[PART I. FINANCIAL INFORMATION](index=10&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=10&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) The company's unaudited condensed consolidated financial statements detail its financial position, performance, and cash flows [Condensed Consolidated Balance Sheets](index=10&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets and stockholders' equity decreased while total liabilities increased from December 2022 to March 2023 Condensed Consolidated Balance Sheets (in thousands) | Assets/Liabilities & Equity | March 31, 2023 | December 31, 2022 | | :-------------------------- | :------------- | :------------------ | | **Assets:** | | | | Cash and cash equivalents | $26,571 | $22,397 | | Short-term investments | $92,358 | $106,823 | | Total current assets | $120,569 | $131,496 | | Total assets | $124,393 | $135,301 | | **Liabilities:** | | | | Accounts payable | $4,726 | $2,575 | | Accrued & other current liabilities | $5,538 | $4,822 | | Total current liabilities | $10,637 | $7,782 | | Total liabilities | $11,298 | $8,558 | | **Stockholders' Equity:** | | | | Total stockholders' equity | $113,095 | $126,743 | | Total liabilities and stockholders' equity | $124,393 | $135,301 | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=11&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) The company's net loss widened in Q1 2023 due to higher R&D expenses, partially offset by increased interest income Condensed Consolidated Statements of Operations and Comprehensive Loss (in thousands) | Operating Expenses/Income | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------ | :-------------------------------- | :-------------------------------- | | Research and development | $13,488 | $7,255 | | General and administrative | $4,151 | $3,764 | | Total operating expenses | $17,639 | $11,019 | | Loss from operations | $(17,639) | $(11,019) | | Interest income | $1,120 | $109 | | Net loss | $(16,520) | $(10,910) | | Comprehensive loss | $(16,255) | $(11,495) | | Net loss per share, basic and diluted | $(0.67) | $(0.45) | - Research and development expenses **increased by $6,233k (85.9%)** year-over-year[26](index=26&type=chunk)[103](index=103&type=chunk) - Interest income **increased by $1,011k (927.5%)** year-over-year[26](index=26&type=chunk)[103](index=103&type=chunk) [Condensed Consolidated Statements of Stockholders' Equity](index=12&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20and%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity) Total stockholders' equity decreased to $113.10 million, primarily driven by the net loss incurred during the period Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Component | Balance at Dec 31, 2022 | Unrealized gain on investments | Stock based compensation | Net loss | Balance at Mar 31, 2023 | | :---------------------------------------- | :---------------------- | :----------------------------- | :----------------------- | :------- | :---------------------- | | Common Stock Amount | $2 | $— | $— | $— | $2 | | Additional Paid-In Capital | $215,110 | $— | $2,384 | $— | $217,717 | | Accumulated Other Comprehensive Gain/(Loss) | $(466) | $265 | $— | $— | $(201) | | Accumulated Deficit | $(87,903) | $— | $— | $(16,520) | $(104,423) | | Total Stockholders' Equity | $126,743 | $265 | $2,384 | $(16,520) | $113,095 | [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Cash and cash equivalents increased by $4.17 million, a significant improvement from the prior year's decrease Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------- | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(11,424) | $(5,661) | | Net cash provided by (used in) investing activities | $15,375 | $(20,399) | | Net cash provided by financing activities | $223 | $— | | Net increase (decrease) in cash and cash equivalents | $4,174 | $(26,060) | | Cash and cash equivalents at the beginning of the year | $22,397 | $54,197 | | Cash and cash equivalents at the end of the period | $26,571 | $28,137 | - Net cash used in operating activities **increased by $5,763k (101.8%)** year-over-year[34](index=34&type=chunk)[124](index=124&type=chunk) - Net cash provided by investing activities shifted from a use of $20,399k in Q1 2022 to a provision of $15,375k in Q1 2023, **primarily due to higher maturities of short-term investments**[34](index=34&type=chunk)[121](index=121&type=chunk)[124](index=124&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) These notes provide detailed disclosures on accounting policies, fair value, balance sheet items, and equity transactions [(1) Organization and Nature of Operations](index=14&type=section&id=%281%29%20ORGANIZATION%20AND%20NATURE%20OF%20OPERATIONS) Aerovate Therapeutics is a clinical-stage biopharmaceutical company focused on developing AV-101 for pulmonary arterial hypertension - Clinical-stage biopharmaceutical company focused on developing AV-101, a dry powder inhaled formulation of imatinib, for the treatment of pulmonary arterial hypertension (PAH), and **initiated a global Phase 2b/Phase 3 trial in December 2021**[37](index=37&type=chunk) - Completed its initial public offering (IPO) on July 2, 2021, generating **approximately $126.9 million in net proceeds**[38](index=38&type=chunk) - Entered into an ATM Equity OfferingSM Sales Agreement on April 5, 2023, to sell **up to $75.0 million of common stock**; no shares were sold as of May 15, 2023[39](index=39&type=chunk) - As of March 31, 2023, the company had **cash and short-term investments of $118.9 million**, sufficient to fund operations into the second half of 2025[40](index=40&type=chunk)[41](index=41&type=chunk) [(2) Basis of Presentation and Significant Accounting Policies](index=16&type=section&id=%282%29%20BASIS%20OF%20PRESENTATION%20AND%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The financial statements are prepared under U.S. GAAP and reflect a reverse stock split completed in June 2021 - Unaudited condensed consolidated financial statements are prepared in conformity with **U.S. GAAP for interim financial information**[44](index=44&type=chunk) - Effected a **1-for-3.1060103 reverse stock split** on June 22, 2021, retrospectively adjusting all common stock and related share data[46](index=46&type=chunk) - Key accounting estimates include accruals for **research and development expenses, stock-based compensation, and fair value of investments**[47](index=47&type=chunk) - Elected to **"opt out" of the extended transition period** for complying with new or revised financial accounting standards as an emerging growth company[129](index=129&type=chunk) [(3) Fair Value of Financial Instruments](index=19&type=section&id=%283%29%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Financial assets are measured at fair value, with unrealized losses attributed to market fluctuations rather than credit risk Fair Value of Financial Assets (in thousands) - March 31, 2023 | Assets | Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------- | :--------- | :------ | :------ | :------ | | Money market funds | $26,049 | $26,049 | $— | $— | | Commercial paper | $53,686 | $— | $53,686 | $— | | U.S. Treasury bills | $12,468 | $12,468 | $— | $— | | Agency bonds | $26,204 | $— | $26,204 | $— | | Total fair value of assets | $118,407 | $38,517 | $79,890 | $— | Fair Value of Financial Assets (in thousands) - December 31, 2022 | Assets | Fair Value | Level 1 | Level 2 | Level 3 | | :------------------------- | :--------- | :------ | :------ | :------ | | Money market funds | $18,436 | $18,436 | $— | $— | | Commercial paper | $55,577 | $— | $55,577 | $— | | U.S. Treasury bills | $26,841 | $26,841 | $— | $— | | Agency bonds | $24,405 | $— | $24,405 | $— | | Total fair value of assets | $125,259 | $45,277 | $79,982 | $— | - Unrealized losses on available-for-sale securities were caused by fluctuations in market value and interest rates, **not credit risk**, and no impairment losses were recognized[60](index=60&type=chunk)[61](index=61&type=chunk) [(4) Balance Sheet Components](index=21&type=section&id=%284%29%20BALANCE%20SHEET%20COMPONENTS) This section details the composition of prepaid expenses, other current assets, and accrued current liabilities Prepaid Expenses and Other Current Assets (in thousands) | Component | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Prepaid expenses | $1,114 | $1,503 | | Other current assets | $266 | $295 | | Prepaid research and development | $260 | $478 | | Total prepaid expenses and other current assets | $1,640 | $2,276 | Accrued and Other Current Liabilities (in thousands) | Component | March 31, 2023 | December 31, 2022 | | :------------------------------------ | :------------- | :---------------- | | Accrued research and development | $4,267 | $2,751 | | Accrued payroll and other employee benefits | $1,019 | $1,691 | | Other | $252 | $380 | | Total accrued and other current liabilities | $5,538 | $4,822 | [(5) Commitments and Contingencies](index=21&type=section&id=%285%29%20COMMITMENTS%20AND%20CONTINGENCIES) The company has lease agreements for office spaces with total future minimum lease payments of $1.034 million - Entered into a lease agreement for office space in Waltham, Massachusetts in August 2021, with an initial base rent of **approximately $18,000 per month**[66](index=66&type=chunk) - Entered into a lease agreement for office space in Foster City, California in April 2022, with a base rent of **$22,600 per month**[67](index=67&type=chunk) Future Minimum Annual Lease Payments (in thousands) as of March 31, 2023 | Year | Total Lease Minimum Payments | | :--- | :--------------------------- | | 2023 | $284 | | 2024 | $508 | | 2025 | $242 | | Total | $1,034 | [(6) Stockholders' Equity](index=22&type=section&id=%286%29%20STOCKHOLDERS'%20EQUITY) The company has 150 million authorized common shares, with 24.8 million outstanding and 6.5 million reserved for future issuance - Authorized **150,000,000 shares of common stock** and 10,000,000 shares of undesignated preferred stock[71](index=71&type=chunk) - **24,816,940 shares of common stock** were issued and outstanding as of March 31, 2023[23](index=23&type=chunk) Shares of Common Stock Reserved for Future Issuance (as of March 31, 2023) | Category | Shares | | :----------------------------------------- | :------- | | Common stock options granted and outstanding | 5,107,865 | | Shares reserved for issuance under the 2021 Plan | 933,657 | | Reserved for vesting of outstanding restricted stock units | 31,881 | | Reserved for future ESPP issuances | 463,360 | | Total | 6,536,763 | [(7) Stock-Based Compensation](index=24&type=section&id=%287%29%20STOCK-BASED%20COMPENSATION) Total stock-based compensation expense increased to $2.4 million in Q1 2023, with $35.2 million in unrecognized expenses remaining - As of March 31, 2023, there was **$34.6 million of total unrecognized stock-based compensation expense** related to unvested stock options, expected to be recognized over approximately 2.8 years[78](index=78&type=chunk) - As of March 31, 2023, the company had **unrecognized stock-based compensation expense of $0.6 million** related to its unvested restricted stock units, expected to be recognized over 3.0 years[83](index=83&type=chunk) Stock-Based Compensation Expense by Operating Expense (in thousands) | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Research and development | $1,299 | $768 | | General and administrative | $1,085 | $256 | | Total | $2,384 | $1,024 | Stock-Based Compensation Expense by Award Type (in thousands) | Award Type | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :----------------------------- | :-------------------------------- | :-------------------------------- | | Stock options | $2,289 | $1,024 | | Restricted stock awards and units | $48 | $— | | Employee stock purchase plan awards | $47 | $— | | Total | $2,384 | $1,024 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition, clinical-stage focus, and operational results for Q1 2023 [Overview](index=28&type=section&id=Overview) Aerovate Therapeutics is a clinical-stage biopharmaceutical company developing AV-101 for Pulmonary Arterial Hypertension - Clinical-stage biopharmaceutical company focused on developing **AV-101**, a dry powder inhaled formulation of imatinib, for the treatment of pulmonary arterial hypertension (PAH)[89](index=89&type=chunk) - Currently enrolling patients in a **global Phase 2b/Phase 3 trial** of AV-101 in adults with PAH[89](index=89&type=chunk) - Has **no products approved for sale** and has incurred significant operating losses since inception[89](index=89&type=chunk) [COVID-19 Pandemic Impact](index=28&type=section&id=COVID-19%20Pandemic) The COVID-19 pandemic continues to pose uncertainties and potential adverse impacts on clinical development timelines - Continues to closely monitor the impact of the COVID-19 pandemic on its business, operations, and **clinical development timelines**[90](index=90&type=chunk) - Experienced **delays in activating new trial sites and patient enrollment** due to staffing shortages and interruptions[176](index=176&type=chunk) - Patient populations targeted by AV-101 (PAH patients) may be **particularly susceptible to COVID-19**, potentially making enrollment more difficult[177](index=177&type=chunk) [Components of Results of Operations](index=28&type=section&id=Components%20of%20Results%20of%20Operations) The company generates no revenue and expects substantial R&D and G&A expenses to continue for the foreseeable future - Currently has **no products approved for sale** and has not generated any revenue to date[92](index=92&type=chunk)[94](index=94&type=chunk) - **Research and development expenses** are primarily related to the development of AV-101 and are expected to increase substantially[95](index=95&type=chunk)[97](index=97&type=chunk) - **General and administrative expenses** are anticipated to increase due to public company compliance and pre-commercial activities[100](index=100&type=chunk) - **Interest income** is earned on cash, cash equivalents, and short-term investments[101](index=101&type=chunk) [Results of Operations (Comparison of Q1 2023 and Q1 2022)](index=32&type=section&id=Results%20of%20Operations) The company's net loss increased to $16.5 million in Q1 2023, driven by a significant rise in R&D expenses Results of Operations (in thousands) | Operating Expenses/Income | 2023 | 2022 | Change | | :------------------------ | :------- | :------- | :------- | | Research and development | $13,488 | $7,255 | $6,233 | | General and administrative | $4,151 | $3,764 | $387 | | Total operating expenses | $17,639 | $11,019 | $6,620 | | Loss from operations | $(17,639) | $(11,019) | $(6,620) | | Interest income | $1,120 | $109 | $1,011 | | Other expense | $(1) | $— | $(1) | | Total other income | $1,119 | $109 | $1,010 | | Net loss | $(16,520) | $(10,910) | $(5,610) | - Research and development expenses **increased by $6.2 million**, primarily due to a $3.8 million increase in clinical costs and a $3.3 million increase in headcount-related costs[104](index=104&type=chunk) - Interest income **increased by $1.0 million** due to interest earned on cash and short-term investments[106](index=106&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) The company had $118.9 million in cash and investments, projected to fund operations into the second half of 2025 - As of March 31, 2023, the company had **cash and short-term investments of $118.9 million**[107](index=107&type=chunk) - Existing cash and investments are expected to **fund planned operations into the second half of 2025**[109](index=109&type=chunk) - **Future capital requirements are substantial** and depend on the costs of clinical trials, regulatory approvals, and commercialization of AV-101[110](index=110&type=chunk)[112](index=112&type=chunk) - Entered into an ATM Equity OfferingSM Sales Agreement on April 5, 2023, to sell **up to $75.0 million of common stock**, with no shares sold as of May 15, 2023[108](index=108&type=chunk) [Cash Flows (Comparison of Q1 2023 and Q1 2022)](index=37&type=section&id=Cash%20Flows) Net cash used in operations increased, while investing activities provided cash due to maturities of short-term investments Summary of Net Cash Flow Activity (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash used in operating activities | $(11,424) | $(5,661) | | Net cash provided by (used in) investing activities | $15,375 | $(20,399) | | Net cash provided by financing activities | $223 | $— | | Net increase (decrease) in cash and cash equivalents | $4,174 | $(26,060) | - Net cash used in operating activities **increased to $11.4 million** in Q1 2023, primarily due to the net loss incurred[119](index=119&type=chunk) - Net cash provided by investing activities was **$15.4 million in Q1 2023**, driven by maturities of short-term investments, a reversal from $20.4 million used in Q1 2022[121](index=121&type=chunk) [Critical Accounting Estimates](index=37&type=section&id=Critical%20Accounting%20Estimates) Financial statements rely on key estimates for R&D expenses and stock-based compensation, with no significant policy changes - Preparation of financial statements requires management to make estimates, particularly for **research and development expenses and stock-based compensation**[128](index=128&type=chunk)[47](index=47&type=chunk) - **No significant changes** in critical accounting policies and estimates occurred during the three months ended March 31, 2023[127](index=127&type=chunk) - As an emerging growth company, the company elected to **"opt out" of the extended transition period** for complying with new accounting standards[129](index=129&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=39&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to market risks from interest rates, foreign currency exchange, and inflation - Exposed to **interest rate fluctuation risk** on cash and investments; no material effect on Q1 2023 results[131](index=131&type=chunk) - Exposed to **foreign currency fluctuation risk** due to contracts with international vendors; no material effect on Q1 2023 results[132](index=132&type=chunk)[135](index=135&type=chunk) - **Inflation** affects labor and R&D costs; no material effect on Q1 2023 results, but potential adverse impact in the near future[136](index=136&type=chunk) [Item 4. Controls and Procedures](index=41&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023 - Management concluded that **disclosure controls and procedures were effective** at a reasonable assurance level as of March 31, 2023[137](index=137&type=chunk) - **No material changes** in internal control over financial reporting occurred during the fiscal quarter ended March 31, 2023[138](index=138&type=chunk) [PART II. OTHER INFORMATION](index=41&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=41&type=section&id=Item%201.%20Legal%20Proceedings) The company was not party to any material legal proceedings as of March 31, 2023 - As of March 31, 2023, the company was **not party to any legal proceedings** that it would expect to have a material adverse impact on its financial position[139](index=139&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company faces numerous material risks related to its operations, finances, competition, and regulatory environment [Risks Related to Our Limited Operating History, Financial Position, and Capital Requirements](index=43&type=section&id=Risks%20Related%20to%20Our%20Limited%20Operating%20History%2C%20Financial%20Position%2C%20and%20Capital%20Requirements) The company has a limited operating history, significant losses, and will require substantial additional capital - The company is a clinical-stage biopharmaceutical company with a **limited operating history** and no products approved for commercial sale[144](index=144&type=chunk)[152](index=152&type=chunk) - Incurred significant operating losses since inception, with an **accumulated deficit of $104.4 million** as of March 31, 2023[146](index=146&type=chunk) - Will require **substantial additional capital** to finance operations, which may not be available on acceptable terms[155](index=155&type=chunk)[160](index=160&type=chunk) [Risks Related to the Development of AV-101](index=51&type=section&id=Risks%20Related%20to%20the%20Development%20of%20AV-101) The company's business is entirely dependent on the successful development and approval of its sole product candidate, AV-101 - The business is **entirely dependent on the successful development, regulatory approval, and commercialization of AV-101**, its only product candidate[166](index=166&type=chunk)[167](index=167&type=chunk) - Experienced and may continue to experience **difficulties with site activation and patient enrollment** in clinical trials[185](index=185&type=chunk)[186](index=186&type=chunk) - Clinical development is a lengthy and expensive process with an **uncertain outcome**; AV-101 may cause undesirable side effects[190](index=190&type=chunk)[202](index=202&type=chunk)[206](index=206&type=chunk) - Intends to use the **505(b)(2) regulatory pathway** for AV-101, but the FDA may determine it does not meet requirements[212](index=212&type=chunk)[213](index=213&type=chunk) [Risks Related to Commercialization](index=70&type=section&id=Risks%20Related%20to%20Commercialization) The company faces significant competition, market acceptance hurdles, and reimbursement uncertainties for AV-101 - Faces **significant competition** for AV-101, if approved, from established companies with greater financial and marketing resources[214](index=214&type=chunk)[218](index=218&type=chunk) - Commercial success depends on **market acceptance, coverage, and adequate reimbursement** from third-party payors, which are uncertain[226](index=226&type=chunk)[231](index=231&type=chunk)[234](index=234&type=chunk) - Currently has **no sales organization** and must build or partner for marketing, sales, and distribution capabilities[237](index=237&type=chunk)[238](index=238&type=chunk) - Faces an inherent **risk of product liability** from clinical testing and potential commercialization of AV-101[239](index=239&type=chunk)[241](index=241&type=chunk) [Risks Related to Our Reliance on Third Parties](index=78&type=section&id=Risks%20Related%20to%20Our%20Reliance%20on%20Third%20Parties) The company is highly dependent on third-party suppliers and contract research organizations for its operations - **Highly dependent on qualified third parties** to supply all components of AV-101, some of which are sole-source suppliers[243](index=243&type=chunk)[244](index=244&type=chunk) - **Relies entirely on third parties** (medical institutions, CROs) to conduct all clinical trials, making the company vulnerable to their performance[251](index=251&type=chunk)[252](index=252&type=chunk) - May seek to establish collaborations for development and commercialization, but faces **significant competition and uncertainty** in negotiating favorable terms[255](index=255&type=chunk)[260](index=260&type=chunk) [Risks Related to Our Intellectual Property](index=84&type=section&id=Risks%20Related%20to%20Our%20Intellectual%20Property) The company's success relies on securing and enforcing intellectual property rights, which is uncertain and costly - Success depends on **securing, enforcing, and defending intellectual property rights** for AV-101; no assurance that patent applications will result in issued patents[262](index=262&type=chunk)[263](index=263&type=chunk)[268](index=268&type=chunk) - **Intellectual property litigation is expensive**, time-consuming, and could divert resources, potentially leading to loss of exclusivity[275](index=275&type=chunk)[276](index=276&type=chunk) - May not identify relevant third-party patents, leading to **infringement claims** and potential commercialization prohibitions[290](index=290&type=chunk)[291](index=291&type=chunk) - Relies on **trade secrets and confidentiality agreements** to protect unpatented know-how, but cannot guarantee protection[305](index=305&type=chunk)[308](index=308&type=chunk) [Risks Related to Government Regulation](index=100&type=section&id=Risks%20Related%20to%20Government%20Regulation) The company faces significant regulatory risks, including potential denial of approval and extensive ongoing requirements - May be **unable to obtain regulatory approval** for AV-101 from the FDA or comparable foreign regulatory authorities[313](index=313&type=chunk)[314](index=314&type=chunk)[316](index=316&type=chunk) - AV-101 is a **drug-device combination product**, which may result in additional regulatory risks and increased complexity[318](index=318&type=chunk) - Even if approved, AV-101 will be subject to **extensive ongoing regulatory requirements** for manufacturing, labeling, and promotion[322](index=322&type=chunk)[323](index=323&type=chunk)[329](index=329&type=chunk) - **Healthcare legislative reforms**, such as the Inflation Reduction Act of 2022, could adversely affect business, pricing, and reimbursement[351](index=351&type=chunk)[352](index=352&type=chunk)[356](index=356&type=chunk)[357](index=357&type=chunk) - Has received **orphan drug designation** for AV-101, but this does not guarantee faster development or approval[334](index=334&type=chunk)[339](index=339&type=chunk) [Risks Related to Employee Matters and Managing Growth](index=114&type=section&id=Risks%20Related%20to%20Employee%20Matters%20and%20Managing%20Growth) The company faces challenges in managing growth, attracting and retaining personnel, and mitigating operational risks - Will need to **increase the size of its organization** and may experience difficulties in managing growth and integrating additional employees[366](index=366&type=chunk)[368](index=368&type=chunk)[369](index=369&type=chunk) - **Insurance policies may be inadequate**, potentially exposing the company to unrecoverable risks from significant claims[370](index=370&type=chunk) - Relies on information technology systems and faces **risks from cyberattacks**, which could lead to data breaches and significant financial exposure[371](index=371&type=chunk)[372](index=372&type=chunk) [Risks Related to Ownership of Our Common Stock](index=118&type=section&id=Risks%20Related%20to%20Ownership%20of%20Our%20Common%20Stock) Ownership of common stock is subject to risks from tax law limitations, anti-takeover provisions, and designated legal forums - Ability to utilize **net operating loss carryforwards (NOLs)** may be limited by an "ownership change" under Section 382 of the Internal Revenue Code[377](index=377&type=chunk) - **Comprehensive tax reform legislation** could adversely affect the business and financial condition[378](index=378&type=chunk)[381](index=381&type=chunk) - **Anti-takeover provisions** in charter documents and under Delaware law could make an acquisition more difficult[382](index=382&type=chunk)[383](index=383&type=chunk) - Amended bylaws designate certain courts as the **sole and exclusive forum** for specific stockholder actions, potentially limiting favorable judicial forums[387](index=387&type=chunk) [General Risk Factors](index=122&type=section&id=General%20Risk%20Factors) The company is susceptible to risks from global economic conditions, financial industry instability, and data privacy compliance - **Unfavorable global economic or political conditions**, including rising inflation and interest rates, could adversely affect business and financial condition[389](index=389&type=chunk)[390](index=390&type=chunk)[400](index=400&type=chunk) - Adverse developments affecting the **financial services industry**, such as bank failures, could impair access to funding[392](index=392&type=chunk)[394](index=394&type=chunk)[395](index=395&type=chunk) - Employees and independent contractors may engage in **misconduct or other improper activities**, including noncompliance with regulatory standards[401](index=401&type=chunk)[402](index=402&type=chunk) - Failures to comply with U.S. and foreign **privacy and data protection laws** could result in significant liability and reputational damage[404](index=404&type=chunk)[405](index=405&type=chunk)[406](index=406&type=chunk)[410](index=410&type=chunk)[414](index=414&type=chunk) - As an **"emerging growth company,"** the company avails itself of reduced disclosure requirements, which could make its common stock less attractive[418](index=418&type=chunk)[419](index=419&type=chunk)[425](index=425&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=138&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company completed its IPO in July 2021, raising $126.9 million, with no material change in the planned use of proceeds - Completed its IPO on July 2, 2021, issuing **9,984,463 shares of common stock** at $14.00 per share[439](index=439&type=chunk) - Aggregate net proceeds from the IPO were **approximately $126.9 million**[440](index=440&type=chunk) - **No material change** in the planned use of IPO proceeds from that described in the final Prospectus[440](index=440&type=chunk) [Item 3. Defaults Upon Senior Securities](index=138&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - **No defaults** upon senior securities[440](index=440&type=chunk) [Item 4. Mine Safety Disclosures](index=138&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Mine Safety Disclosures are **not applicable** to the company[440](index=440&type=chunk) [Item 5. Other Information](index=138&type=section&id=Item%205.%20Other%20Information) No other information was reported under this item - **No other information** to report[440](index=440&type=chunk) [Item 6. Exhibits](index=139&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including organizational documents and officer certifications - Key exhibits include the Certificate of Incorporation, Bylaws, **ATM Equity OfferingSM Sale Agreement**, and certifications from executive officers[442](index=442&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO Commission File Number: 001-40544 Aerovate Therapeutics, Inc. (Exact name of Registrant as specified in its Charter) Delaware 83-1377888 (Stat ...

Meaningfully Improving the Lives of Patients with Rare Cardiopulmonary Disease Targeting the Hyperproliferative Cause of Pulmonary Arterial Hypertension Disclaimer; Forward-Looking Statements This presentation has been prepared by Aerovate Therapeutics, Inc. ("we," "us," "our," "Aerovate" or the “Company”) and is made for informational purposes only. The information set forth herein does not purport to be complete or to contain all ofthe information you may desire. Statements contained herein are made as of ...

[PART I. FINANCIAL INFORMATION](index=8&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis of financial condition and results of operations [Item 1. Financial Statements (Unaudited)](index=8&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited condensed consolidated financial statements, including the balance sheets, statements of operations and comprehensive loss, statements of redeemable convertible and convertible preferred stock and stockholders' equity (deficit), statements of cash flows, and accompanying notes. It highlights the company's financial position, performance, and cash movements, particularly the impact of its initial public offering (IPO) and ongoing operating losses [Condensed Consolidated Balance Sheets](index=8&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | Item | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :---------------------------------- | :-------------------------- | :-------------------------- | | Cash and cash equivalents | $180,878 | $4,573 | | Total current assets | $183,102 | $4,676 | | Total assets | $184,125 | $4,715 | | Total current liabilities | $3,825 | $1,774 | | Total liabilities | $4,277 | $1,774 | | Total stockholders' equity (deficit)| $179,848 | $(13,344) | [Condensed Consolidated Statements of Operations and Comprehensive Loss](index=9&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) This section outlines the company's financial performance over specific periods, detailing revenues, expenses, and net loss | Item | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :---------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | :----------------------------------------- | | Research and development | $3,418 | $1,966 | $9,941 | $4,643 | | General and administrative | $2,782 | $277 | $4,813 | $583 | | Total operating expenses | $6,200 | $2,243 | $14,754 | $5,226 | | Loss from operations | $(6,200) | $(2,243) | $(14,754) | $(5,226) | | Total other income (expense) | $16 | $(64) | $14 | $(719) | | Net loss and comprehensive loss | $(6,184) | $(2,307) | $(14,740) | $(5,945) | | Net loss per share, basic and diluted | $(0.26) | $(10.13) | $(1.80) | $(25.20) | [Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders' Equity (Deficit)](index=10&type=section&id=Condensed%20Consolidated%20Statements%20of%20Redeemable%20Convertible%20and%20Convertible%20Preferred%20Stock%20and%20Stockholders%27%20Equity%20(Deficit)) This section tracks changes in the company's equity, including the impact of preferred stock conversions and the initial public offering - Immediately prior to the IPO on July 2, 2021, all outstanding redeemable convertible preferred stock (40,052,154 Series A and 4,000,000 Series Seed shares) converted into **14,182,854 shares of common stock**[27](index=27&type=chunk)[58](index=58&type=chunk) - The IPO resulted in the issuance of **9,984,463 common shares** and a significant increase in additional paid-in capital by **$126.9 million**[27](index=27&type=chunk)[59](index=59&type=chunk) - Total stockholders' equity (deficit) shifted from a deficit of **$(21.6) million** at June 30, 2021, to a positive **$179.8 million** at September 30, 2021, primarily due to the IPO proceeds[26](index=26&type=chunk)[27](index=27&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=13&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details the company's cash inflows and outflows from operating, investing, and financing activities over specific periods | Cash Flow Activity (in thousands) | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(14,306) | $(4,975) | | Net cash used in investing activities | $(96) | $- | | Net cash provided by financing activities | $190,707 | $8,918 | | Net increase in cash | $176,305 | $3,943 | | Cash and cash equivalents at end of period | $180,878 | $7,457 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=14&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed consolidated financial statements - Aerovate Therapeutics Inc. was incorporated in July 2018 and is focused on developing AV-101, a novel treatment for pulmonary arterial hypertension (PAH), with a Phase 2b/3 trial anticipated in the second half of 2021[35](index=35&type=chunk) - The company completed its IPO on July 2, 2021, issuing **9,984,463 shares of common stock** at **$14.00 per share**, generating approximately **$126.9 million** in net proceeds after deducting offering costs[36](index=36&type=chunk) - As of September 30, 2021, the company had **$180.9 million** in cash and cash equivalents, which management believes will provide sufficient funds for at least twelve months from the filing date, despite incurring significant operating losses since inception[37](index=37&type=chunk)[38](index=38&type=chunk) Net Loss Per Share Summary (in thousands, except share and per share amounts) | Numerator: | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--------------------------------------------------------------------------------------------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net loss and comprehensive loss | $(6,184) | $(2,307) | $(14,740) | $(5,945) | | Accretion of Series A redeemable convertible preferred stock to redemption value | - | $(153) | $(22) | $(153) | | Net loss and comprehensive loss available to common stockholders | $(6,184) | $(2,460) | $(14,762) | $(6,098) | | Denominator: | | | | | | Weighted-average common stock outstanding, basic and diluted | 23,885,017 | 242,901 | 8,180,359 | 241,949 | | Net loss per share, basic and diluted | $(0.26) | $(10.13) | $(1.80) | $(25.20) | Accrued and Other Current Liabilities (in thousands) | Item | September 30, 2021 | December 31, 2020 | | :------------------------------------ | :----------------- | :---------------- | | Accrued research and development | $578 | $946 | | Accrued payroll and other employee benefits | $365 | $192 | | Other | $180 | $18 | | Total accrued and other current liabilities | $1,123 | $1,156 | - The 2021 Stock Option and Incentive Plan authorized **2,600,000 shares** for awards, with **861,620 granted** and **1,738,380 shares available** for future grants as of September 30, 2021. Total unrecognized stock-based compensation expense was approximately **$8.8 million**, expected to be recognized over **3.5 years**[63](index=63&type=chunk)[70](index=70&type=chunk) - The company entered into a 39-month lease for office space in Waltham, Massachusetts, in August 2021, with an initial base rent of approximately **$18,000 per month**. Total operating lease expense for the three and nine months ended September 30, 2021, was **$16,000**[74](index=74&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=22&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides an overview of Aerovate Therapeutics, Inc.'s business, financial condition, and results of operations. The company is a clinical-stage biopharmaceutical firm focused on AV-101 for PAH, has incurred significant operating losses, and relies on external funding, including a recent IPO. It details the increase in R&D and G&A expenses, the impact of the IPO on liquidity, and the uncertainties posed by the COVID-19 pandemic and future capital requirements - Aerovate is a clinical-stage biopharmaceutical company focused on developing AV-101, a dry powder inhaled formulation of imatinib for the treatment of pulmonary arterial hypertension (PAH)[78](index=78&type=chunk) - The company has incurred significant operating losses since inception, with net losses of **$6.2 million** and **$14.7 million** for the three and nine months ended September 30, 2021, respectively, and an accumulated deficit of **$28.2 million**[79](index=79&type=chunk) - As of September 30, 2021, the company had **$180.9 million** in cash and cash equivalents, with existing funds expected to support operations into the second half of 2025, following **$126.9 million** in net proceeds from its July 2021 IPO[79](index=79&type=chunk)[105](index=105&type=chunk) - The ongoing COVID-19 pandemic poses uncertain risks to clinical development timelines, supply chain, and operations, particularly for PAH patients who may be more susceptible, potentially affecting patient enrollment and trial completion[83](index=83&type=chunk) Operating Expenses (in thousands) | Expense Category | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | Change (3 Months) | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | Change (9 Months) | | :-------------------------- | :-------------------------- | :-------------------------- | :---------------- | :-------------------------- | :-------------------------- | :---------------- | | Research and Development | $3,418 | $1,966 | $1,452 | $9,941 | $4,643 | $5,298 | | General and Administrative | $2,782 | $277 | $2,505 | $4,813 | $583 | $4,230 | | Total Operating Expenses | $6,200 | $2,243 | $3,957 | $14,754 | $5,226 | $9,528 | Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(14,306) | $(4,975) | | Net cash used in investing activities | $(96) | $- | | Net cash provided by financing activities | $190,707 | $8,918 | | Net increase in cash and cash equivalents | $176,305 | $3,943 | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=31&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section assesses the company's exposure to market risks, including interest rate fluctuations, foreign currency fluctuations, and inflation. The company believes these risks have not had a material impact on its financial results for the periods presented - The company's primary market risk exposure is to interest rate fluctuations on its cash and cash equivalents, which are primarily invested in money market funds. Management believes these fluctuations have not materially affected results for the three and nine months ended September 30, 2021 and 2020[123](index=123&type=chunk) - The company is exposed to foreign currency fluctuation risk from international vendors with foreign-denominated invoices but does not currently hedge this risk, believing it has not had a material effect on results for the periods presented[124](index=124&type=chunk) - Inflation risk primarily affects labor and research and development contract costs, but the company believes it has not had a material effect on its results of operations for the three and nine months ended September 30, 2021 and 2020[125](index=125&type=chunk) [Item 4. Controls and Procedures](index=31&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of September 30, 2021, concluding they were effective at a reasonable assurance level. No material changes in internal control over financial reporting were identified during the quarter - As of September 30, 2021, the registrant's management, with the participation of its chief executive officer and chief financial officer, concluded that its disclosure controls and procedures were effective at a reasonable assurance level[126](index=126&type=chunk) - There were no changes in the company's internal control over financial reporting during the fiscal quarter ended September 30, 2021, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[128](index=128&type=chunk) [PART II. OTHER INFORMATION](index=33&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part covers legal proceedings, risk factors, equity sales, and other disclosures relevant to the company's operations [Item 1. Legal Proceedings](index=33&type=section&id=Item%201.%20Legal%20Proceedings) As of September 30, 2021, the company was not involved in any legal proceedings expected to have a material adverse impact on its financial position, results of operations, or cash flow - As of September 30, 2021, the company was not party to any legal proceedings that would be expected to have a material adverse impact on its financial position, results of operations or cash flow[129](index=129&type=chunk) [Item 1A. Risk Factors](index=33&type=section&id=Item%201A.%20Risk%20Factors) This section details numerous material risks and uncertainties facing the company, including its limited operating history, significant and ongoing operating losses, complete dependence on the successful development and commercialization of its sole product candidate AV-101, and the inherent challenges of clinical trials, regulatory approvals, and market acceptance. It also highlights risks related to reliance on third parties, intellectual property protection, government regulations, and the impact of the COVID-19 pandemic - The company is a clinical-stage biopharmaceutical company with a limited operating history since July 2018, no products approved for commercial sale, and has not generated any revenue from product sales[132](index=132&type=chunk)[139](index=139&type=chunk) - Aerovate has incurred significant operating losses since inception (accumulated deficit of **$28.2 million** as of September 30, 2021) and anticipates continued losses, with no guarantee of achieving or maintaining profitability[135](index=135&type=chunk) - The business is entirely dependent on the successful development, regulatory approval, and commercialization of AV-101, its only product candidate, which involves substantial additional development time and resources[153](index=153&type=chunk)[154](index=154&type=chunk) - The ongoing COVID-19 pandemic may materially and adversely affect the company's business, operations, and clinical development timelines, particularly for PAH patients who may be especially susceptible, making patient enrollment and trial completion more difficult[161](index=161&type=chunk)[162](index=162&type=chunk) - The company relies on third parties for all components and manufacturing of AV-101, including a sole source supplier for the dry powder inhaler (DPI), which creates dependency and risks of supply limitations, interruptions, or quality issues[223](index=223&type=chunk)[224](index=224&type=chunk) - Aerovate has many pending patent applications for AV-101 but does not own any issued patents, and there is no assurance that current or future applications will result in issued patents or provide a competitive advantage[240](index=240&type=chunk)[241](index=241&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=90&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section reports on the issuance of stock options to employees and directors and the use of proceeds from the company's initial public offering (IPO). During the period, 29,620 stock options were issued, and the company received approximately $126.9 million in net proceeds from its IPO, with no material change in the planned use of these funds - Between July 1, 2021, and September 30, 2021, the company issued options to purchase an aggregate of **29,620 shares of common stock** to employees and directors at a weighted-average exercise price of **$15.54 per share**, exempt from registration under Rule 701 or Section 4(a)(2)[388](index=388&type=chunk) - The company completed its IPO on July 2, 2021, selling **9,984,463 shares of common stock** at **$14.00 per share**, generating aggregate net proceeds of approximately **$126.9 million** after deducting underwriting discounts and commissions and other offering expenses[389](index=389&type=chunk)[390](index=390&type=chunk) - There has been no material change in the planned use of IPO proceeds from that described in the company's final Prospectus filed on June 30, 2021[390](index=390&type=chunk) [Item 3. Defaults Upon Senior Securities](index=90&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities during the period - The company reported no defaults upon senior securities[390](index=390&type=chunk) [Item 4. Mine Safety Disclosures](index=90&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - This item is not applicable to the company[390](index=390&type=chunk) [Item 5. Other Information](index=90&type=section&id=Item%205.%20Other%20Information) The company reported no other information for this period - The company reported no other information for this period[390](index=390&type=chunk) [Item 6. Exhibits](index=91&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including key organizational documents, a lease agreement, and officer certifications - Key exhibits include the Second Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, a Lease Agreement dated August 6, 2021, and officer certifications (31.1, 31.2, 32.1)[392](index=392&type=chunk) [Signatures](index=92&type=section&id=Signatures) This section provides the official signatures of the company's executive officers, certifying the accuracy of the report - The report was signed on November 15, 2021, by Timothy P. Noyes, Chief Executive Officer, and George Eldridge, Chief Financial Officer[396](index=396&type=chunk)