ARAVIVE, INC. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Form 10-K entitled "Risk Factors."
Important Note
This Management's Discussion and Analysis of Financial Condition and Results of
Operations includes a discussion of our operations for the years ended
References in this report to "we," "us," "our" and similar first-person
expressions refer to
Overview
We are a clinical-stage oncology company developing transformative treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis.
Batiraxcept (formerly AVB-500), is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway. By capturing serum GAS6, batiraxcept starves the AXL pathway of its signal, potentially halting the biological programming that promotes disease progression. AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression.
Our current development program benefits from the availability of a proprietary serum-based biomarker that has accelerated batiraxcept drug development by allowing us to select a pharmacologically active dose and may potentially identify the cancer patients that have the best chance of responding to batiraxcept.
In our completed Phase 1 clinical trial in healthy volunteers with batiraxcept, we have demonstrated proof of mechanism for batiraxcept in neutralizing GAS6. Importantly, batiraxcept had a favorable safety profile preclinically and in the first in human trial and Phase 1b clinical trial in cancer patients.
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During the fourth quarter of 2020, we initiated our Phase 1b portion of
the Phase 1b/2 trial of batiraxcept in ccRCC and we dosed our first patient in
the trial in
During the first quarter 2021, we initiated our registrational Phase 3 trial of batiraxcept in PROC and we dosed our first patient in the trial in April 2021.This global, randomized, double-blind, placebo-controlled trial is designed to evaluate efficacy and safety of batiraxcept at a dose of 15 mg/kg in combination with PAC versus PAC alone.
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Table of Contents Recent Clinical Developments
The Phase 3 Platinum Resistant Ovarian Cancer (PROC) Trial Remains On Track
The registration-directed Phase 3 program of batiraxcept in combination with paclitaxel in PROC remains on track and enrollment has been completed. We expect to report topline data from the trial by mid-2023. CMC work remains on track with the goal of filing a BLA by year-end 2023. The global, randomized, double-blind, placebo-controlled Phase 3 trial is evaluating efficacy and tolerability of batiraxcept at a dose of 15 mg/kg in combination with paclitaxel versus placebo in combination with paclitaxel. The trial has completed enrollment of over 360 patients with platinum resistant, high-grade serous ovarian cancer who have received 1-4 prior lines of therapy.
Updated Clear Cell Renal Cell Cancer Data (ccRCC) Continues to Be Encouraging
As of
We expect to report additional data from the Phase 1b portion and preliminary data from the Phase 2 portion of the ccRCC trial mid-2023.
Expansion of Phase 1b Pancreatic Adenocarcinoma Study
As of
Recent Financial Developments
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Financial overview Revenue
To date, we have not generated any revenue from commercial sales of any of our
product candidates. However, for the years ended
In the future, we may generate revenue from a variety of sources, including product sales if we develop products which are approved for sale, license fees, milestones, research and development and royalty payments in connection with strategic collaborations or government contracts, or licenses of our intellectual property.
Research and development expenses
We recognize both internal and external research and development expenses as incurred. Our external research and development expenses consist primarily of:
• the cost of acquiring and manufacturing clinical trial and other materials,
including expenses incurred under agreements with contract manufacturing
organizations;
• expenses incurred under agreements with contract research organizations,
investigative sites, and consultants that conduct our clinical trials;
• other costs associated with development activities, including additional
studies; and
Internal research and development costs consist primarily of salaries and related fringe benefit costs for our employees (such as workers' compensation and health insurance premiums), stock-based compensation charges and travel costs.
General and administrative expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not included in research and development.
Other income (expense), net
Other income (expense), net is primarily comprised of sublease income for our 1020 Marsh Facility lease, gains and losses on foreign currency transactions related to third party contracts with foreign-based contract manufacturing organizations and change in fair value of the warrant liability.
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Table of Contents Results of operations
Comparison of the years ended
The following table summarizes our net loss during the periods indicated (in thousands, except percentages):
Year Ended
December 31, Increase/
2022 2021 (Decrease)
Revenue:
Collaboration revenue $ 9,137 $ 7,442 $ 1,695 23 %
Operating expenses:
Research and development 66,938 37,541 29,397 78 %
General and administrative 13,036 10,550 2,486 24 %
Total operating expenses 79,974 48,091 31,883 66 %
Loss from operations (70,837 ) (40,649 ) 30,188 74 %
Total other income (expense), net (5,485 ) 1,498 (6,983 ) -466 %
Net loss $ (76,322 ) $ (39,151 ) $ 37,171 95 %
Collaboration revenue
Collaboration revenue was approximately
Research and development expense
Research and development expense increased by
General and administrative expense
General and administrative expense increased by approximately
Total other income (expense), net
Total other income (expense), net fluctuated by approximately
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Table of Contents
Liquidity and Capital Resources
Since our inception and through
During 2021 and 2022, our primary sources of funding have been milestone
payments from 3D Medicines and proceeds from the sale of our common stock and
other securities. In
As of
• the rate of progress, cost of our clinical studies and results of our clinical
studies, including the need to conduct additional trials if requested by the
FDA;
• the timing of, and costs involved in, seeking and obtaining approvals from the
FDA and other regulatory authorities;
• the cost of preparing to manufacture on a larger scale;
• the costs of commercialization activities if any future product candidate is
approved, including product sales, marketing, manufacturing and distribution;
• the degree and rate of market acceptance of any products launched by us or
future partners;
• the costs of filing, prosecuting, defending and enforcing any patent claims
and other intellectual property rights;
• our ability to enter into additional collaboration, licensing,
commercialization or other arrangements and the terms and timing of such
arrangements; and
• the emergence of competing technologies or other adverse market developments.
If we are unable to raise additional funds when needed, or if funds are raised on terms that are not favorable to us, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license our technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves.
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Table of Contents Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
Year Ended
December 31,
2022 2021
(In thousands)
Net cash (used in) provided by:
Operating activities $ (65,079 ) $ (32,177 )
Investing activities (11 ) -
Financing activities 59,369 31,061
Net decrease in cash and cash equivalents
Cash used in operating activities
Net cash used in operating activities was
Cash used in investing activities
Net cash used in investing activities during the years ended
Cash provided by financing activities
Net cash provided by financing activities was
Critical Accounting Estimates
Our discussion and analysis of our financial condition and results of operations
is based upon financial statements that we have prepared in accordance with
accounting principles generally accepted in
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Table of Contents Collaboration Revenue
We enter into out-license and collaboration agreements under which we license certain rights to our product candidate to third parties and which to date are within the scope of ASC 606. The terms of these arrangements typically include payment to us of one or more of the following: non-refundable, up-front license fees; development, regulatory, and commercial milestone payments; payments for manufacturing supply services we provide through our contract manufacturers; and royalties on net sales of licensed products. Each of these payments may result in license, collaboration and other revenue, except for revenues from royalties on net sales of licensed products, which are classified as royalty revenues.
For elements of our collaboration agreements that are accounted for pursuant to ASC 606, we must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, reimbursement rates for personnel costs, discount rates, and probabilities of technical and regulatory success. If the license to our intellectual property is determined to be distinct from the other performance obligations identified in an out-license and collaboration arrangement, we recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. With regard to the 3D Medicines collaboration agreements, we recognize revenue related to amounts allocated to the identified performance obligation on a proportional performance basis as the underlying services are performed.
The preceding estimates and judgments materially affect our recognition of collaboration revenues. Changes in our estimates of forecasted development costs could impact proportional performance percentages and could have a material effect on collaboration revenue recorded in the period in which we determine that change occurs.
Clinical Trial Accruals
Our clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on the Company's behalf.
Our estimates of preclinical and clinical trial expenses are based on the services performed, pursuant to contracts with research institutions and CROs that conduct and manage preclinical studies and clinical trials on our behalf. In accruing service fees, we estimate the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.
The preceding estimates and judgment materially affect our research and development expenses. Changes in our estimates of patient enrollment and related costs could have a material effect on our research and development expenses.
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Stock-based Compensation Expense
For purposes of calculating stock-based compensation, we estimate the fair value of share-based compensation awards using a Black-Scholes option-pricing model. The determination of the fair value of stock-based compensation awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including but not limited to expected stock price volatility over the term of the awards and the expected term of stock options.
If factors change and we employ different assumptions, share-based compensation expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining stock-based compensation expense and the actual factors which become known over time, we may change the input factors used in determining stock-based compensation expense for future grants. These changes, if any, may materially impact our results of operations in the period such changes are made. For actual forfeitures, we recognize the adjustment to compensation expense in the period the forfeitures occur.
Warrant Liability
The Company estimates the fair value of these liabilities using assumptions that are based on the individual characteristics of the warrants on the valuation date and reporting date. The Company uses the Black-Scholes option-pricing model and the fair value of the underlying stock adjusted for discount for lack of marketability, when applicable, to determine the fair value of these liabilities. The valuation model is based on inputs as of the valuation dates, including the estimated volatility of our stock, the remaining contractual term of the warrants and the risk-free interest rates and various other factors.
If factors change and we employ different assumptions, the warrant liability and other income/expense may differ significantly from what we have recorded in the past. If there is a difference between the assumptions used in determining the warrant liability and the actual factors which become known over time, we might change our inputs used in the valuation model. These changes, if any, may materially impact our results of operations in the period such changes are made.
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Table of Contents Additional Information
Refer to Note 2 to the condensed consolidated financial statements for more information on accounting pronouncements that have impacted or are expected to materially impact our consolidated financial condition, results of operations, or cash flows.
Recent Accounting Pronouncements
Recently issued accounting pronouncements that we have adopted or are currently evaluating are described in detail within "Note 2-Summary of Significant Accounting Policies" to the accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10K.
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