PART I—FINANCIAL INFORMATION Financial Statements The company reported increased net losses for Q3 and the nine months ended September 30, 2021, with an accumulated deficit of $613.7 million, while total assets increased to $490.6 million and cash decreased to $332.7 million Condensed Consolidated Balance Sheets As of September 30, 2021, total assets increased to $490.6 million, driven by operating lease assets, while cash decreased to $332.7 million, and total liabilities rose sharply to $144.6 million Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash, cash equivalents & short-term investments | $332,705 | $429,729 | | Operating lease right-of-use assets | $100,174 | $19,376 | | Total assets | $490,581 | $482,567 | | Liabilities & Equity | | | | Lease liability (current & non-current) | $122,365 | $30,708 | | Total liabilities | $144,581 | $48,220 | | Accumulated deficit | $(613,667) | $(502,536) | | Total stockholders' equity | $346,000 | $434,347 | Condensed Consolidated Statements of Operations and Comprehensive Loss Net loss increased to $38.4 million for Q3 2021 and $111.1 million for the nine-month period, primarily due to higher R&D and G&A expenses, partially offset by $7.5 million in license revenue Statement of Operations Summary (in thousands) | Metric | Q3 2021 | Q3 2020 | Nine Months 2021 | Nine Months 2020 | | :--- | :--- | :--- | :--- | :--- | | License Revenue | $0 | $0 | $7,500 | $0 | | Research and Development | $24,069 | $16,653 | $66,657 | $50,581 | | General and Administrative | $14,453 | $11,351 | $52,546 | $30,989 | | Operating Loss | $(38,522) | $(28,004) | $(111,703) | $(81,570) | | Net Loss | $(38,362) | $(27,769) | $(111,131) | $(79,875) | | Net Loss per Share | $(0.39) | $(0.31) | $(1.13) | $(0.99) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities increased to $82.0 million for the nine months ended September 30, 2021, while investing activities provided $54.8 million, and financing activities provided $2.0 million Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(82,016) | $(57,067) | | Net cash provided by (used in) investing activities | $54,826 | $(291,743) | | Net cash provided by financing activities | $2,022 | $355,609 | | Net (decrease) increase in cash | $(25,168) | $6,799 | Notes to Condensed Consolidated Financial Statements The notes highlight the company's clinical-stage status, accumulated deficit of $613.7 million, sufficient cash runway, and significant events including license revenue and new lease agreements with related impairment charges - The company is a clinical-stage gene therapy company with an accumulated deficit of $613.7 million as of September 30, 20212728 - Management believes its cash, cash equivalents, and short-term investments of $332.7 million are sufficient to fund operations for at least twelve months from the financial statement issuance date28 - In January 2021, the company recognized $7.5 million in non-refundable upfront license revenue from an agreement with Lexeo Therapeutics4041 - The company recorded a $1.1 million impairment charge related to right-of-use assets and leasehold improvements for a terminated lease in Redwood City44 - The company entered into a new lease for a facility in North Carolina and subsequently subleased it, determining there was no impairment as the undiscounted sublease income exceeds the asset group's carrying amount4850 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the strategic shift to focus ADVM-022 on wet AMD after discontinuing the DME program due to toxicity, noting increased operating losses from higher R&D and G&A expenses, and confirming sufficient cash to fund operations into 2024 - The company is focusing on developing ADVM-022 for wet age-related macular degeneration (wet AMD) and has discontinued development for diabetic macular edema (DME)6366 - The decision to halt the DME program followed a dose-limiting toxicity observed at the high dose (6 x 10^11 vg/eye) in the Phase 2 INFINITY trial, with plans for a new Phase 2 trial in wet AMD to evaluate lower doses6667 - Reflecting revised timelines and capital priorities, the company has subleased its new GMP manufacturing facility in Durham, North Carolina, and will rely on existing contract manufacturing partners68 Comparison of Operating Expenses (in thousands) | Expense Category | Nine Months 2021 | Nine Months 2020 | Change | | :--- | :--- | :--- | :--- | | Research and development | $66,657 | $50,581 | $16,076 | | General and administrative | $52,546 | $30,989 | $21,557 | - The increase in G&A expenses for the nine months ended Sep 30, 2021 was primarily due to a $9.3 million increase in personnel costs, $6.6 million in professional services (mainly for a proxy contest), and costs related to new leases and asset impairment100 - As of September 30, 2021, the company had $332.7 million in cash, cash equivalents, and short-term investments, which is expected to fund operations into 2024103 Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes in foreign currency exchange and interest rate risks for the nine months ended September 30, 2021 - No material changes in foreign currency exchange and interest rate risks were reported for the nine months ended September 30, 2021118 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal control over financial reporting during the quarter - The CEO and Interim CFO concluded that as of September 30, 2021, the company's disclosure controls and procedures were effective120 - No material changes to internal control over financial reporting occurred during the third quarter of 2021121 PART II—OTHER INFORMATION Legal Proceedings The company reported no material legal proceedings during the period - Not applicable125 Risk Factors This section outlines significant financial, clinical development, manufacturing, intellectual property, commercialization, and operational risks, including dependence on ADVM-022 and challenges inherent in gene therapy Risks Related to Financial Position and Need for Capital The company faces ongoing significant operating losses and requires substantial additional capital for clinical development and commercialization, with no guarantee of availability or favorable terms - The company has incurred significant operating losses since inception and expects them to continue for the foreseeable future, with no guarantee of ever achieving profitability127 - The company will need to raise substantial additional capital to fund operations, and failure to do so could force it to delay, reduce, or eliminate research and development programs130 Risks Related to Discovery and Development The business is highly dependent on ADVM-022, facing long, expensive, and uncertain gene therapy development, with risks of serious side effects, program discontinuation, and unpredictable timelines due to novel technology - The business heavily depends on the success of one or more product candidates, primarily ADVM-022, and failure to develop, get approval for, or commercialize it would materially harm the business137 - Serious complications or side effects, such as the dose-limiting toxicity observed in the INFINITY trial, could lead to discontinuation of clinical programs or refusal of regulatory approval143 - The company's gene therapy platform is a novel technology, making it difficult to predict the time, cost, and regulatory pathway for development and approval151152 Risks Related to Manufacturing The company faces significant manufacturing risks, including challenges in developing robust processes, reliance on limited third-party contractors, and the inherent complexity of gene therapy production at commercial scale - Inability to develop and maintain robust and reliable manufacturing processes could delay clinical trials and force program termination168 - The company relies on a limited number of vendors, including single-source vendors, for manufacturing, who may not meet regulatory requirements or have sufficient capacity175 - Gene therapy manufacturing is novel and complex, with few specialized contract manufacturers, increasing the risk of supply shortages and delays174 Risks Relating to Intellectual Property The company's success hinges on obtaining and maintaining intellectual property protection, facing risks of insufficient patent coverage, reliance on potentially terminable third-party licenses, and potential infringement claims - Commercial success depends on protecting intellectual property, but there is no assurance that patents will be issued or afford sufficient protection against competitors200 - The company relies on licenses from third parties (e.g., University of California, Cornell, Virovek) for key technology, and the loss of these licenses could materially harm the business214216 - Some in-licensed intellectual property was developed with U.S. government funding and is subject to federal regulations, including "march-in" rights and a preference for U.S.-based manufacturing233 Risks Related to Commercialization Commercialization risks include uncertain market acceptance, intense competition, challenges in securing adequate reimbursement for novel single-administration therapies, and the company's lack of sales and marketing capabilities - Even with regulatory approval, product candidates may not gain market acceptance among physicians, patients, and payers, which is critical for commercial success240 - The company faces intense competition from well-established therapies like EYLEA and LUCENTIS, as well as other gene therapy companies like REGENXBIO243245 - The company faces uncertainty related to pricing and reimbursement, as its product candidates are designed for single administration, and obtaining adequate coverage is crucial but not guaranteed271 Risks Related to Business Operations Operational risks include negative public perception of gene therapy, dependence on key personnel, growth management challenges, COVID-19 impacts, cybersecurity threats, and compliance with complex healthcare and privacy laws - Negative public opinion and increased regulatory scrutiny of gene therapy, potentially fueled by adverse events in the field, could damage perception of the company's products and delay approvals277279 - The COVID-19 pandemic has impacted business practices and may continue to affect clinical trials, supply chains, and regulatory processes, with the full extent of future impact remaining uncertain284290 - The company is subject to evolving and stringent privacy and data security laws (HIPAA, CCPA, GDPR), and failure to comply could result in significant fines, litigation, and reputational damage303306308 Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period - None338 Defaults Upon Senior Securities The company reported no defaults upon senior securities - None340 Mine Safety Disclosures This item is not applicable - Not applicable341 Other Information On November 1, 2021, the company terminated a building lease for a $0.4 million fee and concurrently subleased a portion of the premises to Revolution Medicines, Inc - On November 1, 2021, the company amended a lease to terminate one of its buildings, paying a $0.4 million fee343 - Concurrently, the company subleased a portion of the terminated premises to Revolution Medicines, Inc. for a monthly base rent of $0.1 million343 Exhibits This section lists exhibits filed with the Form 10-Q, including separation and consulting agreements and required officer certifications - Exhibits filed include separation and consulting agreements with Angela Thedinga, and CEO/CFO certifications as required by Sarbanes-Oxley346
Adverum Biotechnologies(ADVM) - 2021 Q3 - Quarterly Report