Quarterly Report (10-q)

Date : 11/12/2019 @ 12:15PM
Source : Edgar (US Regulatory)
Stock : AVEO Pharmaceuticals Inc (AVEO)
Quote : 0.7548  -0.009 (-1.18%) @ 4:59AM
After Hours
Last Trade
Last $ 0.75 ▼ -0.00 (-0.44%)

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

 

OR

TRANSITION 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)

 

 

Delaware

04-3581650

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification No.)

 

One Broadway, 14th Floor, Cambridge, Massachusetts 02142

(Address of Principal Executive Offices) (Zip Code)

(617) 588-1960

(Registrant’s Telephone Number, Including Area Code)

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.001 par value

AVEO

Nasdaq 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      No  

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      No  

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 filer

Accelerated filer

 

 

 

 

Non-accelerated filer

  

Smaller reporting company

 

 

 

 

 

 

Emerging growth company

 

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.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on November 8, 2019: 160,744,478.

 

 

 


 

AVEO PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS

 

 

 

 

Page

No.

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2019 and 2018

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2019 and 2018

5

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Nine Months Ended September 30, 2019 and 2018

6

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018

8

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

37

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

58

 

 

 

 

Item 4.

 

Controls and Procedures

58

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

59

 

 

 

 

Item 1A.

 

Risk Factors

59

 

 

 

 

Item 6.

 

Exhibits

96

 

 

 

 

 

 

Signatures

97

 

2


 

AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

57,654

 

 

$

24,427

 

Accounts receivable

 

 

1,090

 

 

 

3,026

 

Clinical trial retainers

 

 

200

 

 

 

126

 

Other prepaid expenses and other current assets

 

 

816

 

 

 

356

 

Total current assets

 

 

59,760

 

 

 

27,935

 

Other assets

 

 

 

 

 

 

Total assets

 

$

59,760

 

 

$

27,935

 

Liabilities and stockholders’ equity (deficit)

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

2,183

 

 

$

3,499

 

Accrued clinical trial costs and contract research

 

 

5,099

 

 

 

6,254

 

Other accrued liabilities

 

 

1,805

 

 

 

2,698

 

Loans payable, net of discount

 

 

9,257

 

 

 

3,254

 

Deferred revenue

 

 

1,974

 

 

 

1,658

 

Deferred research and development reimbursements

 

 

213

 

 

 

454

 

Other liabilities (Note 6)

 

 

300

 

 

 

300

 

Total current liabilities

 

 

20,831

 

 

 

18,117

 

Loans payable, net of current portion and discount

 

 

8,714

 

 

 

15,779

 

Deferred revenue

 

 

3,045

 

 

 

3,802

 

Deferred research and development reimbursements

 

 

20

 

 

 

 

PIPE Warrant liability (Note 7)

 

 

7,603

 

 

 

16,674

 

Other liabilities (Note 6)

 

 

790

 

 

 

790

 

Total liabilities

 

 

41,003

 

 

 

55,162

 

Stockholders’ equity (deficit):

 

 

 

 

 

 

 

 

Preferred stock, $.001 par value: 5,000 shares authorized at September 30,

   2019 and December 31, 2018; no shares issued and outstanding at each of

   September 30, 2019 and December 31, 2018

 

 

 

 

 

 

Common stock, $.001 par value: 500,000 shares authorized and 160,744

   shares issued and outstanding at September 30, 2019; and 250,000 shares

   authorized and 126,485 shares issued and outstanding at December 31,

   2018

 

 

161

 

 

 

126

 

Additional paid-in capital

 

 

599,756

 

 

 

567,655

 

Accumulated other comprehensive income

 

 

 

 

 

1

 

Accumulated deficit

 

 

(581,160

)

 

 

(595,009

)

Total stockholders’ equity (deficit)

 

 

18,757

 

 

 

(27,227

)

Total liabilities and stockholders’ equity (deficit)

 

$

59,760

 

 

$

27,935

 

 

See accompanying notes.

 

3


 

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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and licensing revenue

 

$

25,494

 

 

$

2,335

 

 

$

27,441

 

 

$

3,651

 

Partnership royalties

 

 

223

 

 

 

132

 

 

 

590

 

 

 

275

 

 

 

 

25,717

 

 

 

2,467

 

 

 

28,031

 

 

 

3,926

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

3,983

 

 

 

5,160

 

 

 

13,446

 

 

 

15,451

 

General and administrative

 

 

2,884

 

 

 

2,719

 

 

 

8,325

 

 

 

8,156

 

Settlement costs (Note 9)

 

 

 

 

 

 

 

 

 

 

 

(667

)

 

 

 

6,867

 

 

 

7,879

 

 

 

21,771

 

 

 

22,940

 

Income (loss) from operations

 

 

18,850

 

 

 

(5,412

)

 

 

6,260

 

 

 

(19,014

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(467

)

 

 

(579

)

 

 

(1,482

)

 

 

(1,621

)

Change in fair value of PIPE Warrant liability

 

 

(1,954

)

 

 

(16,172

)

 

 

9,071

 

 

 

(6,512

)

Other income (expense), net

 

 

(2,421

)

 

 

(16,751

)

 

 

7,589

 

 

 

(8,133

)

Net income (loss)

 

$

16,429

 

 

$

(22,163

)

 

$

13,849

 

 

$

(27,147

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

0.10

 

 

$

(0.18

)

 

$

0.09

 

 

$

(0.23

)

Weighted average number of common shares outstanding

 

 

160,744

 

 

 

120,138

 

 

 

150,794

 

 

 

119,311

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share

 

$

0.10

 

 

$

(0.18

)

 

$

0.09

 

 

$

(0.23

)

Weighted average number of common shares and dilutive

   common share equivalents outstanding

 

 

160,826

 

 

 

120,138

 

 

 

151,294

 

 

 

119,311

 

 

See accompanying notes.

4


 

AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income (loss)

 

$

16,429

 

 

$

(22,163

)

 

$

13,849

 

 

$

(27,147

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

(1

)

 

 

(1

)

 

 

(1

)

 

 

4

 

Comprehensive income (loss)

 

$

16,428

 

 

$

(22,164

)

 

$

13,848

 

 

$

(27,143

)

 

See accompanying notes.

 

5


 

AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands)

(Unaudited)

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-in

Capital

 

 

 

 

Accumulated

Other

Comprehensive

Income

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity (Deficit)

 

Balance at December 31, 2018

 

 

126,485

 

 

$

126

 

 

$

567,655

 

 

 

 

$

1

 

 

$

(595,009

)

 

$

(27,227

)

Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.2 million)

 

 

12,515

 

 

 

13

 

 

 

7,499

 

 

 

 

 

 

 

 

 

 

 

7,512

 

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

584

 

 

 

 

 

 

 

 

 

 

 

584

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

555

 

Balance at March 31, 2019

 

 

139,000

 

 

$

139

 

 

$

575,738

 

 

 

 

$

1

 

 

$

(594,454

)

 

$

(18,576

)

Issuance of common stock and warrants in a public offering, excluding to related parties (net of issuance costs of $2.3 million)

 

 

17,391

 

 

 

18

 

 

 

17,749

 

 

 

 

 

 

 

 

 

 

 

17,767

 

Issuance of common stock and warrants in a public offering, to related parties

 

 

4,348

 

 

 

4

 

 

 

4,996

 

 

 

 

 

 

 

 

 

 

 

5,000

 

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

584

 

 

 

 

 

 

 

 

 

 

 

584

 

Exercise of stock options

 

 

5

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,135

)

 

 

(3,135

)

Balance at June 30, 2019

 

 

160,744

 

 

$

161

 

 

$

599,070

 

 

 

 

$

1

 

 

$

(597,589

)

 

$

1,643

 

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

686

 

 

 

 

 

 

 

 

 

 

 

686

 

Change in unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

16,429

 

 

 

16,429

 

Balance at September 30, 2019

 

 

160,744

 

 

$

161

 

 

$

599,756

 

 

 

 

$

 

 

$

(581,160

)

 

$

18,757

 

 

6


 

AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Deficit)

(In thousands)

(Unaudited)

 

 

 

Common Shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Par Value

 

 

Additional

Paid-in

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Deficit

 

Balance at December 31, 2017

 

 

118,325

 

 

$

118

 

 

$

546,092

 

 

$

(4

)

 

$

(586,969

)

 

$

(40,763

)

Adjustment related to adoption of new revenue recognition standard ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,711

)

 

 

(2,711

)

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

583

 

 

 

 

 

 

 

 

 

583

 

Issuance of common stock in connection with warrant exercises

 

 

518

 

 

 

1

 

 

 

517

 

 

 

 

 

 

 

 

 

518

 

Reduction in PIPE Warrant liability in connection with warrant exercises

 

 

 

 

 

 

 

 

1,101

 

 

 

 

 

 

 

 

 

1,101

 

Exercise of stock options

 

 

24

 

 

 

 

 

 

15

 

 

 

 

 

 

 

 

 

15

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8,988

)

 

 

(8,988

)

Balance at March 31, 2018

 

 

118,867

 

 

$

119

 

 

$

548,308

 

 

$

(4

)

 

$

(598,668

)

 

$

(50,245

)

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

621

 

 

 

 

 

 

 

 

 

621

 

Exercise of stock options

 

 

122

 

 

 

 

 

 

159

 

 

 

 

 

 

 

 

 

159

 

Issuance of common stock under employee stock purchase plan

 

 

6

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Change in unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

5

 

 

 

 

 

 

5

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,004

 

 

 

4,004

 

Balance at June 30, 2018

 

 

118,995

 

 

$

119

 

 

$

549,099

 

 

$

1

 

 

$

(594,664

)

 

$

(45,445

)

Issuance of common stock in a public offering, excluding to related parties (net of issuance costs of $0.6 million)

 

 

509

 

 

 

 

 

 

582

 

 

 

 

 

 

 

 

 

582

 

Issuance of common stock to related parties

 

 

1,991

 

 

 

2

 

 

 

4,498

 

 

 

 

 

 

 

 

 

4,500

 

Issuance of Settlement Warrants in connection with a class action settlement (Note 9)

 

 

 

 

 

 

 

 

1,406

 

 

 

 

 

 

 

 

 

1,406

 

Stock-based compensation expense related to equity-classified awards

 

 

 

 

 

 

 

 

684

 

 

 

 

 

 

 

 

 

684

 

Exercise of stock options

 

 

44

 

 

 

 

 

 

45

 

 

 

 

 

 

 

 

 

45

 

Change in unrealized gain (loss) on investments

 

 

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(22,163

)

 

 

(22,163

)

Balance at September 30, 2018

 

 

121,539

 

 

$

121

 

 

$

556,314

 

 

$

 

 

$

(616,827

)

 

$

(60,392

)

 

7


 

AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

 

Net income (loss)

 

$

13,849

 

 

$

(27,147

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

1,854

 

 

 

1,888

 

Non-cash interest expense

 

 

445

 

 

 

399

 

Non-cash change in fair value of PIPE Warrant liability

 

 

(9,071

)

 

 

6,512

 

Non-cash charge for Settlement Warrants (Note 9)

 

 

 

 

 

(667

)

Amortization of premium and discount on investments

 

 

(1

)

 

 

3

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

1,936

 

 

 

58

 

Insurance recovery (Note 9)

 

 

 

 

 

15,000

 

Prepaid expenses and other current assets

 

 

(534

)

 

 

570

 

Other noncurrent assets

 

 

 

 

 

11

 

Accounts payable

 

 

(1,316

)

 

 

547

 

Accrued contract research

 

 

(1,155

)

 

 

(1,068

)

Other accrued liabilities

 

 

(893

)

 

 

732

 

Settlement liability (Note 9)

 

 

 

 

 

(15,000

)

Deferred revenue

 

 

(441

)

 

 

348

 

Deferred research and development reimbursements

 

 

(221

)

 

 

(595

)

Net cash provided by (used in) operating activities

 

 

4,452

 

 

 

(18,409

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

 

 

 

(6,733

)

Proceeds from maturities and sales of marketable securities

 

 

 

 

 

25,312

 

Net cash provided by investing activities

 

 

 

 

 

18,579

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock and warrants, net of issuance costs

 

 

25,279

 

 

 

1,100

 

Proceeds from issuance of common stock and warrants to related parties

 

 

5,000

 

 

 

4,500

 

Proceeds from issuance of stock for stock-based compensation arrangements

 

 

3

 

 

 

229

 

Payment of principal of loan payable (Note 6)

 

 

(1,507

)

 

 

 

Payment of end-of-term loan costs (Note 6)

 

 

 

 

 

(540

)

Net cash provided by financing activities

 

 

28,775

 

 

 

5,289

 

Net increase in cash and cash equivalents

 

 

33,227

 

 

 

5,459

 

Cash and cash equivalents at beginning of period

 

 

24,427

 

 

 

14,949

 

Cash and cash equivalents at end of period

 

$

57,654

 

 

$

20,408

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

1,539

 

 

$

1,486

 

Non-cash operating activity

 

 

 

 

 

 

 

 

Increase to deferred revenue due to adoption of ASC Topic 606 - transition

   adjustment on January 1, 2018

 

$

 

 

$

2,711

 

 

 

See accompanying notes.

 

8


 

AVEO Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

September 30, 2019

(1) Organization

AVEO Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company seeking to advance targeted medicines for oncology and other unmet medical needs. The Company’s pipeline of product candidates under development includes its lead candidate tivozanib in oncology and other indications; ficlatuzumab, a hepatocyte growth factor (“HGF”) inhibitory antibody in squamous cell carcinoma of the head and neck (“SCCHN”), acute myeloid leukemia (“AML”) and pancreatic cancer; AV-203, an anti-ErbB3 monoclonal antibody, in esophageal squamous cell carcinoma (“ESCC”); AV-380, a humanized IgG1 inhibitory monoclonal antibody targeting growth differentiation factor 15 (“GDF15”), a divergent member of the TGF-ß family, for the potential treatment of cancer cachexia; and AV-353, which targets the Notch 3 pathway.

The Company is working to develop and commercialize tivozanib in North America as a treatment for advanced or metastatic renal cell carcinoma (“RCC”). The Company has sublicensed tivozanib, marketed under the brand name FOTIVDA®, for oncological indications in Europe and other territories outside of North America. Through the Company’s partner, tivozanib is approved in the European Union (“EU”), as well as Norway, Iceland and New Zealand, for the first-line treatment of adult patients with RCC and for adult patients who are vascular endothelial growth factor receptor (“VEGFR”) and mTOR pathway inhibitor-naïve following disease progression after one prior treatment with cytokine therapy for RCC. The Company also has clinical collaborations to study tivozanib in combination with immune checkpoint inhibitors in RCC and in hepatocellular carcinoma (“HCC”). 

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

The Company has financed its operations to date primarily through private placements and public offerings of its common stock and preferred stock, license fees, milestone payments and research and development funding from strategic partners, and loan proceeds. 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, 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 develop its product candidates and ultimately upon its ability to attain profitable operations. As of September 30, 2019, the Company had cash, cash equivalents and marketable securities totaling approximately $57.7 million, working capital of $38.9 million and an accumulated deficit of $581.2 million.

The Company is subject to a number of risks, including the need for substantial additional capital for clinical research and product development. As of September 30, 2019, the Company had approximately $57.7 million in cash, cash equivalents and marketable securities. Based on its available cash resources, the Company believes it has sufficient cash on hand to support current operations for at least the next twelve months from the date of filing this Quarterly Report on Form 10-Q. This estimate assumes no receipt of additional milestone payments from the Company’s partners, no funding from new partnership agreements, no additional equity financings, no debt financings, no additional sales of equity under the Company’s sales agreement with SVB Leerink (the “Leerink Sales Agreement”), and no sales of equity through the exercise of the Company’s outstanding PIPE Warrants and Offering Warrants, as detailed in Note 7, “Common Stock.” The Company will need additional funding to support its planned operating activities. Accordingly, the timing and nature of activities contemplated for the remainder of 2019 and thereafter will be conducted subject to the availability of sufficient financial resources. If the Company is unable to raise capital when needed or on attractive terms, it would be forced to delay, reduce or eliminate its research and development programs and any future commercialization efforts.

     

(2) Basis of Presentation

These condensed 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.

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The accompanying condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 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 months and nine months ended September 30, 2019 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2019 or any other future period.

The information presented in the condensed consolidated financial statements and related footnotes at September 30, 2019, and for the three months and nine months ended September 30, 2019 and 2018, is unaudited, and the condensed consolidated balance sheet amounts and related footnotes as of December 31, 2018 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, 2018, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2019.

(3) Significant Accounting Policies

Revenue Recognition

The Company’s revenues are 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 Accounting Standards Codification (“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, Revenue from Contracts with Customers (“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

Effective January 1, 2018, the Company adopted ASC 606 using the modified retrospective transition method. Under this method, the Company has recognized the cumulative effect of the adoption as an adjustment to the opening balance of accumulated deficit in the prior year condensed consolidated balance sheet.  Financial results for the year ended December 31, 2018 and thereafter are presented under ASC 606. The provisions of ASC 606 apply to all contracts with customers, except for contracts that are within the scope of other standards, such as collaboration arrangements and leases.

Under ASC 606, 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.

 

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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 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 is determined at contract inception and is not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining the SSP for performance obligations requires significant judgment. In developing the 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 the SSP for performance obligations by evaluating whether changes in the key assumptions used to determine the 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.

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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, 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 revenues earned in the three months and nine months ended September 30, 2019 and 2018, 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,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

KKC

 

$

25,000

 

 

$

 

 

$

25,000

 

 

$

 

EUSA

 

 

717

 

 

 

467