Aerovate Therapeutics(AVTE) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION 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) 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 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 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) 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][58] - 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][59] - 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][27] Condensed Consolidated Statements of Cash Flows 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 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] - 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] - 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][38] 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][70] - 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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] - 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] - 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][105] - 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] 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 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] - 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] - 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] Item 4. Controls and Procedures 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] - 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] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, and other disclosures relevant to the company's operations Item 1. Legal Proceedings 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] Item 1A. Risk Factors 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][139] - 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] - 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][154] - 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][162] - 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][224] - 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][241] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] - 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][390] - 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] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities during the period - The company reported no defaults upon senior securities[390] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[390] Item 5. Other Information The company reported no other information for this period - The company reported no other information for this period[390] Item 6. Exhibits 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] 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]