avro-10q_20190630.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, 2019

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: (617) 914-8420

 

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 August 5, 2019, the registrant had 31,663,232 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 Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)

3

 

Statements of Cash Flows

5

 

Notes to Financial Statements

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

34

PART II.

OTHER INFORMATION

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 3.

Defaults Upon Senior Securities

77

Item 4.

Mine Safety Disclosures

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

Signatures

79

 

 

i


Forward-looking Information

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, 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 “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” 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 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 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, including our transition to a proprietary four-plasmid-produced lentiviral vector, or LV2, and our use of busulfan as a conditioning regimen administered through therapeutic drug monitoring, or TDM;

 

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 use of cryopreservation and implementation of a closed, automated manufacturing 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 product candidates;

 

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 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 Jumpstart Our Business Startups Act of 2012, as amended, or the JOBS Act; and

 

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

ii


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.

 

 

iii


PART I—FINANCIAL INFORMATION

Item 1.

Financial Statements.

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

 

 

 

June 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,348

 

 

$

126,302

 

Prepaid expenses and other current assets

 

 

7,840

 

 

 

3,718

 

Total current assets

 

 

98,188

 

 

 

130,020

 

Property and equipment, net

 

 

2,741

 

 

 

2,634

 

Other assets

 

 

1,060

 

 

 

825

 

Total assets

 

$

101,989

 

 

$

133,479

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,572

 

 

$

2,784

 

Accrued expenses and other current liabilities

 

 

6,193

 

 

 

7,822

 

Total current liabilities

 

 

8,765

 

 

 

10,606

 

Deferred rent, net of current portion

 

 

590

 

 

 

689

 

Total liabilities

 

 

9,355

 

 

 

11,295

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   issued or outstanding as of June 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $0.0001 par value; 150,000,000 shares authorized as of June 30,

   2019 and December 31, 2018; 24,187,052 and 23,959,903 shares issued as of

   June 30, 2019 and December 31, 2018, respectively; 24,095,287 and

   23,806,628 shares outstanding as of June 30, 2019 and December 31, 2018,

   respectively

 

 

2

 

 

 

2

 

Additional paid-in capital

 

 

197,529

 

 

 

193,921

 

Accumulated deficit

 

 

(104,897

)

 

 

(71,739

)

Total stockholders’ equity

 

 

92,634

 

 

 

122,184

 

Total liabilities and stockholders’ equity

 

$

101,989

 

 

$

133,479

 

 

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 share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,267

 

 

$

7,407

 

 

$

24,713

 

 

$

13,054

 

General and administrative

 

 

4,345

 

 

 

2,140

 

 

 

9,599

 

 

 

4,281

 

Total operating expenses

 

 

16,612

 

 

 

9,547

 

 

 

34,312

 

 

 

17,335

 

Loss from operations

 

 

(16,612

)

 

 

(9,547

)

 

 

(34,312

)

 

 

(17,335

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

565

 

 

 

234

 

 

 

1,222

 

 

 

392

 

Change in fair value of preferred stock warrant liability

 

 

 

 

 

(150

)

 

 

 

 

 

(162

)

Change in fair value of derivative liability

 

 

 

 

 

(1,042

)

 

 

 

 

 

(1,629

)

Other expense

 

 

(8

)

 

 

(2

)

 

 

(68

)

 

 

(15

)

Total other income (expense), net

 

 

557

 

 

 

(960

)

 

 

1,154

 

 

 

(1,414

)

Net loss

 

$

(16,055

)

 

$

(10,507

)

 

$

(33,158

)

 

$

(18,749

)

Comprehensive loss

 

$

(16,055

)

 

$

(10,507

)

 

$

(33,158

)

 

$

(18,749

)

Reconciliation of net loss to net loss attributable to

   common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(16,055

)

 

$

(10,507

)

 

$

(33,158

)

 

$

(18,749

)

Accretion of issuance costs on redeemable convertible

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

(2,243

)

Net loss attributable to common stockholders—basic and diluted

 

$

(16,055

)

 

$

(10,507

)

 

$

(33,158

)

 

$

(20,992

)

Net loss per share attributable to common stockholders—basic and

   diluted (Note 10)

 

$

(0.67

)

 

$

(2.98

)

 

$

(1.38

)

 

$

(7.16

)

Weighted-average number of common shares used in computing

   net loss per share attributable to common stockholders—

   basic and diluted

 

 

24,046,262

 

 

 

3,529,269

 

 

 

23,985,717

 

 

 

2,930,358

 

 

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

 

2


CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT)

(unaudited)

(in thousands, except share data)

 

 

 

Series Seed Redeemable

Convertible Preferred

Stock

 

 

Series A Redeemable

Convertible Preferred

Stock

 

 

Series B Redeemable

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit) Equity

 

Balance as of December 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

23,806,628

 

 

$

2

 

 

$

193,921

 

 

$

(71,739

)

 

$

122,184

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,455

 

 

 

 

 

 

1,455

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

116,859

 

 

 

 

 

 

252

 

 

 

 

 

 

252

 

Vesting of restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,103

)

 

 

(17,103

)

Balance as of March 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

23,954,240

 

 

$

2

 

 

 

195,628

 

 

$

(88,842

)

 

$

106,788

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,663

 

 

 

 

 

 

1,663

 

Exercise of stock options

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

110,290

 

 

 

 

 

 

238

 

 

 

 

 

 

238

 

Vesting of restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,757

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(16,055

)

 

 

(16,055

)

Balance as of June 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

 

$

 

 

 

 

24,095,287

 

 

$

2

 

 

$

197,529

 

 

$

(104,897

)

 

$

92,634

 

 

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

 

3


CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ EQUITY (DEFICIT) - CONTINUED

(unaudited)

(in thousands, except share data)

 

 

 

Series Seed Redeemable

Convertible Preferred

Stock

 

 

Series A Redeemable

Convertible Preferred

Stock

 

 

Series B Redeemable

Convertible Preferred

Stock

 

 

 

Common Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

(Deficit) Equity

 

Balance as of December 31,

   2017

 

 

3,333,333

 

 

$

1,500

 

 

 

31,450,499

 

 

$

25,000

 

 

 

 

 

 

 

 

 

 

2,305,173

 

 

$

 

 

$

339

 

 

$

(23,474

)

 

$

(23,135

)

Issuance of series B

   redeemable convertible

   preferred stock, net of

   issuance costs of $2,243

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,285,557

 

 

 

58,257

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of series B

   redeemable convertible

   preferred stock to settled

   accrued liability of

   license cost

 

 

 

 

 

 

 

 

 

 

 

 

 

 

233,765

 

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accretion of issuance

   costs related to

   redeemable convertible

   preferred stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,243

 

 

 

 

 

 

 

 

 

 

(339

)

 

 

(1,904

)

 

 

(2,243

)

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

109

 

 

 

 

 

 

109

 

Vesting of restricted

   stock awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,753

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,242

)

 

 

(8,242

)

Balance as of March 31, 2018

 

 

3,333,333

 

 

 

1,500

 

 

 

31,450,499

 

 

 

25,000

 

 

 

28,519,322

 

 

 

61,000

 

 

 

 

2,335,926

 

 

 

 

 

 

109

 

 

 

(33,620

)

 

 

(33,511

)

Issuance common stock

   (IPO), net of issuance

   costs of $10,487

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,035,151

 

 

 

1

 

 

 

104,181

 

 

 

 

 

 

104,182

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

457

 

 

 

 

 

 

457

 

Vesting of restricted stock

   awards

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,759

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,507

)

 

 

(10,507

)

Conversion of redeemable

   convertible preferred

   stock into common stock

 

 

(3,333,333

)

 

 

(1,500

)

 

 

(31,450,499

)

 

 

(25,000

)

 

 

(28,519,322

)

 

 

(61,000

)

 

 

 

15,320,213

 

 

 

1

 

 

 

87,499

 

 

 

 

 

 

87,500

 

Reclassification of warrants

   to purchase shares of

   redeemable convertible

   preferred stock into

   warrants to purchase

   common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

197

 

 

 

 

 

 

197

 

Balance as of June 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

23,722,049

 

 

$

2

 

 

$

192,443

 

 

$

(44,127

)

 

$

148,318

 

 

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

 

4


CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(33,158

)

 

$

(18,749

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization expense

 

 

390

 

 

 

66

 

Stock-based compensation expense

 

 

3,118

 

 

 

566

 

Amortization of deferred offering costs

 

 

 

 

 

22

 

Impairment loss of property and equipment

 

 

 

 

 

235

 

Deferred rent expense

 

 

(81

)

 

 

(23

)

Change in fair value of preferred stock warrant liability

 

 

 

 

 

162

 

Change in fair value of derivative liability

 

 

 

 

 

1,629

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(4,121

)

 

 

(768

)

Other assets

 

 

(57

)

 

 

(300

)

Accounts payable

 

 

26

 

 

 

3,029

 

Accrued expenses and other current liabilities

 

 

(1,820

)

 

 

(98

)

Net cash used in operating activities

 

 

(35,703

)

 

 

(14,229

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Change in restricted cash

 

 

 

 

24

 

Purchases of property and equipment

 

 

(741

)

 

 

(424

)

Net cash used in investing activities

 

 

(741

)

 

 

(400

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of redeemable convertible preferred stock, net of

   issuance costs

 

 

 

 

 

58,258

 

Proceeds from exercise of stock options

 

 

490

 

 

 

 

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

   costs, net of offering costs

 

 

 

 

 

105,423

 

Net cash provided by financing activities

 

 

490

 

 

 

163,681

 

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

 

 

(35,954

)

 

 

149,052

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

126,794

 

 

 

5,963

 

Cash, cash equivalents and restricted cash at end of period

 

$

90,840

 

 

$

155,015

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment included in accounts payable and

   accrued expenses

 

$

10

 

 

$

756

 

Property and equipment held for sale

 

$

 

 

$

19

 

Deferred offering costs included in accrued expenses

 

$

180

 

 

$

1,241

 

Purchase of property and equipment paid for by landlord

 

$

 

 

$

842

 

Accretion of issuance costs related to redeemable convertible preferred stock

 

$

 

 

$

2,240

 

Reconciliation of cash, cash equivalents and restricted cash reported within the

   condensed consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

90,348

 

 

$

154,991

 

Long-term restricted cash (included in other assets)

 

 

492

 

 

 

24

 

Cash, cash equivalents and restricted cash at end of period

 

$

90,840

 

 

$

155,015

 

 

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

 

5


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.

The Company is subject to risks and uncertainties common to early-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.

On June 20, 2018, the Company’s registration statement on Form S-1 relating to its initial public offering (“IPO”) was declared effective by the SEC. The IPO closed on June 25, 2018 and the Company issued and sold 5,247,958 common shares at a public offering price of $19.00 per share for net proceeds of $90,103 after deducting underwriting discounts and commissions of $6,980 and other offering expenses of approximately $2,628. Simultaneously, on June 25, 2018, the Company issued and sold 787,193 additional common shares, pursuant to the full exercise of the underwriters’ option to purchase additional shares, for net proceeds of $13,910 after deducting underwriting discounts and commissions of $1,047. Thus, the aggregate net proceeds to the Company from the IPO, after deducting underwriting discounts and commissions and other offering costs, were $104,013. Upon the closing of the IPO, all series Seed redeemable convertible preferred stock (the “Series Seed Preferred Stock”), series A redeemable convertible preferred stock (the “Series A Preferred Stock”) and series B redeemable convertible preferred stock (the “Series B Preferred Stock”), (the Series Seed Preferred Stock, the Series A Preferred Stock and the Series B Preferred Stock are collectively referred to as the “Preferred Stock”) then outstanding converted into an aggregate of 15,320,213 shares of common stock. In July 2019, the Company closed an underwritten public offering of 7,475,000 shares of its common stock at a public offering price of $18.50 per share, which included 975,000 shares of the Company’s common stock resulting from the full exercise of the underwriters’ option to purchase additional shares at the public offering price, less underwriting discounts and commissions. The net proceeds to the Company from this offering, after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $129,500.

Through June 30, 2019, the Company has funded its operations primarily with proceeds from the sale of the Preferred Stock and common stock through the Company’s IPO. The Company has incurred recurring losses since its inception, including net losses of $33,158 and $18,749 for the six months ended June 30, 2019 and 2018, respectively. In addition, as of June 30, 2019, the Company had an accumulated deficit of $104,897. 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, cash equivalents and marketable securities will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the date of issuance of the financial statements contained in this Form 10-Q. 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”).

6


AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

 

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, 2018, 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 June 30, 2019, and the results of its operations for the three and six months ended June 30, 2019 and 2018, its statements of stockholders’ equity for the three and six months ended June 30, 2019 and 2018 and its statement of cash flows for the six months ended June 30, 2019 and 2018.

The results for the three and six months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, 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, 2018, and the notes thereto, which are included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 25, 2019.

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 June 30, 2019, 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, 2018.

Use of Estimates

The preparation of consolidated financial statements in conformity with 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. Changes in estimates are recorded in the period in which they become known. Actual results could differ materially from those estimates.

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 an offering 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. See Note 13.

Recently Issued 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 (“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 does not expect the adoption of ASU 2018-18 to have a material impact on its consolidated financial statements.

7


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. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40) (“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 does not expect the adoption of ASU 2018-15 to have a material impact on its consolidated financial statements.

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 is currently evaluating the effects the adoption of ASU 2018-13 will have on its disclosures.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), to address diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. For public entities, the standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Company adopted ASU 2016-15 during the quarter ended March 31, 2019. The adoption did not have a material impact on the condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases today. ASU 2016-02 supersedes the previous leases standard, ASC 840, Leases. For public entities, not-for-profit entities and an employee benefit plan that files financial statements with the U.S. Securities and Exchange Commission (SEC), the standard is effective for public entities for annual periods beginning after December 15, 2018 including interim periods within those fiscal years. For all other entities, the standard is effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. 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.

3. Fair Value of Financial Assets and Liabilities

The following table presents information about the Company’s financial assets and liabilities 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 June 30, 2019 and December 31, 2018:

 

 

 

Fair Value Measurements as of June 30, 2019 Using:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

90,173

 

 

$