UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2020

OR

For the transition period from                  to                 

Commission File Number: 001-38537

AVROBIO, INC.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code: (617) 914-8420

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

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.

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, 2020, the registrant had 36,442,605 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

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 (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:

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

(in thousands, except share and per share data)

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)

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

2

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

(unaudited)

(in thousands, except share data)

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

3

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

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)

5

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

6

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

7

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

8

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

9

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

10

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

11

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

12

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

13

AVROBIO, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(in thousands, except share and per share data)

14

You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and our audited consolidated financial statements and related notes for the year ended December 31, 2019 included in our Annual Report on Form 10-K for the year ended December 31, 2019. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks, uncertainties and assumptions. Factors that might cause future results to differ materially from those projected in the forward-looking statements include, but are not limited to, those set forth in our Annual Report on Form 10-K for the year ended December 31, 2019, as supplemented by our subsequent filings with the SEC.

Overview

We are a leading clinical-stage gene therapy company with a mission to free people from a lifetime of genetic disease.  Our Company is focused on developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen. Our investigational gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is defective in the target disease. We believe that our approach, which is designed to transform stem cells from patients into therapeutic products, has the potential to provide curative benefit for a range of diseases. Our initial focus is on a group of rare genetic diseases referred to as lysosomal diseases, some of which today are primarily managed with enzyme replacement therapies, or ERTs. These lysosomal diseases have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $4.0 billion in worldwide net sales in 2019.

Our initial pipeline is comprised of four lentiviral-based gene therapy programs, including AVR-RD-01 for the treatment of Fabry disease, AVR-RD-04 for the treatment of cystinosis, AVR-RD-02 for the treatment of Gaucher disease and AVR-RD-03 for the treatment of Pompe disease. AVR-RD-01 is currently being studied in an investigator-sponsored Phase 1 clinical trial and a Company-sponsored Phase 2 clinical trial, which we refer to as FAB-201. Five patients have been dosed in the investigator-sponsored Phase 1 clinical trial of AVR-RD-01, and enrollment is complete. Four patients have been dosed in the Company-sponsored Phase 2 FAB-201 trial. AVR-RD-04 is currently being studied by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and two patients have been dosed. AVR-RD-02 is currently being studied in a Company-sponsored Phase 1/2 clinical trial, which we refer to as GuardOne, and one patient has been dosed. AVR-RD-03 is currently in preclinical development, with IND-enabling preclinical studies, including a proof-of-concept study, expected to conclude in 2020.

Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs and planning for potential commercialization. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations with proceeds from the sales of preferred stock and our initial public offering, or IPO, and we have raised additional capital through an underwritten public offering that closed in July 2019, or the July 2019 Follow-On Offering, and an underwritten public offering that closed in February 2020, or the February 2020 Follow-On Offering. Through June 30, 2020, we had received gross cash proceeds of $87.5 million from sales of our preferred stock, and gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $114.7 million, $138.3 million and $100.0 million from sales of our common stock through our IPO, July 2019 Follow-On Offering and February 2020 Follow-On Offering, respectively. In July 2019, we entered into a Sales Agreement with Cowen and Company, LLC, as sales agent, to provide for the offering, issuance and sale of up to $50.0 million of our common stock from time to time in “at-the-market” offerings, or the ATM Facility. During the quarter ended June 30, 2020, we sold and issued 384,140 shares of common stock under the ATM Facility for gross proceeds of approximately $8.5 million.

Since our inception, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net losses were $54.8 million and $33.2 million for the six months ended June 30, 2020 and 2019, respectively. As of June 30, 2020, we had an accumulated deficit of $199.5 million. We expect to continue to incur significant expenses for at least the next several years as we advance our product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates. Furthermore, we expect to continue incurring additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses. 

15

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from sales of equity, including the net proceeds from our IPO, follow-on offerings, and our ATM Facility. We also plan to pursue additional funding from outside sources, including our expansion of, or our entry into, new borrowing arrangements; research and development incentive payments from the Australian government; and our entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed, we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.

Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.

As of June 30, 2020, we had cash and cash equivalents of $244.4 million. We believe that our existing cash and cash equivalents as of June 30, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the second half of 2022. We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “—Liquidity and Capital Resources.” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.

Clinical Update – AVR-RD-01 for Fabry disease

AVR-RD-01 is currently being studied in two ongoing clinical trials. A Phase 1 investigator-sponsored clinical trial of AVR-RD-01 is being conducted by the University Health Network, or UHN, and sponsored by Fabry Disease Clinical Research and Therapeutics, or FACTs, at three centers in Canada. A total of five male patients with Fabry disease who have been previously treated with enzyme replacement therapy, or ERT, for at least six months have been enrolled and enrollment is complete. We are also sponsoring a Phase 2 open-label, multinational clinical trial, which we refer to as FAB-201, with expected enrollment of eight to 12 male patients with classic Fabry disease, 16 to 50 years old, who have not been treated with ERT or chaperone therapy within three years prior to enrollment. As of August 6, 2020, four patients in Australia have enrolled in the Phase 2 FAB-201 trial.

The primary efficacy endpoint of our Phase 2 FAB-201 clinical trial is the change from baseline in the average number of globotriaosylceramide, or Gb3, inclusions per peritubular capillary, or PTC, as measured in a patient kidney biopsy one year (48 weeks) after treatment with AVR-RD-01. In addition to safety, the Phase 2 and Phase 1 clinical trials are also examining additional secondary efficacy endpoints including biomarkers such as plasma lyso-globotriaosylsphingosine, or lyso-Gb3, alpha-galactosidase A, or AGA, enzyme levels measured in plasma and leukocytes, as well as certain parameters of organ function. In addition, vector copy number, or VCN, is being measured in these trials to assess the potential durability of the gene therapy. Safety and tolerability parameters are also being assessed in these trials.

In July 2019, we announced that the first patient in our Phase 2 FAB-201 clinical trial, who had not previously received ERT, exhibited a reduction from an average of 3.55 Gb3 inclusions per PTC at baseline to an average of 0.47 inclusions per PTC one year after administration of AVR-RD-01, representing an 87% reduction and a numerical decrease of 3.08. The second patient in the Phase 2 clinical trial has an N215S genotype, which is associated with a late-onset cardiac variant phenotype. This patient’s cardiac variant phenotype does not typically result in Gb3 accumulation in the kidney, and accordingly this patient’s kidney biopsy had low levels of Gb3 and lyso-Gb3 at all measurements, including at baseline. Although we expect that data obtained from this patient will not provide meaningful insight on the primary efficacy endpoint in our Phase 2 clinical trial, including kidney biopsies, other important efficacy and safety measures continue to be derived from data collected from this patient. A kidney biopsy was conducted on the third patient in the Phase 2 clinical trial, but due to human error in processing the biopsy sample at the external laboratory vendor, the kidney Gb3 inclusions could not be evaluated and will not be available. Our quality assurance personnel have worked closely with the external vendor to identify the cause of the vendor error and to identify additional protocols for implementation by the vendor that are designed to prevent similar errors in the future. The kidney biopsy for the fourth patient in the Phase 2 FAB-201 clinical trial, who was dosed using our plato platform, is expected to occur in the first quarter of 2021, subject to any potential delays due to the COVID-19 pandemic.

16

As shown below, data from the third patient in our Phase 2 FAB-201 clinical trial indicates kidney and cardiac functions remain stable and in the normal range at one year following administration of AVR-RD-01, with a 19.8% increase in both LVM and LVMI observed from baseline to one year post-treatment. 

Phase 2: Patient 3 kidney and cardiac function

The following figure summarizes eGFR data for all enrolled patients in the Phase 1 and Phase 2 clinical trials, which has remained stable for eight out of nine patients. Patient 2 in the Phase 1 trial, who entered the trial with moderate chronic kidney disease and an eGFR below 50 mL/min/1.73m2, has not stabilized his kidney function, which is expected given the low initial eGFR. This patient has remained on ERT throughout the course of the clinical study.

Phase 1 and Phase 2: Estimated glomerular filtration rate

17

The first patient in our Phase 2 clinical trial had an 86% reduction in plasma lyso-Gb3 as of 22 months post-treatment with AVR-RD-01; the third patient had a plasma lyso-Gb3 reduction of 49% as of 12 months post-treatment; and the fourth patient had a plasma lyso-Gb3 reduction of 59% as of six months post-treatment. Plasma lyso-Gb3 data are also available for the second patient in the Phase 2 trial, up to 18 months post-treatment with AVR-RD-01. This patient has an N215S genotype, which is associated with a late-onset cardiac variant phenotype and lower plasma lyso-Gb3 levels.

The figures below summarize the plasma lyso-Gb3 data observed in the four enrolled patients from our ongoing Phase 2 FAB-201 clinical trial.

Phase 2: Plasma lyso-Gb3

Note: Lyso-Gb3 plasma reference value: 2.4 nM

In each of the five patients in the Phase 1 clinical trial of AVR-RD-01, we have observed plasma lyso-Gb3 at post-treatment levels that are lower or similar to the levels observed when the patient received only ERT prior to administration of AVR-RD-01, which we refer to as baseline ERT levels. We define baseline ERT for these Phase 1 patients as the mean of the plasma lyso-Gb3 values reported prior to initiating mobilization.

18

The following figure summarizes the plasma lyso-Gb3 data observed in all five patients from the ongoing Phase 1 clinical trial of AVR-RD-01, as well as each patient’s ERT status and the change in plasma lyso-Gb3 levels from baseline.

Phase 1: Plasma lyso-Gb3

Note: Lyso-Gb3 plasma reference value: 2.4 nM

All nine patients in our Phase 2 and Phase 1 clinical trials have exhibited sustained AGA enzyme activity in both the plasma and leukocytes. The following figures summarize the plasma and leukocyte AGA enzyme activity reported from the ongoing Phase 2 and Phase 1 clinical trials of AVR-RD-01.

19

Phase 2: Leukocyte and plasma enzyme activity

Note: leukocyte AGA activity reference Range: 24–56 nmol/hr/mg protein; plasma AGA Activity Reference Range: 5.1–9.2 nmol/hr/mL.

Phase 1: Leukocyte and plasma enzyme activity

Note: leukocyte AGA activity reference Range: 24–56 nmol/hr/mg protein; plasma AGA Activity Reference Range: 5.1–9.2 nmol/hr/mL

20

The following figures summarize the VCN observations from the ongoing Phase 2 and Phase 1 clinical trials of AVR-RD-01. The fourth patient in the Phase 2 FAB-201 clinical trial was dosed using our plato platform.

Phase 2: VCN activity

Note: 0.1 VCN is indicative of approximately 5-10% of all nucleated circulating blood cells having an average of 1-2 copies of the transgene.

Phase 1: VCN activity

Note: 0.1 VCN is indicative of approximately 5-10% of all nucleated circulating blood cells having an average of 1-2 copies of the transgene.

21

We are continuing to evaluate the clinical relevance of skin biopsy data as a secondary surrogate efficacy endpoint in our Phase 2 study of AVR-RD-01. Draft guidance from the FDA, published in August 2019, identifies kidney biopsy data (such as our Phase 2 primary efficacy endpoint, the reduction of Gb3 inclusions per kidney PTC) as reasonably likely to predict clinical benefit to support accelerated approval of new therapies for Fabry disease, but it does not identify skin biopsy measurements as a potential surrogate efficacy endpoint. Moreover, we are aware that recent therapies for Fabry disease have been approved by the FDA without skin biopsy data. Our Phase 2 trial design included skin biopsy measurements as a secondary endpoint, in part because the procedure is minimally invasive and could produce clinical data sooner than the kidney biopsy. However, the skin biopsy data we have received to date has been inconsistent and not correlative to the other data we are collecting. As we continue to collect and analyze data from our Phase 2 trial, we plan to focus on clinically meaningful measurements, such as kidney and cardiac function, as well as other key biomarkers that we believe are more reasonably likely to predict clinical benefit, such as reductions of Gb3 in kidney and lyso-Gb3 in plasma.

In the Phase 2 trial, the six SAEs that were reported through the safety data cut-off date of April 23, 2020 included one report of a Grade 2 pre-treatment seizure experienced after commencing stem cell mobilization but prior to undergoing the conditioning regimen and treatment with AVR-RD-01; one report of Grade 3 dehydration, nausea and vomiting following the conditioning regimen and treatment with AVR-RD-01; two reports of febrile neutropenia (Grades 3 and 4, respectively) in separate patients following the conditioning regimen and treatment with AVR-RD-01; one report of Grade 2 culture-negative fevers following the conditioning regimen and treatment with AVR-RD-01; and one report of Grade 2 mucositis following the conditioning regimen and treatment with AVR-RD-01. All six SAEs have subsequently resolved.

In the Phase 1 trial, the two SAEs that were reported through the safety data cut-off date of April 23, 2020 included one report of Grade 3 febrile neutropenia and one report of Grade 2 thrombophlebitis, each occurring following the conditioning regimen and treatment with AVR-RD-01. Both SAEs have subsequently resolved.

Anti-AGA antibody titers have been observed in four patients in the Phase 1 trial and two patients in the Phase 2 trial. We believe none of these are of clinical significance.

COVID-19 Update

Clinical Programs

As the global healthcare community continues to respond to the COVID-19 pandemic, many hospitals, including our clinical sites, have temporarily paused elective medical procedures, including dosing of new patients in clinical trials of our investigational gene therapies. While dosing of new patients and data collection from enrolled patients has begun to resume at certain clinical sites, the extent to which clinical activities continue to be delayed or interrupted will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets. We continue to closely monitor this rapidly evolving situation and the potential impact on our Company. Set forth below is a summary of updates for each of our clinical trial programs.

22

AVR-RD-01 clinical trials in Fabry disease

AVR-RD-04 Phase 1/2 investigator-sponsored clinical trial in cystinosis

AVR-RD-02 Phase 1/2 clinical trial in Gaucher disease

Business Operations

Our internal, cross-functional COVID-19 Response Team continues to closely monitor the evolving situation and advise on the Company’s activities in response to the evolving COVID-19 pandemic. We have continued our work-from-home policy for most employees, excluding our laboratory staff and a limited number of non-laboratory employees. For those employees, we have implemented safety measures designed to comply with applicable federal, state and local guidelines in response to the COVID-19 pandemic. We may be required to take additional actions that impact our operations as required by applicable laws or regulations, or which we determine to be in the best interests of our employees. We currently cannot determine how long our work-from-home policy will remain in effect. Any modifications to our current policy will in part be determined by updated guidance from local, state and federal authorities, and we expect that any changes will be implemented gradually and with appropriate safety measures and policies designed to comply with applicable guidelines and regulations. Notwithstanding these changes to our business operations, we have continued to recruit and hire key personnel to support the Company’s objectives, increasing our headcount to 121 full-time employees as of June 30, 2020.

Research and Development; Regulatory

Our AVR-RD-03 program for Pompe disease is currently in preclinical development with IND-enabling preclinical studies, including a proof-of-concept study, expected to conclude in 2020. We are also continuing early studies for future potential disease indications.

We currently do not anticipate any material impact on our regulatory activities for our clinical programs.

For additional information regarding the impact of the COVID-19 pandemic on our business, please see the section titled “Risk Factors” in Part II, Section 1.A of this Quarterly Report.

23

Other Updates

On May 4, 2020, we announced a new development and commercialization agreement with Saladax Biomedical, Inc., or Saladax, to develop and validate a fully automated nanoparticle immunoassay kit designed to simplify and streamline therapeutic drug monitoring, or TDM, for patients treated with the conditioning agent busulfan. We believe the Saladax immunoassay will enable us to achieve a more consistent targeted exposure to busulfan, as compared to traditional TDM.

On May 6, 2020, we announced a research and clinical collaboration agreement with Magenta Therapeutics, Inc., or Magenta, to evaluate the potential utility of MGTA-117, Magenta’s novel targeted antibody-drug conjugate for conditioning patients before they receive one of our investigational lentiviral gene therapies. Under the collaboration, we and Magenta will jointly evaluate MGTA-117 in conjunction with one or more of our investigational gene therapies. Magenta will retain all commercial rights to MGTA-117, and we will retain all commercial rights to our gene therapies and will be responsible for the clinical trial costs related to the evaluation of MGTA-117 with our gene therapies.

In May 2020, we presented new clinical data at the 23rd Annual Meeting of the American Society of Gene & Cell Therapy, including new data on AVR-RD-01 for Fabry disease and AVR-RD-04 for cystinosis, as well as preclinical data on AVR-RD-03 for Pompe disease.

In June 2020, Kim Raineri, MBA, joined the Company as our new Chief Manufacturing and Technology Officer. Our founding Chief Manufacturing and Technology Officer, Kim Warren, Ph.D., retired at the end of July 2020 but will remain with the Company on a part-time basis through the end of the year to assist with transition and onboarding efforts. In addition, we have entered into a transitional services and separation agreement with Birgitte Volck, M.D., Ph.D, our President of Research and Development, pursuant to which Dr. Volck will depart the Company on November 15, 2020. Pursuant to this agreement, Dr. Volck will continue to serve in her current role through September 30, 2020, and thereafter through her departure, Dr. Volck will be available to facilitate an orderly transition of her responsibilities.

Components of Our Consolidated Results of Operations

Revenue

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future. If development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, we may generate revenue in the future from product sales.

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product candidates. We expense research and development costs as incurred. These expenses consist of costs incurred in connection with the development of our product candidates, including:

We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by our service providers.

24

Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and, therefore, we do not track their costs by program.

We have modified the presentation within the following tables to include expenses related to other preclinical development activities outside of our already presented programs in our direct research and development expenses, which were previously included as other unallocated research and development expenses. We have adjusted prior period amounts to reflect the changes in presentation made in the current period. The table below summarizes our research and development expenses incurred by program (in thousands):

Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development of our product candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into license agreements to acquire the rights to our product candidates.

The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and uncertainties associated with product development and commercialization, including the uncertainty of:

25

We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant delays in enrollment in any of our planned clinical trials for any reason, including as a result of the ongoing COVID-19 pandemic, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, related benefits, travel and stock-based compensation expense for personnel in executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and audit services.

We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates. We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We anticipate the additional costs for these services will substantially increase our general and administrative expenses. Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and expense as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on money market funds and other bank deposits.

Other Expense

Other expense consists of foreign exchange gain or loss.

26

Consolidated Results of Operations

Comparison of the three months ended June 30, 2020 and 2019

The following table summarizes our consolidated results of operations for the three months ended June 30, 2020 and 2019 (in thousands):