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Item 7. Management’s Discussion and Analysis

2021-03-18 compared with 2020-03-16 · 87 added, 143 removed, 186 unchanged (55% of the section changed)

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We believe that our approach, which is designed to transform stem cells from patients into therapeutic products, has the potential to provide curative benefit for a range of diseases.

Our initial focus is on a group of rare genetic diseases referred to as lysosomal diseases, some of which today are primarily managed with enzyme replacement therapies, or ERTs.

These lysosomal diseases have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $4.0 billion in worldwide net sales in 2019.

Our initial pipeline is comprised of four lentiviral-based gene therapy programs, including AVR-RD-01 for the treatment of Fabry disease, AVR-RD-04 for the treatment of cystinosis, AVR-RD-02 for the treatment of Gaucher disease and AVR-RD-03 for the treatment of Pompe disease.

AVR-RD-01 is currently being evaluated in an investigator-sponsored Phase 1 clinical trial and a company-sponsored Phase 2 clinical trial.

Our initial focus is on a group of rare genetic diseases referred to as lysosomal disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs.

These lysosomal disorders have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $4.8 billion in worldwide net sales in 2020.

Our initial pipeline is comprised of six lentiviral-based gene therapy programs:

AVR-RD-01 for the treatment of Fabry disease;

AVR-RD-04 for the treatment of cystinosis;

AVR-RD-02 for the treatment of Gaucher disease type 1;

AVR-RD-05 for the treatment of Hunter syndrome;

AVR-RD-06 for the treatment of Gaucher disease type 3;

and AVR-RD-03 for the treatment of Pompe disease.

AVR-RD-01 is currently being evaluated for the treatment of Fabry disease in an investigator-sponsored Phase 1 clinical trial and a Company-sponsored Phase 2 clinical trial.

Five patients have been dosed in the investigator-sponsored Phase 1 clinical trial of AVR-RD-01, and enrollment is complete.

As of March 6, 2020, four patients have been dosed in our company-sponsored Phase 2 clinical trial of AVR-RD-01, and we are actively recruiting additional potential patients for our currently active sites in Australia, Canada and the United States.

AVR-RD-04 is currently being studied by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and as of March 6, 2020 one patient has been dosed.

In January 2020, we announced that we received notice of clearance from the U.S.

Food and Drug Administration, or FDA, regarding an Investigational New Drug, or IND, application for AVR-RD-02, our investigational gene therapy for the treatment of Gaucher disease.

The Phase 1/2 clinical trial for AVR-RD-02 is actively recruiting in Australia and Canada, with additional sites planned in the United States.

Our AVR-RD-03 program for Pompe disease is currently in preclinical development with the first IND-enabling preclinical study initiated in 2019.

Five patients have been dosed in our Company-sponsored Phase 2 clinical trial of AVR-RD-01, which we refer to as the FAB-GT clinical trial, and we are actively recruiting additional potential patients for our currently active sites in Australia, Canada and the United States.

AVR-RD-04 is currently being studied for the treatment of cystinosis by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and three patients have been dosed.

One patient has been dosed in our Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for the treatment of Gaucher disease, which we refer to as the Guard1 clinical trial, and we are actively recruiting in Australia and Canada, with additional sites planned in the United States, Israel and Europe.

AVR-RD-05 is being studied for the treatment of Hunter syndrome by our collaborators at The University of Manchester, and a Phase 1/2 investigator-sponsored clinical trial is expected to commence in the first half of 2022.

In November 2020, we announced a new preclinical program, AVR-RD-06 for the treatment of Gaucher disease type 3, and we expect to request a meeting with the Food and Drug Administration, or FDA, this year to discuss a potential path to the clinic.

Our AVR-RD-03 program for Pompe disease is currently in preclinical development, and in 2020 we completed IND-enabling proof-of-concept preclinical studies, with toxicology studies expected to be completed in 2021.

Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development activities for our programs and planning for potential commercialization.

We do not have any products approved for sale and have not generated any revenue from product sales.

To date, we have funded our operations with proceeds from the sales of preferred stock and our initial public offering, or IPO, and we have raised additional capital through an underwritten public offering that closed in July 2019, or the July 2019 Follow-On Offering, and an underwritten public offering that closed in February 2020, or the February 2020 Follow-On Offering.

Through December 31, 2019, we had received gross cash proceeds of $87.5 million from sales of our preferred stock, and gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $114.7 million and $138.3 million from sales of our common stock through our IPO and July 2019 Follow-On Offering, respectively.

Since our inception, we have incurred significant operating losses.

To date, we have not generated any product revenue and have financed our operations primarily through the private placement of our securities and through public offerings of our common stock.

Through December 31, 2020, we had received gross cash proceeds of $87.5 million from sales of our preferred stock;

gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering and follow-on offerings;

and gross cash proceeds, before deducting commissions and expenses, of $8.5 million from sales of our common stock through our “at-the-market” (ATM) facility.

Additionally, we have incurred significant operating losses.

Our ability to generate product revenue sufficient to achieve profitability will depend heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs.

Our net losses were $73.0 million and $46.4 million for the years ended December 31, 2019 and 2018, respectively.

As of December 31, 2019, we had an accumulated deficit of $144.7 million.

Our net losses were $119.7 million and $73.0 million for the years

ended December 31, 2020 and 2019, respectively.

As of December 31, 2020, we had an accumulated deficit of $ 264.

We expect to continue to incur significant expenses for at least the next several years as we advance our current and future product candidates from discovery through preclinical development and clinical trials and seek regulatory approval of our product candidates.

We have expanded the number of programs in our pipeline to a total of six investigational gene therapies, three of which are currently in clinical development.

As a result, further development of these programs will require us to expend significant resources to advance these candidates.

In addition, if we obtain marketing approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution.

We may also incur expenses in connection with the in-licensing or acquisition of additional product candidates.

Furthermore, we expect to continue incurring additional costs associated with operating as a public company, including significant legal, accounting, investor relations and other expenses.

As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy.

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from sales of equity, including the net proceeds from our IPO and follow-on offerings.

We will need substantial additional funding to support our continuing operations and pursue our growth strategy.

We also plan to pursue additional funding from outside sources, including our expansion of, or our entry into, new borrowing arrangements;

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As of December 31, 2020, we had cash and cash equivalents of $259.7 million.

We believe that our existing cash and cash equivalents as of December 31, 2019, together with the estimated net proceeds of $93.5 million from our February 2020 Follow-on Offering, will enable us to fund our operating expenses and capital expenditure requirements into the second quarter of 2022.

We believe that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.

We have based this estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect.

See “—Liquidity and Capital Resources.” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.

See “ Liquidity and Capital Resources.

” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.

Components of Our Consolidated Results of Operations

We have not generated any revenue from product sales and do not expect to generate any revenue from the sale of products in the near future.

If development efforts for our product candidates are successful and result in regulatory approval or additional license agreements with third parties, we may generate revenue in the future from product sales.

Operating Expenses

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manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials, including manufacturing validation batches;

costs of purchasing lab supplies and non‑capital equipment used in our preclinical activities;

employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in research and development functions;

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These employees work across multiple programs and, therefore, we do not track their costs by program.

We have modified the presentation within the following tables to include expenses related to other preclinical development activities outside of our already presented programs in our direct research and development expenses, which were previously included as other unallocated research and development expenses.

We have adjusted prior period amounts to reflect the changes in presentation made in the current period.

The table below summarizes our research and development expenses incurred by program (in thousands):

The table below summarizes our research and development expenses related to our product candidates (in thousands):

Other research activities

Unallocated research and development expenses

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We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates.

We also anticipate that we will continue to incur increased accounting, audit, legal, regulatory, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

We also anticipate that we will continue to incur increased accounting, audit, legal, compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company.

We anticipate the additional costs for these services will substantially increase our general and administrative expenses.

Additionally, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other commercialization-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other Income (Expense)

Interest Income

Interest income consists of interest earned on money market funds and other bank deposits.

Other Expense

Other expense consists of foreign exchange gain or loss.

Change in Fair Value of Preferred Stock Warrant Liability

In connection with entering into a loan agreement, or the Loan Agreement, with Silicon Valley Bank, or SVB, in 2017, we agreed to issue a warrant to purchase shares of our preferred stock to SVB.

Prior to the completion of our IPO, we classified the warrant as a liability on our consolidated balance sheet and we were required to remeasure to fair value at each reporting date.

We recognized changes in the fair value of the warrant liability as a component of other income (expense), net in our consolidated statements of operations and comprehensive loss.

On June 21, 2018, in connection with our IPO, the warrant to purchase preferred stock was converted to a warrant to purchase common stock.

The carrying amount of the warrant to purchase preferred stock as of the date of our IPO was transferred to additional paid in capital.

No further revaluation is needed for the warrant to purchase common stock.

Change in Fair Value of Derivative Liability

Our stock purchase agreement with University Health Network, or UHN, provides for a payment to UHN upon completion of an initial public offering, which included our IPO, if UHN’s fully-diluted percentage ownership of our company is reduced within a range of specified percentages.

We classified the IPO dilution payment obligation as a liability on our consolidated balance sheet and we were required to remeasure to fair value at each reporting date.

We recognized changes in the fair value of the derivative liability as a component of other income (expense), net in our consolidated statements of operations and comprehensive loss.

On June 21, 2018, in connection with our IPO, we remeasured the fair value of the derivative liability to $2.0 million as we were required to pay the dilution payment as mentioned above, which was paid in July 2018.

Other Income (Expense), net

Other income (expense), net primarily consists of interest income earned on our cash and cash equivalents and changes in foreign currency.

Consolidated Results of Operations

Comparison of the Years Ended December 31, 2020 and 2019

The following table summarizes our consolidated results of operations for the years ended December 31, 2019 and 2018 (in thousands):

The following table summarizes our consolidated results of operations (in thousands):

Operating expenses:

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Interest income

Change in fair value of preferred stock warrant

Change in fair value of derivative liability

Other expense

Total other income (expense), net

Total other income, net

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the years ended December 31, 2019 and 2018 (in thousands):

Direct research and development expenses by program:

Unallocated research and development expenses:

Personnel related (including stock-based

compensation)

Total research and development expenses

Research and development expenses were $55.0 million for the year ended December 31, 2019, compared to $35.1 million for the year ended December 31, 2018.

The increase of $19.9 million was primarily due to increases of $4.7 million in direct costs related to our Pompe program, $3.7 million in direct costs related to our Other programs, $2.9 million in direct costs related to our Cystinosis program, and $10.3 million in unallocated research and development expenses, all partially offset by a decrease of $0.9 million in direct costs related to our Gaucher program and a decrease of $0.8 million in direct costs related to our Fabry program.

The increase in direct costs related to our Pompe program was primarily due to increases in preclinical and manufacturing costs of $4.7 million.

The increase in direct costs related to our Cystinosis program was primarily due to an increase in preclinical and clinical expenses of $1.6 million and a license fee payment of $2.0 million, partially off-set by decreases in consulting fees of $0.4 million, and manufacturing costs of $0.2 million.

The increase in direct costs related to our O ther programs was primarily due to increases in preclinical and manufacturing costs of $ 3 .

The increase in unallocated research and development expenses was primarily due to an increase of $7.4 million in personnel-related costs, including stock-based compensation as a result of hiring additional personnel in our research and development department, and an increase of $2.5 million in facility costs and rent expense.

Personnel-related costs for the years ended December 31, 2019 and 2018 included stock-based compensation expense of $3.6 million and $0.9 million, respectively.

Research and development expenses increased by $32.3 million to $87.2 million for the year ended December 31, 2020, from approximately $55.0 million for the year ended December 31, 2019.

This increase was attributable to increased program development activities related to the advancement of our pipeline programs, including a $11.7 million increase in personnel-related costs, $9.1 million in one-time, upfront licensing fees, including payment to The University of Manchester as consideration for the MPSII License Agreement, a $4.6 million increase in noncash stock-based compensation, a $5.7 million increase in clinical costs, a $2.1 million increase in facility costs, a $1.9 million increase in consulting fees, a $0.8 million increase in lab supplies expense, and a $1.1 million increase in other expenses.

These increases were partially off-set by a $2.0 million one-time licensing fee paid in 2019, a $2.1 million decrease in preclinical costs, and a $0.6 million decrease in manufacturing costs.

General and Administrative Expenses

General and administrative expenses were $20.8 million for the year ended December 31, 2019, compared to $11.1 million for the year ended December 31, 2018.

The increase of $9.7 million was primarily due to increases of $5.2 million in personnel-related costs including stock-based compensation and $4.4 million in costs associated with being a publicly traded company, including $1.9 million in professional fees, $1.7 million in consulting expenses, and $0.8 million in insurance costs.

The increase in personnel-related costs was due to the hiring of additional personnel in our general and administrative functions.

General and administrative expenses increased by $12.2 million to $33.0 million for the year ended December 31, 2020, from $20.8 million for the year ended December 31, 2019.

This increase was attributable to a $4.3 million increase in non-cash stock-based compensation, a $3.6 million increase in personnel-related costs, a $2.1 million increase in professional fees, a $1.0 million increase in facility costs, a $0.6 million increase in insurance costs, and $0.6 million in other expenses.

Other Income (Expense), net

Other income (expense), net was income of $2.8 million for the year ended December 31, 2019, compared to a net expense of $0.1 million for the year ended December 31, 2018.

The increase of $3.0 million was primarily due to a $1.2 million increase in interest income and a decrease of $1.8 million due to the change in the fair value of the derivative liability and the preferred stock warrant liability.

Other income, net decreased by $2.3 million to $0.5 million in other income, net during the fiscal year ended December 31, 2020, from $2.8 million other income, net for the year ended December 31, 2019.

The decrease was primarily due to a $2.2 million decrease in interest income and an approximate increase in foreign currency losses of $0.1 million.

Liquidity and Capital Resources

Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations.

We have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our IPO, and we have raised additional capital through our July 2019 Follow-On Offering and our February 2020 Follow-On Offering.

We have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our initial public offering, or IPO, and we have raised additional capital through subsequent follow-on offerings and our “at-the-market” facility, or ATM facility.

Through December 31, 2020, we had received gross cash proceeds of $87.5 million from sales of our preferred stock;

gross cash proceeds, before deducting underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our IPO and follow-on public offerings;

and $8.5 million in gross proceeds from the sale of our common stock under our ATM Facility.

On July 1, 2019, we filed a shelf registration statement on Form S-3 with the SEC, or the July 2019 Shelf, which covers the offering, issuance and sale by us of up to an aggregate of $200.0 million of our common stock, preferred stock, debt securities, warrants and/or units.

We simultaneously entered into a Sales Agreement with Cowen and Company, LLC, as sales agent, to provide for the offering, issuance and sale by us of up to $50.0 million of our common stock from time to time in “at-the-market” offerings under the July 2019 Shelf.

The July 2019 Shelf was declared effective by the SEC on July 10, 2019.

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The December 2019 Shelf was declared effective by the SEC on January 14, 2020.

In July 2019, we closed the July 2019 Follow-On Offering as an underwritten public offering under the July 2019 Shelf of 7,475,000 shares of our common stock at a public offering price of $18.50 per share, which included 975,000 shares of our common stock resulting from the full exercise of the underwriters’ option to purchase additional shares at the public offering price, less underwriting discounts and commissions.

The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $129.5 million.

In February 2020, we closed the February 2020 Follow-On Offering as an underwritten public offering under the December 2019 Shelf of 4,350,000 shares of our common stock at a public offering price of $23.00 per share, less underwriting discounts and commissions.

The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were approximately $93.5 million.

In July 2019, we closed an underwritten public offering, or the July 2019 Follow-On Offering, under the July 2019 Shelf of 7,475,000 shares of our common stock at a public offering price of $18.50 per share, which included 975,000 shares of our common stock resulting from the full exercise of the underwriters’ option to purchase additional shares at the public offering price, less underwriting discounts and commissions.

The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $129.5 million.

In February 2020, we closed an underwritten public offering, or the February 2020 Follow-On Offering, under the December 2019 Shelf of 4,350,000 shares of our common stock at a public offering price of $23.00 per share, less underwriting discounts and commissions.

The net proceeds to us from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $93.6 million.

In June 2020, we sold an aggregate of 384 ,140 shares of common stock under the ATM Facility for net proceeds, after deducting commissions and other offering expenses payable by us , of $8 .

As of December 3 1 , 2020, approximately $41 .5 million of common stock remained available for future issuance under the ATM Facility.

In November 2020, we closed an underwritten public offering, or the November 2020 Follow-On Offering, of 5,000,000 shares of our common stock at a public offering price of $15.00 per share, less underwriting discounts and commissions.

The net proceeds to us from the November 2020 Follow-On Offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $70.2 million.

As of December 31, 2020, we had cash and cash equivalents of $259.7 million.

Cash in excess of immediate requirements is invested primarily with a view to liquidity and capital preservation.

We believe that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.

The following table summarizes our cash flows for each of the periods presented (in thousands):

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Operating Activities

During the year ended December 31, 2020, operating activities used $98.8 million of cash and cash equivalents, resulting from our net loss of $119.7 million, partially off-set by net cash provided by changes in our operating assets and liabilities of $4.2 million and non-cash charges of $16.7 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2020 consists primarily of a $3.9 million increase in accrued expenses and other current liabilities, a $1.1 million decrease in prepaid expenses and other current assets and a $0.1 million decrease in other assets, partially offset by a $0.9 million decrease in accounts payable.

The increase in accrued expenses and other current liabilities was primarily due to a $3.4 million increase in accrued compensation and benefit costs.

During the year ended December 31, 2019, operating activities used $67.7 million of cash and cash equivalents, resulting from our net loss of $73.0 million and net cash used by changes in our operating assets and liabilities of $2.2 million, offset in part by non-cash charges of $7.5 million.

Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2019 consisted primarily of a $4.9 million increase in prepaid expenses and other current assets and $0.2 million increase in other assets, partially offset by a $1.0 million increase in accounts payable and a $1.9 million increase in accrued expenses and other current liabilities.

The increase in prepaid expenses and other current assets was primarily due to a $3.9 million increase in prepaid development costs, $0.6 million increase in prepaid insurance and a $0.6 million increase in tax incentive refund receivable from the Australian government.

During the year ended December 31, 2018, operating activities used $37.6 million of cash and cash equivalents, resulting from our net loss of $46.4 million, partially offset by non-cash charges of $4.6 million and net cash provided by changes in our operating assets and liabilities of $4.2 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2018 consisted primarily of a $5.3 million increase in accrued expenses and other current liabilities and a $2.0 million increase in accounts payable, partially offset by a $0.1 million increase in other assets and a $3.0 million increase in prepaid expenses and other current assets.

The increases in accrued expenses and other current liabilities were primarily due to ongoing research, development, and clinical trial work, and an increase in the incentive bonus accrual as of December 31, 2018.

The increase in prepaid expenses and other current assets was primarily due to a $0.8 million increase in prepaid development costs, a $1.3 million increase in tax incentive refund receivable from the Australian government and a $0.2 million increase in interest income receivable.

Net cash used by changes in our operating assets and liabilities for the year ended December 31, 2019 consisted primarily of a $4.9 million increase in prepaid expenses and other current assets and a $0.2 million increase in other assets, partially offset by a $1.0 million increase in accounts payable and a $1.9 million increase in accrued expenses and other current liabilities.

The increase in prepaid expenses and other current assets was primarily due to a $3.9 million increase in prepaid development costs, $0.6 million increase in prepaid insurance and a $0.6 million increase in a tax incentive refund receivable from the Australian government.

Investing Activities

During the years ended December 31, 2019 and 2018, we used $1.6 million and $1.8 million of cash and cash equivalents in investing activities consisting of purchases of property and equipment.

Net cash used in investing activities was $1.2 million for the year ended December 31, 2020 compared to $1.6 million for the year ended December 31, 2019.

The decrease in cash used in investing activities was primarily due to a reduction in purchases of property and equipment.

Financing Activities

During the year ended December 31, 2019, net cash provided by financing activities was $130.0 million, primarily consisting of net cash proceeds of $129.5 million from our July 2019 Follow-on Offering.

During the year ended December 31, 2018, net cash provided by financing activities was $160.3 million, primarily consisting of net cash proceeds of $104.0 million from our IPO proceeds and $58.3 million from our issuance of Series B preferred stock in January 2018.

Term Loan Agreement

In June 2017, we entered into the Loan Agreement with SVB providing a senior secured non-revolving loan facility of up to an aggregate principal amount of $10.0 million, available for us to draw down in three tranches until October 31, 2018, subject to the satisfaction of certain milestones for each tranche.

Through the end of the drawdown period on October 31, 2018, we had not drawn down from the facility.

The Loan Agreement expired on October 31, 2018.

Net cash provided by financing activities was $172.6 million for the year ended December 31, 2020 compared to $130.0 million for the year ended December 31, 2019.

The increase in cash provided by financing activities was primarily due to the proceeds of $164.1 million raised from the February Follow-On Offering and November 2020 Follow-On Offering

and proceeds of $ 8 .1 million raised from our ATM facility, as compared to the $ 129.5 million in proceeds raised from the July 2019 F ollow- O n O ffering in the comparative period .

Funding Requirements

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Our expenses will also increase as we:

continue our development of our product candidates, including continuing enrollment in our ongoing Phase 2 clinical trial for AVR-RD-01, the ongoing investigator-sponsored clinical trial of AVR-RD-04 and our ongoing clinical trial of AVR-RD-02;

initiate additional clinical trials and preclinical studies for our other current and future product candidates;

continue our development of our product candidates, including continuing enrollment in our ongoing FAB-GT clinical trial for AVR-RD-01, the ongoing investigator-sponsored clinical trial of AVR-RD-04 and our ongoing clinical trial of AVR-RD-02;

initiate additional clinical trials, including the planned investigator-sponsored clinical trial of AVR-RD-05, and preclinical studies for our other current and future product candidates;

seek to identify and develop or in-license or acquire additional product candidates and technologies;

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continue to incur additional public company-related costs.

We believe that our $259.7 million of existing cash and cash equivalents as of December 31, 2020, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023.

We have based these estimates on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect.

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Operating lease commitments (1)

Represents future minimum lease payments under our non-cancelable operating leases for office and laboratory space, which are located in Cambridge, Massachusetts.

Those leases will expire from October 2020 to January 2023.

Represents future minimum lease payments under our non-cancelable operating leases for office and laboratory space, which are located in Cambridge, Massachusetts and Toronto, Canada.

Those leases will expire from April 2022 to June 2025.

The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

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These payments are not included in the preceding table as the amount and timing of such payments are not known.

In addition, pursuant to our license agreements with UHN, BioMarin, GenStem and the Lund University rights holders, we are required to make certain milestone and royalty payments to our licensors.

In addition, pursuant to our license agreements with UHN, BioMarin, The University of Manchester, GenStem and the Lund University rights holders, we are required to make certain milestone and royalty payments to our licensors.

See “Business—License Agreements” for additional details regarding our payment obligations to these licensors.

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Our actual results may differ from these estimates under different assumptions or conditions.

While our significant accounting policies are described in more detail in Note 2 to our consolidated financial statements appearing elsewhere in this report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

While our significant accounting policies are described in more detail in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Accrued Research and Development Expenses

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If the actual timing of the performance of services or the level of effort varies from the estimate, we adjust the accrual or the amount of prepaid expenses accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the

actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period.

To date, there have not been any material adjustments to our prior estimates of accrued research and development expenses.

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2018-07, Compensation—Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07) , as discussed in Note 2 to our consolidated financial statements appearing at the end of this document, the measurement date for non-employee awards was generally the date the services are completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards.

Improvements to Nonemployee Share-Based Payment Accounting (ASU 2018-07) , as discussed in Note 2 “Summary of Significant Accounting Policies” to our consolidated financial statements appearing elsewhere in this Annual Report, the measurement date for non-employee awards was generally the date the services were completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards.

After the adoption of ASU 2018-07, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the date of grant, without change in the fair value of the award.

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Each of these inputs is subjective and generally requires significant judgment to determine.

Fair Value of Our Common Stock.

Determination of the Fair Value of Common Stock.

The fair value of our common stock is determined based on the quoted market price of our common stock.

Prior to our IPO, our stock was not publicly traded, and therefore we estimated the fair value of our common stock, as discussed in “Determination of the Fair Value of Common Stock” below.

Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant.

These third-party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation.

After a public trading market for our common stock was established following the closing of our IPO, it was no longer necessary for our board of directors to estimate the fair market value of our common stock in connection with our accounting for granted equity awards.

Expected Term.

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If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation for future awards may differ materially compared with the awards granted previously.

Determination of the Fair Value of Common Stock

The fair value of our common stock is determined based on the quoted market price of our common stock.

Valuation of Derivative Liability

The fair value of the derivative liability recognized in connection with our stock purchase agreement with UHN was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

The fair value of the derivative liability was determined using the probability-weighted expected return method, or PWERM, which considered as inputs the type and probability of occurrence of an IPO dilution event, the amount of the payment, the expected timing of an IPO dilution event and a risk-adjusted discount rate.

Valuation of Warrant Liability

In connection with entering into the Loan Agreement, we agreed to issue a warrant to purchase shares of our Series A preferred stock to the lender.

We classified the warrant as a liability on our consolidated balance sheet because the warrant represented a free-standing financial instrument that may have required us to transfer assets upon exercise.

The warrant liability was initially recorded at fair value upon the date of the warrant issuance and was subsequently remeasured to fair value at each reporting date.

Changes in the fair value of the warrant liability were recognized as a component of other income (expense), net in the consolidated statements of operations.

We utilized the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant.

We assessed these assumptions and estimates on a quarterly basis as additional information impacting the assumptions was obtained.

Estimates and assumptions impacting the fair value measurement included the fair value per share of the underlying equity instruments issuable upon exercise of the warrant, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the underlying preferred stock.

Prior to our IPO in 2018, we had been a private company and lacked company-specific historical and implied volatility information of our stock.

Therefore, we estimated expected stock volatility based on the historical volatility of publicly traded peer companies for a term equal to the remaining contractual term of the warrant.

The risk-free interest rate was determined by reference to the U.S.

Treasury yield curve for time periods approximately equal to the remaining contractual term of the warrant.

We estimated a 0% dividend yield based on the fact that we have never paid or declared dividends.

Upon the closing of our IPO, the preferred stock warrant became exercisable for common stock instead of preferred stock.

The carrying amount of the warrant to purchase preferred stock as of the date of IPO was transferred to additional paid in capital.

No further revaluation was required for the warrant to purchase common stock.

Emerging Growth Company Status

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies.

We may take advantage of these exemptions until we are no longer an emerging growth company.

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Recently Issued Accounting Pronouncements

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 to our audited financial statements appearing elsewhere in this report.

Quantitative and Qualitati ve Disclosures about Market Risk

Interest Rate Risk

As of December 31, 2019, we had cash and cash equivalents of $187.0 million, which consisted of cash and money market funds.

Interest income is sensitive to changes in the general level of interest rates;

however, due to the nature of these investments, an immediate 10% change in interest rates would not have a material impact on our cash and cash equivalents, financial position or results of operations.

Foreign Currency Exchange Risk

We are exposed to foreign exchange rate risk.

Our headquarters are located in the United States, where the majority of our general and administrative expenses and research and development costs are incurred in U.S.

A portion of our research and development costs are incurred by our subsidiaries in Australia and Canada, whose functional currencies are the U.S.

dollar but engage in transactions in Australian dollars and Canadian dollars, respectively.

During each of the years ended December 31, 2019 and 2018, we recognized immaterial foreign currency transaction losses.

These losses primarily related to unrealized and realized foreign currency gains and losses as a result of transactions entered into by our Australian and Canadian subsidiaries in currencies other than the U.S.

These foreign currency transaction gains and losses were recorded in other expense, net in our consolidated statements of operations.

We believe that a 10% change in the exchange rate between the U.S.

dollar, Australian dollar and Canadian dollar would not have a material impact on our financial position or results of operations.

As we continue to grow our business, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency exchange rates, which could adversely impact our results of operations.

To date, we have not entered into any foreign currency hedging contracts to mitigate our exposure to foreign currency exchange risk.

Financial Statements and Supplementary Data

All financial statements and supplementary data required to be filed hereunder are filed as listed under Item 15(a) of this Annual Report on Form 10-K and are incorporated herein by this reference.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 2 “Summary of Significant Accounting Policies” to our audited financial statements appearing elsewhere in this Annual Report.

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What changed 10-K

Item 7. Management’s Discussion and Analysis