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RL DEFA14A: Additional proxy soliciting materials - definitive.fromPatent rights
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, 2022
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 1, 2022: 34,614,284



AVEO PHARMACEUTICALS, INC.
TABLE OF CONTENTS

Page
No.
 
Item 1.
Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021
5
Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021
6
Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2022 and 2021
7
Condensed Consolidated Statements of Stockholders' Equity for the Three and Six Months Ended June 30, 2022 and 2021
8
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021
Item 2.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4.
Item 1A.
Item 6.
2



References to AVEO
Throughout this Form 10-Q, the words “we,” “us,” “our” and “AVEO”, except where the context requires otherwise, refer to AVEO Pharmaceuticals, Inc. and its consolidated subsidiaries, and “our board of directors” refers to the board of directors of AVEO Pharmaceuticals, Inc.
Cautionary Note Regarding Forward-Looking Statements and Industry Data
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995, which involve risks and uncertainties. All statements other than statements of historical fact contained in this report are statements that could be deemed forward-looking statements, including without limitation statements with respect to the plans, strategies and objectives of management for future operations; statements concerning product research, development and commercialization plans, timelines and anticipated results; statements of expectation or belief; statements with respect to clinical trials and studies; statements with respect to the therapeutic potential of product candidates; any expectations of revenue, expenses, earnings or losses from operations, or other financial results; and statements of assumptions underlying any of the foregoing. Without limiting the foregoing, the words “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “seeks”, “will”, “strategy”, “potential”, “should”, “would” and other similar language, whether in the negative or affirmative, are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. Forward-looking statements may include, but are not limited to, statements about:

our plans to commercialize FOTIVDA;
our manufacturing, marketing and sales capabilities and strategy;
the rate and degree of market acceptance and clinical utility of our products;
our plans to expand the commercial opportunity of tivozanib for the treatment of RCC;
our plans to develop our clinical stage assets and commercialize our product candidates;
our plans to position our clinical stage assets for further development by partners and to retain the North American oncology commercial rights;
our plans to potentially acquire or in-license additional commercial stage assets;
the initiation, timing, progress and results of future clinical trials, and our development programs;
our ability to secure new collaborations, maintain existing collaborations or obtain additional funding;
the potential of ficlatuzumab, AV-380 or other product candidates that we in-license, or may elect to in-license, or may acquire in the future;
impacts resulting from the COVID-19 pandemic and responsive actions relating thereto;
the timing or likelihood of regulatory filings and approvals;
the implementation of our business model, strategic plans for our business, product candidates and technology;
our competitive position;
developments and projections relating to our competitors and our industry;
our intellectual property position;
our estimates of the period in which we anticipate that existing cash, cash equivalents and investments will enable us to fund our current and planned operations; and
our estimates regarding expenses, future revenue, capital requirements and needs for additional financing.
Our actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. We therefore caution you against relying on any of these forward-looking statements. Important factors that could cause actual results to differ materially from those in these forward-looking statements include the factors discussed below under the heading “Risk Factor Summary,” and the risk factors detailed further in Item 1A., “Risk Factors” of Part II of this report and in our U.S. Securities and Exchange Commission reports filed after this report.
This report also includes statistical and other industry and market data that we obtained from industry publications and research, surveys and studies conducted by third parties as well as our own estimates. All the market data used in this report involve a number of assumptions and limitations, and you are cautioned not to give undue weight to such data. Industry publications and third-party research, surveys and studies generally indicate that their information has been obtained from sources believed to be reliable, although they do not guarantee the accuracy or completeness of such information. Our estimates of the potential market opportunities for our product candidates include several key assumptions based on our industry knowledge, industry publications, third-party research and other surveys, which may be based on a small sample size and may fail to accurately reflect market opportunities. While we believe that our internal assumptions are reasonable, no independent source has verified such assumptions.
3


The forward-looking statements included in this quarterly report represent our estimates as of the filing date of this quarterly report. We specifically disclaim any obligation to update these forward-looking statements in the future. These forward-looking statements should not be relied upon as representing our estimates or views as of any date subsequent to the date of this quarterly report.
Risk Factor Summary
Investment in our securities involves risk. You should carefully consider the following summary of what we believe to be the principle risks facing our business, in addition to the risks described more fully in Item 1A., “Risk Factors” of Part II of this Quarterly Report on Form 10-Q and other information included in this report. The risks and uncertainties described below are not the only risks and uncertainties we face. Additional risks and uncertainties not presently known to us or that we presently deem less significant may also impair our business operations.
If any of the following risks occur, our business, financial condition and results of operations and future growth prospects could be materially and adversely affected, and the actual outcomes of matters as to which forward-looking statements are made in this report could be materially different from those anticipated in such forward-looking statements.
We have incurred significant operating losses, anticipate that we will continue to incur significant operating expenses for the foreseeable future and may never generate significant revenue or achieve or sustain profitability.
We may require substantial additional funding to advance our pipeline of clinical stage assets, and if we are unable to obtain this necessary capital when needed, we could be forced to delay, limit, reduce or terminate our research, product development or commercialization efforts.
If we fail to comply with the covenants or payment obligations under the 2020 Loan Facility, which could result in an event of default, this could materially and adversely affect our business and our financial condition.
We have only recently transitioned from a development stage biopharmaceutical company to a commercial stage biopharmaceutical company, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We depend heavily on the success of our commercial product, FOTIVDA, and on our clinical stage assets, including tivozanib (in other indications), ficlatuzumab, AV-380 and AV-203. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize our product candidates, our business will be materially harmed.
The COVID-19 pandemic has adversely affected our ability to commercialize FOTIVDA, to manufacture clinical product, and to initiate new trials or complete ongoing clinical trials and may have other adverse effects on our business and operations.
If we or our collaborators experience delays or difficulties in the enrollment of patients in clinical trials, receipt of necessary regulatory approvals could be delayed or prevented.
If clinical trials of any product candidates that we, or any collaborators, may develop fail to satisfactorily demonstrate safety and efficacy to the FDA and other regulators, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of these product candidates.
We face substantial competition from existing approved products and our competitors may also discover, develop or commercialize new competing products before, or more successfully, than we do.
Adverse events or undesirable side effects caused by, or other unexpected properties of, product candidates that we develop may be identified during development and could delay or prevent their marketing approval or limit their use.
We rely in part on third parties to produce our preclinical and clinical product candidate supplies and to conduct clinical trials of our internally-developed product candidates, and those third parties may not
2


perform satisfactorily, including by failing to deliver supplies on time or to meet deadlines for the completion of such trials, research or testing.
We rely on our licensee EUSA, over whom we have little control, for the sales, marketing and distribution efforts associated with the commercialization of FOTIVDA in the countries in the EUSA Licensed Territory and any failure by EUSA to devote the necessary resources and attention to market and sell FOTIVDA effectively and successfully may materially impact our ability to generate revenue from the EUSA Licensed Territory.
Any failure by a third-party manufacturer or a third-party supplier to timely produce or provide required manufacturing supplies for us or to safely store product candidate supplies and commercial supplies of FOTIVDA may delay or impair our ability to manufacture product, initiate or complete our clinical trials or commercialize our product candidates.
We may not be successful in establishing or maintaining strategic partnerships to execute our strategy to partner our clinical stage assets and further the development of our therapeutic programs. Additionally, if any of our current or future strategic partners fails to perform its obligations or terminates the partnership, the development and commercialization of the product candidates under such agreement could be delayed or terminated and, such failures or terminations could have a material adverse effect on our operations and business.
We could be unsuccessful in obtaining or maintaining adequate market exclusivity and/or patent protection for one or more of our product candidates, or the scope of our patent protection could be insufficiently broad, which could result in competition and a decrease in the potential market share for our product candidates.
3


Part I. Financial Information
4



AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Balance Sheets
(In thousands, except par value amounts)
(Unaudited)
June 30,
2022
December 31,
2021
Assets
Current assets:
Cash and cash equivalents $ 70,168  $ 70,542 
Marketable securities 6,992  16,784 
Trade receivables, net 15,279  9,811 
Partnership receivables 850  1,790 
Inventory 1,320  1,656 
Clinical trial retainers 894  1,181 
Other prepaid expenses and other current assets 2,085  2,972 
Total current assets 97,588  104,736 
Property and equipment, net 242  276 
Operating lease right-of-use asset 81  178 
Other assets 200  151 
Total assets $ 98,111  $ 105,341 
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable $ 3,605  $ 2,712 
Accrued clinical trial costs and contract research 10,465  5,046 
Accrued compensation and benefits 4,237  4,963 
Other accrued liabilities 8,003  5,421 
Operating lease liability 11 
Loans payable, net of discount 5,182  — 
Deferred revenue —  578 
Total current liabilities 31,497  18,731 
Loans payable, net of discount 33,247  37,960 
Other liabilities, non-current (Note 6) 2,780  2,780 
Total liabilities 67,524  59,471 
Stockholders’ equity:
Preferred stock, $.001 par value: 5,000 shares authorized at June 30, 2022 and December 31, 2021; no shares issued and outstanding at each of June 30, 2022 and December 31, 2021
—  — 
Common stock, $.001 par value: 80,000 shares authorized at June 30, 2022 and 50,000 at December 31, 2021; 34,614 shares issued and outstanding at June 30, 2022 and 34,475 at December 31, 2021
35  34 
Additional paid-in capital 723,619  720,386 
Accumulated other comprehensive loss (2) (3)
Accumulated deficit (693,065) (674,547)
Total stockholders’ equity 30,587  45,870 
Total liabilities and stockholders’ equity $ 98,111  $ 105,341 
See accompanying notes.
5


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,
2022 2021 2022 2021
Revenues:
FOTIVDA U.S. product revenue, net $ 25,006  $ 6,735  $ 45,092  $ 7,801 
Partnership licensing and royalty revenue 298  821  1,132  1,675 
25,304  7,556  46,224  9,476 
Operating expenses:
Cost of products sold 3,065  822  5,499  960 
Research and development 12,318  6,878  22,478  12,675 
Selling, general and administrative 17,075  14,920  34,412  30,020 
32,458  22,620  62,389  43,655 
Loss from operations (7,154) (15,064) (16,165) (34,179)
Other income (expense), net:
Interest expense, net (1,165) (1,128) (2,353) (1,739)
Change in fair value of PIPE Warrant liability —  2,595  —  199 
(1,165) 1,467  (2,353) (1,540)
Net loss $ (8,319) $ (13,597) (18,518) $ (35,719)
Basic and diluted net loss per share:
Net loss per share $ (0.24) $ (0.40) $ (0.54) $ (1.16)
Weighted average number of common shares outstanding 34,503  34,362  34,489  30,915 
See accompanying notes.
6


AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Net loss $ (8,319) $ (13,597) $ (18,518) $ (35,719)
Other comprehensive gain/(loss):
Unrealized gain/(loss) on available-for-sale securities (3) —  — 
Comprehensive loss $ (8,322) $ (13,597) $ (18,517) $ (35,719)
See accompanying notes.
7


AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated
Deficit
Total
Stockholders'
Equity
Shares Par Value
Balance at December 31, 2021 34,475  $ 34  $ 720,386  $ (3) $ (674,547) $ 45,870 
Stock-based compensation expense related to equity-classified awards —  —  1,267  —  —  1,267 
Unrealized gain on available-for-sale investments —  —  —  — 
Net loss —  —  —  —  (10,199) (10,199)
Balance at March 31, 2022 34,475  $ 34  $ 721,653  $ $ (684,746) $ 36,942 
Issuance of common stock under employee stock purchase plan 136  544  —  —  545 
Exercise of stock options —  16  —  —  16 
Stock-based compensation expense related to equity-classified awards —  —  1,406  —  —  1,406 
Unrealized loss on available-for-sale investments —  —  —  (3) —  (3)
Net loss —  —  —  —  (8,319) (8,319)
Balance at June 30, 2022 34,614  $ 35  $ 723,619  $ (2) $ (693,065) $ 30,587 
See accompanying notes.
8


Condensed Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
Common Shares Additional Paid-in Capital Accumulated Other Comprehensive Income Accumulated
Deficit
Total
Stockholders'
Equity
Shares Par Value
Balance at December 31, 2020 26,883  $ 27  $ 656,472  $ —  $ (621,205) $ 35,294 
Issuance of common stock in a public offering (net of issuance costs of $3.6 million)
6,900  51,711  —  —  51,718 
Issuance of common stock from the SVB Leerink sales agreement (net of issuance costs of $0.1 million)
331  —  3,377  —  —  3,377 
Issuance of common stock in connection with warrant exercises 247  —  3,092  —  —  3,092 
Stock-based compensation expense related to equity- classified awards
—  —  1,204  —  —  1,204 
Net loss —  —  —  —  (22,122) (22,122)
Balance at March 31, 2021 34,361  $ 34  $ 715,856  $ —  $ (643,327) $ 72,563 
Stock-based compensation expense related to equity- classified awards
—  —  1,169  —  —  1,169 
Issuance of common stock under employee stock purchase plan 13  —  68  —  —  68 
Net loss —  —  —  —  (13,597) (13,597)
Balance at June 30, 2021 34,374  $ 34  $ 717,093  $ —  $ (656,924) $ 60,203 
9


AVEO PHARMACEUTICALS, INC.
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
For the Six Months Ended June 30,
2022 2021
Operating activities
Net loss $ (18,518) $ (35,719)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 34  33 
Stock-based compensation 2,673  2,373 
Non-cash interest expense 469  428 
Non-cash change in fair value of PIPE Warrant liability —  (199)
Amortization of premium and discount on investments 57  10 
Changes in operating assets and liabilities:
Trade receivables, net (5,468) (4,220)
Partnership receivables 940  (168)
Inventory 336  — 
Prepaid expenses and other current assets 1,174  (685)
Operating lease right-of-use asset 48  227 
Other non-current assets —  (100)
Accounts payable 893  (219)
Accrued clinical trial costs and contract research 5,419  269 
Accrued compensation and benefits (726) 361 
Other accrued liabilities 2,582  1,955 
Operating lease liability (6) (45)
Deferred revenue (578) (987)
Deferred research and development reimbursements —  (128)
Operating lease liability, non-current —  (187)
Net cash used in operating activities (10,671) (37,001)
Investing activities
Purchases of marketable securities (8,979) (28,195)
Proceeds from maturities and sales of marketable securities 18,715  — 
Net cash provided by (used in) investing activities 9,736  (28,195)
Financing activities
Proceeds from issuance of common stock, net of issuance costs —  55,095 
Proceeds from warrant exercises —  3,092 
Proceeds from issuance of stock for stock-based compensation arrangements 561  68 
Proceeds from issuance of loan payable —  20,000 
Payment of debt issuance costs —  (85)
Net cash provided by financing activities 561  78,170 
Net (decrease) increase in cash and cash equivalents (374) 12,974 
Cash and cash equivalents at beginning of period 70,542  61,761 
Cash and cash equivalents at end of period $ 70,168  $ 74,735 
Supplemental cash flow information
Cash paid for interest $ 1,959  $ 1,171 
See accompanying notes.
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AVEO Pharmaceuticals, Inc.
Notes to Consolidated Financial Statements
June 30, 2022
(1) Organization
AVEO Pharmaceuticals, Inc. (the “Company”) is a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. The Company currently markets FOTIVDA® (tivozanib) in the United States. FOTIVDA is the Company's first commercial product and was approved by the U.S. Food and Drug Administration (“FDA”) for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory advanced (“R/R”) renal cell carcinoma (“RCC”) following two or more prior systemic therapies. The Company markets and sells FOTIVDA in the United States through its commercial infrastructure, and has made FOTIVDA available to patients through a network of specialty pharmacies and distributors. The Company continues to develop tivozanib in immuno-oncology combinations and other novel targeted combinations in RCC and other indications, and the Company has other investigational programs in clinical development.
FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor (“VEGFR”) tyrosine kinase inhibitor (“TKI”). The FDA approval of FOTIVDA is based on the Company’s pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which the Company refers to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, the Company and its collaboration partners are continuing to develop tivozanib in RCC and in additional cancer indications with significant unmet medical needs including, hepatocellular carcinoma (“HCC”) and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with immune checkpoint inhibitors (“ICIs”). In addition, the Company is evaluating tivozanib as a monotherapy in cholangiocarcinoma (“CCA”). The Company and the Company's collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and investigator sponsored trial (“IST”) agreements or the Company's Cooperative Research and Development Agreement (“CRADA”) with the National Cancer Institute’s Surgical Oncology Program (“NCI-SOP”).
The Company is also seeking to advance its pipeline of four wholly owned immunoglobulin G1 (“IgG1”) monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353, to position each product candidate for further development by partners with the Company retaining all, or a portion of, the North American oncology commercial rights related to these product candidates.
As used throughout these 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, 2022, the Company has financed its operations primarily through private placements and public offerings of its common stock, license fees, milestone payments and research and development funding from strategic partners, FOTIVDA commercial sales receipts and debt facilities. The Company has devoted substantially all of its resources to its drug development efforts, comprising research and development, manufacturing, conducting clinical trials for its product candidates, commercializing FOTIVDA, protecting its intellectual property and general and administrative functions relating to these operations.

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The future success of the Company is dependent on its ability to continue to commercialize FOTIVDA in the United States, expand the commercial opportunity of tivozanib for the treatment of RCC and to position the Company’s other product candidates for further development by partners with the Company retaining all, or a portion of, the North American oncology commercial rights related to these product candidates. Ultimately, the Company is focused on its ability to create shareholder value. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. The Company’s future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, receive approval, and its ability to achieve sufficient market acceptance, reimbursement from third-party payors and adequate market share for FOTIVDA and any future products in those markets. The likelihood of the Company’s long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which the Company operates. Absent the realization of sufficient revenues from product sales to support the Company’s cost structure, the Company may never attain or sustain profitability.
The Company has incurred recurring losses and cash outflows from operations since its inception, including an accumulated deficit of $693.1 million as of June 30, 2022. The Company anticipates that it will continue to incur significant operating expenses for the foreseeable future as it commercializes FOTIVDA in the United States and continues its planned development activities for its clinical and preclinical stage assets. The Company may require substantial additional capital to continue to advance its pipeline of clinical and preclinical stage assets to position each product candidate for further development by partners and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, from partnerships and product sales of FOTIVDA in the United States.
As of August 4, 2022, the date of issuance of these consolidated financial statements, the Company expects that its cash, cash equivalents and marketable securities of $77.2 million as of June 30, 2022, along with net product revenues from product sales of FOTIVDA in the United States, will be sufficient to fund its current operations for more than twelve months from the date of filing this Quarterly Report on Form 10-Q.
Management’s expectations with respect to its ability to fund current planned operations is based on estimates that are subject to risks and uncertainties, including, without limitation, risks related to its ability to generate sufficient product revenue from sales of FOTIVDA in the United States and to effectively manage expenses. If actual results are different from management’s estimates, the Company may need to seek additional strategic or financing opportunities sooner than would otherwise be expected. However, there is no guarantee that any of these strategic or financing opportunities would be executed or executed on favorable terms, and some could be dilutive to existing stockholders. If the Company is unable to obtain additional capital on a timely basis, it may be forced to significantly curtail, delay or discontinue one or more of its planned research or development programs or be unable to expand its operations or otherwise capitalize on the commercialization of its product.
(2) Basis of Presentation
These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, AVEO Pharma Limited, AVEO Pharma (Ireland) Limited and AVEO Securities Corporation. The Company has eliminated all significant intercompany accounts and transactions in consolidation.
The accompanying condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the condensed consolidated financial statements have been included. Interim results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2022 or any other future period.
The information presented in the condensed consolidated financial statements and related footnotes at June 30, 2022, and for the three and six months ended June 30, 2022 and 2021, is unaudited, and the condensed consolidated balance sheet amounts and related footnotes as of December 31, 2021 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, 2021, which was filed with the U.S. Securities and Exchange Commission (“SEC”) on March 14, 2022.
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(3) Significant Accounting Policies
Revenue Recognition
Under Accounting Standards Codification (“ASC”) 606 (“ASC 606”), Revenue from Contracts with Customers, the Company recognizes revenue when its customers obtain control of promised goods or services, in an amount that reflects the consideration which the Company determines it expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the Company satisfies its performance obligation(s). As part of the accounting for these arrangements, the Company must make significant judgments, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each performance obligation.
Net Product Revenue
The Company sells its products principally through a limited distribution network comprised of two specialty pharmacies, Biologics and Onco360, and the following specialty distributors: Amerisource Specialty Distribution, Oncology Supply, McKesson Plasma and Biologics, McKesson Specialty and Cardinal Specialty (collectively with the specialty pharmacies, the “Customers” and each a “Customer”). These Customers subsequently resell the Company’s products to health care providers and patients. In addition to distribution agreements with Customers, the Company enters into arrangements with health care providers and payors that provide for government-mandated and/or privately-negotiated rebates, chargebacks and discounts with respect to the purchase of the Company’s products. Revenues from product sales are recognized when the Customer obtains control of the Company’s product, which occurs at a point in time, typically upon delivery to the Customer.
Product Sales Discounts and Allowances
The Company records revenues from product sales at the net sales price (transaction price), which includes estimates of variable consideration for which reserves are established primarily from discounts, chargebacks, rebates, co-pay assistance, returns and other allowances that are offered within contracts between the Company and its Customers, health care providers, payors and other indirect customers relating to the sales of its products. These reserves are based on the amounts earned or to be claimed on the related sales and are classified as reductions of trade receivables (if the amount is deductible by the Customer from payments to the Company) or a current liability (if the amount is payable by the Company to a third party or Customer). Where appropriate, these estimates take into consideration a range of possible outcomes that are probability-weighted for relevant factors such as current contractual and statutory requirements, specific known market events and trends, industry data, forecasted Customer buying and payment patterns, and the Company’s historical experience that will develop over time as FOTIVDA is the Company’s first commercial product. Overall, these reserves reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Actual amounts of consideration ultimately received may differ from the Company’s estimates. If actual results in the future vary from the Company’s estimates, the Company will adjust these estimates, which would affect U.S. net product revenues and earnings in the period such variances become known.
Chargebacks: Chargebacks are discounts that occur when contracted customers purchase directly from a specialty distributor. Contracted customers, which currently consist primarily of Public Health Service institutions, Federal government entities purchasing via the Federal Supply Schedule, Group Purchasing Organizations and health maintenance organizations, generally purchase the product at a discounted price. The specialty distributor, in turn, charges back to the Company the difference between the price initially paid by the specialty distributor and the discounted price paid to the specialty distributor by its contracted customer. The allowance for chargebacks is based on actual chargebacks received and an estimate of sales by the specialty distributor to its contracted customers.
Discounts for Prompt Payment: The Customers receive a discount of 2% for prompt payment. The Company expects its Customers will earn 100% of their prompt payment discounts and, therefore, the Company deducts the full amount of these discounts from total product sales when revenues are recognized.
Rebates: Allowances for rebates include mandated discounts under the Medicaid Drug Rebate Program, Medicare Part D Coverage Gap Discounts Program, other government programs and commercial contracts. Rebate amounts owed
13


after the final dispensing of the product to a benefit plan participant are based upon contractual agreements or legal requirements with public sector benefit providers, such as Medicaid. In addition, in the United States during 2020, the Medicare Part D prescription drug benefit mandated participating manufacturers to fund 70% of the Medicare Part D insurance coverage gap for prescription drugs sold to eligible patients. The allowance for rebates is based on statutory or contractual discount rates and expected utilization. The Company’s estimates for the expected utilization of rebates are based on Customer and payer data received from the specialty pharmacies and distributors and historical utilization rates that will develop over time as FOTIVDA is the Company’s first commercial product. Rebates are generally invoiced by the payor and paid in arrears, such that the accrual balance consists of an estimate of the amount expected to be incurred for the current quarter’s shipments to the Customers, plus an accrual balance for known or estimated prior quarters’ unpaid rebates. If actual future rebates vary from estimates, the Company may need to adjust its accruals, which would affect U.S. net product revenues in the period of adjustment.
Co-payment Assistance: Patients who have commercial insurance and meet certain eligibility requirements may receive co-payment assistance. The Company accrues a liability for co-payment assistance based on actual program participation and estimates of program redemption using Customer data provided by the third party that administers the copay program.
Other Customer Credits: The Company pays fees to its Customers for account management, data management and other administrative services. To the extent the services received are distinct from the sale of products to its Customers, the Company classifies these payments in selling, general and administrative expenses in its Consolidated Statements of Income.
The following table summarizes net product revenues for FOTIVDA in the United States earned in the three and six months ended June 30, 2022 and 2021, respectively (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022 2021 2022 2021
Product revenues:
Gross product revenues $ 30,404  $ 7,993  $ 55,048  $ 9,249 
Discounts and allowances (5,398) (1,258) (9,956) (1,448)
Net product revenues $ 25,006  $ 6,735  $ 45,092  $ 7,801 
The following table summarizes the percentage of total product revenues for FOTIVDA in the United States by any Customer who individually accounted for 10% or more of total product revenues earned in the three and six months ended June 30, 2022 and 2021, respectively:
  Three Months Ended
June 30,
Six Months Ended
June 30,
  2022 2021 2022 2021
Affiliates of McKesson Corporation 38  % 41  % 40  % 40  %
Affiliates of AmerisourceBergen Corporation 29  % 25  % 28  % 24  %
OncoMed Specialty, LLC (Onco360) 24  % 24  % 23  % 25  %
Affiliates of Cardinal Health Specialty % 10  % % 11  %
100  % 100  % 100  % 100  %
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Product Sales Discounts and Allowances
The activities and ending allowance balances for each significant category of discounts and allowances for FOTIVDA (which constitute variable consideration) for the six months ended June 30, 2022 were as follows (in thousands):
Chargebacks, Discounts for
Prompt Pay and Other Allowances
Rebates, Customer Fees / Credits
and Co-Pay Assistance
Totals
Balance at December 31, 2021
$ 1,193  $ 1,170  $ 2,363 
Provision related to sales made in:
Current period 5,960  4,146  10,106 
Prior periods (136) (14) (150)
Payments and customer credits issued (5,390) (3,004) (8,394)
Balance at June 30, 2022
$ 1,627  $ 2,298  $ 3,925 
The allowances for chargebacks, discounts for prompt payment and other allowances are recorded as a reduction of trade receivables, net, and the remaining reserves are recorded as rebates and fees due to customers in other current accrued liabilities in the accompanying Consolidated Balance Sheets.
Collaboration Revenues
The Company’s historical revenues have been generated primarily through collaborative research, development and commercialization agreements. The terms of these agreements generally contain multiple promised goods and services, which may include (i) licenses, or options to obtain licenses, to the Company’s technology, (ii) research and development activities to be performed on behalf of the collaborative partner and (iii) in certain cases, services in connection with the manufacturing of preclinical and clinical material. Payments to the Company under these arrangements typically include one or more of the following: non-refundable, upfront license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Collaboration Arrangements Within the Scope of ASC 808, Collaborative Arrangements
The Company analyzes its collaboration arrangements to assess whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities and are therefore within the scope of ASC Topic 808, Collaborative Arrangements (“ASC 808”). This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements that are deemed to be within the scope of ASC 808, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. The Company’s policy is generally to recognize amounts received from collaborators in connection with joint operating activities that are within the scope of ASC 808 as a reduction in research and development expense.
Arrangements Within the Scope of ASC 606, Revenue from Contracts with Customers
Once a contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations. Arrangements that include rights to additional goods or services that are exercisable at a customer’s discretion are generally considered options. The Company assesses if these options provide a material right to the customer and if so, they are considered performance obligations. The exercise of a material right is accounted for as a contract modification for accounting purposes.
The Company assesses whether each promised good or service is distinct for the purpose of identifying the performance obligations in the contract. This assessment involves subjective determinations and requires management to make judgments about the individual promised goods or services and whether such are separable from the other aspects of the contractual relationship. Promised goods and services are considered distinct provided that: (i) the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (that is,
15


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 are determined at contract inception and are not updated to reflect changes between contract inception and when the performance obligations are satisfied. Determining SSP for performance obligations requires significant judgment. In developing SSP for a performance obligation, the Company considers applicable market conditions and relevant entity-specific factors, including factors that were contemplated in negotiating the agreement with the customer and estimated costs. The Company validates SSP for performance obligations by evaluating whether changes in the key assumptions used to determine SSP will have a significant effect on the allocation of arrangement consideration between multiple performance obligations.
If the consideration promised in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. The Company determines the amount of variable consideration by using the expected value method or the most likely amount method. The Company includes the unconstrained amount of estimated variable consideration in the transaction price. The amount included in the transaction price is constrained to the amount for which it is probable that a significant reversal of cumulative revenue recognized will not occur. At the end of each subsequent reporting period, the Company re-evaluates the estimated variable consideration included in the transaction price and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment.
In determining the transaction price, the Company adjusts consideration for the effects of the time value of money if the timing of payments provides the Company with a significant benefit of financing. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the licensees and the transfer of the promised goods or services to the licensees will be one year or less. The Company assessed each of its revenue generating arrangements in order to determine whether a significant financing component exists and concluded that a significant financing component does not exist in any of its arrangements.
The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) each performance obligation is satisfied at a point in time or over time, and if over time based on the use of an output or input method.
Licenses of Intellectual Property: The terms of the Company’s license agreements include the license of functional intellectual property, given the functionality of the intellectual property is not expected to change substantially as a result of the Company’s ongoing activities. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from the portion of the transaction price allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises (that is, for licenses that are not distinct from other promised goods and services in an arrangement), the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
Research and Development Funding: Arrangements that include payment for research and development services are generally considered to have variable consideration. If and when the Company assesses the payment for these services is no longer subject to the constraint on variable consideration, the related revenue is included in the transaction price.
Milestone payments: At the inception of each arrangement that includes non-refundable payments for contingent milestones, including preclinical research and development, clinical development and regulatory, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the
16


Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. At the end of each reporting period, the Company re-evaluates the probability of the achievement of contingent milestones and the likelihood of a significant reversal of such milestone revenue, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration and licensing revenue in the period of adjustment. This quarterly assessment may result in the recognition of revenue related to a contingent milestone payment before the milestone event has been achieved.
Royalties: For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).
The following table summarizes the total collaboration revenues earned in the three and six months ended June 30, 2022 and 2021, 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,
2022 2021 2022 2021
EUSA $ 298  $ 821  $ 1,132  $ 1,675 
Total $ 298  $ 821  $ 1,132  $ 1,675 
Trade Receivables
Trade receivables, net, includes amounts billed to Customers for product sales of FOTIVDA. The Company records trade receivables net of chargebacks, cash discounts for prompt payment and any allowances for credit losses. The Company considers its historical losses, if any, adjusted to account for current conditions, and reasonable and supportable forecasts of future economic conditions affecting its customers to estimate credit losses. The Customers are specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
Inventory
Inventory is valued at the lower of cost or net realizable value. The Company analyzes its inventory levels quarterly and writes down inventory subject to expiry or in excess of expected requirements, or that has a cost basis in excess of its expected net realizable value. These write downs are charged to cost of products sold in the accompanying Consolidated Statements of Income.
The Company’s active pharmaceutical ingredient has a long shelf life and the Company’s finished drug product has a five-year expiry, however the realizability of inventory is subject to forecasted future sales of FOTIVDA in the United States. The Company’s forecasted sales currently support the realizability of the Company’s inventory but are uncertain and could change in the future, which would require the Company to write down the value of such inventory.
The following table summarizes the Company’s inventory balances as of June 30, 2022 and December 31, 2021:
  June 30,
2022
December 31,
2021
Raw materials $ —  $ — 
Work in process 862  1,656 
Finished goods 458  — 
Total $ 1,320  $ 1,656 
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Cost of Products Sold
Cost of products sold is related to the Company's product revenues for FOTIVDA and consists primarily of tiered royalty payments the Company is required to pay to Kyowa Kirin Co. (“KKC”) on all net sales of tivozanib in the Company’s North American territory, which range from the low to mid-teens as a percentage of net sales. Refer to Note 4, “Collaborations and License Agreements” regarding specific details. Cost of products sold also consists of the cost of manufacturing, indirect labor costs, any write-downs related to expiring or excess inventory, shipping and other third-party logistics and distribution costs for the Company’s products.
The Company considered regulatory approval of its product candidate to be uncertain and product manufactured prior to regulatory approval could not have been sold unless regulatory approval was obtained. As such, the manufacturing costs for FOTIVDA incurred prior to regulatory approval were not capitalized as inventory, but were expensed as research and development expenses. The Company’s initial commercial supply of FOTIVDA was manufactured prior to FDA market approval on March 10, 2021 and had been expensed to research and development expenses. In 2021, subsequent to the FDA’s market approval of FOTIVDA, the Company conducted resupply manufacturing of tivozanib in connection with upcoming drug expirations beginning in the fourth quarter of 2022 and capitalized these costs as inventory. In the second quarter of 2022, the Company changed its salable inventory to the resupply and began recognizing cost of products sold related to inventory.
Research and Development Expenses
Research and development expenses are charged to expense as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including (i) internal costs for salaries, bonuses, benefits, stock-based compensation, research-related overhead and allocated expenses for facilities and information technology, and (ii) external costs for clinical trials, drug manufacturing and distribution, preclinical studies, upfront license payments, milestones and sublicense fees related to in-licensed products and technology, consultants and other contracted services.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturities of three months or less at the date of purchase and an investment in a United States government money market fund to be cash equivalents. Changes in the balance of cash and cash equivalents may be affected by changes in investment portfolio maturities, as well as actual cash disbursements to fund operations.
The Company’s cash is deposited in highly-rated financial institutions in the United States. The Company invests in United States government money market funds, high-grade, short-term commercial paper, corporate bonds and other United States government agency securities, which management believes are subject to minimal credit and market risk. The carrying values of the Company’s cash and cash equivalents approximate fair value due to their short-term maturities.
The Company did not have any restricted cash balances at June 30, 2022.
Marketable Securities
Marketable securities consist primarily of investments which have expected average maturity dates in excess of three months. The Company invests in high-grade corporate obligations, including commercial paper, and 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 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.
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Below is a summary of cash, cash equivalents and marketable securities at June 30, 2022 and December 31, 2021 (in thousands):
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
June 30, 2022
Cash and cash equivalents:
Cash and money market funds $ 70,168  $ —  $ —  $ 70,168 
Total cash and cash equivalents 70,168  —  —  70,168 
Marketable securities:
Government agency securities due within 1 year $ 6,994  $ —  $ (2) $ 6,992 
Total marketable securities 6,994  —  (2) 6,992 
Total cash, cash equivalents and marketable securities $ 77,162  $   $ (2) $ 77,160 
December 31, 2021
Cash and cash equivalents:
Cash and money market funds $ 70,542  $ —  $ —  $ 70,542 
Total cash and cash equivalents 70,542  —  —  70,542 
Marketable securities:
Corporate debt securities due within 1 year $ 16,787  $ —  $ (3) $ 16,784 
Total marketable securities 16,787  —  (3) 16,784 
Total cash, cash equivalents and marketable securities $ 87,329  $   $ (3) $ 87,326 
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to credit risk primarily consist of cash and cash equivalents, marketable securities and accounts receivable. The Company maintains deposits in highly-rated, federally-insured financial institutions in excess of federally insured limits. The Company’s investment strategy is focused on capital preservation. The Company invests in instruments that meet the high credit quality standards outlined in the Company’s investment policy. This policy also limits the amount of credit exposure to any one issue or type of instrument.
The Company’s trade receivables, net, includes amounts billed to Customers for product sales of FOTIVDA. The Customers are a limited group of specialty pharmacies and specialty distributors, and accordingly, the Company considers the risk of potential credit losses to be low.
The Company’s partnership receivables include amounts due to the Company from licensees and collaborators. The Company has not experienced any material losses related to partnership receivables from individual licensees or collaborators.
Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects the Company’s estimate of amounts that it would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from sources independent from the Company) and to minimize the use of unobservable inputs (the Company’s assumptions about how
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market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1.Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2.Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3.Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
Financial assets and liabilities are classified in their entirety within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The Company measures the fair value of its marketable securities by taking into consideration valuations obtained from third-party pricing sources. The pricing services utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker-dealer quotes on the same or similar securities, issuer credit spreads, benchmark securities and other observable inputs.
As of June 30, 2022, the Company had financial assets valued based on Level 1 inputs consisting of cash and cash equivalents in a U.S. government money market fund and had financial assets based on Level 2 inputs consisting of government-agency securities. During the three and six months ended June 30, 2022, the Company did not have any transfers of financial assets between Levels 1 and 2.
As of June 30, 2022, the Company did not have any financial liabilities recorded at fair value.
The loan payable (discussed in Note 6), which is classified as a Level 3 liability, has a variable interest rate and the carrying value approximates its fair value. As of June 30, 2022, the carrying value was approximately $38.4 million.
The following table summarizes the financial assets and liabilities measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021 (in thousands):
Fair Value Measurements as of June 30, 2022
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash and money market funds $ 70,168  $ —  $ —  $ 70,168 
Total cash and cash equivalents $ 70,168  $ —  $ —  $ 70,168 
Marketable securities:
Government agency securities due within 1 year $ —  $ 6,992  $ —  $ 6,992 
Total marketable securities $ —  $ 6,992  $ —  $ 6,992 
Total cash, cash equivalents and marketable securities $ 70,168  $ 6,992  $   $ 77,160 
Fair Value Measurements as of December 31, 2021
Level 1 Level 2 Level 3 Total
Financial assets carried at fair value:
Cash and money market funds $ 70,542  $ —  $ —  $ 70,542 
Total cash and cash equivalents $ 70,542  $ —  $ —  $ 70,542 
Marketable securities:
Corporate debt securities due within 1 year $ —  $ 16,784  $ —  $ 16,784 
Total marketable securities $ —  $ 16,784  $ —  $ 16,784 
Total cash, cash equivalents and marketable securities $ 70,542  $ 16,784  $   $ 87,326 
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Basic and Diluted Net Loss per Common Share
Basic net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share attributable to the Company’s common stockholders is based on the weighted-average number of common shares outstanding during the period plus additional weighted-average common equivalent shares outstanding during the period when the effect is dilutive.
For the three and six months ended June 30, 2022 and 2021, diluted net loss per share is the same as basic net loss per share as the inclusion of weighted-average shares of common stock issuable upon the exercise of outstanding stock options and warrants until the expirations of the Offering Warrants on April 8, 2021 and the PIPE Warrants on May 16, 2021 would be anti-dilutive.
The following table summarizes outstanding securities not included in the computation of diluted net loss per common share as the effect would have been anti-dilutive for the three and six months ended June 30, 2022 and 2021, respectively (in thousands):
Outstanding at
June 30,
2022 2021
Stock options outstanding 5,366  3,242 
Total 5,366  3,242 
Stock-Based Compensation
Under the Company’s stock-based compensation programs, the Company periodically grants stock options and restricted stock to employees, directors and nonemployee consultants. The Company also issues shares under an employee stock purchase plan. The fair value of each award is recognized in the Company’s statements of operations over the requisite service period for such award.
Awards that vest as the recipient provides service are expensed on a straight-line basis over the requisite service period. The Company uses the Black-Scholes option pricing model to value stock option awards without market conditions, which requires the Company to make certain assumptions regarding the expected volatility of its common stock price, the expected term of the option grants, the risk-free interest rate and the dividend yield with respect to its common stock. The Company calculates volatility using its historical stock price data. Due to the lack of the Company’s own historical data, the Company elected to use the “simplified” method for “plain vanilla” options to estimate the expected term of the Company’s stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate used for each grant is based on the United States Treasury yield curve in effect at the time of grant for instruments with a similar expected life. The Company utilizes a dividend yield of zero based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends.
The fair value of equity-classified awards to employees and directors is measured at fair value on the date the awards are granted. During the three and six months ended June 30, 2022 and 2021, the Company recorded the following stock-based compensation expense (in thousands):
Three Months Ended
June 30,
Six Months Ended
June 30,
2022 2021 2022 2021
Research and development $ 224  $ 289  $ 436  $ 644 
Selling, general and administrative $ 1,182  $ 880  2,237  1,729 
Total $ 1,406  $ 1,169  $ 2,673  $ 2,373 
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Income Taxes
The Company provides for income taxes using the asset-liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between financial reporting and tax bases of assets and liabilities, and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company calculates its provision for income taxes on ordinary income based on its projected annual tax rate for the year. Uncertain tax positions are recognized if the position is more-likely-than-not to be sustained upon examination by a tax authority. Unrecognized tax benefits represent tax positions for which reserves have been established. As of June 30, 2022, the Company is forecasting an effective tax rate of 0% for the year ending December 31, 2022. The Company maintains a full valuation allowance on all deferred tax assets.
Segment and Geographic Information
Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company views its operations and manages its business in one operating segment principally in the United States. As of June 30, 2022 and 2021, the Company had no net assets located outside of the United States.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of the Company’s ability to continue as a going concern and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of the Company’s capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. The Company bases its estimates on historical experience and various other assumptions that management believes to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in the Company’s disclosures in the period in which they become known. Actual results could differ from those estimates if past experience or other assumptions do not turn out to be substantially accurate.
Accrued Clinical Trial Costs and Contract Research Liabilities
During each of the three and six months ended June 30, 2022 and 2021, the Company had arrangements with multiple contract research organizations (“CROs”) whereby these organizations commit to performing services for the Company over multiple reporting periods. The Company recognizes the expenses associated with these arrangements based on its expectation of the timing of the performance of components under these arrangements by these organizations. Generally, these components consist of the costs of setting up the trial, monitoring the trial, closing the trial and preparing the resulting data. Costs related to patient enrollment in clinical trials are accrued as patients are enrolled in the trial.
In addition to fees earned by the CROs to manage the Company’s clinical trials, the CROs are also responsible for managing payments to the clinical trial sites on the Company’s behalf. There can be significant lag time in clinical trial sites invoicing the CROs. The date on which services are performed, the level of services performed and the cost of such services are often determined based on subjective judgments. The Company makes these judgments based upon the facts and circumstances known to it, such as the terms of the contract and its knowledge of activity that has been incurred, including the number of active clinical sites, the number of patients enrolled, the activities to be performed for each patient, including patient treatment and any imaging, if applicable, and the duration for which the patients will be enrolled in the trial. In the event that the Company does not identify some costs which have begun to be incurred, or the Company under or overestimates the level of services performed or the costs of such services in a given period, its reported expenses for such period would be understated or overstated. The Company currently reflects the effects of any changes in estimates based on changes in facts and circumstances directly in its operations in the period such change becomes known.
With respect to financial reporting periods presented in this Quarterly Report on Form 10-Q, the timing of the Company’s actual costs incurred have not differed materially from its estimated timing of such costs.

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(4) Collaborations and License Agreements
Collaboration Agreement
AstraZeneca
In December 2018, the Company entered into a clinical supply agreement (the “AstraZeneca Agreement”) with a wholly owned subsidiary of AstraZeneca to evaluate the safety and efficacy of AstraZeneca’s IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1, in combination with tivozanib as a first-line treatment or following bevacizumab and atezolizumab treatment for patients with advanced, unresectable HCC in an open-label, multi-center, randomized Phase 1b/2 clinical trial (the “DEDUCTIVE trial”). The Company serves as the study sponsor; each party contributes the clinical supply of its study drug; key decisions are made by both parties by consensus; and external study costs are otherwise shared equally. The Company and AstraZeneca have decided to close the cohort B portion of the DEDUCTIVE trial, which was previously expected to be enrolled in the second half of 2022, while focusing on data maturing from the cohort A portion of the DEDUCTIVE trial.
The Company is accounting for the joint development activities under the AstraZeneca Agreement as a joint risk-sharing collaboration in accordance with ASC 808 because both the Company and AstraZeneca are active participants in the oversight of the DEDUCTIVE trial via their participation on a joint steering committee and are exposed to significant risk and rewards in connection with the activity based on their obligation to share in the costs. AstraZeneca does not meet the definition of a “Customer,” thus the joint development activities under the AstraZeneca Agreement are not accounted for under ASC 606.
Payments from AstraZeneca with respect to its share of the external costs for the DEDUCTIVE trial incurred by the Company pursuant to a joint development plan are recorded as a reduction in research and development expenses due to the joint risk-sharing nature of the activities that is not representative of a vendor-customer relationship.
The Company records reimbursements from AstraZeneca for external study costs as a reduction in research and development expense during the period that reimbursable expenses are incurred. As a result of the cost sharing provisions in the AstraZeneca Agreement, the Company’s research and development expenses were reduced by approximately $0.2 million and $0.3 million in the three months ended June 30, 2022 and 2021, respectively, and by $0.4 million and by $0.5 million in the six months ended June 30, 2022 and 2021, respectively. The amount due to the Company from AstraZeneca pursuant to the cost-sharing provision was approximately $0.4 million as of June 30, 2022.
Out-License Agreements

EUSA
In December 2015, the Company entered into a license agreement with EUSA Pharma (UK) Limited (“EUSA” and the “EUSA Agreement”), under which the Company granted to EUSA the exclusive, sublicensable right to develop, manufacture and commercialize tivozanib in the territories of Europe (excluding Russia, Ukraine and the Commonwealth of Independent States), Latin America (excluding Mexico), Africa and Australasia (collectively, the “EUSA Licensed Territories”) for all diseases and conditions in humans, excluding non-oncologic diseases or conditions of the eye. In March of 2022, EUSA was acquired by Recordati, S.p.A (“Recordati”). As a result of the acquisition, all rights and obligations under the EUSA Agreement are transferred to Recordati.
EUSA has made research and development reimbursement and milestone payments to the Company totaling $12.5 million, including (i) a $2.5 million upfront payment upon the execution of the EUSA Agreement in December 2015, (ii) a $4.0 million research and development payment in September 2017 upon its receipt of marketing approval from the European Commission in August 2017 for FOTIVDA (tivozanib) for the treatment of RCC, and (iii) three $2.0 million milestones upon its receipt of reimbursement approvals in each of (a) February 2018 from the National Institute for Health and Care Excellence (“NICE”) in the United Kingdom, (b) November 2018 from the German Federal Association of the Statutory Health Insurances (“GKV-SV”) in Germany and (c) February 2019 from the Ministry of Health, Consumer Affairs and Social Welfare (“MSCBS”) in Spain. These reimbursement milestones payments were received in March 2018, December 2018 and May 2019, respectively. In addition, in September 2017, EUSA elected to opt-in to co-develop the Phase 2 clinical trial of tivozanib in combination with OPDIVO (nivolumab) in the first-line and the second-line treatment of RCC (the “TiNivo trial”). EUSA made an additional research and development reimbursement payment to the Company of $2.0 million in October 2017, in advance of the completion of the TiNivo trial for its approximate 50% share of the total costs of the TiNivo trial.
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As of June 30, 2022, the Company is eligible to receive (i) a $2.0 million milestone payment with respect to reimbursement approval in each of France and Italy, (ii) an additional $2.0 million for the grant of marketing approval for RCC in the three licensed countries outside of the EU, as mutually agreed by the parties, of which two approvals have been obtained in New Zealand in July 2019 and in South Africa in September 2020, (iii) a payment of $2.0 million per indication in connection with a filing by EUSA with the European Medicines Agency (“EMA”) for marketing approval for tivozanib for the treatment of each of up to three additional indications, (iv) $5.0 million per indication in connection with the EMA’s grant of marketing approval for each of up to three additional indications, and (v) up to $335.0 million upon EUSA’s achievement of certain sales thresholds. In addition, the Company is also eligible to receive tiered double-digit royalties on net sales, if any, of licensed products in the EUSA Licensed Territories ranging from a low double digit up to mid-twenty percent depending on the level of annual net sales. No milestone payments nor any research and development reimbursement payments were earned in the three and six months ended June 30, 2022 and 2021. The Company is also eligible to receive an additional research and development reimbursement payment of up to $20.0 million, for the Company’s Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, sorafenib (Nexavar®), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies (the “TIVO-3 trial”), if Recordati elects to opt-in to that study.
Pursuant to the KKC Agreement (as defined below), the Company is required to pay KKC a 30% sublicense fee related to earned milestone payments and royalties from EUSA. However, research and development reimbursement payments by EUSA are excluded from the 30% sublicense fee due to KKC, subject to certain limitations. If Recordati elects to opt-in to the TIVO-3 trial, only approximately $8.7 million of the $20.0 million research and development payment would be subject to the 30% sublicense fee due to KKC. The $2.0 million milestone payments the Company earned in each of February 2018, November 2018 and February 2019 upon EUSA’s reimbursement approval for FOTIVDA from the NICE in the United Kingdom, the GKV-SV in Germany and the MSCBS in Spain, respectively, for the first-line treatment of RCC were subject to the 30% KKC sublicense fee, or $0.6 million, each. The sub-license fees for EUSA’s reimbursement approvals in the United Kingdom, Germany and Spain were paid in April 2018, January 2019 and June 2019, respectively.
Recordati, following its acquisition of EUSA, is obligated to use commercially reasonable efforts to seek regulatory approval for and commercialize tivozanib throughout the EUSA Licensed Territories in RCC. Recordati has responsibility for all activities and costs associated with the further development, manufacture, regulatory filings and commercialization of tivozanib in the EUSA Licensed Territories.
Accounting Under ASC 606
Under ASC 606, the upfront consideration and regulatory milestones included in the $12.5 million aggregate transaction price, as described above, were being recognized as collaboration and licensing revenue over the Company’s estimated substantive performance period. Under ASC 606, upon the achievement of a regulatory milestone, the amount that represented the cumulative catch-up for the period from contract execution in December 2015 through the date of the milestone achievement was recognized as collaboration and licensing revenue, with the balance classified as deferred revenue and recognized as collaboration and licensing revenue over the remainder of the performance period. As of March 31, 2022, the Company determined that it has fulfilled its performance obligations under the contract in accordance with ASC 606 as the license was previously transferred and the Company is not currently providing substantive support under the EUSA Agreement. The Company recognized license and collaboration revenue of $0.0 million and approximately $0.5 million in the three months ended June 30, 2022 and 2021, respectively, and approximately $0.6 million and $1.0 million in the six months ended June 30, 2022 and 2021, respectively.
None of the remaining regulatory-related milestones are included in the transaction price as these milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered multiple factors: (i) the remaining reimbursement and marketing approvals in RCC are outside of the control of EUSA and vary on a country-by-country basis; (ii) milestones related to the submission filings for EMA approval of tivozanib in up to three additional indications are contingent upon the success of future clinical trials in additional indications, if any, and are outside of the control of EUSA; (iii) milestones related to the marketing approval by the EMA for tivozanib in up to three additional indications are contingent upon the success of the corresponding future clinical trials, if any, and are outside of the control of EUSA; and (iv) efforts by EUSA. The Company will assess any substantive performance obligations in connection with the achievement of future regulatory-related milestones. If the Company does not have any substantive performance obligations, the full amount of the milestone will be recognized in the period the milestone is achieved.
Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to EUSA and therefore are recognized at the later of when the performance obligation is satisfied (or partially satisfied) or the related sales occur. The
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Company will re-evaluate the transaction price, including its estimated variable consideration for milestones included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
In November 2017, the Company began earning sales royalties upon EUSA’s commencement of the first commercial launch of FOTIVDA with the initiation of product sales in Germany. EUSA has received reimbursement approval for and commercially launched FOTIVDA in Germany, the United Kingdom and Spain, as well as in some additional non-EU5 countries. EUSA is working to secure reimbursement approval in Italy and France and commercially launch FOTIVDA in additional EUSA licensed territories. The Company recognized royalty revenue of approximately $0.3 million in each of the three months ended June 30, 2022 and 2021 and approximately $0.5 million and $0.7 million in the six months ended June 30, 2022 and 2021, respectively.
The Company recognized total revenues under the EUSA Agreement of approximately $0.3 million and $0.8 million in the three months ended June 30, 2022 and 2021, respectively, and approximately $1.1 million and $1.7 million in the six months ended June 30, 2022 and 2021, respectively. The amount due to the Company from EUSA pursuant to the EUSA Agreement was approximately $0.3 million as of June 30, 2022.
Biodesix

In April 2014, the Company entered into a worldwide co-development and collaboration agreement (the “Biodesix Agreement”) with Biodesix, Inc. (“Biodesix”) to develop and commercialize ficlatuzumab, the Company’s potent humanized immunoglobulin G1 (“IgG1”) monoclonal antibody that targets HGF. Under the Biodesix Agreement, prior to the first commercial sale of ficlatuzumab, each party had the right to elect to discontinue its funding obligation for further development or commercialization efforts with respect to ficlatuzumab in exchange for reduced economics in the program, which is referred to as an “Opt-Out.” In September 2020, the Company regained full global rights to ficlatuzumab, effective December 2, 2020, when Biodesix exercised its “Opt-Out” rights under the Biodesix Agreement.
Pursuant to the terms of the Biodesix Agreement, as a result of Biodesix’s election to Opt-Out, Biodesix will (i) continue to be responsible for reimbursement of development costs with respect to the ongoing open label Phase 2 investigator-sponsored clinical trial of ficlatuzumab in combination with ERBITUX® (cetuximab) in HNSCC (the “Phase 2 HNSCC Trial”), (ii) cease to be entitled to 50% sharing of profits resulting from commercialization of ficlatuzumab, (iii) be entitled to a low double digit royalty on future product sales and 25% of future licensing revenue less approximately $2.5 million that Biodesix would be required to pay to the Company pursuant to the October 2016 amendment to the Biodesix Agreement and excluding contributions to research and development expenses and (iv) remain responsible for development obligations under the Biodesix Agreement with respect to VeriStrat. Biodesix and the Company also remain obligated to negotiate a commercialization agreement to delineate their rights and obligations in the event of any commercialization of VeriStrat with ficlatuzumab. As a result of Biodesix’s decision to Opt-Out, the Company now has worldwide licensing rights and sole decision-making authority with respect to further development and commercialization of ficlatuzumab. The payment obligations between the parties under the Biodesix Agreement are in effect until completion of the Phase 2 HNSCC Trial.
Biogen Idec International GmbH
In March 2009, the Company entered into an exclusive option and license agreement with Biogen regarding the development and commercialization of the Company’s discovery-stage ErbB3-targeted antibodies, including AV-203, for the potential treatment and diagnosis of cancer and other diseases outside of North America (the “Biogen Agreement”). Under the Biogen Agreement, the Company was responsible for developing ErbB3 antibodies through completion of the first Phase 2 clinical trial designed in a manner that, if successful, would generate data sufficient to support advancement to a Phase 3 clinical trial.
In March 2014, the Company and Biogen amended the Biogen Agreement (the “Biogen Amendment”). Pursuant to the Biogen Amendment, Biogen agreed to the termination of its rights and obligations under the Biogen Agreement, including Biogen’s option to (i) obtain a co-exclusive (with the Company) worldwide license to develop and manufacture ErbB3 targeted antibodies and (ii) obtain exclusive commercialization rights to ErbB3 products in countries in the world other than North America. As a result, the Company has worldwide rights to AV-203. Pursuant to the Biogen Amendment, the Company is obligated to use reasonable efforts to seek a collaboration partner for the purpose of funding further development and commercialization of ErbB3 targeted antibodies. The Company is also obligated to pay Biogen a percentage of milestone payments received by the Company from future partnerships after March 28, 2016 and single digit royalty payments on net sales related to the sale of ErbB3 products, if any, up to a cumulative maximum amount of $50.0 million.
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In-License Agreements
St. Vincent’s
In July 2012, the Company entered into a license agreement with St. Vincent’s, under which the Company obtained an exclusive, worldwide sublicensable right to research, develop, manufacture and commercialize products for human therapeutic, preventative and palliative applications that benefit from inhibition or decreased expression or activity of growth differentiation factor-15 (“GDF15”), which is also referred to as MIC-1 (the “St. Vincent’s Agreement”). Under the St. Vincent’s Agreement, St. Vincent’s also granted the Company non-exclusive rights for certain related diagnostic products and research tools.
In order to sublicense certain necessary intellectual property rights to Novartis AG in August 2015, the Company amended and restated the St. Vincent’s Agreement and made an additional upfront payment to St. Vincent’s of $1.5 million. As of June 30, 2022, the Company is required to make future milestone payments, up to an aggregate total of $12.1 million, upon the earlier of the achievement of specified development and regulatory milestones or a specified date for the first indication, and upon the achievement of specified development and regulatory milestones for the second and third indications, for licensed therapeutic products, some of which payments may be increased by a mid to high double-digit percentage rate for milestone payments made after the Company grants any sublicense, depending on the sublicensed territory. In February 2022, the Company paid a $2.3 million time-based milestone obligation which became due to St. Vincent’s in January 2022. The Company will also be required to pay St. Vincent’s tiered royalty payments equal to a low-single-digit percentage of any net sales it or its sublicensees make from licensed therapeutic products. The royalty rate escalates within the low-single-digit range during each calendar year based on increasing licensed therapeutic product sales during such calendar year.
The St. Vincent’s Agreement remains in effect until the later of ten years after the date of first commercial sale of licensed therapeutic products in the last country in which a commercial sale is made, or expiration of the last-to-expire valid claim of the licensed patents, unless we elect, or St. Vincent’s elects, to terminate the St. Vincent’s Agreement earlier. We have the right to terminate the St. Vincent’s Agreement on six months’ notice if we terminate our GDF15 research and development programs as a result of the failure of a licensed therapeutic product in preclinical or clinical development, or if we form the reasonable view that further GDF15 research and development for the treatment of cachexia is not commercially viable, and we are not then in breach of any of our obligations under the St. Vincent’s Agreement.
Kyowa Kirin Co. (KKC)
In December 2006, the Company entered into an agreement with KKC (the “KKC Agreement”), under which it obtained an exclusive, sublicensable license to develop, manufacture and commercialize tivozanib in all territories in the world except for Asia and the Middle East, where KKC retained the rights to tivozanib. Under the KKC Agreement, the Company obtained exclusive rights to tivozanib in its territory under certain KKC patents, patent applications and know-how for the diagnosis, prevention and treatment of all human diseases and conditions (the “Field”). On August 1, 2019, the Company entered into an amendment to the KKC Agreement pursuant to which KKC repurchased the non-oncology rights to tivozanib in the Company’s territory, excluding the rights the Company has sublicensed to EUSA under the EUSA Agreement. The Company has upfront, milestone and royalty payment obligations to KKC under the KKC Agreement related to the amended Field for oncology development by the Company, and following the amendment, KKC also has upfront, milestone and royalty payment obligations to the Company related to non-oncology development by KKC in the Company’s territory. Pursuant to the amendment to the KKC Agreement, KKC made a non-refundable upfront payment to the Company in the amount of $25.0 million that was received in September 2019, and KKC waived the one-time milestone payment of $18.0 million which would have otherwise been payable by the Company upon obtaining marketing approval on March 10, 2021 for tivozanib in the United States. KKC is required to make milestone payments to the Company of up to an aggregate of $390.7 million upon the successful achievement of certain development and sales milestones of tivozanib in non-oncology indications, of which the Company received a $2.8 million milestone payment in August 2020.
KKC Agreement
Upon entering into the KKC Agreement in 2006, the Company made an upfront payment in the amount of $5.0 million. In March 2010, the Company made a milestone payment to KKC in the amount of $10.0 million in connection with the dosing of the first patient in the Company’s clinical trial of tivozanib for the first-line treatment of RCC, which we refer to as our TIVO-1 trial. In December 2012, the Company made a $12.0 million milestone payment to KKC in connection with the acceptance by the FDA of the Company’s 2012 New Drug Application filing for tivozanib. Pursuant to the amendment to the KKC Agreement, KKC waived the one-time milestone payment of $18.0 million which would have
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otherwise been payable by the Company upon obtaining marketing approval on March 10, 2021 for tivozanib in the United States. Each milestone under the KKC Agreement was a one-time only payment obligation.
The Company has no remaining development and commercialization milestone payments due to KKC under the KKC Agreement.
The Company is required to pay tiered royalty payments on net sales it makes of tivozanib in its North American territory, which range from the low to mid-teens as a percentage of net sales. The royalty rate escalates within this range based on increasing tivozanib sales. The Company’s royalty payment obligations in a particular country in its territory begin on the date of the first commercial sale of tivozanib in that country, and end on the later of twelve years after the date of first commercial sale of tivozanib in that country or the date of the last to expire of the patents covering tivozanib that have been issued in that country. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. On March 22, 2021, the Company commenced product sales of FOTIVDA in the United States. The Company recognized approximately $3.0 million and $0.8 million in the three months ended June 30, 2022 and 2021, respectively, and $5.4 million and $0.9 million in the six months ended June 30, 2022 and 2021, respectively, in royalties due to KKC on net product sales of FOTIVDA in the United States in its Statement of Operations as a component of cost of products sold.
If the Company sublicenses any of its rights to tivozanib to a third party, as it has done with EUSA, the sublicense defines the payment obligations of the sublicensee, which may vary from the milestone and royalty payment obligations under the KKC Agreement relating to rights the Company retains. The Company is required to pay KKC a fixed 30% of amounts the Company receives from its sublicensees, including upfront license fees, milestone payments and royalties, but excluding amounts the Company receives for research and development reimbursement payments or equity investments, subject to certain limitations.
In connection with the EUSA Agreement, the Company is required to pay KKC the 30% sublicense fee related to earned milestone payments and royalties from EUSA. However, research and development reimbursement payments by EUSA are excluded from the 30% sublicense fee, subject to certain limitations. If Recordati elects to opt-in to the TIVO-3 trial, only approximately $8.7 million of the $20.0 million research and development payment would be subject to the 30% sublicense fee due to KKC. Refer to the section above, “Out License Agreements – EUSA”, for further discussion of the actual 30% sublicense fees incurred and paid to-date to KKC.
The Company and KKC each have access to and can benefit from the other party’s clinical data and regulatory filings with respect to tivozanib and biomarkers identified in the conduct of activities under the KKC Agreement, as related to the amended Field for oncology development. Under the KKC Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize tivozanib in its territory.
The KKC Agreement will remain in effect until the expiration of all of the Company’s royalty and sublicense revenue obligations, determined on a product-by-product and country-by-country basis, unless terminated earlier. If the Company fails to meet its obligations under the KKC Agreement and is unable to cure such failure within specified time periods, KKC can terminate the KKC Agreement, resulting in a loss of our rights to tivozanib and an obligation to assign or license to KKC any intellectual property or other rights the Company may have in tivozanib, including its regulatory filings, regulatory approvals, patents and trademarks for tivozanib.
August 1, 2019 Amendment to the KKC Agreement
In addition to the non-refundable upfront payment to the Company pursuant to the amendment to the KKC Agreement in the amount of $25.0 million and the waiver of the $18.0 million milestone for United States approval of tivozanib, the Company earned and received a $2.8 million development milestone payment in August 2020 pursuant to the amendment to the KKC Agreement upon the acceptance of KKC’s investigational new drug (“IND”), application for a non-oncology use of tivozanib by the Pharmaceuticals and Medical Devices Agency of Japan on August 2, 2020. KKC is also required to make remaining milestone payments to the Company of up to an aggregate of $387.9 million upon the successful achievement of certain development and sales milestones of tivozanib in non-oncology indications. KKC is required to make tiered royalty payments to the Company on net sales of tivozanib in non-oncology indications in the Company’s territory, which range from high single digit to low double digits as a percentage of net sales. The royalty rate escalates within this range based on increasing tivozanib sales, subject to certain adjustments. KKC’s royalty payment obligations in a particular country in the Company’s territory begin on the date of the first commercial sale of tivozanib in that country, and end on the later of the expiration date of the last valid claim of a patent application or patent owned by KKC covering tivozanib or 10 years after the date of first commercial sale of tivozanib in non-oncology indications in that country. No milestone payments were earned in the three and six months ended June 30, 2022 and 2021.
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If KKC sublicenses any of its rights to tivozanib to a third-party, KKC is required to pay the Company a percentage of amounts received from the respective sublicensees related to the Company’s territory, including upfront license fees, milestone payments and royalties, but excluding amounts received in respect of research and development reimbursement payments or equity investments, subject to certain limitations.
Accounting Analysis Under the August 1, 2019 Amendment to the KKC Agreement
Following the repurchase of non-oncology rights by KKC, the amended KKC Agreement is accounted for as two distinct agreements: (i) the KKC Agreement by which the Company has upfront, milestone and royalty payment obligations to KKC related to the Company’s oncology development of tivozanib in the amended Field for the Company’s territory that continues to be accounted for under ASC 730, Research and Development, and (ii) the amended KKC Agreement by which KKC has upfront, milestone and royalty payment obligations to the Company related to its non-oncology development of tivozanib for the Company’s territory that will be accounted for under ASC 606.
The Company evaluated the amendment to the KKC Agreement under ASC 606 and determined that KKC met the definition of a “Customer” as the Company considers the licensing or sale of intellectual property rights to be an output of the Company’s ordinary activities and is central to the operations of the Company. The Company determined that the amendment to the KKC Agreement contained a single performance obligation related to the Company’s transfer of rights to non-oncology intellectual property and know-how to KKC, excluding the rights the Company has sublicensed to EUSA under the EUSA Agreement. In addition, the Company determined that the $25.0 million non-refundable upfront payment received from KKC in September 2019 constituted the amount of the consideration to be included in the transaction price and attributed this amount to the Company’s single performance obligation. The Company satisfied this performance obligation during the third quarter of 2019. Accordingly, the Company recognized the $25.0 million in consideration as revenue in the third quarter of 2019. The Company concluded the performance obligation was satisfied at a point in time because any know-how or clinical data generated from the Company’s ongoing oncology development of tivozanib would not benefit KKC’s non-oncology development of tivozanib.
In the third quarter of 2020, the Company increased the transaction price to $27.8 million to include the $2.8 million development milestone that was earned in August 2020 upon the acceptance of KKC’s IND application for a non-oncology use of tivozanib by the Pharmaceuticals and Medical Devices Agency of Japan. Accordingly, the Company recognized the $2.8 million in consideration as revenue in the third quarter of 2020 as the Company did not have any ongoing performance obligations under the amendment to the KKC Agreement.
None of KKC’s remaining development and regulatory milestones to the Company related to its non-oncology development of tivozanib for the Company’s territory were included in the transaction price, as these milestone amounts were fully constrained. As part of its evaluation of the constraint, the Company considered multiple factors: (i) regulatory approvals are outside of the control of KKC; (ii) certain development and regulatory milestones are contingent upon the success of future clinical trials, if any, which is out of the control of KKC; and (iii) efforts by KKC. Any consideration related to development and regulatory milestones owed by KKC to the Company will be recognized when the corresponding milestones are no longer constrained as the Company does not have any ongoing performance obligations. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the intellectual property transferred to KKC and therefore are recognized at the later of when the performance obligation is satisfied or the related sales occur.
(5) Other Accrued Liabilities
Other accrued expenses consisted of the following (in thousands):
  June 30,
2022
December 31,
2021
FOTIVDA U.S. Product Royalties 3,001  2,011 
FOTIVDA Federal Rebates, Customer Credits and Co-Pay Assistance 2,298  1,170 
Professional Fees 1,937  1,107 
Other 767  1,133 
Total 8,003  5,421 
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(6) Hercules Loan Facility
On May 28, 2010, the Company entered into a loan and security agreement (the “First Loan Agreement”) with Hercules Capital Inc. and certain of its affiliates (“Hercules”). The First Loan Agreement was subsequently amended in March 2012, September 2014, May 2016 and amended and restated in December 2017 (the “2017 Loan Agreement” and as amended by the 2020 Loan Amendment (as defined below), the 2021 Loan Amendment (as defined below) and the 2022 Loan Amendment (as defined below) the “Loan Agreement”).
On August 7, 2020, the Company entered into a first amendment to the 2017 Loan Agreement (the “2020 Loan Amendment”) to provide the Company, subject to certain terms and conditions, with an additional term loan in an aggregate principal amount of up to $35.0 million (the “2020 Loan Facility”) in up to four tranches to be used to refinance outstanding loans under the 2017 Loan Agreement, and for general working capital purposes. The Company received the initial $15.0 million of the 2020 Loan Facility upon the closing of the 2020 Loan Amendment, of which approximately $9.7 million was used to retire the then outstanding balance under the 2017 Loan Agreement and of which approximately $5.3 million was new loan funding which was used for general working capital purposes.
The remainder of the loan amount is available to the Company, at its option, subject to certain terms and conditions, including upon the achievement of the following milestones: (i) the second tranche in the initial amount of $10.0 million (“Tranche Two”) was available through June 30, 2021 upon achieving FDA approval of FOTIVDA (“Performance Milestone I”), (ii) the third tranche of $5.0 million (“Tranche Three”) was initially available from July 1, 2021 through January 31, 2022 assuming the Company was to achieve $20.0 million in U.S. net product revenues from sales of FOTIVDA, by no later than December 31, 2021 (“Performance Milestone II”), and (iii) the fourth tranche of $5.0 million (“Tranche Four”) was initially available through June 30, 2022 contingent upon the achievement of both Performance Milestone I and Performance Milestone II, and subject to the consent of Hercules.
The 2020 Loan Amendment also amended the 2017 Loan Agreement by: (i) extending maturity until September 1, 2023, which is extendable to September 1, 2024 at the Company’s option assuming the Tranche Three funding has occurred, (ii) providing for an interest-only period beginning on the closing date of 2020 Loan Amendment and ending on September 30, 2021, which period may be extended through September 30, 2022 provided the Company achieves Performance Milestone I and further extendable through March 31, 2023 after the Tranche Three funding has occurred, if at all, and (iii) revising the per annum interest rate to the greater of (x) 9.65% and (y) an amount equal to 9.65% plus the prime rate as reported in the Wall Street Journal minus 3.25% as determined daily, provided however, that the per annum interest rate shall not exceed 15%. Principal payments were scheduled to commence on October 1, 2021 at the earliest, as described above. The interest rate as of June 30, 2022 was 11.15% based upon increases in the prime rate during 2022, in March, May and June.
Per the terms of the 2020 Loan Facility, principal will be repaid in equal monthly installments following the conclusion of the interest-only period. The Company may prepay all of the outstanding principal and accrued interest under the 2020 Loan Facility, subject to a prepayment charge up to 3.0% in the first year following the closing of the 2020 Loan Amendment, decreasing to 2.0% in year two and 1.0% in year three. The Company is obligated to make an end-of-term payment of 6.95% of the aggregate amount of loan funding received under the 2020 Loan Facility on the earlier of the maturity of the loan or the date on which the Company prepays any outstanding loan balance. The approximate $0.8 million end-of-term payment under the 2017 Loan Agreement continued to be due and was paid on July 1, 2021. In connection with the 2020 Loan Amendment, the Company incurred approximately $0.3 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount. The 2020 Loan Amendment was accounted for as a loan modification in accordance with ASC 470-50.
The 2020 Loan Facility includes various financial and operating covenants, including that the Company maintain an unrestricted cash position of at least $10.0 million through the date the Third Tranche funding is received and at least $5.0 million thereafter through the maturity of the loan. The Company was also required to achieve greater than or equal to 75% of its forecasted U.S. net product revenues from its sales of tivozanib over a six month trailing period, as defined and measured on a monthly basis, effective upon the earlier of receiving Third Tranche funding and the month of April 2022.
On February 1, 2021, the Company entered into the second amendment to the 2017 Loan Agreement (the “2021 Loan Amendment”), which increased the 2020 Loan Facility from up to $35.0 million to up to $45.0 million following FDA approval of FOTIVDA. The 2021 Loan Amendment makes certain changes to the 2020 Loan Amendment, including, among other things, (i) increasing Tranche Two funding upon achieving Performance Milestone I from $10.0 million to $20.0 million, thereby increasing the total amount of then unfunded term loan commitments under the 2020 Loan Facility from $20.0 million to $30.0 million, (ii) increasing the amount of U.S. net product revenues from sales of FOTIVDA required to achieve Performance Milestone II from $20.0 million to $35.0 million and changing the deadline for achieving
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Performance Milestone II from December 31, 2021 to April 1, 2022 and (iii) increasing the amount of the financial covenant for the maintenance of an unrestricted cash position from at least $10.0 million to at least $15.0 million from the date the Tranche Two funding is received until the date the Tranche Three funding is received and at least $10.0 million thereafter through the maturity of the Loan Agreement. In connection with the 2021 Loan Amendment, the Company incurred approximately $0.1 million in loan issuance costs paid directly to Hercules, which are accounted for as a loan discount.
On March 11, 2021, the Company completed the $20.0 million drawdown of Tranche Two funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone I upon FDA approval of FOTIVDA on March 10, 2021. The achievement of Performance Milestone I extended the interest-only period by twelve months from September 30, 2021 to September 30, 2022 and increased the amount of unrestricted cash required for the Company to satisfy the minimum financial covenant during the period between receiving Tranche Two funding and Tranche Three funding from $10.0 million to $15.0 million.
On December 22, 2021, the Company completed the $5.0 million drawdown of Tranche Three funding under the 2021 Loan Amendment that was made available in connection with the achievement of Performance Milestone II upon the achievement of $35.0 million in U.S. net product revenues from sales of FOTIVDA. The achievement of Performance Milestone II extended the interest-only period by six months from September 30, 2022 to March 31, 2023, extended the loan maturity by one year from September 1, 2023 to September 1, 2024 and decreased the amount of unrestricted cash required for the Company to satisfy the minimum financial covenant from $15.0 million to $10.0 million thereafter through the maturity of the Loan Agreement.
On March 8, 2022, the Company entered into the third amendment to the 2017 Loan Agreement (the “2022 Loan Amendment”). The 2022 Loan Amendment (i) changed the operating covenant to decrease the achievement of greater than or equal to 75% of the Company's forecasted U.S. net product revenues from its sales of tivozanib over a six-month trailing period to 65%, as defined and measured on a monthly basis, and extended the month of commencement from April 2022 to June 2022, (ii) added a cash waiver, at the Company's election, in the event its actual U.S. net product revenues from its sales of tivozanib over a six-month trailing period are below the monthly minimum operating covenant of 65%, such that the Company's unrestricted cash position is equal to or greater than the then total outstanding principal under the Loan Agreement for each day of such month, (iii) changed Tranche Four funding, in the amount of $5.0 million, that was subject to the consent of Hercules to the achievement of $30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period, or Performance Milestone III, and extended the availability of Tranche Four funding from June 30, 2022 to December 15, 2022, and (iv) increased the amount of unrestricted cash required for the Company to satisfy the minimum financial covenant from $10.0 million to $15.0 million upon the earlier of receiving the Tranche Four funding or January 1, 2023, through the maturity of the Loan Agreement.
As of June 30, 2022, the total outstanding principal under the Loan Agreement was $40.0 million, principal payments are scheduled to commence on April 1, 2023 and the corresponding end-of-term payments under the Loan Agreement, in the aggregate amount of approximately $2.8 million, are due upon the current loan maturity date of September 1, 2024. As of June 30, 2022, $5.0 million remains available to the Company in committed funding under the Loan Agreement, in Tranche Four funding in connection with the achievement of Performance Milestone III for $30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period by December 15, 2022. The unamortized discount to be recognized over the remainder of the loan period was approximately $1.6 million and $2.0 million as of June 30, 2022 and December 31, 2021, respectively. Per the Loan Agreement, the end-of-term payment of approximately $0.8 million was paid on July 1, 2021, as scheduled.
The Loan Agreement is secured by substantially all of the Company’s assets, excluding intellectual property. The Loan Agreement provides that certain events shall constitute a default by the Company, including failure by the Company to pay amounts under the Loan Agreement when due; breach or default in the performance of any covenant under the Loan Agreement by the Company, subject to certain cure periods; insolvency of the Company and certain other bankruptcy proceedings involving the Company; default by the Company of obligations involving indebtedness in excess of $500,000; and the occurrence of an event or circumstance that would have a material adverse effect upon the business of the Company. As of June 30, 2022, the Company was in compliance with all loan covenants, Hercules has not asserted any events of default and the Company does not believe that there has been a material adverse effect as defined in the Loan Agreement.
The Company has determined that the risk of subjective acceleration under the material adverse events clause is remote and therefore has classified the outstanding principal as a long-term liability based on the timing of scheduled principal payments.
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Future minimum payments, including interest and principal, under the loans payable outstanding as of June 30, 2022 are as follows (in thousands):
Year Ending December 31:
 Amount
2022 (remaining six months) $ 2,255 
2023 22,927 
2024 24,666 
$ 49,848 
Less amount representing interest (7,068)
Less unamortized discount (1,571)
Less deferred charges (2,780)
Less loans payable current, net of discount (5,182)
Loans payable non-current, net of discount $ 33,247 
(7) Common Stock

In June 2022, the Company amended its certificate of incorporation, which increased the number of authorized shares of common stock, $0.001 par value, by 30,000,000 from 50,000,000 shares to 80,000,000 shares. The amendment was approved by the Company’s board of directors on April 9, 2022 and adopted by its stockholders on June 7, 2022 at the Company’s 2022 annual meeting of stockholders.
As of June 30, 2022, the Company had 80,000,000 authorized shares of common stock, $0.001 par value, of which 34,614,284 shares were issued and outstanding.
Public Offering – March 2021
On March 26, 2021, the Company completed an underwritten public offering of 6,900,000 shares of its common stock, including the full exercise by the underwriters of their option to purchase an additional 900,000 shares, at the public offering price of $8.00 per share for gross proceeds of approximately $55.2 million. The net offering proceeds to the Company were approximately $51.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company.
Universal Shelf Registration Statement
On November 9, 2020, the Company filed a shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of up to $300.0 million of its common stock, preferred stock, debt securities, warrants and/or units (the “2020 Shelf”). The 2020 Shelf (File No. 333-249982) was declared effective by the SEC on November 18, 2020 and was filed to replace the Company’s then existing shelf registration statement, which was terminated. As of June 30, 2022, there was approximately $213.0 million available for future issuance of common stock, preferred stock, debt securities, warrants and/or units.
Sales Agreement with SVB Leerink
In February 2018, the Company entered into a sales agreement with SVB Leerink LLC (“SVB Leerink” and the “SVB Leerink Sales Agreement”) pursuant to which the Company may issue and sell shares of its common stock from time to time up to an aggregate amount of $50.0 million, at its option, through SVB Leerink as its sales agent, with any sales of common stock through SVB Leerink being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), or in other transactions pursuant to an effective shelf registration statement on Form S-3. The Company agreed to pay SVB Leerink a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the SVB Leerink Sales Agreement. The Company sold 470,777 shares, 1,251,555 shares, 1,070,175 shares and 330,688 shares pursuant to the SVB Leerink Sales Agreement, resulting in proceeds net of commissions of approximately $10.3 million, $7.5 million, $5.9 million and $3.4 million in the fourth quarter of 2018, February 2019, November 2020 and March 2021, respectively. As of June 30, 2022, approximately $22.2 million was available for issuance in connection with future stock sales pursuant to the SVB Leerink Sales Agreement.
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(8) Stock-based Compensation
Stock Incentive Plan
The Company previously maintained the 2010 Stock Incentive Plan (the “2010 Plan”) for employees, consultants, advisors and directors, as amended in March 2013, June 2014 and June 2017.
In April 2019, the Company’s board of directors adopted the 2019 Equity Incentive Plan (as amended, the “2019 Plan”) and on June 12, 2019 the stockholders approved the 2019 Plan at the Annual Meeting of Stockholders. The 2019 Plan provides similar terms as the 2010 Plan, including: (i) a provision for the grant of equity awards such as stock options and restricted stock; (ii) that the exercise price of incentive stock options cannot be less than 100% of the fair market value of the common stock on the date of the grant for participants who own less than 10% of the total combined voting power of stock of the Company and not less than 110% for participants who own more than 10% of the total combined voting power of the stock of the Company; (iii) that options and restricted stock granted under the 2019 Plan vest over periods as determined by the Company's board of directors, which generally are equal to four years; and (iv) that options granted under the 2019 Plan expire over periods as determined by the Company’s board of directors, which generally are ten years from the date of grant. In April 2020, the Company's board of directors adopted an amendment to the 2019 Plan to increase the total number of shares reserved under the Plan by 1,300,000 shares, among other things. This amendment was approved by stockholders on June 10, 2020 at the Company’s 2020 annual meeting of stockholders. In April 2021, the Company's board of directors adopted an additional amendment to the 2019 Plan to increase the total number of shares reserved under the Plan by 2,200,000. This amendment was approved by stockholders on June 9, 2021 at the Company’s 2021 annual meeting of stockholders. In April 2022, the Company's board of directors adopted an additional amendment to the 2019 Plan to increase the total number of shares reserved under the 2019 Plan by 4,000,000. This amendment was approved by stockholders on June 7, 2022 at the Company’s 2022 annual meeting of stockholders.
Awards may be made under the 2019 Plan for up to the sum of (i) 8,500,000 shares of common stock and (ii) such additional number of shares of common stock (up to 1,068,901 shares) as is equal to (x) the number of shares of common stock reserved for issuance under the 2010 Plan that were available for grant under the 2010 Plan immediately prior to the date the 2019 Plan was approved by the Company’s stockholders and (y) the number of shares of common stock subject to awards outstanding under the 2010 Plan, which awards expire, terminate or are otherwise surrendered, cancelled, forfeited or repurchased by the Company pursuant to a contractual repurchase right. As of June 30, 2022, there were 4,187,992 shares of common stock available for future issuance under the 2019 Plan and no shares of common stock available for future issuance under the 2010 Plan.
The following table summarizes stock option activity during the six months ended June 30, 2022:
Options
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term
Aggregate
Intrinsic
Value
Outstanding at January 1, 2022
3,156,379  $ 9.45  7.55 $ 5,720 
Granted 2,334,656  3.76 
Exercised (3,005) 5.26 
Forfeited (121,534) 13.94 
Outstanding at June 30, 2022
5,366,496  $ 6.88  8.06 $ 7,264,545 
Exercisable at June 30, 2022
1,885,155  $ 9.81  6.12 $ 940,678 
The aggregate intrinsic value is based upon the Company’s closing stock price of $6.56 on June 30, 2022.
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The fair value of stock options, subject only to service or performance conditions, that are granted to employees is estimated on the date of grant using the Black-Scholes option-pricing model. The following tables summarize the assumptions used in the Black-Scholes option-pricing model in the three and six months ended June 30, 2022 and 2021:
  Three Months Ended
June 30,
  2022 2021
Volatility factor
97.42% - 102.52%
100.74% - 102.63%
Expected term (in years)
5.50 - 6.25
5.50 - 6.25
Risk-free interest rates
2.53% - 3.36%
0.96% - 1.17%
Dividend yield
  Six Months Ended
June 30,
  2022 2021
Volatility factor
97.19% - 102.52%
56.17% - 102.66%
Expected term (in years)
5.50 - 6.25
5.50 - 6.25
Risk-free interest rates
1.69% - 3.36%
0.06% - 1.17%
Dividend yield
Based upon these assumptions, the weighted-average grant date fair value of stock options granted during the six months ended June 30, 2022 and 2021 was $2.97 and $6.81, respectively.
As of June 30, 2022, there was $14.0 million of total unrecognized stock-based compensation expense related to stock options granted to employees under the Plan. The expense is expected to be recognized over a weighted-average period of 3.05 years.
Employee Stock Purchase Plan
In February 2010, the Company's board of directors adopted the 2010 Employee Stock Purchase Plan, as amended in March 2013 and in November 2017, (the “ESPP”). In April 2021, the Company's board of directors adopted an amended and restated ESPP (the “A&R ESPP”) to, among other things, increase the total number of shares reserved under the ESPP by 500,000 shares. Pursuant to the A&R ESPP the Company may sell up to an aggregate of 576,400 shares of Common Stock. The A&R ESPP was approved by stockholders on June 9, 2021 at the Company’s 2021 annual meeting of stockholders. In April 2022, the Company's board of directors adopted an amendment to the A&R ESPP to increase the total number of shares reserved under the A&R ESPP by 300,000 shares, pursuant to which the Company may sell up to an aggregate of 876,400 shares of Common Stock. This amendment was approved by stockholders on June 7, 2022 at the Company’s 2022 annual meeting of stockholders. The A&R ESPP allows eligible employees to purchase common stock at a price per share equal to 85% of the lower of the fair market value of the common stock at the beginning or end of each six-month period during the term of the A&R ESPP. As of June 30, 2022, there were 575,834 shares available for future issuance under the A&R ESPP.
Pursuant to the A&R ESPP, the Company sold a total of 136,569 and 13,220 shares of common stock during the six months ended June 30, 2022 and 2021, respectively, at a purchase price of $3.39 and $4.38, respectively, which represents 85% of the closing price of the Company's common stock on the applicable purchase date. The total stock-based compensation expense recorded as a result of the A&R ESPP was $0.1 million and $0.2 million during the three and six months ended June 30, 2022, respectively. The total stock-based compensation expense recorded as a result of the A&R ESPP was a nominal amount during the three and six months ended June 30, 2021.
(13) Legal Proceedings
As of the date of filing this Quarterly Report on Form 10-Q, there are no material outstanding legal proceedings against the Company or its current officers or directors.
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Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes appearing elsewhere in this report. Some of the information contained in this discussion and analysis or set forth elsewhere in this report, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section in Part II, Item 1A of this report for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a commercial stage, oncology-focused biopharmaceutical company committed to delivering medicines that provide a better life for patients with cancer. We currently market FOTIVDA® (tivozanib) in the United States. FOTIVDA is our first commercial product and was approved by the U.S. Food and Drug Administration, or FDA, for marketing and sale in the United States on March 10, 2021 for the treatment of adult patients with relapsed or refractory advanced, or R/R, renal cell carcinoma, or RCC, following two or more prior systemic therapies. We market and sell FOTIVDA in the United States through our commercial infrastructure, and have made FOTIVDA available to patients through a network of specialty pharmacies and distributors. We continue to develop tivozanib in immuno-oncology combinations and other novel targeted combinations in RCC and other indications, and we have other investigational programs in clinical development.
FOTIVDA is an oral, next-generation vascular endothelial growth factor receptor, or VEGFR, tyrosine kinase inhibitor, or TKI. The FDA approval of FOTIVDA is based on our pivotal Phase 3 randomized, controlled, multi-center, open-label clinical trial comparing tivozanib to an approved therapy, Nexavar® (sorafenib), in RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, which we refer to as the TIVO-3 trial. The approval is also supported by three additional trials in RCC and includes safety data from over 1,000 clinical trial subjects.

In June 2022, the National Comprehensive Cancer Network®, or NCCN, elevated FOTIVDA® (tivozanib) to a Category 1 status as a subsequent therapy for RCC patients who have received two or more prior therapies in its latest Kidney Cancer Treatment Guidelines. The NCCN Clinical Practice Guidelines, or the NCCN Guidelines, are a recognized standard for clinical policy in cancer care and are developed through review of evidence and recommendations from physicians and oncology researchers. We believe the NCCN Guidelines are recognized and followed by both academic and community oncologists when selecting appropriate therapeutic options for their patients, in addition to reimbursement and treatment pathways, and FOTIVDA’s elevated status may positively impact prescribing decisions by physicians and the commercialization of FOTIVDA. Based on third party data, we believe we took a leadership position in the number of new third-line R/R RCC patient starts during the first quarter of 2022 and remained a leader in new third-line R/R RCC patient starts during the second quarter of 2022. We believe that remaining a leader in new patient starts is a leading indicator of progress toward our objective to become the market share leader and the standard of care in the third-line R/R RCC setting.
Restrictions related to the ongoing COVID-19 pandemic have posed challenges for gaining in-person access to customers, prescribers and other healthcare professionals and certain institutions remain closed to industry representatives. Notwithstanding these challenges, as of June 30, 2022, prescriptions for FOTIVDA and product revenues have increased quarter over quarter since the beginning of our commercial launch. We aim to continue to deliver quarter over quarter U.S. net revenue and underlying prescription demand growth as we continue to execute on our commercial strategy to support the adoption of FOTIVDA in appropriate patients.
We believe there is significant commercial opportunity for FOTIVDA in RCC in the United States. Based on third party estimates, the current U.S. market for R/R RCC therapy is more than $1.7 billion, including $1.3 billion in the second line and $480.0 million in the third and fourth lines. Data from the TIVO-3 trial demonstrated the superior efficacy and improved tolerability of FOTIVDA when compared to an approved VEGFR TKI in the RCC patients whose disease had relapsed or become refractory to two or three prior systemic therapies, and we believe that FOTIVDA could become a standard of care in the United States in the third line relapsed or refractory advanced setting. Further, we are seeking to generate data to support regulatory approval of tivozanib in combination with nivolumab in the second line R/R RCC setting, which represents a larger market opportunity than the third line R/R RCC setting, through our Phase 3 clinical trial designed to evaluate the safety and efficacy of tivozanib in combination with nivolumab as compared to tivozanib monotherapy in RCC patients who have progressed following one or two lines of therapy, one of which was an immune checkpoint inhibitor, or ICI, which we refer to as the TiNivo-2 trial. We currently expect enrollment in the TiNivo-2 trial to be completed in the second quarter of 2023. We and our collaboration partners are also developing tivozanib in
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combination with ICIs and a hypoxia inducible factor 2α, or HIF2α, inhibitor to support the expansion of tivozanib's potential utility in RCC.
Based on FOTIVDA’s demonstrated anti-tumor activity, tolerability profile and reduction of regulatory T-cell production, we and our collaboration partners are continuing to develop tivozanib in RCC and in additional cancer indications with significant unmet medical needs including hepatocellular carcinoma, or HCC, and tumors that are resistant to immunotherapy, or immunologically cold tumors, in combination with ICIs. In addition, we are evaluating tivozanib as a monotherapy in cholangiocarcinoma, or CCA. We and our collaboration partners or independent investigators sponsor the development of tivozanib through preclinical studies and clinical trials conducted under collaboration agreements and investigator sponsored trial, or IST, agreements or our Cooperative Research and Development Agreement, or CRADA, with the National Cancer Institute’s Surgical Oncology Program, or NCI-SOP.

We are also seeking to advance our pipeline of four wholly owned IgG1, monoclonal antibody product candidates, ficlatuzumab, AV-380, AV-203 and AV-353, to position each product candidate for further development by partners with us retaining all, or a portion of, the North American oncology commercial rights related to these product candidates.
Business Update Regarding COVID-19
The COVID-19 pandemic has and will continue to affect economies and businesses around the world. We continue to closely monitor the impact of the COVID-19 pandemic on all aspects of our business, including the impact on our employees, patients, communities and business operations to varying degrees. We have and may continue to experience disruptions in the future that could directly or indirectly impact our results of operations, including product revenue and our financial condition. Although we do not currently expect that the ongoing COVID-19 pandemic will have a material impact on our business plans or results of operations, we are unable to predict the impact that the COVID-19 pandemic will have on our operating results and financial condition due to numerous uncertainties. These uncertainties include the duration, scope and severity of the pandemic, the duration and extent of travel restrictions and social distancing in the United States and other countries, business closures and business disruptions, its impact and the economic impact on local, regional, national and international markets, the effectiveness of actions taken in the United States and other countries to contain and treat the disease, periodic and seasonal spikes in infection rates, new strains of the virus that cause outbreaks of COVID-19 and the broad availability of effective vaccines and antiviral treatments, among others. The situation surrounding the COVID-19 pandemic remains fluid and continues to rapidly evolve, and we are actively managing our response and assessing potential impacts to our operating results and financial condition, as well as adverse developments in our business. For further information regarding the impact of the COVID-19 pandemic on us, see “Part II. Item 1A - Risk Factors” included in this Quarterly Report on Form 10-Q.
Financial Overview
We do not have a history of generating operating profits and, as of June 30, 2022, we had an accumulated deficit of $693.1 million, a portion of which consist of net operating losses that we believe can be used as tax credits to offset future revenues. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we seek to successfully commercialize FOTIVDA in the United States and continue our planned development activities for our clinical and preclinical stage assets.
We may require substantial additional capital to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States. Please see “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources —Liquidity and Going Concern” of this Quarterly Report for a further discussion of our funding requirements.
Revenue
Prior to the commercial launch of FOTIVDA in March 2021, our revenues were historically generated primarily through collaborative research, development and commercialization agreements. Payments to us 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. In November 2017, we began earning sales royalties upon EUSA Pharma (UK) Limited’s, or EUSA’s, commencement of the first commercial launch of FOTIVDA.
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. We commenced commercial sales of our first product FOTIVDA in
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the United States on March 22, 2021. We expect that any revenue we generate will fluctuate from quarter to quarter and year to year as a result of the timing and amount of the payments that we receive upon the sales of FOTIVDA and any future products, to the extent any are successfully commercialized, and license fees, research and development reimbursements, milestones, royalties and other payments received under our strategic partnerships. If we or our collaboration partners fail to complete the development of our product candidates in a timely manner or to obtain or maintain regulatory approval for them, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.
Research and Development Expenses
Research and development expenses have historically consisted of expenses incurred in connection with the discovery and development of our product candidates. We recognize research and development expenses as they are incurred. These expenses consist primarily of:
employee-related expenses, including salaries, bonuses, benefits, stock-based compensation and research-related overhead;
external development-related expenses, including clinical trials, preclinical studies, consultants and other outsourced services;
costs of acquiring and manufacturing drug development related materials and related distribution;
costs associated with our regulatory and quality assurance operations and medical affairs;
upfront license payments, milestones, sublicense fees and royalties related to in-licensed products and technology; and
allocated expenses for facilities and information technology.
Research and development expenses is net of amounts reimbursed under our clinical supply agreement with a wholly owned subsidiary of AstraZeneca for their respective share of development costs incurred by us in connection with our open-label, multi-center, randomized Phase 1b/2 clinical trial to evaluate the safety and efficacy of AstraZeneca’s IMFINZI (durvalumab), a human monoclonal antibody directed against PD-L1, in combination with tivozanib as a first-line treatment or following bevacizumab and atezolizumab treatment for patients with advanced, unresectable HCC, which we refer to as our DEDUCTIVE trial.
Currently, we track direct external development expenses and direct salary on a program-by-program basis and allocate general-related expenses, such as indirect compensation, benefits and consulting fees, to each program based on the personnel resources allocated to such program. Facilities, IT costs and stock-based compensation are not allocated amongst programs and are considered overhead.
Uncertainties of Estimates Related to Research and Development Expenses
The process of conducting preclinical studies and clinical trials necessary to obtain FDA approval for each of our product candidates is costly and time-consuming. The probability of success for each product candidate and clinical trial may be affected by a variety of factors, including, among others, the risk benefit profile of the product candidates’ clinical activity, investment in the program, competition, manufacturing capabilities and commercial viability.
At this time, we cannot reasonably estimate or know the nature, specific timing and estimated costs of the efforts that will be necessary to complete the development of our product candidates, or the period, if any, in which material net cash inflows may commence from sales of any approved products. This uncertainty is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:
our ability to establish and maintain strategic partnerships to execute our strategy to partner our clinical stage assets, the terms of those strategic partnerships and the success of those strategic partnerships, if any, including the timing and amount of payments that we might receive from strategic partners;
the scope, progress, results and costs of preclinical development, laboratory testing and clinical trials for any product candidate;
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the progress and results of our clinical trials;
the costs, timing and outcome of regulatory review of our product candidates;
the emergence of competing technologies and products and other adverse market developments;
the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims; and
additional manufacturing requirements.
As a result of the uncertainties associated with developing drugs, including those discussed above, we are unable to determine the exact duration and completion costs of current or future clinical stages of our product candidates, or when, or to what extent, we will generate revenues from the commercialization and sale of any of our product candidates for which we may obtain regulatory approval. Development timelines, probability of success and development costs vary widely. We anticipate that we will make determinations as to which additional programs to pursue and how much funding to direct to each program on an ongoing basis in response to the scientific and clinical success, if any, of each product candidate, as well as ongoing assessment of each product candidate’s commercial potential. We will need to raise substantial additional capital in the future in order to fund the development of our preclinical and clinical product candidates.

Selling, General and Administrative Expenses
Selling, general and administrative expenses consist principally of compensation, benefits and travel for employees in executive, finance, legal, human resource and commercial functions. Other selling, general and administrative expenses include professional fees for audit, tax, general legal, patent legal, investor relations, commercial, consulting services and directors’ fees, as well as facility and information technology-related costs not otherwise included in research and development expenses.
Interest Expense, Net
Interest expense consists of interest, amortization of debt discount and amortization of deferred financing costs associated with our loans payable, and is shown net of interest income, which consists of interest earned on our cash, cash equivalents and marketable securities. The primary objective of our investment policy is capital preservation.
Income Taxes
We calculate our provision for income taxes on ordinary income based on our projected annual tax rate for the year. As of June 30, 2022, we are forecasting an effective tax-rate of 0% for the year ending December 31, 2022, and since we maintain a full valuation allowance on all of our deferred tax assets, we have recorded no income tax provision or benefit in the current quarter.
Critical Accounting Policies and Significant Judgments and Estimates
Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect certain reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, the assessment of our ability to continue as a going concern, and the reported amounts of revenues and expenses during the reporting periods. Significant items subject to such estimates and assumptions include revenue recognition, clinical trial costs and contract research accruals, measurement of trade receivables net, measurement of stock-based compensation and estimates of our capital requirements over the next twelve months from the date of issuance of the consolidated financial statements. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Material changes in these estimates could occur in the future. Changes in estimates are recorded or reflected in our disclosures in the period in which they become known. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate. Our significant accounting policies and
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critical accounting estimates are described in the notes to our consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Results of Operations
Comparison of Three and Six Months Ended June 30, 2022 and 2021
Revenues (in thousands)
  Three Months Ended
June 30,
Change Six Months Ended
June 30,
Change
  2022 2021 $ % 2022 2021 $ %
FOTIVDA U.S. product revenue, net $ 25,006  $ 6,735  $ 18,271  271  % $ 45,092  $ 7,801  $ 37,291  478  %
Partnership revenue - EUSA 298  821  (523) (64) % 1,132  1,675  (543) (32) %
Total revenues $ 25,304  $ 7,556  $ 17,748  235  % $ 46,224  $ 9,476  $ 36,748  388  %

Our total revenues increased by $17.7 million, or 235%, to $25.3 million in the three months ended June 30, 2022, from $7.6 million in the same period in 2021, and by $36.7 million, or 388%, to $46.2 million in the six months ended June 30, 2022 from $9.5 million in the same period in 2021, principally due to the commencement of sales of our first commercial product FOTIVDA in the United States on March 22, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies.
Partnership revenues from EUSA decreased by $0.5 million, or 64%, to $0.3 million in the three months ended June 30, 2022, from $0.8 million in the same period in 2021, principally due to a decrease of $0.5 million in collaboration and licensing revenue.
Partnership revenues from EUSA decreased by $0.5 million, or 32%, to $1.1 million in the six months ended June 30, 2022 from $1.7 million in the same period in 2021, principally due to decreases of $0.4 million in collaboration and licensing revenue and $0.1 million in royalties.

Under Accounting Standards Codification, Revenue from Contracts with Customers, or ASC 606, the $12.5 million in total research and development reimbursement and milestone payments by EUSA to the Company was being recognized as collaboration and licensing revenue over the Company’s estimated substantive performance period. As of March 31, 2022, the Company determined that it has fulfilled its performance obligations in accordance with ASC 606 as the Company is not currently providing substantive support under the license agreement with EUSA, or the EUSA Agreement. Accordingly, the $12.5 million in deferred revenue for total research and development reimbursement and milestone payments was fully amortized as of March 31, 2022.

Refer to Note 4 “Collaborations and License Agreements – EUSA”, to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q regarding the specific application of ASC 606 to the EUSA Agreement.
FOTIVDA U. S. Product Revenue, Net (in thousands)
Three Months Ended
June 30,
Change Six Months Ended
June 30,
Change
2022 2021 $ % 2022 2021 $ %
Gross product revenue $ 30,404  $ 7,993  $ 22,411  280  % $ 55,048  $ 9,249  $ 45,799  495  %
Discounts and allowances (5,398) (1,258) (4,140) 329  % (9,956) (1,448) (8,508) 588  %
Product revenue, net $ 25,006  $ 6,735  $ 18,271  271  % $ 45,092  $ 7,801  $ 37,291  478  %
Our product revenues, net increased by $18.3 million, or 271%, to $25.0 million in the three months ended June 30, 2022, from $6.7 million in the same period in 2021, and by $37.3 million, or 478%, to $45.1 million in the six months ended June 30, 2022 from $7.8 million in the same period in 2021, principally due to increases in the number of units sold to specialty pharmacies and specialty distributors that were driven by a strong uptake in the adoption of FOTIVDA following the commercial launch in the United States on March 22, 2021. In the second quarter of 2022, 1.157 commercial
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prescriptions were filled, representing a 309% increase from 283 commercial prescriptions filled during the same period in 2021. In the first half of 2022, 2.134 commercial prescriptions were filled, representing a 654% increase from 283 commercial prescriptions filled during the same period and following FOTIVDA’s approval in March 2021.
We anticipate FOTIVDA U.S. net product revenues will be in the range of $100.0 million to $110.0 million in 2022.
Cost of Products Sold (in thousands)
  Three Months Ended June 30, Change Six Months Ended
June 30,
Change
  2022 2021 $ % 2022 2021 $ %
Cost of products sold $ 3,065  $ 822  $ 2,243  273  % $ 5,499  $ 960  $ 4,539  473  %
Gross margin % 88  % 88  % —  % 88  % 88  % —  %

We commenced sales of our first commercial product FOTIVDA in the United States on March 22, 2021 for the treatment of adult patients with relapsed or refractory advanced RCC following two or more prior systemic therapies. Cost of products sold is related to our product revenues for FOTIVDA and consists primarily of tiered royalty payments we are required to pay to Kyowa Kirin Co., or KKC, on all net sales of tivozanib in our North American territory, which range from the low to mid-teens as a percentage of net sales. Cost of products sold also consists of the cost of inventory sold, indirect labor costs, and shipping and other third-party logistics and distribution costs for FOTIVDA.
We consider regulatory approval of our product candidates to be uncertain and product manufactured prior to regulatory approval may not be sold unless regulatory approval is obtained. As such, the manufacturing costs for FOTIVDA incurred prior to regulatory approval were not capitalized as inventory but were expensed as research and development expenses, which favorably impacted our gross margin. Our initial commercial supply of FOTIVDA was manufactured prior to FDA market approval on March 10, 2021 and had been expensed to research and development expenses. In 2021, subsequent to the FDA’s market approval of FOTIVDA, we conducted resupply manufacturing of tivozanib in connection with upcoming drug expirations beginning in the fourth quarter of 2022 and capitalized these costs as inventory. In the second quarter of 2022, we changed our salable inventory to the resupply and began recognizing cost of products sold related to inventory.
We anticipate that gross margins will continue to be in the mid-to-high 80th percentile in 2022.
Research and Development Expenses (in thousands)
  Three Months Ended
June 30,
Change Six Months Ended
June 30,
Comparison
  2022 2021 $ % 2022 2021 $ %
Tivozanib $ 7,157  $ 4,627  $ 2,530  55  % $ 10,999  $ 8,483  $ 2,516  30  %
Ficlatuzumab 3,549  533  3,016  566  % 6,482  983  5,499  559  %
AV-380 Program in Cachexia 1,206  1,218  (12) (1) % 4,095  1,985  2,110  106  %
Other 406  500  (94) (19  %) 902  1,224  (322) (26) %
Total research and development expenses $ 12,318  $ 6,878  $ 5,440  79  % $ 22,478  $ 12,675  $ 9,803  77  %
Our total research and development expenses increased by $5.4 million, or 79%, to $12.3 million in the three months ended June 30, 2022 from $6.9 million in the same period in 2021.
Our total research and development expenses increased by $9.8 million, or 77%, to $22.5 million in the six months ended June 30, 2022 from $12.7 million in the same period in 2021.
Tivozanib expenses increased by $2.5 million, or 55%, in the three months ended June 30, 2022 as compared to the same period in 2021,principally due to increases of $1.5 million in costs incurred in connection with the TiNivo-2 trial
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that was initiated in the third quarter of 2021, $0.6 million in clinical drug supply manufacturing, and $0.4 million in costs incurred with other support activities.
Tivozanib expenses increased by $2.5 million, or 30%, in the six months ended June 30, 2022 as compared to the same period in 2021, principally due to increases of $1.8 million in costs incurred in connection with the TiNivo-2 trial that was initiated in the third quarter of 2021 and $0.6 million in clinical drug supply manufacturing.
AV-380 expenses were $1.2 million and remained flat in the three months ended June 30, 2022 as compared to the same period in 2021, and increased by $2.1 million, or 106%, in the six months ended June 30, 2022 as compared to the same period in 2021, principally related to a $2.3 million time-based milestone obligation that became due to St. Vincent’s in January 2022, partially offset by $0.2 million in costs incurred in the six months ended June 30, 2021 in connection with the Phase 1 clinical trial of AV-380 in healthy volunteers that were not incurred in the same period in 2022.
Ficlatuzumab expenses increased by $3.0 million, or 566%, in the three months ended June 30, 2022 as compared to the same period in 2021, and by $5.5 million, or 559%, in the six months ended June 30, 2022 as compared to the same period in 2021, principally related to costs incurred in connection with the manufacturing of drug substance for clinical drug supply for a potential registrational clinical trial of ficlatuzumab in combination with cetuximab in patients with human papillomavirus, or HPV, negative recurrent or metastatic, or R/M, head and neck squamous cell carcinoma, or HNSCC patients, that we plan to initiate in the first half of 2023.
We anticipate that research and development expenses will continue to increase during the remainder of 2022, principally related to the enrollment of the TiNivo-2 Trial for the treatment of RCC patients who have progressed following one or two lines of therapy, one of which was an immune checkpoint inhibitor, or ICI, a Phase 1b clinical trial in AV-380 in cancer patients that we plan to initiate in the second half of 2022, and co-funding pursuant to the clinical trial collaboration and supply agreement with NiKang Therapeutics Inc. for a Phase 2 clinical trial to evaluate tivozanib in combination with NKT2152 in clear cell RCC patients who have not responded to or relapsed from prior therapies. These increases in 2022 research and development expenses will be partially offset by lower costs, principally related to the TIVO-3 Trial that closed in the second half of 2021 following the FDA’s approval of FOTIVDA on March 10, 2021. We anticipate that research and development expenses will be approximately $50.0 million in 2022, a reduction from our prior range of $60.0 million to $70.0 million, as we focus our spending on clinical development programs to expand the commercial opportunity of tivozanib for the treatment of RCC and to position our other product candidates for further development by partners and minimize our research and development expenses while retaining all, or a portion of, the North American oncology commercial rights related to these product candidates. The timing and nature of contemplated activities in 2022 will be conducted subject to the availability of sufficient financial resources.
Selling, General and Administrative Expenses (in thousands)
  Three Months Ended June 30, Change Six Months Ended June 30, Change
  2022 2021 $ % 2022 2021 $ %
Selling, general and administrative expenses $ 17,075  $ 14,920 
$2,155
14  % $ 34,412  $ 30,020  $ 4,392  15  %
Selling, general and administrative expenses increased by $2.2 million, or 14%, to $17.1 million in the three months ended June 30, 2022 from $14.9 million in the same period in 2021. The $2.2 million increase was principally due to increases totaling $2.7 million, including: (i) $0.5 million in connection with compensation costs related to our commercial infrastructure (ii) $1.4 million in connection with external initiatives related to the commercialization of FOTIVDA, and (iii) $0.8 million in general and administrative-related compensation costs. These increases were partially offset by a $0.5 million decrease in general and administrative-related professional fees.
Selling, general and administrative expenses increased by $4.4 million, or 15%, to $34.4 million in the six months ended June 30, 2022 from $30.0 million in the same period in 2021. The $4.4 million increase was principally due to increases totaling $5.4 million, including: (i) $1.9 million in connection with compensation costs related to a full six months of growth in our commercial infrastructure, including the hiring of our salesforce in the first quarter of 2021, (ii) $2.2 million in connection with external initiatives related to a full six months of commercialization following the launch of FOTIVDA on March 22, 2021, and (iii) $1.3 million in general and administrative-related compensation costs. These increases were partially offset by a $1.0 million decrease in general and administrative-related professional fees.
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We anticipate that selling, general and administrative expenses associated with the commercialization of FOTIVDA, principally related to our sales force, our marketing, market access and commercial capabilities, and general and administrative support will stay at current levels for the remainder of 2022. We anticipate that selling, general and administrative expenses will be approximately $70.0 million, including approximately $50.0 million in commercial expenses and approximately $20.0 million in general and administrative expenses.
Change in Fair Value of Expired PIPE Warrant Liability (in thousands)
  Three Months Ended June 30, Change Six Months Ended June 30, Change
  2022 2021 $ % 2022 2021 $ %
Change in fair value of expired PIPE Warrant liability $ —  $ 2,595  $ (2,595) (100  %) $ —  $ 199  $ (199) (100) %
In May 2016, we issued warrants in connection with a private placement financing, or the PIPE Warrants, and recorded the warrants as a liability. The PIPE Warrants were exercisable for a period of five years from the date of issuance until their scheduled expiration on May 16, 2021. The PIPE Warrants were subject to revaluation at each balance sheet date and any changes in fair value were recorded as a non-cash gain or (loss) in our Statement of Operations as a component of other income (expense).
In the three months ended June 30, 2021, we recorded an approximate non-cash gain of $2.6 million in our Statement of Operations attributable to the decrease in the fair value of the PIPE Warrant liability that resulted from the expiration of the PIPE Warrants on May 16, 2021, including reversals of the $2.4 million non-cash loss recognized in the first quarter of 2021 and the $0.2 million fair value of the PIPE Warrant liability as of December 31, 2020.
In the six months ended June 30, 2021, we recorded an approximate non-cash gain of $0.2 million in our Statement of Operations attributable to the decrease in the fair value of the PIPE Warrant liability that resulted from the expiration of the PIPE Warrants on May 16, 2021.

Interest Expense, net (in thousands)
Three Months Ended June 30, Change Six Months Ended
June 30,
Change
2022 2021 $ % 2022 2021 $ %
Interest expense, net $ (1,165) $ (1,128) $ (37) % (2,353) $ (1,739) $ (614) 35  %
Interest expense, net remained flat, in the three months ended June 30, 2022 and increased by $0.6 million ,or 35%, to $2.4 million in the six months ended June 30, 2022 from $1.7 million as compared to the same period in 2021, principally due to higher loan balances under the 2020 Loan Amendment and 2021 Loan Amendment, as defined below, that were entered into with Hercules Capital Inc. and certain of its affiliates, or Hercules, on August 7, 2020 and February 1, 2021, respectively and higher interest rates due to corresponding increases in the prime rate. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Hercules Loan Facility” below for a description of the 2020 Loan Amendment and 2021 Loan Amendment.
We anticipate that interest expense, net will continue to increase during the remainder of 2022 due to the $40.0 million loan balance as of June 30, 2022, the extended interest-only period through March 2023 pursuant to the 2020 Loan Amendment and 2021 Loan Amendment with Hercules, and the increase in the interest rate from the initial 9.65% to 11.15% as of June 30, 2022 due to increases in the prime interest rate.
Liquidity and Capital Resources
We have financed our operations to date primarily through private placements and public offerings of our common stock, license fees, milestone payments, royalty payments and research and development funding from strategic partners, loan proceeds and sales revenues of our first commercial product FOTIVDA in the United States. As of June 30, 2022 we had cash, cash equivalents and marketable securities of approximately $77.2 million. See “Part I. Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital
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Resources —Liquidity and Going Concern” below and Note 1 to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our liquidity.
The following table sets forth the primary sources and uses of cash for each of the periods set forth below (in thousands):
For the Six Months Ended June 30,
2022 2021
Net cash used in operating activities $ (10,671) $ (37,001)
Net cash provided by (used in) investing activities 9,736  (28,195)
Net cash provided by financing activities 561  78,170 
Net (decrease) increase in cash and cash equivalents $ (374) $ 12,974 
Our operating activities used cash of $10.7 million and $37.0 million in the six months ended June 30, 2022 and 2021, respectively. Cash used in operations was principally due to our net loss adjusted for non-cash items and changes in working capital.
Our investing activities provided cash of $9.7 million and used $28.2 million in the six months ended June 30, 2022 and 2021, respectively, principally due to net changes in the purchases and maturities of marketable securities.
Our financing activities provided cash of $0.6 million and $78.2 million in the six months ended June 30, 2022 and 2021, respectively. In 2022, we received $0.6 million in proceeds in connection with the issuance of common stock under our Amended and Restated 2019 Employee Stock Purchase Plan, as amended. In 2021, we raised approximately $78.1 million in funding, including approximately (i) $51.7 million in net proceeds from the sale of approximately 6.9 million shares of our common stock in an underwritten public offering in March 2021, (ii) $19.9 million in new loan funding pursuant to the 2020 Loan Amendment and 2021 Loan Amendment with Hercules in March 2021 related to the achievement of the milestone for FDA approval of FOTIVDA, net of transaction costs, (iii) $3.4 million in net proceeds from the sale of approximately 0.3 million shares of our common stock in March 2021 pursuant to our “at-the-market” sales agreement with SVB Leerink LLC, or SVB Leerink, which we refer to as the SVB Leerink Sales Agreement, and (iv) $3.1 million in proceeds from the exercise of Offering Warrants.
Hercules Loan Facility ($45 million Loan Facility - $5 million Committed Funding Remaining)
On May 28, 2010, we entered into a loan and security agreement, or the First Loan Agreement with Hercules. The First Loan Agreement was subsequently amended in March 2012, September 2014, May 2016 and amended and restated in December 2017, or the 2017 Loan Agreement.
We entered into the first amendment to the 2017 Loan Agreement, or the 2020 Loan Amendment, on August 7, 2020, the second amendment to the 2017 Loan Agreement, or the 2021 Loan Amendment, on February 1, 2021 and the third amendment to the 2017 Loan Agreement, or the 2022 Loan Amendment, on March 8, 2022, which we collectively refer to as the Loan Agreement to provide a $45.0 million loan facility.
On March 8, 2022, we entered into the 2022 Loan Amendment, which (i) changed the operating covenant to decrease the achievement of greater than or equal to 75% of our forecasted net product revenues from our sales of tivozanib over a six-month trailing period to 65%, as defined and measured on a monthly basis, and extended the month of commencement from April 2022 to June 2022, and (ii) added a cash waiver, at our election, in the event our actual U.S. net product revenues from our sales of tivozanib over a six-month trailing period are below the monthly minimum operating covenant of 65%, such that our unrestricted cash position is equal to or greater than the then total outstanding principal under the Loan Agreement for each day of such month, (iii) changed Tranche Four funding, in the amount of $5.0 million, that was subject to the consent of Hercules to the achievement of $30.0 million in net product revenues from sales of FOTIVDA over a trailing three-month period, or Performance Milestone III, and extended the availability of Tranche Four funding from June 30, 2022 to December 15, 2022, and (iv) increased the amount of unrestricted cash required for us to satisfy the minimum financial covenant from $10.0 million to $15.0 million upon the earlier of receiving the Tranche Four funding or January 1, 2023, through the maturity of the Loan Agreement.
As of June 30, 2022, the total outstanding principal under the Loan Agreement was $40.0 million, principal payments are scheduled to commence on April 1, 2023 and the corresponding end-of-term payments under the Loan Agreement, in the aggregate amount of approximately $2.8 million, are due upon the current loan maturity date of
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September 1, 2024. The interest rate as of June 30, 2022 was 11.15% based upon increases in the prime rate during 2022, in March, May and June. As of June 30, 2022, $5.0 million remains available to us in committed funding under the Loan Agreement for Tranche Four funding in connection with the achievement of Performance Milestone III for $30.0 million in U.S. net product revenues from sales of FOTIVDA over a trailing three-month period.
Per the terms of the Loan Agreement, principal will be repaid in equal monthly installments following the conclusion of the interest-only period. We may prepay all of the outstanding principal and accrued interest under the Loan Agreement, subject to a prepayment charge up to 3.0% in the first year following the closing of the 2020 Loan Amendment, decreasing to 2.0% in year two and 1.0% in year three. We are obligated to make an end-of-term payment of 6.95% of the aggregate amount of loan funding received under the Loan Agreement on the earlier of the maturity of the loan or the date on which we prepay any outstanding loan balance.
The Loan Agreement also includes various other affirmative and negative covenants, including covenants to deliver certain financial reports; to maintain insurance coverage; and to refrain from transferring assets, incurring additional indebtedness, engaging in mergers or acquisitions, paying dividends or making other distributions, making investments, creating liens, and suffering a change in control, in each case subject to certain exceptions.
Obligations under the Loan Agreement are secured by substantially all of our assets, excluding intellectual property. The Loan Agreement provides that certain events shall constitute a default by us, including failure by us to pay amounts under the Loan Agreement when due; breach or default in the performance of any covenant under the Loan Agreement by us, subject to certain cure periods; our insolvency and certain other bankruptcy proceedings involving us; our default of obligations involving indebtedness in excess of $0.5 million; and the occurrence of an event or circumstance that would have a material adverse effect upon our business.
We have determined that the risk of subjective acceleration under the material adverse events clause included in the Loan Agreement is remote and, therefore, have classified the outstanding principal amount in long-term liabilities based on the timing of scheduled principal payments. As of June 30, 2022, we were in compliance with all of the loan covenants and, through the date of this filing, the lenders have not asserted any events of default under the Loan Agreement. We do not believe that there has been a material adverse change as defined in the 2020 Loan Facility.
See Note 6 “Hercules Loan Facility” to the consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q for a further discussion of our Loan Agreement with Hercules.
Public Offering – March 2021
On March 26, 2021, we completed an underwritten public offering of 6,900,000 shares of our common stock, including the full exercise by the underwriters of their option to purchase an additional 900,000 shares, at the public offering price of $8.00 per share for gross proceeds of approximately $55.2 million. The net offering proceeds to us were approximately $51.7 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us.
Sales Agreement with SVB Leerink ($22 Million Availability Future Stock Sales)
In February 2018, we entered into the SVB Leerink Sales Agreement with SVB Leerink pursuant to which we may issue and sell shares of our common stock from time to time up to an aggregate amount of $50.0 million, at our option, through SVB Leerink as our sales agent, with any sales of common stock through SVB Leerink being made by any method that is deemed an “at-the-market offering” as defined in Rule 415 promulgated under the Securities Act of 1933, as amended, or in other transactions. Any such shares of common stock will be sold pursuant to a prospectus supplement filed under the 2020 Shelf, as defined below. We agreed to pay SVB Leerink a commission of up to 3% of the gross proceeds of any sales of common stock pursuant to the SVB Leerink Sales Agreement. We sold 470,777 shares, 1,251,555 shares, 1,070,175 shares and 330,688 shares pursuant to the SVB Leerink Sales Agreement, resulting in approximate proceeds net of commissions of $10.3 million, $7.5 million, $5.9 million and $3.4 million in the fourth quarter of 2018, February 2019, November 2020 and March 2021, respectively. As of June 30, 2022, approximately $22.2 million was available for issuance in connection with future stock sales pursuant to the SVB Leerink Sales Agreement.
Universal Shelf Registration Statement
On November 9, 2020, we filed a shelf registration statement on Form S-3 with the SEC, which covers the offering, issuance and sale of up to $300.0 million of our common stock, preferred stock, debt securities, warrants and/or
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units, or the 2020 Shelf. The 2020 Shelf (File No. 333-249982) was declared effective by the SEC on November 18, 2020 and was filed to replace our then existing shelf registration statement, which was terminated. As of June 30, 2022, there was approximately $213.0 million available for future issuance of our common stock, preferred stock, debt securities, warrants and/or units.

Liquidity and Going Concern

We have devoted substantially all of our resources to our drug development efforts, comprised of research and development, manufacturing, conducting clinical trials for our product candidates, protecting our intellectual property and general and administrative functions relating to these operations. Our future success is dependent on our ability to commercialize FOTIVDA in the United States and develop our clinical stage assets and, ultimately, upon our ability to create shareholder value.
On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we commercialize FOTIVDA in the United States and continue our planned development activities for our clinical and preclinical stage assets. Our future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payers and adequate market share for FOTIVDA and any future products in those markets. The likelihood of our long-term success must be considered in light of the expenses, difficulties and potential delays that may be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate. Absent the realization of sufficient revenues from product sales to support our cost structure, we may never attain or sustain profitability. We may require substantial additional funding to continue to advance our pipeline of clinical and preclinical stage assets, and the timing and nature of these activities will be conducted subject to the availability of sufficient financial resources, principally product sales of FOTIVDA in the United States.
During the six months ended June 30, 2022, we received an aggregate of approximately $42.8 million in funding, including approximately $40.7 million in net cash receipts from the product sales of FOTIVDA in the United States and approximately $2.1 million in partnership cost sharing payments.
We believe that our $77.2 million in cash, cash equivalents and marketable securities as of June 30, 2022, along with net product revenues from product sales of FOTIVDA in the United States will enable us to maintain our current operations for more than 12 months following the filing of this Quarterly Report on Form 10-Q.
In 2022, we anticipate that FOTIVDA U.S. net product revenue will be in the range of $100.0 million to $110.0 million. We anticipate that selling, general and administrative expenses will be approximately $70.0 million in 2022, including approximately $50.0 million in commercial expenses and approximately $20.0 million in general and administrative expenses. In 2022, we anticipate that research and development expenses will now be approximately $50.0 million, a reduction from our prior guidance range of $60.0 million to $70.0 million, as we focus our spending on clinical development programs to expand the commercial opportunity of tivozanib for the treatment of RCC and to position our other product candidates for further development by partners and minimize our research and development expenses while retaining all, or a portion of, the North American oncology commercial rights related to these product candidates.
However, there are numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, including, without limitation, risks related to our ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States on March 22, 2021. Accordingly, our future funding requirements may vary from our current expectations and will depend on many factors, including, but not limited to:
the cost of commercialization activities of FOTIVDA in the United States and any of our product candidates that may be approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing FOTIVDA in the United States, our product candidates and any additional products we may successfully commercialize;
the impact of COVID-19 on our operations, business and prospects;
our ability to expand the commercial opportunity of tivozanib for the treatment of RCC;
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our ability to position our product candidates for further development by partners and the financial terms of such agreements;
our ability to establish and maintain strategic partnerships to execute our strategy to partner our clinical stage assets or other arrangements, including our ability to potentially acquire or in-license one or more additional commercial stage assets, and the financial terms of such agreements;
the number and characteristics of the product candidates we pursue;
the scope, progress, results and costs of researching and developing our product candidates, and of conducting preclinical and clinical trials;
the timing of, and the costs involved in, completing our clinical trials and obtaining regulatory approvals for our product candidates;
the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
the absence of any breach, acceleration event or event of default under our 2020 Loan Facility, or under any other agreements with third parties;
the cost and outcome of any legal actions against us;
the timing, receipt and amount of sales of, or royalties on, tivozanib and our future products, if any; and
general economic, industry and market conditions.
We may require substantial additional funding to potentially acquire or in-license additional commercial stage assets and to continue to advance our pipeline of clinical and preclinical stage assets. We may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. For example, we may never achieve the milestone specified in the Loan Agreement that would allow us to access the remaining $5.0 million in available credit. We also expect to seek additional funds through arrangements with collaborators, licensees or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all. If we are unable to raise substantial additional funding to advance our pipeline of clinical and preclinical stage assets to position each for partnership opportunities that may further advance these product candidates, whether on terms that are acceptable to us, or at all or if we were to default under the 2020 Loan Facility, and Hercules accelerated the then remaining principal payments and fees due under the loan, then we may be required to:
delay, limit, reduce or terminate our clinical trials, preclinical studies or other development activities for one or more of our product candidates; and/or
delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if approved.

Contractual Obligations and Commitments
There have been no additional material changes to our contractual obligations and commitments outside the ordinary course of business from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 14, 2022, except as discussed below.
Winter Street Lease

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In March 2020, we entered into a sublease agreement for office space located at 30 Winter Street in Boston, Massachusetts (the “Winter Street Sublease”) that is scheduled to expire in November 2022. On April 4, 2022, in advance of this expiration, we entered into an office lease agreement (the “Office Lease”) with the landlord to continue leasing our current 6,465 square foot office space at 30 Winter Street in Boston, Massachusetts for an additional two (2) years beginning on November 30, 2022 and ending on November 29, 2024. Under the Office Lease, we will continue to lease the office space for $50.00 per square foot, or approximately $0.3 million in base rent for the first year and $51.00 per square foot, or approximately $0.3 million for the remaining year until the expiration date, each exclusive of operating expenses and taxes.



Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information required under this Item 3.

Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2022. In designing and evaluating our disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were (1) designed to ensure that material information relating to us is made known to our management including our principal executive officer and principal financial officer by others, particularly during the period in which this report was prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports the Company files or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15(d)-15(f) promulgated under the Exchange Act, during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. Other Information
Item 1A.    Risk Factors
You should carefully consider the risks described below in addition to the other information set forth in this Quarterly Report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations section and the consolidated financial statements and related notes. These risks, some of which have occurred and any of which may occur in the future, can have a material adverse effect on our business, financial condition, results of operations or the price of our publicly traded securities. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial, may occur or become material in the future and adversely affect our business, reputation, financial condition, results of operations or the price of our publicly traded securities. Therefore, historical operating results, financial and business performance, events and trends are often not a reliable indicator of future operating results, financial and business performance, events or trends. If any of the following risks occurs, our business, financial condition, and results of operations and future growth prospects could be materially and adversely affected.
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Risks Related to Our Financial Position and Need for Additional Capital
We have incurred significant operating losses since inception and anticipate that we will continue to incur significant operating expenses for the foreseeable future. It is uncertain if we will ever achieve or sustain profitability.
We have a history of incurring operating losses and as of June 30, 2022, we had an accumulated deficit of $693.1 million. To date, we have not generated significant revenues from the sale of products. Our operating losses have resulted principally from costs incurred in our discovery and development activities. On March 10, 2021, the FDA approved FOTIVDA in the United States for the treatment of adult patients with R/R RCC following two or more prior systemic therapies. We anticipate that we will continue to incur significant operating expenses for the foreseeable future as we commercialize FOTIVDA in the United States and continue our planned development activities for our clinical stage assets. Our future product revenues will depend upon the size of markets in which FOTIVDA, and any future products, have received approval, and our ability to achieve sufficient market acceptance, reimbursement from third-party payers and adequate market share for FOTIVDA and any future products in those markets. The likelihood of our long-term success must be considered in light of the expenses, difficulties and potential delays to be encountered in the development and commercialization of new pharmaceutical products, competitive factors in the marketplace and the complex regulatory environment in which we operate.
If we do not effectively manufacture, market and sell FOTIVDA in the United States and if we do not successfully develop, obtain and maintain regulatory approval for our existing and future pipeline of product candidates we may never generate sufficient revenues from product sales to support our cost structure in order to attain or sustain profitability on a quarterly or annual basis. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise capital, expand our business, diversify our product offerings or continue our operations.
We may require substantial additional funding to advance our pipeline of clinical stage assets, and a failure to obtain this necessary capital when needed would force us to delay, limit, reduce or terminate our research, product development or commercialization efforts.
We believe that our $77.2 million in cash, cash equivalents and marketable securities as of June 30, 2022, along with net product revenues from product sales of FOTIVDA in the United States, would enable us to maintain our current operations for more than 12 months following the filing of this Quarterly Report on Form 10-Q.
However, there are numerous risks and uncertainties associated with the research, development and commercialization of pharmaceutical products including, without limitation, risks related to our ability to generate product revenue from sales of FOTIVDA in the United States, which became commercially available in the United States in March 2021. Accordingly, our future capital requirements may vary from our current expectations and depend on many factors, including but not limited to:
the cost of commercialization activities of FOTIVDA in the United States and any of our product candidates that may be approved for sale, including marketing, sales and distribution costs;
the cost of manufacturing FOTIVDA in the United States, our product candidates and any additional products we may successfully commercialize;
the impact of COVID-19 on our operations, business and prospects;
our ability to establish and maintain strategic partnerships, licensing, collaboration or other arrangements and the financial terms of such agreements;
the number of product candidates we pursue as well as the development needs and opportunities for each product candidate;
the scope, progress, results and costs of researching and developing our product candidates and of conducting preclinical and clinical trials;
the timing of, and the costs involved in, completing our clinical trials and obtaining regulatory approvals for our product candidates;
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the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;
the absence of any breach, acceleration event or event of default under our 2020 Loan Facility (as defined below), or under any other agreements with third parties;
the cost and outcome of any legal actions against us;
the timing, receipt and amount of sales of, or royalties on, FOTIVDA and our future products, if any;
and general economic, industry and market conditions, including, without limitation, the current adverse impact of the COVID-19 pandemic and political and economic instability caused by the current armed conflict between Russia and Ukraine and economic sanctions adopted in response to the conflict.
We may require substantial additional funding to advance our pipeline of clinical stage assets. We may seek to sell additional equity or debt securities or obtain additional credit facilities. The sale of additional equity or convertible debt securities may result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or preferred stock or through additional credit facilities, these securities and/or the loans under credit facilities could provide for rights senior to those of our common stock and could contain covenants that would restrict our operations. Additional funds may not be available when we need them, on terms that are acceptable to us, or at all. For example, we may never achieve the milestone specified in the 2020 Loan Facility that would allow us to access the remaining $5.0 million in available credit. We also expect to seek additional funds through arrangements with partners, licensees, collaborators or other third parties. These arrangements would generally require us to relinquish or encumber rights to some of our technologies or product candidates, and we may not be able to enter into such arrangements on acceptable terms, if at all.
If we are unable to raise substantial additional funding to advance our pipeline of clinical stage assets, whether on terms that are acceptable to us, or at all, or if we were to default under the 2020 Loan Facility and Hercules accelerates the then remaining principal payments and fees due under the 2020 Loan Facility, then we may be required to:
delay, limit, reduce or terminate our clinical trials or other development activities for one or more of our product candidates; and/or
delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates, if approved.
Failure to comply with the covenants or payment obligations under the Loan Agreement governing our 2020 Loan Facility could result in an event of default, which could materially and adversely affect our business and our financial condition.
The Loan Agreement governing our 2020 Loan Facility includes certain financial and operational covenants and provides for certain occurrences that constitute events of default. Certain of those covenants may be out of our control, such as failure to achieve net product revenue at a certain percentage of projected net product revenue. Potential events of default also include circumstances occurring that would have a material adverse effect on our business, our insolvency or bankruptcy or default on our other obligations or agreements. If we fail to make payments when due, breach any operational covenant or have any event of default, Hercules could require us to immediately repay all outstanding principal and accrued interest on the loan, plus a prepayment charge, which could have a material adverse effect on our business and financial condition.
We have only recently transitioned from a development stage biopharmaceutical company to a commercial stage biopharmaceutical company, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
Other than the marketing approvals for FOTIVDA received by our partner EUSA and the FDA marketing approval for FOTIVDA received in the United States in March 2021, all of our product candidates are in the development stage. We have only recently demonstrated our ability, or our ability to arrange for a third party, to manufacture a commercial scale medicine and conduct the sales and marketing activities necessary to commercialize a product. Consequently, any predictions you make about our future success or viability may not be as accurate as they could be if we had more experience commercializing FOTIVDA. In addition, as a relatively new commercial stage business, we may
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encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. To be profitable, we will need to continue to successfully transition from a company with a research and development focus to a company capable of supporting commercial activities. Ultimately, we may not be successful in such a transition.

We rely on a limited number of key customers, the importance of which may vary dramatically from year to year, and a loss of one or more of these key customers may adversely affect our operating results.
Four customers accounted for approximately all of our U.S net product revenues for FOTIVDA in the quarter ended June 30, 2022. One large specialty distributor accounted for 40% of our U.S. net product revenues for FOTIVDA in the quarter ended June 30, 2022, and we anticipate this customer will continue to be a significant contributor to our U.S. net product revenues for FOTIVDA for the remainder of 2022. The loss of a significant amount of business from one of our major customers would materially and adversely affect our results of operations until such time, if ever, as we are able to replace the lost business. Significant customers in any one period may not continue to be significant customers in other periods. In any given year, there is a possibility that a single specialty pharmacies and specialty distributors may account for 50% or more of our U.S. net product revenues for FOTIVDA. To the extent that we are dependent on any single customer, we are subject to the risks faced by that customer to the extent that such risks impede the customer's ability to stay in business and make timely payments to us.
Risks Related to Development and Commercialization of Our Product Candidates
In the near term, we are substantially dependent on the success of FOTIVDA (tivozanib). If we are unable to successfully commercialize FOTIVDA or maintain marketing approval for FOTIVDA in its approved indication, or if we are unable to complete planned or ongoing clinical development of tivozanib to obtain marketing approval for tivozanib in other indications, either alone or with our collaborators, or if we experience significant delays in doing so, our business could be substantially harmed.
Our prospects are substantially dependent on our ability to successfully commercialize FOTIVDA in the United States and maintain marketing approval for FOTIVDA in the United States, or through EUSA, which was acquired by Recordati S.p.A., or Recordati, in March 2022, in those countries outside the United States where FOTIVDA is currently approved. While we recorded a growing number of commercial prescriptions during the six month period ended June 30, 2022, factors beyond our control may result in decreases in commercial prescriptions each month or each quarter. If commercial prescription demand becomes stagnant or decreases it would substantially impact our revenues from product sales, adversely affect our profitability on a quarterly or annual basis and depress the market price of our common stock.
We are also dependent on the success of the continued clinical development of tivozanib and our ability to obtain additional marketing approvals for tivozanib in one or more other indications.
The success of FOTIVDA will depend on a number of factors, including the following:
our ability to successfully commercialize FOTIVDA in the United States;
our ability to enhance commercial awareness of FOTIVDA;
commercial acceptance by physicians, patients, third-party payors and others in the medical community;
our ability to gain access to customers during the COVID-19 pandemic;
our ability to successfully enroll and complete clinical trials of tivozanib, including the TiNivo-2 Trial;
a continued acceptable safety, tolerability and efficacy profile that is satisfactory to applicable regulatory authorities following any marketing approval;
timely receipt of marketing approvals from applicable regulatory authorities such as the FDA;
the performance of the contract research organizations, or CROs, we have hired to manage our clinical trials, as well as that of our collaborators, investigator sponsors and other third-party contractors;
the extent of any future post-marketing approval commitments to applicable regulatory authorities;
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maintenance of existing or establishment of new supply arrangements with third-party raw materials suppliers and manufacturers including with respect to the supply of active pharmaceutical ingredient for tivozanib and finished drug product that is appropriately packaged for sale;
adequate ongoing availability of raw materials and drug product for clinical development and any commercial sales;
obtaining and maintaining patent, trade secret protection and regulatory exclusivity, both in the United States and internationally, including our ability to maintain our license agreement with KKC;
protection of our rights in our intellectual property portfolio, including our ability to maintain our license agreement with KKC; and
our ability to compete with other therapies.
Many of these factors are beyond our control. If we are unable to continue to successfully commercialize FOTIVDA in the United States or to develop or receive marketing approval for tivozanib in other indications, on our own or with our collaborators, or experience delays as a result of any of these factors or otherwise, our business could be substantially harmed.
FOTIVDA, or any one of our product candidates that may receive marketing approval in the future, may fail to achieve the degree of market acceptance by physicians, patients, third-party payors and others in the medical community necessary for commercial success and the market opportunity for FOTIVDA or any one of our product candidates may be smaller than our estimates.
FOTIVDA, or any one of our product candidates that may be approved in the future by the appropriate regulatory authorities for marketing and sale, may fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. Physicians are often reluctant to switch their patients from existing therapies even when new and potentially more effective or convenient treatments enter the market. There are already a number of therapies on the market competitive to FOTIVDA, as well as our other product candidates, in indications we intend to target.
Efforts to educate the medical community and third-party payors on the benefits of our product candidates have required significant resources and may not ultimately be successful. Restrictions related to the ongoing COVID-19 pandemic have impeded our ability to gain in-person access to customers, prescribers, other healthcare professionals and to certain institutions that remain closed to industry representatives. We believe these access challenges caused by the COVID-19 pandemic and the emergence of SARs-CoV-2 variants have potentially slowed the commercial launch trajectory of FOTIVDA which we believe is causing a protracted launch curve as compared to the pre-COVID open access environment. While we have designed our strategic commercial approach to be optimized for remote as well as in-person customer engagement capabilities and expanded our digital marketing strategies in light of the restrictions necessitated by the COVID-19 pandemic, changes to standard sales and marketing practices, including the shift from in-person to video and virtual interactions with healthcare professionals, have caused, and may continue to cause, challenges for the successful commercialization of FOTIVDA.
If FOTIVDA, or any of our product candidates that may be approved for marketing and sale in the future, does not achieve an adequate level of market acceptance, we may not generate significant revenues and we may not become profitable. The degree of market acceptance of FOTIVDA, or any of our product candidates that may be approved for marketing and sale in the future, will depend on a number of factors, including:
the advantages of the product compared to competitive therapies;
the number of competitors approved for similar uses;
our ability to gain access to customers during the COVID-19 pandemic;
the relative promotional effort and marketing success of us as compared with our competitors;
how the product is positioned in physician treatment guidelines and pathways;
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the prevalence and severity of any side effects;
the efficacy and safety of the product;
our ability to offer the product for sale at competitive prices;
the product’s tolerability, convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try, and of physicians to prescribe, the product;
limitations or warnings, including use restrictions, contained in the product’s approved labeling;
the strength of sales, marketing and distribution support;
the timing of market introduction of our approved products as well as competitive products;
adverse publicity about the product or favorable publicity about competitive products;
potential product liability claims;
changes in the standard of care for the targeted indications of the product; and
availability and amount of coverage and reimbursement from government payors, managed care plans and other third-party payors.
In addition, the potential market opportunities for FOTIVDA and our product candidates are difficult to estimate precisely. Our estimates of the potential market opportunities are predicated on many assumptions, including industry knowledge and publications, third-party research reports and other surveys. While we believe that our internal assumptions are reasonable, these assumptions involve the exercise of significant judgment on the part of our management, are inherently uncertain and the reasonableness of these assumptions has not been assessed by an independent source. If any of the assumptions prove to be inaccurate, the actual markets for our product candidate could be smaller than our estimates of the potential market opportunities.

If the FDA, EMA or other comparable foreign regulatory authorities approve generic versions of FOTIVDA®, the sales of FOTIVDA®could be adversely affected.
Once a new drug application, or NDA, is approved, the product covered thereby becomes a “reference listed drug” in the FDA’s publication, “Approved Drug Products with Therapeutic Equivalence Evaluations,” commonly known as the Orange Book. Manufacturers may seek approval of generic versions of reference listed drugs through submission of abbreviated new drug applications, or ANDAs, in the United States. In support of an ANDA, a generic manufacturer need not conduct clinical trials to assess safety and efficacy. Rather, the applicant generally must show that its product has the same active ingredient(s), dosage form, strength, route of administration and conditions of use or labelling as the reference listed drug and that the generic version is bioequivalent to the reference listed drug, meaning it is absorbed in the body at the same rate and to the same extent. Generic products may be significantly less costly to bring to market than the reference listed drug and companies that produce generic products are generally able to offer them at lower prices. Thus, following the introduction of a generic drug, a significant percentage of the sales of any branded product or reference listed drug is typically lost to the generic product.
The FDA may not approve an ANDA for a generic product until any applicable period of non-patent exclusivity for the reference listed drug has expired. The FDA provides a period of five years of non-patent exclusivity for a new drug containing a new chemical entity. Specifically, in cases where such exclusivity has been granted, as is the case with FOTIVDA®, an ANDA may not be submitted to the FDA until the expiration of five years, e.g., March 10, 2026, for FOTIVDA®, unless the submission is accompanied by a Paragraph IV certification that a patent covering the reference listed drug is either invalid or will not be infringed by the generic product, in which case the applicant may submit its application four years following approval of the reference listed drug, e.g., March 10, 2025, for FOTIVDA®.
Generic drug manufacturers may seek to launch generic products following the expiration of the applicable exclusivity period for FOTIVDA, even if we still have regulatory exclusivity and/or patent protection for such products. Competition that FOTIVDA could face from generic versions could materially and adversely affect our future revenue,
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profitability, and cash flows and substantially limit our ability to obtain a return on the investments we have made in developing FOTIVDA.

In addition to our dependence on the success of FOTIVDA, we depend on the success of our clinical stage assets, including tivozanib (in other indications), ficlatuzumab, AV-380 and AV-203. Preclinical studies and clinical trials of our product candidates may not be successful. If we are unable to complete the clinical development of, obtain marketing approval for or successfully commercialize our product candidates, either alone or with a collaborator, or if we experience significant delays in doing so, our business will be materially harmed.
We and any collaborators, including our partners and sublicensees, are not permitted to commercialize, market, promote or sell any product candidate in the United States without obtaining marketing approval from the FDA. Foreign regulatory authorities, such as the European Medicines Agency, or the EMA, impose similar requirements. We and our collaborators must complete extensive preclinical development and clinical trials that demonstrate the safety and efficacy of our product candidates in humans before we can obtain these approvals. Despite our efforts to design satisfactory clinical trial protocols, we cannot guarantee that the clinical trial protocols of any of our ongoing clinical trials will satisfy the rigorous standards of the FDA and/or the EMA to support a marketing approval. If we seek to amend the clinical trial protocols for any of our clinical trials this may delay site enrollment and completion, as in the case of the TiNivo-2 Trial where we made a clinical trial protocol amendment. The TiNivo-2 trial protocol was amended based on (i) emerging evidence that the lower 0.89 mg dose was effective in combination with an ICI, (ii) that the lower dose may optimize the risk/benefit profile and result in better tolerability for the combination and (iii) the FDA’s recommendation to investigate an optimal dose of tivozanib in the combination setting under its Project Optimus initiative. We cannot be certain that this amendment to the TiNivo-2 protocol will satisfy the FDA's Project Optimus initiative to investigate the optimal dose of tivozanib in the combination setting and, if it does not, we may be required to conduct additional clinical trials which would delay and adversely impact the timing of marketing approval of tivozanib in combination with nivolumab or other therapies.
We depend heavily on the success of our clinical stage assets and our clinical trials may not be successful. If delays in manufacturing, trial site initiation or patient enrollment occur, whether due to the impacts of the ongoing COVID-19 pandemic or otherwise, our clinical stage assets will develop at a slower pace than we had planned. For example, the delivery of the clinical supply of ficlatuzumab for a potential registrational clinical trial of ficlatuzumab in R/M HNSCC was significantly delayed due to the shortage of key raw materials and manufacturing supplies also used in COVID-19 vaccine manufacturing which required us to delay the start date of this potential registrational clinical trial until 2023.
Preclinical and clinical testing is expensive, is difficult to design and implement, can take many years to complete and is inherently uncertain as to outcome. We cannot guarantee that any clinical trials will be conducted as planned or completed on schedule, if at all, particularly given that many of our clinical trial sites are research hospitals that have imposed restrictions on entry and other activity as a result of the COVID-19 pandemic. The preclinical and clinical development of our product candidates is susceptible to the risk of failure inherent at any stage of product development. For example, in December 2020, the FDA approved our IND application for AV-380 for the potential treatment of cancer cachexia. In October 2021, we completed enrollment for a Phase 1 clinical trial in healthy subjects. Initial data observed a satisfactory reduction of GDF15 in subjects and no drug related adverse events were identified. However, operational errors at the trial site have caused data integrity concerns and we have notified the FDA. We plan to discuss with the FDA the suitability of the data for regulatory purposes and our ability to publish the data from this trial. We do not expect the data quality issues in the Phase 1 clinical trial to impact our plans to initiate a Phase 1b clinical trial in cancer patients in the second half of 2022. We cannot be certain that the data integrity concerns related to the Phase 1 clinical trial will not ultimately delay the development of our AV-380 program.
Moreover, we, or any collaborators, may experience any of a number of possible unforeseen adverse events in connection with clinical trials, many of which are beyond our control, including:
we, or our collaborators, may fail to demonstrate efficacy in a clinical trial or across a broad population of patients;
the supply or quality of raw materials, manufactured product candidates or other materials necessary to conduct clinical trials of our product candidates may be significantly delayed, insufficient, inadequate or not available at an acceptable cost, or we may experience interruptions in supply, due to challenges related to the COVID-19 pandemic, global supply chain disruptions caused by the ongoing conflict between Russia and Ukraine or otherwise;
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it is possible that even if one or more of our product candidates has a beneficial effect, that effect (a) will not be detected during preclinical or clinical evaluation or (b) may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect as a result of one or more of a variety of factors, including the size, duration, design, measurements, conduct or analysis of our clinical trials;
we may fail to detect toxicity or intolerability of our product candidates, or mistakenly believe that our product candidates are toxic or not well tolerated when that is not in fact the case;
adverse events or undesirable side effects caused by, or other unexpected properties of, any product candidates that we may develop could cause us, any collaborators, an institutional review board or regulatory authorities to interrupt, delay or halt clinical trials of one or more of our product candidates and could result in a more restrictive label or the delay or denial of marketing approval by the FDA or comparable foreign regulatory authorities;
if any of our product candidates is associated with adverse events or undesirable side effects or has properties that are unexpected, we, or any collaborators, may need to abandon development or limit development of that product candidate to certain uses or subpopulations in which the undesirable side effects or other characteristics are less prevalent, less severe or more acceptable from a risk-benefit perspective;
regulators or institutional review boards may not authorize us, any collaborators or our or their investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
we, or any collaborators, may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
clinical trials of our product candidates may produce unfavorable or inconclusive results, including with respect to the safety, tolerability, efficacy or pharmacodynamic and pharmacokinetic profile of the product candidate;
we, or any collaborators, may decide, or regulators may require us or them, to conduct additional clinical trials or abandon product development programs;
the number of patients required for clinical trials of our product candidates may be larger than we, or any collaborators, anticipate, patient enrollment in these clinical trials may be slower than we, or any collaborators, anticipate or participants may drop out of these clinical trials at a higher rate than we, or any collaborators, anticipate;
our estimates of the patient populations available for study may be higher than actual patient numbers and result in our inability to sufficiently enroll our trials;
the cost of planned clinical trials of our product candidates may be greater than we anticipate;
our third-party contractors or those of any collaborators, including those manufacturing our product candidates or components or ingredients thereof or conducting clinical trials on our behalf or on behalf of any collaborators, may fail to comply with regulatory requirements, including Good Manufacturing Practices (“GMPs”), Good Clinical Practices (“GCPs”) or Good Laboratory Practices (“GLPs”), or meet their contractual obligations to us or any collaborators in a timely manner or at all;
patients that enroll in a clinical trial may misrepresent their eligibility to do so or may otherwise not comply with the clinical trial protocol, resulting in the need to increase the needed enrollment size for the clinical trial, extend the clinical trial’s duration, or drop the patients from the final efficacy analysis for the clinical trial, which can negatively affect the statistical power of the results;
our decision, or a decision by regulators or institutional review boards, that may require us to suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or their standards of conduct, a finding that the participants are being exposed to unacceptable health risks, undesirable side effects or other unexpected characteristics of the product candidate or findings of undesirable effects caused by a chemically or mechanistically similar product or product candidate;
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the FDA or comparable foreign regulatory authorities may disagree with our, or any collaborators’, clinical trial designs or our or their interpretation of data from preclinical studies and clinical trials;
the FDA or comparable foreign regulatory authorities may fail to approve or subsequently find fault with the manufacturing processes or facilities of third-party manufacturers with which we, or any collaborators, enter into agreements for clinical and commercial supplies;
the approval policies or regulations of the FDA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient to obtain marketing approval; and
constraints on our, or any collaborators’, ability to conduct or complete clinical trials for our product candidates due to the COVID-19 pandemic, including slowdowns in patient enrollment, or necessary supplies, restrictions on patient monitoring at hospital clinical trial sites, closures of third-party facilities, and other disruptions to clinical trial activities.
Product development costs for us and our collaborators will increase if we experience delays in testing or pursuing marketing approvals, and we may be required to obtain additional funds to complete clinical trials and prepare for possible commercialization. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we do, which could impair our ability to successfully commercialize our product candidates and may harm our business and results of operations. In addition, many of the factors that lead to clinical trial delays may ultimately lead to the denial of marketing approval of any of our product candidates.
If the commercial launch of FOTIVDA for which we recruited a sales force and established marketing, market access and medical affairs teams and distribution capabilities is not successful for any reason, we could incur substantial costs and our investment would be lost if we cannot retain or reassign our sales, marketing, market access and medical affairs personnel.
To achieve commercial success for FOTIVDA, we have expended and anticipate that we will continue to expend significant resources to support our sales force, marketing, market access and medical affairs teams and distribution capabilities. There are risks involved with establishing our own sales, marketing, distribution, training and support capabilities. For example, recruiting and training sales and marketing personnel is expensive and time consuming and could delay our ability to focus on other priorities. If the commercial launch of FOTIVDA is not successful for any reason, this would be costly, and our investment would be lost if we cannot retain or reassign our sales, marketing, market access and medical affairs personnel or terminate on favorable terms any agreements entered into with third parties to support our commercialization efforts.
Factors that may inhibit or limit our efforts to commercialize FOTIVDA on our own include:
our inability to train and retain adequate numbers of effective sales, marketing, training and support personnel;
the inability of sales personnel to obtain access to physicians, including key opinion leaders, or to educate an adequate number of physicians of the benefits of FOTIVDA over alternative treatment options;
limited access to our customers due to the COVID-19 pandemic; and
unforeseen costs and expenses associated with establishing and maintaining an independent sales, marketing, training and support organization.
If our salesforce, marketing, market access and medical affairs teams and distribution capabilities fail, or are otherwise unsuccessful, it would materially adversely impact the commercialization of FOTIVDA, impact our ability to generate revenue and harm our business.
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If we fail to develop, acquire, in-license and commercialize other product candidates or additional commercial stage assets, we may be unable to grow our business.
Although the commercialization of FOTIVDA and the continued development of tivozanib is our primary focus, as part of our growth strategy, we are developing a pipeline of product candidates and we may seek to acquire or in-license additional commercial stage products. We may be unable to identify, acquire or in-license on favorable terms one or more additional commercial stage products. Further, our commercial infrastructure may be unsuccessful in commercially launching any additional commercial stage products we acquire.
Our earlier stage product candidates and any earlier stage product candidates we acquire or in-license will require additional, time-consuming and costly development efforts, by us or by our collaborators, prior to commercial sale, including preclinical studies, clinical trials and approval by the FDA and/or applicable foreign regulatory authorities. All product candidates are prone to the risks of failure that are inherent in pharmaceutical product development, including the possibility that the product candidate will not be shown to be sufficiently safe and/or effective for approval by regulatory authorities. In addition, we cannot assure you that any such products that are approved will be manufactured or produced economically, successfully commercialized or widely accepted in the marketplace, or will be more effective than other commercially available alternatives.
We may not obtain additional marketing approvals for tivozanib in other indications or initial approval for our other product candidates.
We may not obtain additional marketing approvals for our product candidates. It is possible that the FDA or comparable foreign regulatory agencies may refuse to accept for substantive review any future application that we or a collaborator may submit to market and sell our product candidates, or that any such agency may conclude after review of our or our collaborator’s data that such application is insufficient to obtain marketing approval of our product candidate.
If the FDA or other comparable foreign regulatory agency does not accept or approve any future application to market and sell any of our product candidates, such regulators may require that we conduct additional clinical trials, preclinical studies or manufacturing validation studies and submit that data before they will reconsider our application. Depending on the extent of these or any other required trials or studies, approval of any application that we submit may be delayed by several years, or may require us or our collaborator to expend more resources than we or they have available. It is also possible that additional trials or studies, if performed and completed, may not be considered sufficient by the FDA or other foreign regulatory agency to approve our applications for marketing and commercialization.
Any delay in obtaining, or an inability to obtain, marketing approvals would prevent us or our collaborators from commercializing tivozanib in other indications or our product candidates and generating revenues. If any of these outcomes occur, we would not be eligible for certain milestone and royalty revenue under our partnership agreements, our collaborators could terminate our partnership agreements and we may be forced to abandon our development efforts for our product candidates, any of which could significantly harm our business.
Results of early clinical trials may not be predictive of results of later clinical trials, and interim results of clinical trials may not be predictive of the final results or the success of clinical trials.
The outcome of early clinical trials, such as our DEDUCTIVE trial and our ficlatuzumab trials in HNSCC, pancreatic cancer and acute myeloid leukemia, or AML, may not be predictive of the success of later clinical trials. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks in late-stage clinical trials after achieving positive results in earlier development, and we have, and could in the future, face similar setbacks. In addition, interim results and analyses of clinical trials do not necessarily predict the final results or the success of a trial once it is complete.
While the design of a clinical trial may help to establish whether its results will support approval of a product, flaws in the design of a clinical trial may not become apparent until the clinical trial is well advanced. We have limited experience in designing clinical trials and may be unable to design and execute a clinical trial to support marketing approval. In addition, preclinical and clinical data are often susceptible to varying interpretations and analyses. Many companies that believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval for the product candidates. Even if we, or any collaborators, believe that the results of clinical trials for our product candidates warrant marketing approval, the FDA or comparable foreign regulatory authorities may disagree and may not grant marketing approval of our product candidates. For example, in June 2013, we suffered such a setback when the FDA issued a complete response letter, or the 2013 CRL, informing us that it
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would not approve tivozanib for the first-line treatment of RCC based solely on the data from the TIVO-1 trial, and recommended that we perform an additional clinical trial adequately sized to assure the FDA that tivozanib did not adversely affect overall survival, or OS. We then designed and initiated our TIVO-3 trial to address the FDA’s concerns about the negative OS trend expressed in the 2013 CRL, which took time and resources and delayed our efforts to obtain marketing approval for tivozanib in the United States.
If we fail to receive positive results in clinical trials of our product candidates, the development timeline and regulatory approval and commercialization prospects for our most advanced product candidates, and, correspondingly, our business and financial prospects would be negatively impacted.
If we or our collaborators experience delays or difficulties in the enrollment of patients in clinical trials, receipt of necessary regulatory approvals could be delayed or prevented.
We or our collaborators may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in clinical trials. Patient enrollment is a significant factor in the timing of clinical trials, and is affected by many factors, including:
the impact of the COVID-19 pandemic;
the size and nature of the patient population;
the severity of the disease under investigation;
the availability of approved therapeutics for the relevant disease;
the evolving standard of care landscape;
the proximity of patients to clinical sites;
the design of and eligibility criteria for the trial;
efforts to facilitate timely enrollment; and
competing clinical trials.
In addition, participation in our clinical trials will be affected by clinicians’ and patients’ perceptions as to the potential advantages and risks of the drug being studied and the drug being provided as a control in relation to other available therapies, including any new drugs that may be approved or any changes to the standard of care for the indications we are investigating. For example, changes in the standard of care in HCC have extended treatment time with first line therapies and reduced the presence of a sufficient patient pool suitable for the DEDUCTIVE trial, which delayed patient enrollment for the trial.
If approved, our product candidates, such as ficlatuzumab, AV-380, or AV-203, that are licensed and regulated as biologics may face competition from biosimilars approved through an abbreviated regulatory pathway.
The Biologics Price Competition and Innovation Act of 2009, or BPCIA, was enacted as part of the Patient Protection and Affordable Care Act, or the ACA, to establish an abbreviated pathway for the approval of biosimilar and interchangeable biological products. The regulatory pathway establishes legal authority for the FDA to review and approve biosimilar biologics, including the possible designation of a biosimilar as “interchangeable” based on its similarity to an approved biologic. Under the BPCIA, our antibody product candidates, for example, ficlatuzumab, AV-380 or AV-203, if approved by the FDA, would benefit from 12 years of data exclusivity from the time of first licensure. While the FDA could not accept an application for a biosimilar or interchangeable product based on our biologic product candidates, such as ficlatuzumab, AV-380 or AV-203, as the reference biological product until four years after the date of first licensure of our product candidate, during this 12-year period of exclusivity, another party may still independently develop and receive approval of a competing biologic, so long as its BLA does not rely on our product candidate’s data or submit the application as a biosimilar application. The law is complex and is still being interpreted and implemented by the FDA. As a result, its ultimate impact, implementation, and meaning are subject to uncertainty, and any new policies or processes adopted by the FDA could have a material adverse effect on the future commercial prospects for our biological products.
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We believe that any of the biological product candidates we develop under a BLA, such as ficlatuzumab, AV-380 or AV-203, should qualify for the 12-year period of exclusivity. However, there is a risk that this exclusivity could be shortened due to congressional action or otherwise, or that the FDA will not consider the subject product candidates to be reference products for competing products, potentially creating the opportunity for biosimilar competition sooner than anticipated. Moreover, the extent to which a biosimilar, once approved, will be substituted for any one of the reference products in a way that is similar to traditional generic substitution for non-biological products will depend on a number of marketplace and regulatory factors that are still developing. Nonetheless, the approval of a biosimilar to our biologic product candidates, such as ficlatuzumab, AV-380 or AV-203, would have a material adverse impact on our business due to increased competition and pricing pressure.
Even if a product candidate receives marketing approval, we or others may later discover that the product is less effective than previously believed or causes undesirable side effects that were not previously identified, which could compromise our ability or that of any collaborators to market the product, and could cause regulatory authorities to take certain regulatory actions.
It is possible that our clinical trials may indicate an apparent positive effect of a product candidate that is greater than the actual positive effect, if any, or alternatively fail to identify undesirable side effects. For example, despite the recent FDA marketing approval of FOTIVDA in the United States, we, or others, may discover that FOTIVDA is less effective or tolerable than previously believed. If, we, or others, discover that a product is less effective than previously believed or causes undesirable side effects that were not previously identified, any of the following adverse events could occur:
regulatory authorities may withdraw their approval of the product or seize the product;
we, or any of our collaborators, may be required to recall the product, change the way the product is administered or conduct additional clinical trials;
additional restrictions may be imposed on the marketing of, or the manufacturing processes for, the particular product;
we, or any of our collaborators, may be subject to fines, injunctions or the imposition of civil or criminal penalties;
regulatory authorities may require the addition of labeling statements, such as a “black box” warning or a contraindication;
we, or any of our collaborators, may be required to create a Medication Guide outlining the risks of the previously unidentified side effects for distribution to patients;
we could be sued and held liable for harm caused to patients;