Aravive(ARAV) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Unaudited Q3 2023 financial statements reflect significant distress and substantial doubt about the company's ability to continue as a going concern Condensed Consolidated Balance Sheets As of September 30, 2023, the company's financial position significantly weakened, marked by plummeting cash and total assets Condensed Consolidated Balance Sheet Highlights (in thousands) | Financial Metric | Sep 30, 2023 (unaudited) | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $8,535 | $53,689 | | Total current assets | $9,562 | $57,970 | | Total assets | $13,049 | $62,153 | | Liabilities & Equity | | | | Total current liabilities | $9,777 | $22,112 | | Warrant liability | $1,265 | $26,881 | | Total liabilities | $11,348 | $51,496 | | Accumulated deficit | $(626,849) | $(616,127) | | Total stockholders' equity | $1,701 | $10,657 | Condensed Consolidated Statements of Operations For the third quarter of 2023, Aravive reported net income primarily due to a non-cash gain from warrant liability, masking a substantial operating loss Operating Results (in thousands, except per share data) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Collaboration Revenue | $2,756 | $4,956 | $5,520 | $7,663 | | Research and development | $8,730 | $18,668 | $35,435 | $48,985 | | General and administrative | $2,940 | $2,836 | $9,499 | $9,651 | | Loss from operations | $(8,914) | $(16,548) | $(39,414) | $(50,973) | | Change in fair value of warrant liability | $29,231 | $— | $25,616 | $1,410 | | Net income (loss) | $21,226 | $(15,663) | $(10,722) | $(47,197) | | Basic EPS | $0.28 | $(0.51) | $(0.14) | $(1.72) | Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities was $45.2 million, with negligible financing activities Cash Flow Summary (in thousands) | Cash Flow Activity | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(45,216) | $(50,843) | | Net cash provided by financing activities | $25 | $19,320 | | Net change in cash, cash equivalents, and restricted cash | $(45,191) | $(31,523) | | Cash, cash equivalents, and restricted cash at end of period | $10,943 | $30,332 | Notes to Condensed Consolidated Financial Statements The notes provide critical details, including the failure of the Phase 3 AXLerate-OC trial, leading to substantial doubt about going concern - In August 2023, the company's Phase 3 AXLerate-OC trial for its sole product candidate, batiraxcept, failed to meet its primary endpoint. This led to a significant reduction in force and the company is now exploring strategic alternatives, including potential liquidation or bankruptcy[21] - The company has concluded there is substantial doubt about its ability to continue as a going concern. Its cash balance of $5.1 million as of October 31, 2023, is not sufficient to fund operations, and if additional capital is not raised, it will be forced to cease operations and liquidate[26] - Due to the termination of the Phase 3 PROC trial in August 2023, all remaining deferred revenue associated with the 3D Medicines agreement was recognized during the third quarter[94] - On August 18, 2023, the Board approved a workforce reduction of approximately 70%, incurring costs of about $1.2 million in severance and accrued paid time off[103][105] - On October 2, 2023, stockholders approved proposals to potentially transfer all assets through an assignment for the benefit of creditors or to voluntarily dissolve and liquidate the company[135] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion confirms the company's dire situation following the Phase 3 trial failure, leading to workforce reduction and going concern doubt Recent Clinical Developments In August 2023, the Phase 3 AXLerate-OC trial for batiraxcept failed, leading to program termination and exploration of strategic alternatives - The Phase 3 AXLerate-OC trial for batiraxcept in PROC did not meet its primary endpoint of progression-free survival (PFS)[138] - To preserve cash, the company has terminated its P1b/P2 trials in ccRCC and pancreatic adenocarcinoma and will not continue these programs without additional capital[140] - On August 18, 2023, the company implemented a workforce reduction of approximately 70% to conserve cash following the clinical trial failure[143] Results of Operations Comparing Q3 2023 to Q3 2022, collaboration revenue decreased, R&D expenses fell, and total other income significantly increased due to warrant liability gain Comparison of Operating Results (in thousands) | Metric | Q3 2023 | Q3 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Collaboration Revenue | $2,756 | $4,956 | -44% | | Research and development | $8,730 | $18,668 | -53% | | General and administrative | $2,940 | $2,836 | 4% | | Loss from operations | $(8,914) | $(16,548) | -46% | - The decrease in R&D expenses was primarily driven by reduced CRO costs and manufacturing expenses after all clinical studies were terminated in August 2023[165] - Total other income increased by $29.3 million in Q3 2023, mainly due to a $29.2 million gain on the fair value of warrant liabilities resulting from a decrease in the company's stock price[169] Liquidity and Capital Resources The company's liquidity is critical, with cash insufficient to sustain operations beyond Q4 2023, raising substantial doubt about its going concern status - As of October 31, 2023, the company had cash and cash equivalents of approximately $5.1 million, which is not sufficient to sustain operations beyond Q4 2023[171] - The company's financial condition raises substantial doubt about its ability to continue as a going concern. If it cannot raise capital or find a strategic partner, it will be forced to cease operations and liquidate[172] - Net cash used in operating activities for the nine months ended September 30, 2023, was $45.2 million, funded by existing cash reserves as financing activities were negligible[176] Item 3. Quantitative and Qualitative Disclosures about Market Risk Aravive, Inc. is classified as a smaller reporting company and is therefore not required to provide the information requested under this item - As a smaller reporting company, Aravive is not required to provide quantitative and qualitative disclosures about market risk[179] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded the company's disclosure controls and procedures were effective as of September 30, 2023 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of September 30, 2023[180] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal controls[181] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of the report date, Aravive, Inc. is not subject to any material legal proceedings - The company is not currently subject to any material legal proceedings[184] Item 1A. Risk Factors The risk factors highlight the company's precarious position due to the failure of its sole product candidate and substantial doubt about going concern Risks Related To Clinical Trials and Strategic Alternatives The company's viability is at extreme risk following the failure of its only product candidate, leading to program cessation and uncertain strategic alternatives - Following the failure of the Phase 3 PROC trial, the company has terminated all clinical programs for its only product candidate, batiraxcept, and cannot fund further development[187][189] - The company is exploring strategic alternatives, but if it fails to raise capital or engage a partner, it will be forced to cease operations, liquidate assets, and possibly seek bankruptcy[188] - If a strategic transaction is not completed, the Board may pursue dissolution and liquidation, and the cash available for distribution to stockholders is uncertain and could be zero[197] Risks Related to Financial Position and Capital Requirements The company faces a severe liquidity crisis, with substantial doubt about its ability to continue as a going concern and insufficient cash reserves - There is substantial doubt about the company's ability to continue as a going concern, as it does not have adequate financial resources to fund operations for the next twelve months[201] - Existing cash is not sufficient to fund operations beyond the fourth quarter of 2023, and the company will need to raise additional capital to avoid a wind-down and dissolution[203] - As of September 30, 2023, the company had an accumulated deficit of approximately $626.8 million and expects to continue incurring significant losses[206] Risks Related to Stock Listing and Ownership The company is at risk of Nasdaq delisting due to non-compliance with listing requirements and faces high stock ownership concentration - On September 15, 2023, the company received three non-compliance notices from Nasdaq for failing to meet continued listing requirements, including the $1.00 minimum bid price[210] - As of November 3, 2023, the Executive Chairman, Dr. Fredric N. Eshelman, beneficially owns 47.1% of the company's common stock, giving him significant influence over all matters submitted to stockholders[216] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate bylaws and CEO/CFO certifications - The exhibits filed with the report include corporate governance documents and certifications by the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[218] Signatures The quarterly report was duly signed and authorized on November 9, 2023, by the Chief Executive Officer and Chief Financial Officer - The report was signed on November 9, 2023, by the company's Chief Executive Officer and Chief Financial Officer[220]