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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 June 30, 2020

 

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.)

 

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 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 August 7, 2020: 25,808,315.

 

 

 


AVEO PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2020

TABLE OF CONTENTS

 

 

 

 

Page

No.

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

 

Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020 and 2019

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2020 and 2019

5

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2020 and 2019

6

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019

8

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

9

 

 

 

 

Item 2.

 

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

39

 

 

 

 

Item 4.

 

Controls and Procedures

57

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

 

Legal Proceedings

58

 

 

 

 

Item 1A.

 

Risk Factors

58

 

 

 

 

Item 5.

 

Other Information

98

 

 

 

 

Item 6.

 

Exhibits

100

 

 

 

 

 

 

Signatures

101

 

2


AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Balance Sheets

(In thousands, except par value amounts)

(Unaudited)

 

 

 

June 30,

2020

 

 

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

45,670

 

 

$

29,785

 

Marketable securities

 

 

25,779

 

 

 

17,960

 

Accounts receivable

 

 

1,208

 

 

 

1,631

 

Clinical trial retainers

 

 

524

 

 

 

589

 

Other prepaid expenses and other current assets

 

 

1,047

 

 

 

635

 

Total current assets

 

 

74,228

 

 

 

50,600

 

Property and equipment, net

 

 

96

 

 

 

 

Operating lease right-of-use asset

 

 

1,120

 

 

 

 

Other assets

 

 

158

 

 

 

 

Total assets

 

$

75,602

 

 

$

50,600

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,785

 

 

$

1,466

 

Accrued clinical trial costs and contract research

 

 

5,000

 

 

 

5,680

 

Other accrued liabilities

 

 

2,121

 

 

 

2,336

 

Operating lease liability

 

 

451

 

 

 

 

Loans payable, net of discount

 

 

10,193

 

 

 

9,569

 

Deferred revenue

 

 

1,974

 

 

 

1,974

 

Deferred research and development reimbursements

 

 

259

 

 

 

93

 

Total current liabilities

 

 

21,783

 

 

 

21,118

 

Loans payable, net of current portion and discount

 

 

940

 

 

 

6,197

 

Deferred revenue

 

 

1,565

 

 

 

2,552

 

PIPE Warrant liability (Note 7)

 

 

1,999

 

 

 

5,097

 

Operating lease liability, non-current

 

 

473

 

 

 

 

Other liabilities (Note 6)

 

 

790

 

 

 

790

 

Total liabilities

 

 

27,550

 

 

 

35,754

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

   2020 and December 31, 2019; no shares issued and outstanding at each of

   June 30, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $.001 par value: 50,000 shares authorized at June 30,

   2020 and December 31, 2019; 25,808 shares issued and outstanding at

   June 30, 2020 and 16,081 issued and outstanding at December 31, 2019

 

 

26

 

 

 

16

 

Additional paid-in capital

 

 

649,335

 

 

 

600,451

 

Accumulated other comprehensive loss

 

 

(1

)

 

 

 

Accumulated deficit

 

 

(601,308

)

 

 

(585,621

)

Total stockholders’ equity

 

 

48,052

 

 

 

14,846

 

Total liabilities and stockholders’ equity

 

$

75,602

 

 

$

50,600

 

 

See accompanying notes.

 

3


AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Operations

(In thousands, except per share amounts)

(Unaudited)

 

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and licensing revenue

 

$

494

 

 

$

493

 

 

$

987

 

 

$

1,947

 

Partnership royalties

 

 

255

 

 

 

210

 

 

 

546

 

 

 

367

 

 

 

 

749

 

 

 

703

 

 

 

1,533

 

 

 

2,314

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

4,419

 

 

 

2,611

 

 

 

12,245

 

 

 

9,463

 

General and administrative

 

 

3,737

 

 

 

2,986

 

 

 

7,409

 

 

 

5,441

 

 

 

 

8,156

 

 

 

5,597

 

 

 

19,654

 

 

 

14,904

 

Loss from operations

 

 

(7,407

)

 

 

(4,894

)

 

 

(18,121

)

 

 

(12,590

)

Other income (expense), net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

 

(349

)

 

 

(451

)

 

 

(664

)

 

 

(1,015

)

Change in fair value of PIPE Warrant liability

 

 

450

 

 

 

2,210

 

 

 

3,098

 

 

 

11,025

 

Other income (expense), net

 

 

101

 

 

 

1,759

 

 

 

2,434

 

 

 

10,010

 

Net loss

 

$

(7,306

)

 

$

(3,135

)

 

$

(15,687

)

 

$

(2,580

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share - basic and diluted

 

$

(0.42

)

 

$

(0.20

)

 

$

(0.94

)

 

$

(0.18

)

Weighted average number of common shares outstanding

 

 

17,364

 

 

 

15,902

 

 

 

16,722

 

 

 

14,574

 

 

See accompanying notes.

4


AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net loss

 

$

(7,306

)

 

$

(3,135

)

 

$

(15,687

)

 

$

(2,580

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

(1

)

 

 

 

 

 

(1

)

 

 

 

Comprehensive loss

 

$

(7,307

)

 

$

(3,135

)

 

$

(15,688

)

 

$

(2,580

)

 

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

 

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, 2020

 

 

16,081

 

 

$

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

 

 

 

24,106

 

 

 

 

 

 

 

 

 

24,111

 

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, 2020

 

 

25,808

 

 

$

26

 

 

$

649,335

 

 

$

(1

)

 

$

(601,308

)

 

$

48,052

 

 

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

 

 

Accumulated

Deficit

 

 

Total

Stockholders'

Equity (Deficit)

 

Balance at December 31, 2018

 

 

12,648

 

 

$

13

 

 

$

567,768

 

 

$

1

 

 

$

(595,009

)

 

$

(27,227

)

Issuance of common stock from the

   SVB Leerink sales agreement

   (net of issuance costs of $0.2

   million)

 

 

1,252

 

 

 

1

 

 

 

7,511

 

 

 

 

 

 

 

 

 

7,512

 

Stock-based compensation expense

   related to equity-classified awards

 

 

 

 

 

 

 

 

584

 

 

 

 

 

 

 

 

 

584

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

555

 

 

 

555

 

Balance at March 31, 2019

 

 

13,900

 

 

$

14

 

 

$

575,863

 

 

$

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)

 

 

1,739

 

 

 

2

 

 

 

17,765

 

 

 

 

 

 

 

 

 

17,767

 

Issuance of common stock and

   warrants in a public offering,

   to related parties

 

 

435

 

 

 

 

 

 

5,000

 

 

 

 

 

 

 

 

 

5,000

 

Stock-based compensation expense

   related to equity-classified awards

 

 

 

 

 

 

 

 

584

 

 

 

 

 

 

 

 

 

584

 

Exercise of stock options

 

 

 

 

 

 

 

 

3

 

 

 

 

 

 

 

 

 

3

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,135

)

 

 

(3,135

)

Balance at June 30, 2019

 

 

16,074

 

 

$

16

 

 

$

599,215

 

 

$

1

 

 

$

(597,589

)

 

$

1,643

 

 

7


AVEO PHARMACEUTICALS, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Six Months Ended

June 30,

 

 

 

2020

 

 

2019

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(15,687

)

 

$

(2,580

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and Amortization

 

 

4

 

 

 

 

Stock-based compensation

 

 

1,121

 

 

 

1,168

 

Non-cash interest expense

 

 

200

 

 

 

311

 

Non-cash change in fair value of PIPE Warrant liability

 

 

(3,098

)

 

 

(11,025

)

Amortization of premium and discount on investments

 

 

(81

)

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

423

 

 

 

2,415

 

Prepaid expenses and other current assets

 

 

(347

)

 

 

 

Operating lease right-of-use asset

 

 

(1,278

)

 

 

(337

)

Accounts payable

 

 

319

 

 

 

(1,536

)

Accrued contract research

 

 

(680

)

 

 

(1,546

)

Other accrued liabilities

 

 

(215

)

 

 

(1,143

)

Other current liabilities

 

 

451

 

 

 

 

Deferred revenue

 

 

(987

)

 

 

53

 

Deferred research and development reimbursements

 

 

166

 

 

 

(247

)

Other non-current liabilities

 

 

473

 

 

 

 

Net cash used in operating activities

 

 

(19,216

)

 

 

(14,467

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(100

)

 

 

 

Purchases of marketable securities

 

 

(28,139

)

 

 

 

Proceeds from maturities and sales of marketable securities

 

 

20,400

 

 

 

 

Net cash used in investing activities

 

 

(7,839

)

 

 

 

Financing activities

 

 

 

 

 

 

 

 

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

 

 

24,111

 

 

 

25,269

 

Proceeds from issuance of common stock and warrants to related parties

 

 

23,644

 

 

 

5,000

 

Proceeds from issuance of common stock for stock-based compensation arrangements

 

 

18

 

 

 

3

 

Payment of principal of loan payable (Note 6)

 

 

(4,833

)

 

 

 

Net cash provided by financing activities

 

 

42,940

 

 

 

30,272

 

Net increase in cash and cash equivalents

 

 

15,885

 

 

 

15,805

 

Cash and cash equivalents at beginning of period

 

 

29,785

 

 

 

24,427

 

Cash and cash equivalents at end of period

 

$

45,670

 

 

$

40,232

 

Supplemental cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

681

 

 

$

1,029

 

Right-of-use asset obtained in exchange for operating lease liabilities

 

$

1,225

 

 

$

 

 

 

See accompanying notes.

 

8


AVEO Pharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

June 30, 2020

(1) Organization

AVEO Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company developing and seeking to commercialize its pipeline of product candidates designed to provide a better life for patients with cancer.  The Company’s strategy is to focus its efforts and resources toward development and commercialization of its product candidates in North America while leveraging partnerships to support development and commercialization in other geographies.  Its lead candidate is tivozanib (FOTIVDA®), a vascular endothelial growth factor receptor tyrosine kinase inhibitor, which is approved in the European Union, the United Kingdom, Norway, New Zealand and Iceland for the treatment of adult patients with advanced renal cell carcinoma (“RCC”). In March 2020, the Company submitted an application for marketing approval (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for tivozanib as a treatment for relapsed or refractory RCC. In June 2020, the FDA accepted the NDA for substantive review and assigned it a Prescription Drug User Fee Act (“PDUFA”) target date of March 31, 2021. The Company is also studying tivozanib in combination with immune checkpoint inhibitors for the treatment of RCC and hepatocellular carcinoma (“HCC”) in phase 2 clinical trials.  Its pipeline of product candidates also includes ficlatuzumab, a hepatocyte growth factor (“HGF”) inhibitory antibody. The Company has previously reported promising early clinical data on ficlatuzumab in squamous cell carcinoma of the head and neck (“HNSCC”), acute myeloid leukemia (“AML”) and pancreatic cancer. The Company is currently conducting a randomized phase 2 confirmatory study of ficlatuzumab for the potential treatment of HNSCC. The Company’s earlier stage pipeline under development includes AV-203, an anti-ErbB3 monoclonal antibody, as a potential oncology treatment; 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, as a potential oncology treatment.  

The Company is subject to a number of risks, including the need for substantial additional capital to continue its development programs and to fulfill its planned operating goals. In particular, the Company’s currently planned operating and capital requirements include the need for substantial working capital to support the development and commercialization activities for its lead product candidate, tivozanib.

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 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 June 30, 2020, the Company has financed its operations 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.

The Company has incurred recurring losses and cash outflows from operations since its inception, including net losses of $15.7 million and $2.6 million for the six months ended June, 2020 and 2019, respectively. In addition, the Company had an accumulated deficit of $601.3 million as of June 30, 2020. The Company expects to continue to generate operating losses for the foreseeable future.  As of August 10, 2020, the date of issuance of these unaudited condensed consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities of $71.4 million as of June 30, 2020, together with (i) the $2.8 million development milestone payment earned from Kyowa Kirin Co. on August 2, 2020 (“KKC”) (see Note 4) and (ii) approximately $5.3 million in new loan funding from the amendment to its loan agreement with Hercules Funding III, LLC and Hercules Capital, Inc. (collectively “Hercules”) received on August 7, 2020 (see Note 10), will not be sufficient to fund its current operations for more than twelve months from the date of filing this Quarterly Report on Form 10-Q.  This condition raises substantial doubt about the Company’s ability to continue as a going concern.

 

9


 

The Company’s plans to address this condition include pursuing one or more of the following options to secure additional funding, none of which can be guaranteed or are entirely within the Company’s control:

 

Earn royalty payments pursuant to the Company’s license agreement (the “EUSA Agreement”) with EUSA Pharma (UK) Limited (“EUSA”) for EUSA’s sales of tivozanib in its territory.

 

Earn milestone payments pursuant to the collaboration and license agreements described in Note 4 or restructure / monetize existing potential milestone and/or royalty payments under those collaboration and license agreements.

 

Raise funding through the possible additional sale of the Company’s common stock, including public or private equity financings and / or sales of the Company’s common stock under the Leerink Sales Agreement, as defined and discussed in Note 7.

 

Drawdown  potential future borrowings pursuant to the loan agreement with Hercules, subject to the satisfaction of the conditions to future borrowing.

 

Partner a portion or all rights to the Company’s portfolio candidates to secure potential additional non-dilutive funds.

Pursuant to the EUSA Agreement, the Company is entitled to receive up to an additional $4.0 million in milestone payments of $2.0 million per country upon reimbursement approval for RCC, if any, in each of France and Italy, and an additional $2.0 million milestone payment for the grant of marketing approval, if any, in three of the licensed countries outside of the European Union (the “EU”), as mutually agreed by the parties. These milestone payments are subject to the 30% sublicense fee payable to KKC pursuant to the Company’s license agreement with KKC (the “KKC Agreement”). The Company is also eligible to receive additional research and development reimbursement payments from EUSA   if EUSA elects to opt-in to the TIVO-3 study.Refer to Note 4 “Collaborations and License Agreements - InLicense Agreements – Kyowa Kirin Co. (KKC)” for further details.

The Company is also eligible, at its option, to borrow up to an additional $20.0 million under the amendment to the loan agreement with Hercules, subject to certain terms and conditions including FDA approval of FOTIVDA and, if approved, the Company’s net product revenues from sales of FOTIVDA reaching $20.0 million within a specified time frame. There can be no assurance, however, that the FDA will approve FOTIVDA or that the other conditions to the funding of such loan amounts will be satisfied.  Refer to Note 10 “Subsequent Event – Hercules Loan Restructuring” for further details.

Furthermore, there can be no assurance that the Company will receive cash proceeds from any of these potential resources or to the extent cash proceeds are received such proceeds would be sufficient to support the Company’s current operating plan for more than twelve months from the date of filing this Quarterly Report on Form 10-Q.

Pursuant to the requirements of Accounting Standards Codification (ASC) 205-40, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASC 205-40”) management must evaluate whether there are conditions or 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 financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued. 

Under ASC 205-40, the future receipt of potential funding from the Company’s collaborators and funding that is contingent on FDA approval of FOTIVDA, such as the potential future borrowings pursuant to the loan agreement with Hercules and product revenues from the sales of FOTIVDA, cannot be considered probable at this time because none of the Company’s current plans have been finalized at the time of filing this Quarterly Report on Form 10-Q and the implementation of any such plan is not probable of being effectively implemented as none of the plans are entirely within the Company’s control. Accordingly, substantial doubt is deemed to exist about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued.

If the Company is unable to obtain sufficient capital to continue to advance its programs, the Company would be forced to delay, reduce or eliminate its research and development programs and any future commercialization efforts.

10


 

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

(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.

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 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 six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020 or any other future period.

The information presented in the condensed consolidated financial statements and related footnotes at June 30, 2020, and for the three months and six months ended June 30, 2020 and 2019, is unaudited, and the condensed consolidated balance sheet amounts and related footnotes as of December 31, 2019 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, 2019, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 16, 2020.

Effective as of 5:00 p.m. Eastern Time on February 19, 2020, the Company effected a 1-for-10 reverse stock split of its common stock. All references to shares of common stock outstanding and per share amounts in these condensed consolidated financial statements and the notes to the condensed consolidated financial statements have been restated to reflect the reverse stock split on a retroactive basis. Refer to Note 7, “Common Stock – Reverse Stock Split – February 2020” for further details.

(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 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

11


 

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.

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.

12


 

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, 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 six months ended June 30, 2020 and 2019, respectively, by partner (in thousands). Refer to Note 4, “Collaborations and License Agreements” regarding specific details.

 

 

 

Three Months

Ended June 30,

 

 

Six Months

Ended June 30,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

EUSA

 

$

749

 

 

$

703

 

 

$

1,533

 

 

$

2,314

 

Total

 

$

749

 

 

$

703

 

 

$

1,533

 

 

$

2,314

 

 

Leases

The Company adopted Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASU 2016-02”), effective January 1, 2019 using the required modified retrospective approach and utilizing the effective date as its date of initial application. As a result, prior periods are presented in accordance with the previous guidance in ASC 840, Leases (“ASC 840”). In connection with the adoption of ASU 2016-02, the Company elected the package of practical expedients permitted under the transition guidance within the new standard, which does not require the reassessment of the following: (i) whether existing or expired arrangements are or contain a lease, (ii) the lease classification of existing or expired leases, and (iii) whether previous initial direct costs would qualify for capitalization under the new lease standard. The Company made an accounting policy election not to recognize right-of-use assets or related lease liabilities with a lease term of twelve months or less in its Consolidated Balance Sheet. Such short-term lease payments are recorded in its Consolidated Statements of Operations in the period in which the obligation for those payments was incurred.

13


 

As of the date of initial application of ASU 2016-02, the Company’s lease arrangement for its former corporate headquarters at One Broadway, Cambridge, Massachusetts was cancellable within 30 days’ notice to its landlord and excluded any extension incentives or disincentives to renew for an extended period of time. In addition, the Company has drug storage arrangements with multiple storage providers that are cancellable at any time without penalty to the Company. The Company recognized approximately $0.2 million and $0.4 million in short-term operating lease expense in its Consolidated Statements of Operations in each of the three and six months ended June 30, 2020 and 2019, respectively.

Application of ASC 842 policy elections to leases post adoption

The Company has made certain accounting policy elections to apply to its leases executed post adoption of ASU 2016-02 , or subsequent to January 1, 2019, as further described below.

In accordance with ASC 842, components of a lease should be split into three categories: lease components, non-lease components, and non-components. The fixed and in-substance fixed contract consideration (including any consideration related to non-components) must be allocated based on the respective relative fair values to the lease components and non-lease components. The Company made an accounting policy election to combine lease and non-lease components as a single lease component for all underlying assets and allocate all of the contract consideration to the lease component only.

At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances present in the arrangement. Leases with a term greater than one year are recognized on the balance sheet as right-of-use assets and short-term and long-term lease liabilities, as applicable.

Operating lease liabilities and their corresponding right-of-use assets are initially recorded based on the present value of lease payments over the expected remaining lease term. Certain adjustments to the right-of-use asset may be required for items such as incentives received. The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate to discount lease payments, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment. To estimate its incremental borrowing rate, a credit rating applicable to the Company is estimated using a synthetic credit rating analysis since the Company does not currently have a rating agency-based credit rating.

ASC 842 allows for the use of judgment in determining whether the assumed lease term is for a major part of the remaining economic life of the underlying asset and whether the present value of lease payments represents substantially all of the fair value of the underlying asset. The Company applies the bright line thresholds referenced in ASC 842-10-55-2 to assist in evaluating leases for appropriate classification.

30 Winter Street Lease

On March 5, 2020, the Company entered into a sublease agreement for office space located at 30 Winter Street in Boston, Massachusetts (the “Winter Street Sublease”) to relocate the Company’s corporate headquarters previously located at One Broadway in Cambridge, Massachusetts. Under the terms of the Winter Street Sublease, the Company leases 10,158 square feet of office space for $47.00 per square foot, or approximately $0.5 million per year in base rent subject to certain operating expenses, taxes and annual base rent increases of approximately 3%. The Winter Street Sublease commenced when the space became available for use by the Company on March 24, 2020 and will continue until its expiration on November 30, 2022. Upon commencement of the Winter Street Sublease, the Company paid a security deposit, in the amount of $0.3 million, which is subject to certain reductions to be applied to future base rent payments provided that no event of default has occurred in the preceding twelve months.

The Company is accounting for the Winter Street Sublease under ASC 842 using its initial 2.7-year term through November 30, 2022. In applying ASC 842, the Company classified the Winter Street Sublease as an operating lease and recorded a right-of-use asset of approximately $1.2 million and a lease liability of approximately $1.0 million upon the effective lease commencement date. In calculating the lease liability, the Company used the present value of all future lease payments using an incremental borrowing rate of 7.58%. The Company is recognizing rent expense on a straight-line basis throughout the remaining term of the lease. In the six months ended June 30, 2020, the Company recognized $0.1 million in rent expense.

In connection with the execution of the Winter Street Sublease, the Company also entered into a Purchase Agreement for furniture (the “Furniture Purchase Agreement”) located on the premises upon the lease commencement. Upon execution of the Furniture Purchase Agreement, the Company paid the $0.1 million purchase price and recorded the furniture acquisition as property and equipment, net. The Company is recognizing depreciation using the straight-line method over the estimated useful life of 7 years.

14


 

As of June 30, 2020, future minimum lease payments under the Company’s Winter Street Sublease are as follows (amounts in thousands):

 

Year Ending December 31:

 

 

 

 

2020 (remaining 6 months)

 

 

239

 

2021

 

 

385

 

2022

 

 

328

 

Total lease payments

 

 

952

 

Less imputed interest

 

 

(28

)

Total operating lease liabilities

 

$

924

 

 

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, manufacturing costs for pre-launch inventory that did not qualify for capitalization, preclinical studies, upfront license payments, milestones and sublicense fees related to in-licensed products and technology, consultants and other contracted services.

Warrants Issued in Connection with Private Placement

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 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. As of June 30, 2020, PIPE Warrants exercisable for 80,309 shares of common stock had been exercised, for approximately $0.8 million in cash proceeds, and PIPE Warrants exercisable for 1,683,933 shares of common stock were outstanding. Refer to Note 7, “Common Stock—Private Placement – May 2016” for further discussion of the private placement financing.

The PIPE Warrants contain 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 is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). Due to this provision, ASC 480, Distinguishing Liabilities from Equity requires 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 has been determined using the Black-Scholes pricing model. These warrants are subject to revaluation at each balance sheet date and any changes in fair value are recorded as a non-cash gain or (loss) in the Statement of Operations as a component of other income (expense), net until the earlier of their exercise or expiration or upon the completion of a liquidation event. Upon exercise, the PIPE Warrants are subject to revaluation just prior to the date of the warrant exercise and any changes in fair value are recorded as a non-cash gain or (loss) in the Statement of Operations as a component of other income (expense), net and the corresponding reduction in the PIPE Warrant liability is recorded as additional paid-in capital in the Balance Sheet as a component of stockholder’s equity.

The Company recorded non-cash gains of approximately $ 0.5 million and $ 3.1 million in the three months and six months ended June 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 June 30, 2020 relative to prior periods, decreases in the Company’s stock volatility rate and a shorter remaining term as the PIPE Warrants approach their expiration in May 2021.

The Company recorded non-cash gains of approximately $2.2 million and $11.0 million in the three months and six months ended June 30, 2019, respectively, in its Statement of Operations attributable to the decreases in the fair value of the warrant liability that principally resulted from lower stock prices as of June 30, 2019 relative to prior periods.

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 three months ended June 30, 2020 (in thousands):

 

Fair value at January 1, 2020

 

$

5,097

 

Decrease in fair value

 

 

(2,648

)

Fair value at March 31, 2020

 

$

2,449

 

Decrease in fair value

 

 

(450

)

Fair value at June 30, 2020

 

$

1,999

 

15


 

 

The key assumptions used to value the PIPE Warrants were as follows:

 

 

 

Issuance

 

 

December 31,

2019

 

 

March 31,

2020

 

 

June 30,

2020

 

Expected price volatility

 

 

76.25

%

 

 

133.07

%

 

 

153.57

%

 

 

108.20

%

Expected term (in years)

 

 

5.00

 

 

 

1.50

 

 

 

1.25

 

 

 

1.00

 

Risk-free interest rates

 

 

1.22

%

 

 

1.59

%

 

 

0.17

%

 

 

0.16

%

Stock price

 

$

8.90

 

 

$

6.20

 

 

$

3.62

 

 

$

5.15

 

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 U.S. 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 U.S. government money market funds, high-grade, short-term commercial paper, corporate bonds and other U.S. 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.

The Company does not have any restricted cash balances.

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 U.S. 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 condensed 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.

16


 

Below is a summary of cash, cash equivalents and marketable securities at June 30, 2020 and December 31, 2019 (in thousands):

 

 

 

Amortized

Cost

 

 

Unrealized

Gains

 

 

Unrealized

Losses

 

 

Fair

Value

 

June 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

45,670

 

 

$

 

 

$

 

 

$

45,670

 

Total cash and cash equivalents

 

 

45,670

 

 

 

 

 

 

 

 

 

45,670

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities due within 1 year

 

$

6,791

 

 

$

 

 

$

 

 

$

6,791

 

U.S. government agency securities due within 1 year

 

 

18,989