Aravive(ARAV) - 2020 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents Aravive, Inc.'s unaudited condensed consolidated financial statements, including balance sheets, statements of operations, equity, cash flows, and detailed notes a. Condensed Consolidated Balance Sheets The condensed consolidated balance sheets show a decrease in total assets and stockholders' equity from December 31, 2019, to June 30, 2020, primarily driven by a reduction in cash and cash equivalents and an impairment loss on long-lived assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2020 (unaudited) | December 31, 2019 | | :-------------------------- | :------------------------ | :---------------- | | Cash and cash equivalents | $60,062 | $65,134 | | Total current assets | $61,268 | $68,213 | | Total assets | $71,013 | $82,121 | | Total current liabilities | $4,532 | $4,968 | | Total liabilities | $11,566 | $13,072 | | Total stockholders' equity | $59,447 | $69,049 | b. Condensed Consolidated Statements of Operations The company reported increased net losses for both the three and six months ended June 30, 2020, compared to the prior year, primarily due to the absence of grant revenue and a significant loss on impairment of long-lived assets in 2020 Condensed Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Grant revenue | $— | $3,054 | $— | $4,753 | | Research and development | $2,522 | $3,637 | $6,014 | $6,485 | | General and administrative | $3,201 | $3,291 | $7,151 | $7,881 | | Loss on impairment of long-lived assets | $— | $— | $2,870 | $— | | Total operating expenses | $5,723 | $6,928 | $16,035 | $14,366 | | Net loss | $(5,041) | $(3,044) | $(15,837) | $(7,748) | | Net loss per share - basic and diluted | $(0.32) | $(0.27) | $(1.02) | $(0.69) | - Net loss increased by 66% for the three months and 104% for the six months ended June 30, 2020, primarily due to the cessation of grant revenue and a $2.9 million impairment loss on long-lived assets[8][122] c. Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity decreased from $69.0 million at January 1, 2020, to $59.4 million at June 30, 2020, mainly due to net losses, partially offset by proceeds from a private placement and stock-based compensation Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | January 1, 2020 | June 30, 2020 | | :----------------------------------- | :-------------- | :------------ | | Common Stock Shares | 15,001,795 | 15,996,177 | | Additional Paid-In Capital | $539,158 | $545,393 | | Accumulated Deficit | $(470,111) | $(485,948) | | Total Stockholders' Equity | $69,049 | $59,447 | Key Changes (Six Months Ended June 30, 2020): * Issuance of common stock in private placement: $4,922 * Stock-based compensation: $717 (Q1) + $488 (Q2) = $1,205 * Net loss: $(10,796) (Q1) + $(5,041) (Q2) = $(15,837) d. Condensed Consolidated Statements of Cash Flows The company experienced a net decrease in cash, cash equivalents, and restricted cash for the six months ended June 30, 2020, primarily due to significant cash used in operating activities, partially offset by proceeds from financing activities Condensed Consolidated Statements of Cash Flows Highlights (in thousands) | Metric | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :---------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(10,096) | $(8,608) | | Net cash provided by financing activities | $5,030 | $13 | | Net change in cash, cash equivalents, and restricted cash | $(5,066) | $(8,595) | | Cash, cash equivalents, and restricted cash at end of period | $62,491 | $50,793 | - Cash used in operating activities increased by $1.5 million (17.3%) year-over-year, driven by ramp-up in clinical trials and the ccRCC program, partially offset by CPRIT Grant funds[134] - Financing activities provided $5.0 million in cash in 2020, primarily from a private placement of common stock, a significant increase from $13 thousand in 2019[135] e. Notes to Condensed Consolidated Financial Statements The notes provide detailed context for the financial statements, covering the company's business, accounting policies, liquidity challenges, and specific financial instrument details, including the impact of the COVID-19 pandemic and an impairment charge related to a sublease default - Aravive, Inc. is a clinical-stage oncology company developing AVB-500, a lead product candidate targeting the GAS6-AXL signaling pathway for life-threatening diseases[15][16] - AVB-500 has completed Phase 1 and Phase 1b portions of a Phase 1b/2 trial for platinum-resistant ovarian cancer (PROC) with a favorable safety profile and demonstrated proof of mechanism. The FDA granted Fast Track designation for AVB-500 in PROC and cleared an IND for clear cell renal cell carcinoma (ccRCC)[18][94] - The COVID-19 pandemic has led to business continuity plans, amendment of the ccRCC trial to initiate at a higher dose, and termination of the IgA nephropathy (IgAN) trial to focus on oncology, with potential for significant disruptions to clinical development timelines[19][96] - The company incurred an accumulated deficit of $486.0 million as of June 30, 2020, and expects to continue incurring losses, requiring additional financing beyond the next 12 months to advance clinical programs[26][151][156] - An impairment charge of approximately $2.9 million was recognized for right-of-use and leasehold improvement assets due to the sublease tenant, EVA Automation, Inc., defaulting on future rental payments for the 1020 Marsh Road facility[43][68][120] Stock-Based Compensation Expense (in thousands) | Operating Expenses | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | | :--------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $135 | $112 | $256 | $198 | | General and administrative | $353 | $829 | $949 | $1,791 | | Total | $488 | $941 | $1,205 | $1,989 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, operational highlights, and future outlook, emphasizing the progress of its lead product candidate AVB-500, the financial impact of the COVID-19 pandemic, and the company's liquidity and capital needs Overview Aravive is a clinical-stage oncology company focused on developing AVB-500, a decoy protein targeting the GAS6-AXL pathway. The company has completed Phase 1b/2 trials for ovarian cancer and received IND clearance for ccRCC, while adapting its clinical programs due to the COVID-19 pandemic - AVB-500 is an ultrahigh-affinity decoy protein targeting the GAS6-AXL signaling pathway, crucial for promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression[92] - The Phase 1b portion of the Phase 1b/2 clinical trial for AVB-500 in platinum-resistant ovarian cancer was successfully completed in July 2020, and an IND application for clear cell renal cell carcinoma (ccRCC) was cleared in January 2020[94] - The company amended its ccRCC trial to initiate treatment at a higher dose and terminated the IgA nephropathy (IgAN) trial to prioritize oncology, acknowledging potential delays due to COVID-19[96] Recent Developments Recent developments include a $5.0 million investment from Eshelman Ventures, LLC, and the successful completion of the Phase 1b clinical trial for AVB-500 in platinum-resistant ovarian cancer, which established the recommended Phase 2 dose (RP2D) and showed promising preliminary efficacy and safety data - Eshelman Ventures, LLC purchased 931,098 shares of common stock for approximately $5.0 million in April 2020[98] - The Phase 1b trial of AVB-500 in platinum-resistant ovarian cancer demonstrated a favorable safety profile with no dose-limiting toxicities. Pharmacokinetic data supported 15 mg/kg as the Recommended Phase 2 Dose (RP2D)[99][100] - Preliminary efficacy in the 10 mg/kg cohort showed a 31% Objective Response Rate (ORR) with AVB-500 plus PAC, improving to 50% for patients achieving minimal efficacious concentration (MEC). The 15 mg/kg cohort showed clinical benefit in all 5 evaluable patients (1 CR, 2 PR, 2 SD)[101][111] - AVB-500 combined with paclitaxel (PAC) appeared to perform better than with pegylated liposomal doxorubicin (PLD), and showed improved clinical outcomes in patients without prior bevacizumab exposure and in late-line therapy[104][105][108] - Serum levels of soluble AXL (sAXL)/GAS6 ratio correlated with response to AVB-500, suggesting its potential as a stratification biomarker for future trials[106] Financial Overview The company generated no grant revenue in 2020, contrasting with significant grant revenue in 2019. Research and development and general and administrative expenses are detailed, along with other income/expense, net, which was impacted by a sublease receivable write-down - No grant revenue was generated for the three and six months ended June 30, 2020, compared to $3.1 million and $4.8 million, respectively, in 2019, due to the termination of the CPRIT Grant[112][123] - Research and development expenses decreased by 31% for the three months and 7% for the six months ended June 30, 2020, primarily due to the timing of clinical trials and temporary holds on programs due to COVID-19[124] - General and administrative expenses decreased by 3% for the three months and 9% for the six months ended June 30, 2020, mainly due to lower stock-based compensation and reduced accounting and legal fees[125] - Other income (expense), net, increased by $59 thousand for the three months ended June 30, 2020, but showed an overall increase in expense for the six months due to a $1.4 million write-down of a sublease receivable and capitalized commission charges related to the EVA sublease[117][128] Critical Accounting Policies, Significant Judgments and Use of Estimates The company's financial statements rely on estimates and judgments, particularly concerning the impairment of long-lived assets. A significant impairment charge of approximately $2.9 million was recorded in Q1 2020 due to the sublease tenant's default, necessitating a discounted cash flow analysis to determine fair value - The company recognized a $2.9 million impairment charge on right-of-use and leasehold improvement assets in Q1 2020 after its sublease tenant, EVA Automation, Inc., indicated inability to pay future rental payments and intent to exit the sublease[120][126] - The impairment was measured using a discounted cash flow analysis, with key estimates including current real estate market rates, time to sublet, and a 9.5% discount rate[121] Results of Operations A detailed comparison of financial results for the three and six months ended June 30, 2020, versus 2019, highlighting the absence of grant revenue, decreases in R&D and G&A expenses, and the impact of the long-lived asset impairment and changes in other income/expense Key Financial Performance Changes (YoY, in thousands) | Metric | Three Months Ended June 30, 2020 vs 2019 | Six Months Ended June 30, 2020 vs 2019 | | :----------------------------------- | :--------------------------------------- | :------------------------------------- | | Grant revenue | $(3,054) (-100%) | $(4,753) (-100%) | | Research and development | $(1,115) (-31%) | $(471) (-7%) | | General and administrative | $(90) (-3%) | $(730) (-9%) | | Loss on impairment of long-lived assets | $— (N/A) | $2,870 (N/A) | | Loss from operations | $1,849 (48%) | $6,422 (67%) | | Interest income | $(207) (-89%) | $(336) (-58%) | | Other income (expense), net | $59 (10%) | $(1,331) (-104%) | | Net loss | $1,997 (66%) | $8,089 (104%) | Liquidity and Capital Resources The company's liquidity is supported by $60.1 million in cash and cash equivalents as of June 30, 2020, projected to sustain operations for at least 12 months. However, substantial additional financing will be required for future clinical development and commercialization, with risks including the impact of the COVID-19 pandemic and the default of a sublease tenant - As of June 30, 2020, the company had approximately $60.1 million in cash and cash equivalents, primarily invested in money market funds[129] - Existing cash and cash equivalents are believed to be sufficient for at least the next 12 months, but additional financing is needed for later-stage clinical development and commercialization of AVB-500[130] - Future financing requirements are dependent on factors such as clinical study progress and costs, regulatory approvals, manufacturing scale-up, commercialization, intellectual property, and the impact of the COVID-19 pandemic[130] - The default by sublease tenant EVA Automation, Inc. on rent payments could adversely impact the company's cash position and liquidity if a replacement subtenant is not found[131] Cash Flows Net cash used in operating activities increased to $10.1 million for the six months ended June 30, 2020, driven by increased clinical trial activities, while financing activities provided $5.0 million, primarily from a private placement of common stock Net Cash Flows (Six Months Ended June 30, in thousands) | Activity | 2020 | 2019 | | :----------------------- | :---------- | :---------- | | Operating activities | $(10,096) | $(8,608) | | Financing activities | $5,030 | $13 | | Net decrease in cash | $(5,066) | $(8,595) | - The increase in cash used in operating activities in 2020 was primarily due to the ramp-up in clinical trials and the initiation of treatment for the ccRCC indication, partially offset by CPRIT Grant funds[134] - Financing activities in 2020 were significantly boosted by $4.9 million from a private placement of common stock[135] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposure is to interest rate fluctuations, as its cash and cash equivalents are invested in highly liquid U.S. money market funds. Due to the short-term nature of these investments, the company believes its exposure to interest rate risk is not significant - The company's investment objective is to preserve capital and maximize income from cash and cash equivalents, primarily through investments in highly liquid U.S. money market funds[138] - As of June 30, 2020, cash and cash equivalents totaled approximately $60.1 million. Due to the short-term duration of investments, exposure to interest rate risk is considered not significant[138] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, and there were no material changes in internal control over financial reporting during the quarter. The company acknowledges the inherent limitations of any control system - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2020, ensuring timely and accurate reporting of required information[140] - No material changes in internal control over financial reporting occurred during the quarter ended June 30, 2020[141] - The company recognizes that control systems provide reasonable, not absolute, assurance and are subject to inherent limitations[142] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - Aravive, Inc. is not currently subject to any material legal proceedings[144] Item 1A. Risk Factors This section updates and reiterates significant risks associated with investing in the company, including the adverse impacts of the COVID-19 pandemic on clinical trials and operations, the company's history of losses and need for future financing, the financial implications of a sublease default, and the inherent volatility of its common stock Risks Related to Financial Position and Capital Requirements Key risks include the potential for severe disruptions to clinical trials and business operations due to the COVID-19 pandemic, the company's history of significant operating losses and the uncertainty of achieving profitability, and the critical need for additional funding which may not be available on favorable terms, potentially leading to delays or suspension of development programs. The default by a sublease tenant also poses a significant financial risk - The COVID-19 pandemic poses severe risks to clinical trials, including delays in patient enrollment, site initiation, diversion of healthcare resources, travel limitations, employee absenteeism, and potential regulatory delays or data acceptance issues[147] - The company has incurred significant operating losses since inception, with an accumulated deficit of approximately $486.0 million as of June 30, 2020, and expects to continue incurring substantial losses for the foreseeable future[151][155] - Additional funds are required to complete the development and commercialization of AVB-500 and future product candidates, and failure to secure financing could lead to delays, reductions, or suspensions of research and development programs[156][158] - The default by EVA Automation, Inc. on its sublease payment obligations for the 1020 Marsh property, totaling approximately $9.8 million in aggregate base rent, could significantly reduce or eliminate sublease income and adversely affect the company's cash position[159] Risks Related to Our Business Reliance on government funding, specifically the CPRIT Grant, imposes specific requirements and potential financial penalties, including repayment obligations if certain covenants, such as maintaining operations in Texas, are violated, which could materially affect the business - The CPRIT Grant includes provisions for repayment of grant proceeds under certain circumstances, such as relocation of the principal place of business outside Texas, and requires the company to ensure new or expanded preclinical testing, clinical trials, commercialization, or manufacturing related to the project take place in Texas[160] - Failure to comply with CPRIT Grant requirements could result in significant expenses, including the potential repayment of the full grant amount[162] Risks Related to the Ownership of Our Common Stock The company's stock price has been and is expected to remain volatile, influenced by numerous factors including clinical trial results, regulatory developments, competition, and broader market conditions, particularly the ongoing COVID-19 pandemic. This volatility could lead to substantial losses for investors and potential class-action litigation. Additionally, current executive officers, directors, and principal stockholders maintain significant control over company matters - The company's stock price has experienced significant volatility, fluctuating between $3.07 and $144.00 per share from January 1, 2015, through June 30, 2020, with recent declines attributed to broad market and industry fluctuations, including the COVID-19 pandemic[163] - Factors influencing stock price volatility include investor reaction to business strategy and clinical data, success of competitive products, regulatory developments, financial results, collaborations, intellectual property disputes, capital raising efforts, and general economic conditions, including public health issues like COVID-19[163] - Current executive officers, directors, and principal stockholders collectively owned approximately 24.5% of the common stock as of June 30, 2020, giving them significant influence over matters submitted to stockholders for approval[166] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications from the CEO and CFO, XBRL documents, and various agreements such as the Investment Agreement and Option Agreements - Exhibits include certifications (Sarbanes-Oxley Act Sections 302 and 906) from the Chief Executive Officer and Chief Financial Officer, XBRL Instance Document and Taxonomy Extensions, and various agreements such as the Investment Agreement dated April 6, 2020[168][169] Signatures The report is duly signed on behalf of Aravive, Inc. by its Chief Executive Officer, Gail McIntyre, and Chief Financial Officer, Vinay Shah, as of August 3, 2020 - The report was signed by Gail McIntyre, Chief Executive Officer, and Vinay Shah, Chief Financial Officer, on August 3, 2020[172]