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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission file number 001-34655
AVEO PHARMACEUTICALS, INC.
(Exact name of registrant as specified in its charter)
Delaware04-3581650
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
30 Winter Street, Boston, Massachusetts 02108
(Address of principal executive offices) (Zip Code)
(857) 400-0101
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par valueAVEONasdaq Capital Market
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated fileroAccelerated filero
Non-accelerated filerxSmaller reporting companyx
Emerging growth companyo
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on November 1, 2021: 34,373,995


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AVEO PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
Page
No.
 
Condensed Consolidated Balance Sheets as of September 30, 2021 and December 31, 2020
Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, June 30 and September 30, 2021 and the Three Months Ended March 31, June 30 and September 30, 2020
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2021 and 2020
Item 6.
Exhibits
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Cautionary Note Regarding Forward-Looking Statements and Industry Data
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements other than statements of historical fact contained in this report are statements that could be deemed forward-looking statements, including, without limitation, statements with respect to the plans, strategies and objectives of management for future operations; statements concerning product research, development and commercialization plans, timelines and anticipated results; statements of expectation or belief; statements with respect to clinical trials and studies; statements with respect to the therapeutic potential of product candidates; any expectations of revenue, expenses, earnings or losses from operations, or other financial results; and statements of assumptions underlying any of the foregoing. Without limiting the foregoing, the words “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “seeks”, “will”, “strategy”, “potential”, “should”, “would” and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements may include, but are not limited to, statements about:
our plans surrounding the launch and commercialization of FOTIVDA;
our plans to develop our clinical stage assets and commercialize our product candidates;
our manufacturing, marketing and sales capabilities and strategy;
the rate and degree of market acceptance and clinical utility of our products;
the initiation, timing, progress and results of future clinical trials, and our development programs;
our ability to secure new collaborations, maintain existing collaborations or obtain additional funding;
our intellectual property position;
the potential of ficlatuzumab, AV-380 or other product candidates that we in-license, or may elect to in-license, or may acquire in the future;
the timing or likelihood of regulatory filings and approvals;
the implementation of our business model, strategic plans for our business, product candidates and technology;
our competitive position;
developments and projections relating to our competitors and our industry;
impacts resulting from the COVID-19 pandemic and responsive actions relating thereto;
macroeconomic impacts arising from the duration of the COVID-19 pandemic, including supply chain disruptions;
our estimates of the period in which we anticipate that existing cash, cash equivalents and investments will enable us to fund our current and planned operations; and
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.
Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. We therefore caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in these forward-looking statements include the factors discussed below under the heading “Risk Factor Summary,” and the risk factors detailed further in Item 1A., “Risk Factors” of Part I of this report and in our U.S. Securities and Exchange Commission reports filed after this report.
This report also includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates. All of the market data used in this report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
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The forward-looking statements included in this quarterly report represent our estimates as of the filing date of this quarterly report. We specifically disclaim any obligation to update these forward-looking statements in the future. These forward-looking statements should not be relied upon as representing our estimates or views as of any date subsequent to the date of this quarterly report.
Risk Factor Summary
Investment in our securities involves risk. You should carefully consider the following summary of what we believe to be the principle risks facing our business, in addition to the risks described more fully in Item 1A., “Risk Factors” of Part I of this Quarterly Report on Form 10-Q and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
If any of the following risks occur, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.
We have incurred significant operating losses, anticipate that we will continue to incur significant operating expenses for the foreseeable future and may never generate significant revenue or achieve or sustain profitability.
We may require substantial additional funding to advance our pipeline of clinical stage assets, and if we are unable to obtain this necessary capital when needed, we could be forced to delay, limit, reduce or terminate our research, product development or commercialization efforts.
We have only recently transitioned from a development stage biopharmaceutical company to a commercial stage biopharmaceutical company, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We depend heavily on the success of our commercial product, FOTIVDA, and on our clinical stage assets, including tivozanib (in other indications), ficlatuzumab, AV-380 and AV-203. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize our product candidates, our business will be materially harmed.
The COVID-19 pandemic has adversely disrupted our ability to commercialize FOTIVDA, to manufacture clinical product and to initiate new trials or complete ongoing clinical trials and may have other adverse effects on our business and operations.
If we or our collaborators experience delays or difficulties in the enrollment of patients in clinical trials, receipt of necessary regulatory approvals could be delayed or prevented.
If clinical trials of any product candidates that we, or any collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
We face substantial competition from existing approved products and our competitors may also discover, develop or commercialize new competing products before, or more successfully, than we do.
Adverse events or undesirable side effects caused by, or other unexpected properties of, product candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use.
We rely in part on third parties to produce our preclinical and clinical product candidate supplies and to conduct clinical trials of our internally-developed product candidates, and those third parties may not perform satisfactorily, including by failing to deliver supplies on time or to meet deadlines for the completion of such trials, research or testing.
We rely on our licensee EUSA, over whom we have little control, for the sales, marketing and distribution efforts associated with the commercialization of FOTIVDA in the countries in the EUSA territory and any failure by EUSA to devote the necessary resources and attention to market and sell FOTIVDA effectively and successfully may materially impact our ability to generate revenue.
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Any failure by a third-party manufacturer or a third-party supplier to timely produce or provide required manufacturing supplies for us or to safely store product candidate supplies and commercial supplies of FOTIVDA may delay or impair our ability to manufacture product, initiate or complete our clinical trials or commercialize our product candidates.
We may not be successful in establishing or maintaining strategic partnerships to further the development of our therapeutic programs. Additionally, if any of our current or future strategic partners fails to perform its obligations or terminates the partnership, the development and commercialization of the product candidates under such agreement could be delayed or terminated and, such failures or terminations could have a material adverse effect on our operations and business.
We could be unsuccessful in obtaining or maintaining adequate patent protection for one or more of our product candidates, or the scope of our patent protection could be insufficiently broad, which could result in competition and a decrease in the potential market share for our product candidates.
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
September 30,
2021
December 31,
2020
Assets
Current assets:
Cash and cash equivalents$68,840 $61,761 
Marketable securities25,176  
Trade receivables, net8,303  
Partnership receivables1,205 1,197 
Inventory1,252  
Clinical trial retainers881 355 
Other prepaid expenses and other current assets2,320 2,195 
Total current assets107,977 65,508 
Property and equipment, net292 343 
Operating lease right-of-use asset560 903 
Other assets258 158 
Total assets$109,087 $66,912 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable$4,925 $3,380 
Accrued clinical trial costs and contract research6,534 4,550 
Other accrued liabilities9,484 4,463 
Operating lease liability361 369 
Loans payable, net of discount 1,056 
Deferred revenue1,072 1,974 
Deferred research and development reimbursements 164 
    PIPE Warrant liability 199 
Other liabilities (Note 6) 790 
Total current liabilities22,376 16,945 
Loans payable, net of current portion and discount33,026 12,716 
Deferred revenue, non-current 578 
Operating lease liability, non-current19 336 
Other liabilities, non-current (Note 6)2,432 1,043 
Total liabilities57,853 31,618 
Stockholders’ equity:
Preferred stock, $.001 par value: 5,000 shares authorized at September 30, 2021 and December 31, 2020; no shares issued and outstanding at each of September 30, 2021 and December 31, 2020
  
Common stock, $.001 par value: 50,000 shares authorized at September 30, 2021 and December 31, 2020; 34,374 shares issued and outstanding at September 30, 2021 and 26,883 issued and outstanding at December 31, 2020
34 27 
Additional paid-in capital718,494 656,472 
Accumulated other comprehensive income(2) 
Accumulated deficit(667,292)(621,205)
Total stockholders’ equity51,234 35,294 
Total liabilities and stockholders’ equity$109,087 $66,912 
See accompanying notes.
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Operations
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Revenues:
FOTIVDA U.S. product revenue, net$14,318 $ $22,119 $ 
Partnership licensing and royalty revenue855 3,600 2,530 5,133 
15,173 3,600 24,649 5,133 
Operating expenses:
Cost of products sold1,744  2,704  
Research and development7,502 5,860 20,177 18,105 
Selling, general and administrative15,142 5,800 45,162 13,209 
24,388 11,660 68,043 31,314 
Loss from operations(9,215)(8,060)(43,394)(26,181)
Other income (expense), net:
Interest expense, net(1,153)(419)(2,892)(1,083)
Change in fair value of PIPE Warrant liability 86 199 3,184 
(1,153)(333)(2,693)2,101 
Net loss$(10,368)$(8,393)$(46,087)$(24,080)
Net loss per share - basic and diluted$(0.30)$(0.33)$(1.44)$(1.22)
Weighted average number of common shares outstanding34,374 25,808 32,081 19,773 
See accompanying notes.
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
Net loss$(10,368)$(8,393)$(46,087)$(24,080)
Other comprehensive income (loss):
Unrealized gain (loss) on available-for-sale securities(2)2 (2)1 
Comprehensive loss$(10,370)$(8,391)$(46,089)$(24,079)
See accompanying notes.
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common Shares
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders'
Equity
SharesPar Value
Balance at December 31, 2020
26,883 $27 $656,472 $ $(621,205)$35,294 
Issuance of common stock in a public offering (net of issuance costs of $3.5 million)
6,900 7 51,711 — — 51,718 
Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.1 million)
331 — 3,377 — — 3,377 
Issuance of common stock in connection with warrant exercises
247 — 3,092 — — 3,092 
Stock-based compensation expense related to equity- classified awards
— — 1,204 — — 1,204 
Net loss— — — — (22,122)(22,122)
Balance at March 31, 2021
34,361 $34 $715,856 $ $(643,327)$72,563 
Stock-based compensation expense related to equity-classified awards
— — 1,169 — — 1,169 
Issuance of common stock under employee stock purchase plan
13 — 68 — — 68 
Net loss— — — — (13,597)(13,597)
Balance at June 30, 202134,374 $34 $717,093 $ $(656,924)$60,203 
Stock-based compensation expense related to equity-classified awards
1,401 1,401 
Unrealized gain on available-for-sale investments
(2)(2)
Net loss(10,368)(10,368)
Balance at September 30, 202134,374 $34 $718,494 $(2)$(667,292)$51,234 
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common Shares
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Income
Accumulated
Deficit
Total
Stockholders'
Equity
SharesPar Value
Balance at December 31, 2019
16,081 $16 $600,451 $ $(585,621)$14,846 
Stock-based compensation expense related to equity- classified awards
— — 543 — — 543 
Net loss— — — — (8,381)(8,381)
Balance at March 31, 202016,081 $16 $600,994 $ $(594,002)$7,008 
Issuance of common stock in a public offering, excluding to related parties (net of issuance costs of $3.3 million)
5,221 5 24,074 — — 24,079 
Issuance of common stock in a public offering, to related parties
4,504 5 23,639 — — 23,644 
Stock-based compensation expense related to equity-classified awards
— — 578 — — 578 
Issuance of common stock under employee stock purchase plan
2 — 18 — — 18 
Change in unrealized gain (loss) on investments
— — — (1)— (1)
Net loss— — — — (7,306)(7,306)
Balance at June 30, 202025,808 $26 $649,303 $(1)$(601,308)$48,020 
Stock-based compensation expense related to equity-classified awards— — 594 — — 594 
Change in unrealized gain (loss) on investments— — — 2 — 2 
Net loss— — — — (8,393)(8,393)
Balance at September 30, 202025,808 $26 $649,897 $1 $(609,701)$40,223 
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AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Nine Months Ended September 30,
20212020
Operating activities
Net loss$(46,087)$(24,080)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization51 9 
Stock-based compensation3,774 1,715 
Non-cash interest expense729 314 
Non-cash change in fair value of PIPE Warrant liability(199)(3,184)
Amortization of premium and discount on investments50 (99)
Changes in operating assets and liabilities:
Trade receivables, net(8,303) 
Partnership receivables(8)579 
Inventory(1,252) 
Prepaid expenses and other current assets(651)(522)
Operating lease right-of-use asset343 (1,170)
Other non-current assets(100) 
Accounts payable1,544 533 
Accrued contract research1,984 245 
Other accrued liabilities5,021 1,075 
Operating lease liability(8)436 
Deferred revenue(1,480)(1,480)
Deferred research and development reimbursements(164)147 
Operating lease liability, non-current(317)379 
Net cash used in operating activities(45,073)(25,103)
Investing activities
Purchases of marketable securities(28,128)(36,133)
Proceeds from maturities and sales of marketable securities2,900 25,200 
Purchases of property and equipment (219)
Net cash used in investing activities(25,228)(11,152)
Financing activities
Proceeds from issuance of common stock, net of issuance costs55,095 24,079 
Proceeds from issuance of common stock and warrants to related parties 23,644 
Proceeds from warrant exercises3,092  
Proceeds from issuance of stock for stock-based compensation arrangements68 18 
Proceeds from issuance of loan payable20,000 5,329 
Payment on principal of loan payable (Note 6) (6,497)
Payment of loan maturity fees (Note 6)(790) 
Payment of debt issuance costs(85)(255)
Net cash provided by financing activities77,380 46,318 
Net increase in cash and cash equivalents7,079 10,063 
Cash and cash equivalents at beginning of period61,761 29,785 
Cash and cash equivalents at end of period$68,840 $39,848 
Supplemental cash flow information
Cash paid for interest$2,035 $971 
Right-of-use asset obtained in exchange for operating lease liabilities$ $1,225 
See accompanying notes.
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AVEO Pharmaceuticals, Inc.
Notes to Condensed Consolidated Financial Statements
September 30, 2021
(1) Organization
AVEO Pharmaceuticals, Inc. (the “Company”) is a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. The Company currently markets FOTIVDA® (tivozanib) in the United States. FOTIVDA is the Company's first commercial product and was approved by the U.S. Food and Drug Administration ("FDA") for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory renal cell carcinoma (“RCC”) following two or more prior systemic therapies. The Company continues to develop tivozanib in immuno-oncology combinations in RCC and other indications, and has other investigational programs in clinical development.
FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor (“VEGFR”) tyrosine kinase inhibitor (“TKI”). The FDA approval of FOTIVDA is based on the Company’s pivotal phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which the Company refers to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.
FOTIVDA became commercially available in the United States on March 22, 2021 and is available to patients through a network of specialty pharmacies and distributors. The Company is currently commercializing FOTIVDA in the United States through the support of approximately 65 field-based employees, which includes approximately 50 oncology sales professionals calling on practicing oncologists. The field sales force is supported by the AVEO ACE Patient Support program, an extensive patient and healthcare provider support program designed to optimize patient access and help patients navigate their treatment journey.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, the Company is seeking to advance tivozanib in additional cancer indications with significant unmet medical needs. The Company is studying tivozanib in combination with immune checkpoint inhibitors for the treatment of RCC and hepatocellular carcinoma (“HCC”).
The Company opened enrollment for a phase 3 clinical trial (the "TiNivo-2 Trial") in the third quarter of 2021. The TiNivo-2 Trial is a randomized, open-label, controlled, parallel-arm, pivotal phase 3 clinical trial of tivozanib in combination with OPDIVO® (nivolumab), as compared to tivozanib as a monotherapy, in patients with advanced refractory RCC following one or two lines of prior therapy, one of which must include immunotherapy. The Company is the sponsor of the trial and Bristol-Myers Squibb Company ("BMS") is supplying nivolumab, BMS’s antibody directed against programmed death-1 (“PD-1”) therapy, for the trial. The TiNivo-2 Trial will seek to further understand the activity and tolerability of this combination following prior immunotherapy.
The Company is conducting the DEDUCTIVE trial through a drug supply and cost sharing collaboration with AstraZeneca PLC (“AstraZeneca”). The DEDUCTIVE trial is an open-label, multi-center, randomized phase 1b/2 clinical trial of tivozanib in combination with AstraZeneca's IMFINZI (durvalumab), a human monoclonal antibody directed against programmed death-ligand 1 ("PD-L1"). The DEDUCTIVE trial was amended to include patients with advanced, unresectable HCC who have progressed after first-line bevacizumab and atezolizumab treatment as well as first-line treatment of patients with advanced, unresectable HCC who have not received prior systemic therapy for metastatic disease. Enrollment for the first line cohort of the DEDUCTIVE trial is complete. Enrollment for the second line cohort is ongoing and is expected to be completed in the first half of 2022. The Company expects interim data for the first line cohort to be presented in the first half of 2022 at a scientific meeting.
FOTIVDA, through the Company’s partner EUSA Pharma (UK) Limited (“EUSA”), is also approved in the European Union (the “EU”), New Zealand and South Africa and is reimbursed in the United Kingdom, Germany, Spain and certain other countries in EUSA’s territory. FOTIVDA is approved in the EU for the first-line treatment of adult patients with advanced RCC and for adult patients who are VEGFR and mTOR pathway inhibitor-naïve following disease progression after one prior treatment with cytokine therapy for advanced RCC. FOTIVDA has been commercially available in the EU since 2017. EUSA is working to secure reimbursement approval in and commercially launch FOTIVDA in
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additional countries in the EUSA territory. However, there is significant competition in the first-line RCC setting in the EU due to the approval of several immunotherapy combinations which have become a standard of care and impacted the market opportunity for monotherapy treatments. EUSA has reported to the Company that, to date, it has not experienced a decrease in sales trends or interruptions in supply or distribution of FOTIVDA during the COVID-19 pandemic; however, the future impact of the COVID-19 pandemic on FOTIVDA sales is difficult to predict.
The Company is also seeking to advance its pipeline of three wholly owned humanized immunoglobulin G1 (“IgG1”) monoclonal antibody product candidates, ficlatuzumab, AV-380 and AV-203, and one IgG1 antibody preclinical product candidate, AV-353.
Ficlatuzumab is a potent humanized IgG1 monoclonal antibody that targets hepatocyte growth factor (“HGF”). The Company has previously reported promising early clinical data on ficlatuzumab in squamous cell carcinoma of the head and neck (“HNSCC”), pancreatic cancer and acute myeloid leukemia (“AML”).
In June 2021, the Company announced results from the randomized phase 2 confirmatory study of ficlatuzumab (the “Phase 2 HNSCC Trial”), in combination with cetuximab, an epidermal growth factor receptor ("EGFR") targeted antibody, in patients with metastatic HNSCC who relapsed or were refractory to prior immunotherapy, chemotherapy and cetuximab (pan-refractory).
The Company continues to evaluate opportunities for the further clinical development of ficlatuzumab, including a potential registrational clinical trial of ficlatuzumab in the human papillomavirus negative ("HPV-") HNSCC patient population. In 2020, the Company contracted with a contract manufacturing organization ("CMO") to manufacture the clinical supply for this potential registrational clinical trial of ficlatuzumab. However, a shortage of required key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing has delayed the delivery of the clinical supply of ficlatuzumab. Based on the Company's ongoing discussions with its CMO, the Company expects the key required raw materials and manufacturing supplies for ficlatuzumab to become available in the second quarter of 2022 and the Company has secured a manufacturing slot with its CMO to meet this timeline.

In September 2021, the FDA granted Fast Track designation for the investigation of ficlatuzumab and ERBITUX® (cetuximab) for the treatment of patients with relapsed or recurrent HNSCC. Assuming the timely manufacturing of ficlatuzumab, the availability of financial resources or strategic partner funding and the continued discussions with the FDA to finalize the trial design under the Fast Track designation, the Company expects to initiate a potential registrational clinical trial of ficlatuzumab and cetuximab in the HPV-, recurrent or metastatic HNSCC ("R/R HNSCC") patient population in the first half of 2023.
AV-380 is a potent humanized IgG1 monoclonal antibody that targets growth differentiation factor 15 (“GDF15”). In December 2020, the FDA approved the Company’s investigational new drug application (“IND”) for AV-380 for the potential treatment of cancer cachexia. In the first quarter of 2021, the Company initiated a phase 1 clinical trial in healthy volunteers and targeted enrollment for the trial was reached in October 2021. The Company expects data from this phase 1 clinical trial to become available in the first half of 2022. The Company plans to initiate a phase 1b clinical trial in cancer patients in the middle of 2022.
AV-203 is a potent humanized IgG1 monoclonal antibody that targets ErbB3 (also known as HER3) to which the Company regained worldwide rights in September 2021. The Company is exploring AV-203 as a potential oncology treatment.
AV-353 is a preclinical selective and potent IgG1 antibody that targets the Notch 3 pathway. The Company is exploring AV-353 as a potential oncology treatment.
As used throughout these condensed consolidated financial statements, the terms “AVEO,” and the “Company” refer to the business of AVEO Pharmaceuticals, Inc. and its three wholly-owned subsidiaries, AVEO Pharma Limited, AVEO Pharma (Ireland) Limited and AVEO Securities Corporation.
Liquidity and Going Concern
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. The Company’s financial
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statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. Through September 30, 2021, the Company has financed its operations primarily through private placements and public offerings of its common stock, license fees, milestone payments and research and development funding from strategic partners, FOTIVDA commercial sales receipts and debt facilities. The Company has devoted substantially all of its resources to its drug development efforts, comprising research and development, manufacturing, conducting clinical trials for its product candidates, commercializing FOTIVDA, protecting its intellectual property and general and administrative functions relating to these operations.
The future success of the Company is dependent on its ability to commercialize FOTIVDA in the United States and to develop its portfolio assets and, ultimately, upon the Company’s ability to create shareholder value. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. The Company’s future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and its ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for FOTIVDA and any future products in those markets. The likelihood of the Company’s long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which the Company operates. Absent the realization of sufficient revenues from product sales to support the Company’s cost structure, the Company may never attain or sustain profitability.
The Company has incurred recurring losses and cash outflows from operations since its inception, including an accumulated deficit of $667.3 million as of September 30, 2021. The Company anticipates that it will continue to incur significant operating expenses for the foreseeable future as it commercializes FOTIVDA in the United States and continues its planned development activities for its clinical stage assets. The Company may require substantial additional funding to continue to advance its pipeline of clinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States.
As of November 8, 2021, the date of issuance of these consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities of $94.0 million as of September 30, 2021, along with net product revenues from the commercial launch of FOTIVDA in the United States, will be sufficient to fund its current operations for more than twelve months from the date of filing this Quarterly Report on Form 10-Q.
Management’s expectations with respect to its ability to fund current planned operations is based on estimates that are subject to risks and uncertainties, including, without limitation, risks related to its ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States on March 22, 2021. If actual results are different from management’s estimates, the Company may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. However, there is no guarantee that any of these strategic or financing opportunities would be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company is unable to obtain additional funding on a timely basis, it may be forced to significantly curtail, delay or discontinue one or more of its planned research or development programs or be unable to expand its operations or otherwise capitalize on its commercialization of its product and product candidates.
(2) Basis of Presentation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, AVEO Pharma Limited, AVEO Pharma (Ireland) Limited and AVEO Securities Corporation. The Company has eliminated all significant intercompany accounts and transactions in consolidation.
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2021 or any other future period.
The information presented in the condensed consolidated financial statements and related footnotes at September 30, 2021, and for the three and nine months ended September 30, 2021 and 2020, is unaudited, and the
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condensed consolidated balance sheet amounts and related footnotes as of December 31, 2020 have been derived from the Company’s audited financial statements. For further information, refer to the consolidated financial statements and accompanying footnotes included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2021.
(3) Significant Accounting Policies
Revenue Recognition
Under Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Net Product Revenue
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with relapsed or refractory advanced RCC after two prior systemic therapies. FOTIVDA became commercially available on March 22, 2021. FOTIVDA is the Company’s first commercial product. The Company sells its products principally through a limited distribution network comprised of two specialty pharmacies, Biologics and Onco360, and the following specialty distributors: Amerisource Specialty Distribution, Oncology Supply, McKesson Plasma and Biologics, McKesson Specialty and Cardinal Specialty (collectively with the specialty pharmacies, the "Customers" and each a "Customer"). These Customers subsequently resell the Company’s products to health care providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products. Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer.
Product Sales Discounts and Allowances
The Company records revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-pay assistance, returns and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of accounts receivable (if the amount is deductible by the Customer from payments to the Company) or a current liability (if the amount is payable by the Company to a third party or Customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted Customer buying and payment patterns, and the Company’s historical experience that will develop over time as FOTIVDA is the Company’s first commercial product. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect net product revenues and earnings in the period such variances become known.
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which currently consist primarily of Public Health Service institutions, Federal government entities purchasing via the Federal Supply Schedule, Group Purchasing Organizations and health maintenance organizations, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the
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specialty distributor by its contracted customer. The allowance for chargebacks is based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers.
Discounts for Prompt Payment: The Customers receive a discount of 2% for prompt payment. The Company expects its Customers will earn 100% of their prompt payment discounts and, therefore, the Company deducts the full amount of these discounts from total product sales when revenues are recognized.
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program, Medicare Part D Coverage Gap Discounts Program, other government programs and commercial contracts. Rebate amounts owed after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. In addition, in the United States during 2020, the Medicare Part D prescription drug benefit mandated participating manufacturers to fund 70% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The allowance for rebates is based on statutory or contractual discount rates and expected utilization. The Company’s estimates for the expected utilization of rebates are based on Customer and payer data received from the specialty pharmacies and distributors and historical utilization rates that will develop over time as FOTIVDA is the Company’s first commercial product. Rebates are generally invoiced by the payor and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s shipments to the Customers, plus an accrual balance for known prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust its accruals, which would affect net product revenues in the period of adjustment.
Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. The Company accrues a liability for co-payment assistance based on actual program participation and estimates of program redemption using Customer data provided by the third party that administers the copay program.
Other Customer Credits: The Company pays fees to its Customers for account management, data management and other administrative services. To the extent the services received are distinct from the sale of products to its Customers, the Company classifies these payments in selling, general and administrative expenses in its Consolidated Statements of Income.
The following table summarizes net product revenues for FOTIVDA in the United States earned in the three and nine months ended September 30, 2021 and 2020, respectively (in thousands).
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Product revenues:
Gross product revenues$16,978 $ $26,227 $ 
Discounts and allowances(2,660) (4,108) 
Net product revenues$14,318 $ $22,119 $ 
The following table summarizes the percentage of total product revenues for FOTIVDA in the United States by any Customer who individually accounted for 10% or more of total product revenues earned in the three and nine months ended September 30, 2021 and 2020, respectively:
 Three Months Ended
September 30,
Nine Months Ended
September 30,
 2021202020212020
OncoMed Specialty, LLC (Onco360)21 %— 23 %— 
Affiliates of McKesson Corporation45 %— 43 %— 
Affiliates of AmerisourceBergen Corporation22 %— 23 %— 
Affiliates of Cardinal Health Specialty12 %— 11 %— 
 100 %— 100 %— 
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Product Sales Discounts and Allowances
The activities and ending allowance balances for each significant category of discounts and allowances for FOTIVDA (which constitute variable consideration) for the nine months ended September 30, 2021 were as follows (in thousands):
Chargebacks, Discounts for
Prompt Pay and Other Allowances
Rebates, Customer Fees / Credits
and Co-Pay Assistance
Totals
Balance at December 31, 2020
$ $ $ 
Provision related to sales made in:
Current period$2,358 $1,750 $4,108 
Prior periods   
Payments and customer credits issued(1,392)(570)(1,962)
Balance at September 30, 2021
$966 $1,180 $2,146 
The allowances for chargebacks, discounts for prompt payment and other allowances are recorded as a reduction of trade receivables, net, and the remaining reserves are recorded as rebates and fees due to customers in the accompanying Consolidated Balance Sheets.
Collaboration Revenues
The Company’s historical revenues have been generated primarily through collaborative research, development and commercialization agreements. The terms of these agreements generally contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to the Company’s technology, (ii) research and development activities to be performed on behalf of the collaborative partner and (iii) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Collaboration Arrangements Within the Scope of ASC 808, Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense.
Arrangements Within the Scope of ASC 606, Revenue from Contracts with Customers
Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is, the good or service is capable of being distinct) and (ii) the entity’s promise to transfer the good or service to the customer
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is separately identifiable from other promises in the contract (that is, the promise to transfer the good or service is distinct within the context of the contract). In assessing whether a promised good or service is distinct, the Company considers factors such as the research, manufacturing and commercialization capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. The Company also considers the intended benefit of the contract in assessing whether a promised good or service is separately identifiable from other promises in the contract. If a promised good or service is not distinct, an entity is required to combine that good or service with other promised goods or services until it identifies a bundle of goods or services that is distinct.
The transaction price is then determined and allocated to the identified performance obligations in proportion to their standalone selling prices (“SSP”) on a relative SSP basis. SSP are determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining SSP for performance obligations requires significant judgment. In developing SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates SSP for performance obligations by evaluating whether changes in the key assumptions used to determine SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
Licenses of Intellectual Property: The terms of the Company’s license agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the Company’s ongoing activities. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the portion of the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Research and Development Funding: Arrangements that include payment for research and development services are generally considered to have variable consideration. If and when the Company assesses the payment for these services is no longer subject to the constraint on variable consideration, the related revenue is included in the transaction price.
Milestone payments: At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur,
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the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
The following table summarizes the total collaboration revenues earned in the three and nine months ended September 30, 2021 and 2020, respectively, by partner (in thousands). Refer to Note 4, “Collaborations and License Agreements” regarding specific details.
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
EUSA$855 $800 $2,530 $2,333 
KKC 2,800 2,800
Total$855 $3,600 $2,530 $5,133 
Trade Receivables
Trade receivables, net, includes amounts billed to Customers for product sales of FOTIVDA. The Company records trade receivables net of chargebacks, cash discounts for prompt payment and any allowances for credit losses. The Company considers its historical losses, if any, adjusted to account for current conditions, and reasonable and supportable forecasts of future economic conditions affecting its customers to estimate credit losses. The Customers are specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
Cost of Products Sold
Cost of products sold is related to our product revenues for FOTIVDA and consists primarily of tiered royalty payments the Company is required to pay to Kyowa Kirin Co. (“KKC”) on all net sales of tivozanib in the Company’s North American territory, which range from the low to mid-teens as a percentage of net sales. Refer to Note 4, “Collaborations and License Agreements” regarding specific details. Cost of products sold also consists of shipping and other third-party logistics and distribution costs for the Company’s products. The Company considered regulatory approval of product candidates to be uncertain and product manufactured prior to regulatory approval may not have been sold unless regulatory approval was obtained. As such, the manufacturing costs for FOTIVDA incurred prior to regulatory approval were not capitalized as inventory, but were expensed as research and development costs.
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including (i) internal costs for salaries, bonuses, benefits, stock-based compensation, research-related overhead and allocated expenses for facilities and information technology, and (ii) external costs for clinical trials, drug manufacturing and distribution, preclinical studies, upfront license payments, milestones and sublicense fees related to in-licensed products and technology, consultants and other contracted services.
Expired Warrants Issued in Connection with Private Placement – Expiration Date of May 16, 2021
In May 2016, the Company issued warrants to purchase an aggregate of 1,764,242 shares of common stock in connection with a private placement financing and recorded the warrants as a liability (the “PIPE Warrants”). The remaining 1,683,933 PIPE Warrants expired on May 16, 2021, as scheduled five years from the date of issuance. The
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Company accounts for warrant instruments that either conditionally or unconditionally obligate the issuer to transfer assets as liabilities regardless of the timing of the redemption feature or price, even though the underlying shares may be classified as permanent or temporary equity. Refer to Note 7, “Common Stock—Private Placement – May 2016” for further discussion of the private placement financing.
The PIPE Warrants contained a provision giving the warrant holder the option to receive cash, equal to the fair value of the remaining unexercised portion of the warrant, as cash settlement in the event that there had been a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC 480, Distinguishing Liabilities from Equity required that these warrants be classified as a liability and not as equity. Accordingly, the Company recorded a warrant liability in the amount of approximately $9.3 million upon issuance of the PIPE Warrants. The fair value of these warrants had been determined using the Black-Scholes pricing model. These warrants were subject to revaluation at each balance sheet date and any changes in fair value were recorded as a non-cash gain or (loss) in the Statement of Operations as a component of other income (expense), net until the expiration of the warrants.
The Company recorded no loss and a non-cash gain of approximately $0.2 million in the three and nine months ended September 30, 2021, respectively, in its Statement of Operations attributable to the decrease in fair value of the warrant liability that resulted from the expiration of the PIPE Warrants on May 16, 2021.
The Company recorded non-cash gains of approximately $0.1 million and $3.2 million in the three and nine months ended September 30, 2020, respectively, in its Statement of Operations attributable to the decreases in the fair value of the warrant liability that resulted from changes in the Company’s stock price as of September 30, 2020 relative to prior periods, decreases in the Company’s stock volatility rate and a shorter remaining term as the PIPE Warrants approached their expiration in May 2021. No PIPE Warrants were exercised during the three and nine months ended September 30, 2021 and 2020.
The following table rolls forward the fair value of the Company’s PIPE Warrant liability, the fair value of which is determined by Level 3 inputs for the nine months ended September 30, 2021 (in thousands):
Fair value at January 1, 2021$199 
Decrease in fair value(199)
Fair value at September 30, 2021$ 
The key assumptions used to value the PIPE Warrants were as follows:
Issuance December 31,
2020
Expected price volatility76.25%56.79%
Expected term (in years)5.000.50
Risk-free interest rates1.22%0.09%
Stock price$8.90 $5.77 
Dividend yield
Cash, Cash Equivalents and Marketable Securities
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a United States government money market fund to be cash equivalents. Changes in the balance of cash and cash equivalents may be affected by changes in investment portfolio maturities, as well as actual cash disbursements to fund operations.
The Company’s cash is deposited in highly-rated financial institutions in the United States. The Company invests in United States government money market funds, high-grade, short-term commercial paper, corporate bonds and other United States government agency securities, which management believes are subject to minimal credit and market risk. The carrying values of the Company’s cash and cash equivalents approximate fair value due to their short-term maturities.
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The Company does not have any restricted cash balances.
Marketable Securities
Marketable securities consist primarily of investments which have expected average maturity dates in excess of three months. The Company invests in high-grade corporate obligations, including commercial paper, and United States government and government agency obligations that are classified as available-for-sale. Since these securities are available to fund current operations they are classified as current assets on the consolidated balance sheets.
Marketable securities are stated at fair value, including accrued interest, with their unrealized gains and losses included as a component of accumulated other comprehensive income or loss, which is a separate component of stockholders’ equity. The fair value of these securities is based on quoted prices and observable inputs on a recurring basis. The cost of marketable securities is adjusted for amortization of premiums and accretion of discounts, with such amortization and accretion recorded as a component of interest expense, net. Realized gains and losses are determined on the specific identification method. Unrealized gains and losses are included in other comprehensive loss until realized, at which point they would be recorded as a component of interest expense, net.
Below is a summary of cash, cash equivalents and marketable securities at September 30, 2021 and December 31, 2020 (in thousands):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
September 30, 2021
Cash and cash equivalents:
Cash and money market funds$68,840 $— $— $68,840 
Total cash and cash equivalents68,840 — — 68,840 
Marketable securities:
Corporate debt securities due within 1 year$25,178 $ $(2)$25,176 
Total marketable securities25,178  (2)25,176 
Total cash, cash equivalents and marketable securities$94,018 $ $(2)$94,016 
December 31, 2020
Cash and cash equivalents:
Cash and money market funds$61,761 $— $— $61,761 
Total cash, cash equivalents and marketable securities$61,761 $ $ $61,761 
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains deposits in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the high credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument.
The Company’s trade receivables, net, includes amounts billed to the Customers for product sales of FOTIVDA. The Customers are a limited group of specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
The Company’s partnership receivables include amounts due to the Company from licensees and collaborators. The Company has not experienced any material losses related to partnership receivables from individual licensees or collaborators.
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Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1.Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2.Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3.Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.
As of September 30, 2021, the Company had financial assets valued based on Level 1 inputs consisting of cash and cash equivalents in a United States government money market fund and had financial assets based on Level 2 inputs consisting of high-grade debt securities, including commercial paper. During the three and nine months ended September 30, 2021, the Company did not have any transfers of financial assets between Levels 1 and 2.
As of September 30, 2021, the Company did not have any financial liabilities recorded at fair value.
The fair value of the Company’s loans payable at September 30, 2021 and December 31, 2020 approximates its carrying value, computed pursuant to a discounted cash flow technique using a market interest rate and is considered a Level 3 fair value measurement. The effective interest rate, which reflects the current market rate, considers the loan issuance costs and the deferred financing charge.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020 (in thousands):
Fair Value Measurements as of September 30, 2021
Level 1Level 2Level 3Total
Financial assets carried at fair value:
Cash and money market funds$68,840 $ $ $68,840 
Total cash and cash equivalents$68,840 $ $ $68,840 
Marketable securities:
Corporate debt securities due within 1 year$ $25,176 $ $25,176 
Total marketable securities$ $25,176 $ $25,176 
Total cash, cash equivalents and marketable securities$68,840 $25,176 $ $94,016 
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Fair Value Measurements as of December 31, 2020
Level 1Level 2Level 3Total
Financial assets carried at fair value:
Cash and money market funds$61,761 $ $ $61,761 
Total cash, cash equivalents and marketable securities$61,761 $ $ $61,761 
Financial liabilities carried at fair value:
Total PIPE Warrant liability $ $ $199 $199 
Basic and Diluted Net Loss per Common Share
Basic net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.
For the three and nine months ended September 30, 2021 and 2020, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted-average shares of common stock issuable upon the exercise of outstanding stock options and warrants until the scheduled expirations of the Offering Warrants on April 8, 2021 and the PIPE Warrants on May 16, 2021 would be anti-dilutive.
The following table summarizes outstanding securities not included in the computation of diluted net loss per common share as the effect would have been anti-dilutive for the three and nine months ended September 30, 2021 and 2020, respectively (in thousands):
Outstanding at
September 30,
20212020
Stock options outstanding3,078 1,691 
Offering Warrants outstanding (warrants expired April 8, 2021)
 2,500 
PIPE Warrants outstanding (warrants expired May 16, 2021)
 1,684 
Total3,078 5,875 
Stock-Based Compensation
Under the Company’s stock-based compensation programs, the Company periodically grants stock options and restricted stock to employees, directors and nonemployee consultants. The Company also issues shares under an employee stock purchase plan. The fair value of each award is recognized in the Company’s statements of operations over the requisite service period for such award.
Awards that vest as the recipient provides service are expensed on a straight-line basis over the requisite service period. The Company uses the Black-Scholes option pricing model to value its stock option awards without market conditions, which requires the Company to make certain assumptions regarding the expected volatility of its common stock price, the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common stock. The Company calculates volatility using its historical stock price data. Due to the lack of the Company’s own historical data, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected term of the Company’s stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate used for each grant is based on the United States Treasury yield curve in effect at the time of grant for instruments with a similar expected life. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.
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The fair value of equity-classified awards to employees and directors is measured at fair value on the date the awards are granted. During the three and nine months ended September 30, 2021 and 2020, the Company recorded the following stock-based compensation expense (in thousands):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2021202020212020
Research and development$314 $123 $958 $363 
Selling, general and administrative$1,087 $471 $2,816 $1,352 
Total$1,401 $594 $3,774 $1,715 
Income Taxes
The Company provides for income taxes using the asset-liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company calculates its provision for income taxes on ordinary income based on its projected annual tax rate for the year. Uncertain tax positions are recognized if the position is more-likely-than-not to be sustained upon examination by a tax authority. Unrecognized tax benefits represent tax positions for which reserves have been established. As of September 30, 2021, the Company is forecasting an effective tax rate of 0% for the year ending December 31, 2021. The Company maintains a full valuation allowance on all deferred tax assets.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment principally in the United States. As of September 30, 2021, the Company has no net assets located outside of the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of the Company’s ability to continue as a going concern and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of the Company’s capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in the Company’s disclosures in the period in which they become known. Actual results could differ from those estimates if past experience or other assumptions do not turn out to be substantially accurate.
Accrued Clinical Trial Costs and Contract Research Liabilities
During each of the three and nine months ended September 30, 2021 and 2020, the Company had arrangements with multiple contract research organizations (“CROs”) whereby these organizations commit to performing services for the Company over multiple reporting periods. The Company recognizes the expenses associated with these arrangements based on its expectation of the timing of the performance of components under these arrangements by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial.
In addition to fees earned by the CROs to manage the Company’s clinical trials, the CROs are also responsible for managing payments to the clinical trial sites on the Company’s behalf. There can be significant lag time in clinical trial sites invoicing the CROs. The date on which services are performed, the level of services performed and the cost of such services are often determined based on subjective judgments. The Company makes these judgments based upon the facts
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and circumstances known to it, such as the terms of the contract and its knowledge of activity that has been incurred, including the number of active clinical sites, the number of patients enrolled, the activities to be performed for each patient, including patient treatment and any imaging, if applicable, and the duration for which the patients will be enrolled in the trial. In the event that the Company does not identify some costs which have begun to be incurred, or the Company under or overestimates the level of services performed or the costs of such services in a given period, its reported expenses for such period would be understated or overstated. The Company currently reflects the effects of any changes in estimates based on changes in facts and circumstances directly in its operations in the period such change becomes known.
With respect to financial reporting periods presented in this Quarterly Report on Form 10-Q, the timing of the Company’s actual costs incurred have not differed materially from its estimated timing of such costs.
Recently Adopted