AVEO PHARMACEUTICALS, INC. 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 report. 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 and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the "Risk Factors" section in Part II, Item 1A of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Recent Developments OnOctober 18, 2022 , we entered into an Agreement and Plan of Merger, or the Merger Agreement, with LG Chem, Ltd., a corporation organized and existing under the laws of theRepublic of Korea , or LG Chem, andAcacia Acquisition Sub, Inc. , aDelaware corporation and a wholly owned subsidiary of LG Chem, or Merger Sub, pursuant to and subject to the terms and conditions of which Merger Sub will be merged with and into us, with us surviving the merger as a wholly owned subsidiary of LG Chem, or the Merger. On the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger, or the Effective Time, each share of common stock, par value$0.001 per share, or the Common Stock, and such shares, collectively, or the Shares, outstanding immediately prior to the Effective Time (other than any Shares (i) held by us as treasury stock or owned by LG Chem or Merger Sub, (ii) held by any wholly-owned subsidiary of ours or LG Chem (other than Merger Sub) or (iii) as to which appraisal rights have been properly exercised, and not effectively withdrawn, in accordance with the Delaware General Corporation Law) will be converted into the right to receive$15.00 per Share in cash, without interest, or the Merger Consideration. The Merger Agreement may be terminated under certain circumstances, including in connection with an Acquisition Proposal (as defined in the Merger Agreement) that our Board of Directors determines constitutes a Superior Proposal (as defined in the Merger Agreement). If the Merger Agreement is terminated under specified circumstances, we will be required to pay LG Chem a termination fee of$20.4 million . Although we anticipate closing the transaction in early 2023, the closing of the Merger is subject to customary closing conditions, and we may not complete this pending transaction with LG Chem within the timeframe we anticipate, or at all. If the transaction is completed, it is expected that our common stock will thereafter be removed from listing on the Nasdaq Capital Market and from registration under Section 12(b) of the Securities Exchange Act of 1934, as amended. Refer to "Item 1A. Risk Factors-Risks Related to Our Pending Acquisition by LG Chem" for a discussion of the relevant risks regarding the pending transaction with LG Chem included elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. We currently market FOTIVDA® (tivozanib) inthe United States . FOTIVDA is our first commercial product and was approved by theU.S. Food and Drug Administration , or FDA, for marketing and sale inthe United States onMarch 10, 2021 for the treatment of adult patients with relapsed or refractory advanced, or R/R, renal cell carcinoma, or RCC, following two or more prior systemic therapies. We market and sell FOTIVDA inthe United States through our commercial infrastructure, and have made FOTIVDA available to patients through a network of specialty pharmacies and distributors. We continue to develop tivozanib in immuno-oncology combinations and other novel targeted combinations in RCC and other indications, and we have other investigational programs in clinical development. FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor, or VEGFR, tyrosine kinase inhibitor, or TKI. The FDA approval of FOTIVDA is based on our pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which we refer to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects. The National Comprehensive Cancer Network®, or NCCN, has included FOTIVDA® (tivozanib) as a Category 1 subsequent therapy for RCC patients who have received two or more prior therapies in its latest Kidney Cancer Treatment Guidelines. The NCCN Clinical Practice Guidelines, or the NCCN Guidelines, are a recognized standard for clinical policy in cancer care and are developed through review of evidence and recommendations from physicians and oncology 13 -------------------------------------------------------------------------------- researchers. We believe the NCCN Guidelines are recognized and followed by both academic and community oncologists when selecting appropriate therapeutic options for their patients, in addition to reimbursement and treatment pathways, and FOTIVDA's elevated status may positively impact prescribing decisions by physicians and the commercialization of FOTIVDA. Restrictions related to the ongoing COVID-19 pandemic have posed challenges for gaining in-person access to customers, prescribers and other healthcare professionals and certain institutions remain closed to industry representatives. Notwithstanding these challenges, as ofSeptember 30, 2022 , prescriptions for FOTIVDA and product revenues have increased quarter over quarter since the beginning of our commercial launch. We aim to continue to deliver quarter over quarterU.S. net revenue and underlying prescription demand growth as we continue to execute on our commercial strategy to support the adoption of FOTIVDA in appropriate patients. We believe there is significant commercial opportunity for FOTIVDA in RCC inthe United States . Based on third party estimates, the current U.S. market for R/R RCC therapy is approximately$1.7 billion , including$1.2 billion in the second line and$467.0 million in the third and fourth lines. The United States Patent and Trademark Office is expected to grant our patent application directed to methods of treating subjects with refractory advanced renal cell carcinoma using tivozanib onNovember 22, 2022 . We plan to list this patent in theFDA's Orange Book: Approved Drug Products with Therapeutic Equivalence Evaluations as it relates to FOTIVDA with an expiration date ofNovember 5, 2039 . When issued, this patent is expected to provide a potential barrier to generic entry beyond currently available patent and regulatory exclusivities, thereby potentially extending the commercial opportunity for FOTIVDA inthe United States . Data from the TIVO-3 trial demonstrated the superior efficacy and improved tolerability of FOTIVDA when compared to an approved VEGFR TKI in the RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, and we believe that FOTIVDA could become a standard of care inthe United States in the third line relapsed or refractory advanced setting. Further, we are seeking to generate data to support regulatory approval of tivozanib in combination with nivolumab in the second line R/R RCC setting, which represents a larger market opportunity than the third line R/R RCC setting, through our Phase 3 clinical trial designed to evaluate the safety and efficacy of tivozanib in combination with nivolumab as compared to tivozanib monotherapy in RCC patients who have progressed following one or two lines of therapy, one of which was an immune checkpoint inhibitor, or ICI, which we refer to as the TiNivo-2 trial. We currently expect enrollment in the TiNivo-2 trial to be completed in the second quarter of 2023. We and our collaboration partners are also developing tivozanib in combination with ICIs and a hypoxia inducible factor 2?, or HIF2?, inhibitor to support the expansion of tivozanib's potential utility in RCC. Based on FOTIVDA's demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, we and our collaboration partners are continuing to develop tivozanib in RCC and in additional cancer indications with significant unmet medical needs including hepatocellular carcinoma, or HCC, and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with ICIs. In addition, we are evaluating tivozanib as a monotherapy in cholangiocarcinoma, or CCA. We and our collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and investigator sponsored trial, or IST, agreements or ourCooperative Research and Development Agreement, or CRADA, with theNational Cancer Institute's Surgical Oncology Program, or NCI-SOP. We are also seeking to advance our pipeline of four wholly owned IgG1, monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353, to position each product candidate for further development. We currently expect to begin enrollment in the fourth quarter of 2022 for our Phase 1b clinical trial to evaluate the safety and efficacy of AV-380 in cancer patients receiving existing standard of care therapies. We also anticipate initiating our potential Phase 3 registrational clinical trial in human papillomavirus, or HPV, negative recurrent or metastatic head and neck squamous cell carcinoma, or R/M HNSCC in the first half of 2023.
Business Update Regarding COVID-19
The COVID-19 pandemic has and will continue to be a fluid situation, affecting economies and businesses around the world. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our employees, patients, communities and business operations to varying degrees. We have and may continue to experience disruptions in the future that could directly or indirectly impact our results of operations, including product revenue and our financial condition. Although we do not currently expect that the ongoing COVID-19 pandemic will have a material impact on our business plans or results of operations, we are unable to predict the impact that the COVID-19 pandemic will have on our operating results and financial condition due to numerous uncertainties. These uncertainties include the duration, scope and severity of the pandemic, the duration and extent of travel restrictions and social distancing inthe United States and other countries, business closures and business disruptions, its impact and the economic impact on local, regional, national and international markets, the effectiveness of actions taken in the United 14 -------------------------------------------------------------------------------- States and other countries to contain and treat the disease, periodic and seasonal spikes in infection rates, new strains of the virus that cause outbreaks of COVID-19 and the broad availability of effective vaccines and antiviral treatments, among others. The situation surrounding the COVID-19 pandemic remains fluid and continues to rapidly evolve. We continue to proactively assess, monitor and respond to domestic and international developments to the COVID-19 pandemic, which may have potential impacts related to our operating results and financial condition, as well as adverse developments in our business. For further information regarding the impact of the COVID-19 pandemic on us, see "Part II. Item 1A - Risk Factors" included in this Quarterly Report on Form 10-Q.
Financial Overview
We do not have a history of generating operating profits and, as ofSeptember 30, 2022 , we had an accumulated deficit of$696.3 million . We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we seek to successfully commercialize FOTIVDA inthe United States and continue our planned development activities for our clinical and preclinical stage assets. We may require substantial additional capital to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA inthe United States . Please see "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources -Liquidity and Going Concern" of this Quarterly Report for a further discussion of our funding requirements.
Revenue
Prior to the commercial launch of FOTIVDA inMarch 2021 , our revenues were historically generated primarily through collaborative research, development and commercialization agreements. Payments to us under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales. InNovember 2017 , we began earning sales royalties uponEUSA Pharma (UK) Limited's , or EUSA's, commencement of the first commercial launch of FOTIVDA. OnMarch 10, 2021 , the FDA approved FOTIVDA inthe United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. We commenced commercial sales of our first product FOTIVDA inthe United States onMarch 22, 2021 . We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of the payments that we receive upon the sales of FOTIVDA and any future products, to the extent any are successfully commercialized, and license fees, research and development reimbursements, milestones, royalties and other payments received under our strategic partnerships. If we or our collaboration partners fail to complete the development of our product candidates in a timely manner or to obtain or maintain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Research and development expenses have historically consisted of expenses incurred in connection with the discovery and development of our product candidates. We recognize research and development expenses as they are incurred. These expenses consist primarily of:
•employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and research-related overhead;
•external development-related expenses, including clinical trials, preclinical studies, consultants and other outsourced services;
•costs of acquiring and manufacturing drug development related materials and related distribution;
•costs associated with our regulatory and quality assurance operations and medical affairs;
•upfront license payments, milestones, sublicense fees and royalties related to in-licensed products and technology; and
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--------------------------------------------------------------------------------•allocated expenses for facilities and information technology.
Research and development expenses is net of amounts reimbursed under our clinical supply agreement with a wholly owned subsidiary of AstraZeneca for their respective share of development costs incurred by us in connection with our open-label, multi-center, randomized Phase 1b/2 clinical trial to evaluate the safety and efficacy of AstraZeneca's IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1, in combination with tivozanib as a first-line treatment or following bevacizumab and atezolizumab treatment for patients with advanced, unresectable HCC, which we refer to as our DEDUCTIVE trial. Currently, we track direct external development expenses and direct salary on a program-by-program basis and allocate general-related expenses, such as indirect compensation, benefits and consulting fees, to each program based on the personnel resources allocated to such program. Facilities, IT costs and stock-based compensation are not allocated amongst programs and are considered overhead.
Uncertainties of Estimates Related to Research and Development Expenses
The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval for each of our product candidates is costly and time-consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the risk benefit profile of the product candidates' clinical activity, investment in the program, competition, manufacturing capabilities and commercial viability. At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates, or the period, if any, in which material net cash inflows may commence from sales of any approved products. This uncertainty is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of: •our ability to establish and maintain strategic partnerships to execute our strategy to partner our clinical stage assets, the terms of those strategic partnerships and the success of those strategic partnerships, if any, including the timing and amount of payments that we might receive from strategic partners;
•the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any product candidate;
•the progress and results of our clinical trials;
•the costs, timing and outcome of regulatory review of our product candidates;
•the emergence of competing technologies and products and other adverse market developments;
•the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and
•additional manufacturing requirements.
As a result of the uncertainties associated with developing drugs, including those discussed above, we are unable to determine the exact duration and completion costs of current or future clinical stages of our product candidates, or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates for which we may obtain regulatory approval. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success, if any, of each product candidate, as well as ongoing assessment of each product candidate's commercial potential.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of
compensation, benefits and travel for employees in executive, finance, legal,
human resource and commercial functions. Other selling, general and
administrative expenses include professional fees for audit, tax, general legal,
patent legal, investor relations, commercial, consulting services and directors'
fees, as well as facility and information technology-related costs not otherwise
included in research and development expenses.
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--------------------------------------------------------------------------------Interest Expense, Net
Interest expense consists of interest, amortization of debt discount and amortization of deferred financing costs associated with our loans payable, and is shown net of interest income, which consists of interest earned on our cash, cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation.
Income Taxes
We calculate our provision for income taxes on ordinary income based on our
projected annual tax rate for the year. As of
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted inthe United States , or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of our ability to continue as a going concern, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of our capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in our disclosures in the period in which they become known. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. Our significant accounting policies and critical accounting estimates are described in the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. Results of Operations
Comparison of Three and Nine Months Ended
Revenues (in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
FOTIVDA
111 % $ 75,282 $ 22,119 $ 53,163 240 %
Partnership revenue - EUSA 259 855 (596) (70) % 1,391 2,530 (1,139) (45) %
Total revenues $ 30,449 $ 15,173 $ 15,276 101 % $ 76,673 $ 24,649 $ 52,024 211 %
Our total revenues increased by $15.3 million , or 101%, to $30.4 million in the
three months ended September 30, 2022 , from $15.2 million in the same period in
2021, and by $52.0 million , or 211%, to $76.7 million in the nine months ended
September 30, 2022 from $24.6 million in the same period in 2021, principally
due to the commencement of sales of our first commercial product FOTIVDA in the
United States on March 22, 2021 for the treatment of adult patients with
relapsed or refractory advanced RCC following two or more prior systemic
therapies.
Partnership revenues from EUSA decreased by
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Partnership revenues from EUSA decreased by
Under Accounting Standards Codification, Revenue from Contracts with Customers, or ASC 606, the$12.5 million in total research and development reimbursement and milestone payments by EUSA to the Company was being recognized as collaboration and licensing revenue over the Company's estimated substantive performance period. As ofMarch 31, 2022 , the Company determined that it has fulfilled its performance obligations in accordance with ASC 606 as the Company is not currently providing substantive support under the license agreement with EUSA, or the EUSA Agreement. Accordingly, the$12.5 million in deferred revenue for total research and development reimbursement and milestone payments was fully amortized as ofMarch 31, 2022 . Refer to Note 4 "Collaborations and License Agreements - EUSA", to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q regarding the specific application of ASC 606 to the EUSA Agreement.
FOTIVDA U. S. Product Revenue, Net (in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
Gross product revenue $ 36,255 $ 16,978 $ 19,277 114 % $ 91,303 $ 26,227 $ 65,076 248 %
Discounts and allowances (6,065) (2,660) (3,405) 128 % (16,021) (4,108) (11,913) 290 %
Product revenue, net $ 30,190 $ 14,318 $ 15,872 111 % $ 75,282 $ 22,119 $ 53,163 240 %
Our net product revenues increased by $15.9 million , or 111%, to $30.2 million
in the three months ended September 30, 2022 , from $14.3 million in the same
period in 2021, and by $53.2 million , or 240%, to $75.3 million in the nine
months ended September 30, 2022 from $22.1 million in the same period in 2021,
principally due to increases in the number of units sold to specialty pharmacies
and specialty distributors that were driven by a strong uptake in the adoption
of FOTIVDA following the commercial launch in the United States on March 22,
2021 . In the third quarter of 2022, 1,284 commercial prescriptions were filled,
representing a 107% increase from 619 commercial prescriptions filled during the
same period in 2021. In the nine months ended September 30, 2022 , 3,418
commercial prescriptions were filled, representing a 103% increase from 1,682
commercial prescriptions filled during the same period following FOTIVDA's
approval in March 2021 . The increases in our net product revenues also resulted,
from a lesser extent, to increases in the average wholesale selling prices of
FOTIVDA by 5% at the beginning of 2022 and 3% at the beginning of the third
quarter of 2022.
Cost of Products Sold (in thousands)
Three Months Ended September Nine Months Ended
30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
Cost of products sold $ 3,964 $ 1,744 $ 2,220 127 % $ 9,463 $ 2,704 $ 6,759 250 %
Gross margin % 87 % 88 % (1) % 87 % 88 % - %
We commenced sales of our first commercial product FOTIVDA in the United States
on March 22, 2021 for the treatment of adult patients with R/R advanced RCC
following two or more prior systemic therapies. Cost of products sold is related
to our product revenues for FOTIVDA and consists primarily of tiered royalty
payments we are required to pay to Kyowa Kirin Co., or KKC, on all net sales of
tivozanib in our North American territory, which range from the low to mid-teens
as a percentage of net sales. Cost of products sold also consists of the cost of
inventory sold, indirect labor costs, and third-party logistics and distribution
costs for FOTIVDA.
We consider regulatory approval of our product candidates to be uncertain and
product manufactured prior to regulatory approval may not be sold unless
regulatory approval is obtained. As such, the manufacturing costs for FOTIVDA
incurred prior to regulatory approval were not capitalized as inventory but were
expensed as research and development expenses, which favorably impacted our
gross margin. Our initial commercial supply of FOTIVDA was manufactured prior to
FDA market approval in March 2021 and had been expensed to research and
development expenses.
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In 2021, subsequent to the FDA's market approval of FOTIVDA, we conducted
resupply manufacturing of tivozanib in connection with upcoming drug expirations
beginning in the fourth quarter of 2022 and capitalized these costs as
inventory. In the second quarter of 2022, we changed our salable inventory to
the resupply and began recognizing cost of products sold related to inventory.
We anticipate that gross margins will continue to be in the mid-to-high 80th percentile during the remainder of 2022 and in 2023.
Research and Development Expenses (in thousands)
Three Months Ended Nine Months Ended
September 30, Change September 30, Comparison
2022 2021 $ % 2022 2021 $ %
Tivozanib $ 7,632 $ 5,514 $ 2,118 38 % $ 18,631 $ 13,997 $ 4,634 33 %
Ficlatuzumab 1,541 480 1,061 221 % 8,022 1,463 6,559 448 %
AV-380 Program in Cachexia 1,366 885 481 54 % 5,461 2,869 2,592 90 %
Other 535 623 (88) (14) % 1,438 1,848 (410) (22) %
Total research and development
expenses $ 11,074 $ 7,502 $ 3,572 48 % $ 33,552 $ 20,177 $ 13,375 66 %
Our total research and development expenses increased by $3.6 million , or 48%,
to $11.1 million in the three months ended September 30, 2022 from $7.5 million
in the same period in 2021.
Our total research and development expenses increased by $13.4 million , or 66%,
to $33.6 million in the nine months ended September 30, 2022 from $20.2 million
in the same period in 2021.
Tivozanib expenses increased by $2.1 million , or 38%, in the three months ended
September 30, 2022 as compared to the same period in 2021, principally due to
increases totaling $3.1 million , including $0.6 million in costs incurred in
connection with the TiNivo-2 trial that was initiated in the third quarter of
2021, $2.2 million in drug supply manufacturing and $0.3 million in internal
indirect costs. These increases were partially offset by $0.9 million in costs
incurred in the nine months ended September 30, 2021 that were not incurred in
the same period in 2022 related to the TIVO-3 and TiNivo trials that were closed
during 2021.
Tivozanib expenses increased by $4.6 million , or 33%, in the nine months ended
September 30, 2022 as compared to the same period in 2021, principally due to
increases totaling $7.0 million , including $2.6 million in costs incurred in
connection with the TiNivo-2 trial that was initiated in the third quarter of
2021, $2.9 million in drug supply manufacturing, $1.0 million in other external
support activities and $0.5 million in internal indirect costs. These increases
were partially offset by $2.4 million in costs incurred in the nine months ended
September 30, 2021 that were not incurred in the same period in 2022 related to
the TIVO-3 and TiNivo trials that were closed during 2021.
AV-380 expenses increased by $0.5 million , or 54% in the three months ended
September 30, 2022 as compared to the same period in 2021, principally related
to increases of $0.3 million in connection with start-up activities for the
Phase 1b clinical trial in cancer patients and $0.5 million in clinical drug
supply manufacturing, partially offset by $0.4 million in costs incurred in the
third quarter of 2021 in connection with the Phase 1 clinical trial of AV-380 in
healthy volunteers that were not incurred in the same period in 2022.
AV-380 expenses increased by $2.6 million , or 90%, in the nine months ended
September 30, 2022 as compared to the same period in 2021, principally related
to increases totaling $3.3 million , including a $2.3 million time-based
milestone obligation that became due to St. Vincent's in January 2022 , $0.4
million in connection with start-up activities for the Phase 1b clinical trial
in cancer patients and $0.6 million in clinical drug supply manufacturing. These
increases were partially offset by $0.7 million in costs incurred in the nine
months ended September 30, 2021 in connection with the Phase 1 clinical trial of
AV-380 in healthy volunteers that were not incurred in the same period in 2022.
Ficlatuzumab expenses increased by $1.1 million , or 221%, in the three months
ended September 30, 2022 as compared to the same period in 2021, and by $6.6
million , or 448%, in the nine months ended September 30, 2022 as compared to the
same period in 2021, principally related to costs incurred in connection with
clinical drug supply manufacturing for a potential registrational clinical trial
of ficlatuzumab in combination with cetuximab in patients with HPV negative R/M
HNSCC patients, that we plan to initiate in the first half of 2023.
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We anticipate that research and development expenses will remain at current
levels during the remainder of 2022 and increase during 2023, principally
related to increases in: (i) completion of enrollment in the TiNivo-2 trial for
the treatment of RCC patients who have progressed following one or two lines of
therapy, one of which was an immune checkpoint inhibitor, or ICI, (ii)
completion of enrollment in the Phase 1b clinical trial in AV-380 trial to
evaluate the safety and efficacy of AV-380 in cancer patients receiving existing
standard of therapies that we plan to initiate in the fourth quarter of 2022,
(iii) initiation of a potential registrational clinical trial of ficlatuzumab in
combination with cetuximab in patients with HPV negative R/M HNSCC patients,
that we plan to initiate in the first half of 2023, and (iv) continuing growth
in our drug development infrastructure and in-house capabilities. These
increases will be partially offset by lower costs, principally related to the
wind down in the DEDUCTIVE trial, a Phase 1b/2 clinical trial studying the
combination of IMFINZI (durvalumab) and tivozanib in patients with advanced,
unresectable hepatocellular carcinoma, following the closure of enrollment in
cohort B, and ficlatuzumab clinical drug supply manufacturing. The timing and
nature of contemplated activities in 2023 will be conducted subject to the
availability of sufficient financial resources.
Selling, General and Administrative Expenses (in thousands)
Three Months Ended September Nine Months Ended
30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
Selling, general and
administrative expenses $ 17,579 $ 15,142 $2,437 16 % $ 51,991 $ 45,162 $ 6,829 15 %
Selling, general and administrative expenses increased by $2.4 million , or 16%,
to $17.6 million in the three months ended September 30, 2022 from $15.1 million
in the same period in 2021. The $2.4 million increase principally included: (i)
$0.6 million in connection with compensation costs related to our commercial
infrastructure (ii) $0.5 million in connection with external initiatives related
to the commercialization of FOTIVDA, (iii) $0.7 million in general and
administrative-related compensation costs, and (iv) $0.6 million in general and
administrative-related professional fees.
Selling, general and administrative expenses increased by $6.8 million , or 15%,
to $52.0 million in the nine months ended September 30, 2022 from $45.2 million
in the same period in 2021. The $6.8 million increase was principally due to
increases totaling $7.1 million , including: (i) $2.5 million in connection with
compensation costs related to a full nine months of growth in our commercial
infrastructure, including the hiring of our salesforce in the first quarter of
2021, (ii) $2.7 million in connection with external initiatives related to a
full nine months of commercialization following the launch of FOTIVDA on March
22, 2021 , and (iii) $1.9 million in general and administrative-related
compensation costs. These increases were partially offset by a $0.3 million
decrease in general and administrative-related professional fees.
We anticipate that selling, general and administrative expenses associated with
the commercialization of FOTIVDA, principally related to our sales force, our
marketing, market access and commercial capabilities, and general and
administrative support will stay at current levels during the remainder of 2022
and in 2023.
Interest Expense, net (in thousands)
Three Months Ended September Nine Months Ended
30, Change September 30, Change
2022 2021 $ % 2022 2021 $ %
Interest expense, net $ (1,098) $ (1,153) $ 55 (5) % $ (3,451) $ (2,892) $ (559) 19 %
Interest expense, net remained flat, in the three months ended September 30,
2022 , including a $0.3 million increase in interest expense in connection with
the Hercules loan facility, offset by a $0.3 million increase in investment
income. Interest expense, net increased by $0.6 million , or 19%, to $3.5 million
in the nine months ended September 30, 2022 from $2.9 million as compared to the
same period in 2021, including a $1.0 million increase in interest expense in
connection with the Hercules loan facility, offset by a $0.4 million increase in
investment income.
The increases in interest expense were due to higher loan balances in relation
to the timing of actual funding draw downs under the 2020 Loan Amendment and
2021 Loan Amendment, as defined below, that were entered into with Hercules
Capital Inc. and certain of its affiliates, or Hercules, on August 7, 2020 and
February 1, 2021 , respectively, and higher interest rates due to multiple
increases in the prime rate during the nine months ended September 30, 2022 that
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resulted in the overall increase in the initial interest rate of 9.65% to 12.65%
as of September 30, 2022 . The increases in investment income were due to higher
interest rates in connection with our U.S. government money market account that
also resulted from multiple increases in the prime rate during the nine months
ended September 30, 2022 .
We anticipate that interest expense, net may increase during the remainder of
2022 and in 2023 due to higher interest rates in connection with the Hercules
loan facility based on anticipated continuing increases in the prime interest
rate. Principal payments under the Hercules loan facility are scheduled to
commence on April 1, 2023 . Upon the closing of the pending acquisition by LG
Chem, the Hercules loan facility will be repaid in full. The Merger is
anticipated to close in early 2023. See "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources - Hercules Loan Facility" below for a description of the 2020
Loan Amendment and 2021 Loan Amendment.
Liquidity and Capital Resources
We have financed our operations to date primarily through private placements and public offerings of our common stock, license fees, milestone payments, royalty payments and research and development funding from strategic partners, loan proceeds and sales revenues of our first commercial product FOTIVDA inthe United States . As ofSeptember 30, 2022 we had cash, cash equivalents and marketable securities of approximately$77.4 million . See "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources -Liquidity and Going Concern" below and Note 1 to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our liquidity.
This "Part I. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" does not assume the consummation of our pending transaction with LG Chem unless specifically stated otherwise.
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):
For the Nine Months Ended September
30,
2022 2021
Net cash used in operating activities $ (10,477) $ (45,073)
Net cash provided by (used in) investing activities 16,736 (25,228)
Net cash provided by financing activities 597 77,380
Net increase in cash and cash equivalents $
6,856
Our operating activities used cash of$10.5 million and$45.1 million in the nine months endedSeptember 30, 2022 and 2021, respectively. Cash used in operations was principally due to our net loss adjusted for non-cash items and changes in working capital. Our investing activities provided cash of$16.7 million and used cash of$25.2 million in the nine months endedSeptember 30, 2022 and 2021, respectively, principally due to net changes in the purchases and maturities of marketable securities. Our financing activities provided cash of$0.6 million and$77.4 million in the nine months endedSeptember 30, 2022 and 2021, respectively. In 2022, we received$0.6 million in proceeds in connection with the issuance of common stock under our Amended and Restated 2019 Employee Stock Purchase Plan, as amended. In 2021, we raised approximately$78.1 million in funding, including approximately (i)$51.7 million in net proceeds from the sale of approximately 6.9 million shares of our common stock in an underwritten public offering inMarch 2021 , (ii)$19.9 million in new loan funding pursuant to the 2020 Loan Amendment and 2021 Loan Amendment with Hercules inMarch 2021 related to the achievement of the milestone for FDA approval of FOTIVDA, net of transaction costs, (iii)$3.4 million in net proceeds from the sale of approximately 0.3 million shares of our common stock inMarch 2021 pursuant to our "at-the-market" sales agreement withSVB Leerink LLC , orSVB Leerink , which we refer to as the SVB Leerink Sales Agreement, and (iv)$3.1 million in proceeds from the exercise of Offering Warrants. InJuly 2021 , we paid approximately$0.8 million in an end-of-term loan payment pursuant to theDecember 2017 Loan Amendment with Hercules. 21 --------------------------------------------------------------------------------
Hercules Loan Facility
OnMay 28, 2010 , we entered into a loan and security agreement, or the First Loan Agreement with Hercules. The First Loan Agreement was subsequently amended inMarch 2012 ,September 2014 ,May 2016 and amended and restated inDecember 2017 , or the 2017 Loan Agreement. We entered into the first amendment to the 2017 Loan Agreement, or the 2020 Loan Amendment, onAugust 7, 2020 , the second amendment to the 2017 Loan Agreement, or the 2021 Loan Amendment, onFebruary 1, 2021 and the third amendment to the 2017 Loan Agreement, or the 2022 Loan Amendment, onMarch 8, 2022 , which we collectively refer to as the Loan Agreement to provide a$45.0 million loan facility. OnMarch 8, 2022 , we entered into the 2022 Loan Amendment, which (i) changed the operating covenant to decrease the achievement of greater than or equal to 75% of our forecasted net product revenues from our sales of tivozanib over a six-month trailing period to 65%, as defined and measured on a monthly basis, and extended the month of commencement fromApril 2022 toJune 2022 , and (ii) added a cash waiver, at our election, in the event our actualU.S. net product revenues from our sales of tivozanib over a six-month trailing period are below the monthly minimum operating covenant of 65%, such that our unrestricted cash position is equal to or greater than the then total outstanding principal under the Loan Agreement for each day of such month, (iii) changed Tranche Four funding, in the amount of$5.0 million , that was subject to the consent of Hercules to the achievement of$30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period, or Performance Milestone III, and extended the availability of Tranche Four funding fromJune 30, 2022 toDecember 15, 2022 , and (iv) increased the amount of unrestricted cash required for us to satisfy the minimum financial covenant from$10.0 million to$15.0 million upon the earlier of receiving the Tranche Four funding orJanuary 1, 2023 , through the maturity of the Loan Agreement. As ofSeptember 30, 2022 , the total outstanding principal under the Loan Agreement was$40.0 million , principal payments are scheduled to commence onApril 1, 2023 and the corresponding end-of-term payments under the Loan Agreement, in the aggregate amount of approximately$2.8 million , are due upon the current loan maturity date ofSeptember 1, 2024 . The interest rate as ofSeptember 30, 2022 was 12.65% based upon multiple increases in the prime rate during 2022 and is capped at 15.00%. As ofSeptember 30, 2022 ,$5.0 million remains available to us in committed funding under the Loan Agreement for Tranche Four funding in connection with the achievement of Performance Milestone III for$30.0 million inU.S. net product revenues from sales of FOTIVDA over a trailing three-month period. We achieved Performance Milestone III in the third quarter of 2022 and currently have no plans to draw down the remaining$5.0 million in Tranche Four funding, which is available untilDecember 15, 2022 . Upon the closing of the pending acquisition by LG Chem, the Hercules loan facility will be repaid in full, including the$2.8 million end-of-term payment and a$0.4 million pre-payment charge. Per the terms of the Loan Agreement, principal will be repaid in equal monthly installments following the conclusion of the interest-only period. We may prepay all of the outstanding principal and accrued interest under the Loan Agreement, subject to a prepayment charge up to 3.0% in the first year following the closing of the 2020 Loan Amendment, decreasing to 2.0% in year two and 1.0% in year three. We are obligated to make an end-of-term payment of 6.95% of the aggregate amount of loan funding received under the Loan Agreement on the earlier of the maturity of the loan or the date on which we prepay any outstanding loan balance. The Loan Agreement also includes various other affirmative and negative covenants, including covenants to deliver certain financial reports; to maintain insurance coverage; and to refrain from transferring assets, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, and suffering a change in control, in each case subject to certain exceptions. Obligations under the Loan Agreement are secured by substantially all of our assets, excluding intellectual property. The Loan Agreement provides that certain events shall constitute a default by us, including failure by us to pay amounts under the Loan Agreement when due; breach or default in the performance of any covenant under the Loan Agreement by us, subject to certain cure periods; our insolvency and certain other bankruptcy proceedings involving us; our default of obligations involving indebtedness in excess of$0.5 million ; and the occurrence of an event or circumstance that would have a material adverse effect upon our business. We have determined that the risk of subjective acceleration under the material adverse events clause included in the Loan Agreement is remote and, therefore, have classified the outstanding principal amount in long-term liabilities based on the timing of scheduled principal payments. As ofSeptember 30, 2022 , we were in compliance with all of the loan covenants and, through the date of this filing, the lenders have not asserted any events of default under the Loan Agreement. We do not believe that there has been a material adverse change as defined in the 2020 Loan Facility. 22 --------------------------------------------------------------------------------
See Note 6 "Hercules Loan Facility" to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our Loan Agreement with Hercules.
Public Offering -
OnMarch 26, 2021 , we completed an underwritten public offering of 6,900,000 shares of our common stock, including the full exercise by the underwriters of their option to purchase an additional 900,000 shares, at the public offering price of$8.00 per share for gross proceeds of approximately$55.2 million . The net offering proceeds to us were approximately$51.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Sales Agreement with
InFebruary 2018 , we entered into the SVB Leerink Sales Agreement withSVB Leerink pursuant to which we may issue and sell shares of our common stock from time to time up to an aggregate amount of$50.0 million , at our option, throughSVB Leerink as our sales agent, with any sales of common stock throughSVB Leerink being made by any method that is deemed an "at-the-market offering" as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, or in other transactions. Any such shares of common stock will be sold pursuant to a prospectus supplement filed under the 2020 Shelf, as defined below. We agreed to paySVB Leerink a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the SVB Leerink Sales Agreement. We sold 470,777 shares, 1,251,555 shares, 1,070,175 shares and 330,688 shares pursuant to the SVB Leerink Sales Agreement, resulting in approximate proceeds net of commissions of$10.3 million ,$7.5 million ,$5.9 million and$3.4 million in the fourth quarter of 2018,February 2019 ,November 2020 andMarch 2021 , respectively. As ofSeptember 30, 2022 , approximately$22.2 million was available for issuance in connection with future stock sales pursuant to the SVB Leerink Sales Agreement.
Universal Shelf Registration Statement
OnNovember 9, 2020 , we filed a shelf registration statement on Form S-3 with theSEC , which covers the offering, issuance and sale of up to$300.0 million of our common stock, preferred stock, debt securities, warrants and/or units, or the 2020 Shelf. The 2020 Shelf (File No. 333-249982) was declared effective by theSEC onNovember 18, 2020 and was filed to replace our then existing shelf registration statement, which was terminated. As ofSeptember 30, 2022 , there was approximately$213.0 million available for future issuance of our common stock, preferred stock, debt securities, warrants and/or units.
Liquidity and Going Concern
We have devoted substantially all of our resources to our drug development efforts, comprised of research and development, manufacturing, conducting clinical trials for our product candidates, protecting our intellectual property and general and administrative functions relating to these operations. Our future success is dependent on our ability to commercialize FOTIVDA inthe United States and develop our clinical stage assets and, ultimately, upon our ability to create shareholder value. OnMarch 10, 2021 , the FDA approved FOTIVDA inthe United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we commercialize FOTIVDA inthe United States and continue our planned development activities for our clinical and preclinical stage assets. Our future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payers and adequate market share for FOTIVDA and any future products in those markets. The likelihood of our long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate. Absent the realization of sufficient revenues from product sales to support our cost structure, we may never attain or sustain profitability. We may require substantial additional funding to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA inthe United States . 23 -------------------------------------------------------------------------------- During the nine months endedSeptember 30, 2022 , we received an aggregate of approximately$69.9 million in funding, including approximately$67.6 million in net cash receipts from the product sales of FOTIVDA inthe United States and approximately$2.3 million in funding received from partners for R&D cost sharing and royalty payments. We believe that our$77.4 million in cash, cash equivalents and marketable securities as ofSeptember 30, 2022 , along with net product revenues from product sales of FOTIVDA inthe United States will enable us to maintain our current operations for more than 12 months following the date of filing of this Quarterly Report on Form 10-Q. However, there are numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, including, without limitation, risks related to our ability to generate product revenue from sales of FOTIVDA inthe United States , which became commercially available inthe United States onMarch 22, 2021 . Accordingly, our future funding requirements may vary from our current expectations and will depend on many factors, including, but not limited to:
•the costs of completing our acquisition by LG Chem, including legal and financial advisory fees and other transaction costs, certain of which are payable by us whether or not the transaction is completed;
•the cost of commercialization activities of FOTIVDA in
•the cost of manufacturing FOTIVDA in
•the impact of COVID-19 on our operations, business and prospects;
•our ability to expand the commercial opportunity of tivozanib for the treatment of RCC;
•our ability to position our product candidates for further development by partners and the financial terms of such agreements;
•our ability to establish and maintain strategic partnerships to execute our strategy to partner our clinical stage assets or other arrangements, including our ability to potentially acquire or in-license one or more additional commercial stage assets, and the financial terms of such agreements;
•the number and characteristics of the product candidates we pursue;
•the scope, progress, results and costs of researching and developing our product candidates, and of conducting preclinical and clinical trials;
•the timing of, and the costs involved in, completing our clinical trials and obtaining regulatory approvals for our product candidates;
•the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
•the absence of any breach, acceleration event or event of default under our 2020 Loan Facility, or under any other agreements with third parties;
•the cost and outcome of any legal actions against us;
•the timing, receipt and amount of sales of, or royalties on, tivozanib and our future products, if any; and
•general economic, industry and market conditions.
We may require substantial additional capital to continue to advance our pipeline of clinical and preclinical stage assets to position each product candidate for further development by partners and the timing and nature of these activities
24
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will be conducted subject to the availability of sufficient financial resources,
from product sales of FOTIVDA in
We may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to raise substantial additional funding to advance our pipeline of clinical and preclinical stage assets to position each for partnership opportunities that may further advance these product candidates, whether on terms that are acceptable to us, or at all or if we were to default under the 2020 Loan Facility, and Hercules accelerated the then remaining principal payments and fees due under the loan, then we may be required to:
•delay, limit, reduce or terminate our clinical trials, preclinical studies or other development activities for one or more of our product candidates; and/or
•delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if approved.
Contractual Obligations and Commitments
There have been no additional material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year endedDecember 31, 2021 filed with theSEC onMarch 14, 2022 . except as noted below. OnOctober 18, 2022 , we entered into the Merger Agreement with LG Chem and Merger Sub, pursuant to and subject to the terms and conditions of which Merger Sub will be merged with and into us, with us surviving the Merger as a wholly owned subsidiary of LG Chem. The Merger Agreement may be terminated under certain circumstances, including in connection with an Acquisition Proposal (as defined in the Merger Agreement) that our Board of Directors determines constitutes a Superior Proposal (as defined in the Merger Agreement). If the Merger Agreement is terminated by us under specified circumstances, we will be required to pay LG Chem a termination fee of$20.4 million . The Merger Agreement is subject to customary closing conditions, and is anticipated to close in early 2023. InMarch 2020 , we entered into a sublease agreement for office space located at30 Winter Street inBoston, Massachusetts that is scheduled to expire inNovember 2022 . OnApril 4, 2022 , in advance of this expiration, we entered into an office lease agreement, or the Office Lease, with the landlord to continue leasing our current 6,465 square foot office space at30 Winter Street inBoston, Massachusetts for an additional two years beginning onNovember 30, 2022 and ending onNovember 29, 2024 . Under the Office Lease, we will continue to lease the office space for$50.00 per square foot, or approximately$0.3 million in base rent for the first year and$51.00 per square foot, or approximately$0.3 million for the remaining year until the expiration date, each exclusive of operating expenses and taxes.
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