

 

 

 

238

 

 

 

 

 

 

238

 

Vesting of restricted stock awards and units

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(16,055

)

 

 

(16,055

)

Balance as of June 30, 2019

 

 

24,095

 

 

$

2

 

 

$

197,529

 

 

$

(104,897

)

 

$

92,634

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

1,797

 

 

 

 

 

 

1,797

 

Exercise of stock options

 

 

6

 

 

 

 

 

 

9

 

 

 

 

 

 

9

 

Issuance of common stock upon public offering, net of offering costs of $525

 

 

7,475

 

 

 

1

 

 

 

129,464

 

 

 

 

 

 

129,465

 

Vesting of restricted stock awards and units

 

 

31

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,145

)

 

 

(17,145

)

Balance as of September 30, 2019

 

 

31,607

 

 

$

3

 

 

$

328,799

 

 

$

(122,042

)

 

$

206,760

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2019

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(91,581

)

 

$

(50,303

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

898

 

 

 

605

 

Stock-based compensation expense

 

 

11,526

 

 

 

4,915

 

Deferred rent expense

 

 

(151

)

 

 

(123

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(782

)

 

 

(3,616

)

Other assets

 

 

160

 

 

 

(13

)

Accounts payable

 

 

(1,263

)

 

 

(1,127

)

Accrued expenses and other current liabilities

 

 

12,878

 

 

 

577

 

Net cash used in operating activities

 

 

(68,315

)

 

 

(49,085

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(1,096

)

 

 

(819

)

Net cash used in investing activities

 

 

(1,096

)

 

 

(819

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

156

 

 

 

499

 

Proceeds from issuance of common shares upon completion of public offering,

   net of offering costs

 

 

93,628

 

 

 

129,465

 

Proceeds from issuance of common shares under ATM facility,

   net of offering costs

 

 

8,130

 

 

 

 

Net cash provided by financing activities

 

 

101,914

 

 

 

129,964

 

Net increase in cash, cash equivalents and restricted cash

 

 

32,503

 

 

 

80,060

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

187,535

 

 

 

126,794

 

Cash, cash equivalents and restricted cash at end of period

 

$

220,038

 

 

$

206,854

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and

accrued expenses

 

$

 

 

$

80

 

Reconciliation of cash, cash equivalents and restricted cash reported within the condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents, end of period

 

$

219,546

 

 

$

206,362

 

Restricted cash

 

 

492

 

 

 

492

 

Cash, cash equivalents and restricted cash, end of period

 

$

220,038

 

 

$

206,854

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1. Nature of the Business

AVROBIO, Inc. (the “Company” or “AVROBIO”) is a clinical-stage gene therapy company focused on developing potentially curative ex vivo lentiviral gene therapies to treat rare diseases following a single dose treatment regimen.

 

The Company is subject to risks and uncertainties common to clinical-stage companies in the biotechnology industry, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.               

The Company has incurred recurring losses since its inception, including net losses of $91,581 and $50,303 for the nine months ended September 30, 2020 and 2019, respectively. In addition, as of September 30, 2020, the Company had an accumulated deficit of $236,285. The Company has primarily funded these losses through the proceeds from sales of common and preferred stock. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of September 30, 2020 of $219,546 will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the filing date of this Quarterly Report on Form 10-Q with the SEC.  However, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.   

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The unaudited condensed consolidated interim financial statements have been prepared on the same basis as the audited annual consolidated financial statements as of and for the year ended December 31, 2019, and, in the opinion of management, reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2020, and the results of its operations for the three and nine months ended September 30, 2020 and 2019, its statements of stockholders’ equity for the three and nine months ended September 30, 2020 and 2019 and its statement of cash flows for the nine months ended September 30, 2020 and 2019.

The results for the three and nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2019, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 16, 2020.

The accompanying unaudited condensed consolidated financial statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the unaudited condensed consolidated financial statements. As of September 30, 2020, there have been no changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019, except as it related to the adoption of new accounting standards during the first nine months of 2020 as discussed below.

 

5


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

Reclassifications

 

Certain reclassifications have been made to the prior year condensed consolidated balance sheet to conform to the current year presentation, which reflect a reclassification from other assets to restricted cash for $492 and from other current liabilities to deferred rent for $231. These reclassifications have no impact on the Company’s net loss or cash flows.

 

Use of Estimates

The preparation of 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, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, stock-based compensation expense, the valuation of equity and derivative instruments and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Actual results may differ from these estimates under different assumptions or conditions. Changes in estimates are recorded in the period in which they become known.

Emerging Growth Company Status

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of its initial public offering (“IPO”) or such earlier time that it is no longer an “emerging growth company”.

Subsequent Event Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated as required.

Recently Adopted Accounting Pronouncements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606, or ASU 2018-18. The amendments in ASU 2018-18 clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. The amendments under ASU 2018-18 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The amendments in ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606. The Company adopted ASU 2018-18 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40), or ASU 2018-15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The Company adopted ASU 2018-15 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

6


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. The amendments are effective for interim and annual reporting periods beginning after December 15, 2019, with early adoption permitted for either the entire ASU or only the provisions that eliminate or modify requirements. The amendments with respect to changes in unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020. The adoption did not have a material impact on the condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, (Topic 842) Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for the year ended December 31, 2022, and all interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements. Based on this evaluation the Company currently expects that its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the Company’s total assets and total liabilities.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, or ASU 2016-13. ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment. ASU 2016-13 is effective for non-EGCs for fiscal years beginning December 15, 2019 and interim periods within those fiscal years, and will be effective for the Company for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, assuming the Company remains an EGC. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2016-13 may have on its financial statements.

In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, or ASU 2019-11. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash. The amendments in both ASU 2016-13 and ASU 2019-11 are effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13 and ASU 2019-11 are effective for the Company for fiscal years beginning after December 15, 2020, and interim periods within fiscal years beginning after December 15, 2021. The Company is currently evaluating ASU 2016-13 and ASU 2019-11 and their impact on its condensed consolidated financial statements and financial statement disclosures.

In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12. ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. For public companies, the ASU is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted. The Company plans to adopt this guidance on January 1, 2021.  The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

7


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

3. Fair Value Measurement

The following table presents information about the Company’s financial assets measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair values as of September 30, 2020 and December 31, 2019:

 

 

 

Fair Value Measurements as of September 30, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

219,306

 

 

$

 

 

$

 

 

$

219,306

 

 

 

$

219,306

 

 

$

 

 

$

 

 

$

219,306

 

 

 

 

Fair Value Measurements as of December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

186,797

 

 

$

 

 

$

 

 

$

186,797

 

 

 

$

186,797

 

 

$

 

 

$

 

 

$

186,797

 

 

The fair value of cash equivalents was determined through quoted prices by third-party pricing services.

 

During the three and nine months ended September 30, 2020, there were no transfers between levels.

 

4. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Tax incentive refund

 

$

2,366

 

 

$

1,916

 

Prepaid research and development costs

 

 

3,528

 

 

 

4,915

 

Prepaid insurance

 

 

1,762

 

 

 

897

 

Prepaid compensation and benefit costs

 

 

621

 

 

 

362

 

Other current assets

 

 

1,163

 

 

 

568

 

 

 

$

9,440

 

 

$

8,658

 

 

5. Property and Equipment, Net

Property and equipment, net consisted of the following:

 

 

 

September 30,

2020

 

 

December 31,

2019

 

Laboratory and office equipment

 

$

3,923

 

 

$

3,456

 

Leasehold improvements

 

 

1,378

 

 

 

1,340

 

Computer equipment and software

 

 

143

 

 

 

134

 

 

 

 

5,444

 

 

 

4,930

 

Less: Accumulated depreciation and amortization

 

 

(2,132