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Item 9A. Controls and Procedures

2021-03-18 compared with 2020-03-16 · 370 added, 491 removed, 501 unchanged (63% of the section changed)

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Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2019, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weaknesses in our internal control over financial reporting as described below under “Management’s Report on Internal Control Over Financial Reporting” and in Part II, Item 1A.

of this report, our disclosure controls and procedures were not effective as of December 31, 2019.

Notwithstanding the material weaknesses, our management has concluded that the financial statements included elsewhere in this report present fairly, in all material respects, our financial position, results of operations and cash flows in conformity with GAAP.

Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this Annual Report on Form 10-K.

Management’s Annual Report on Internal Control over Financial Reporting

In our Annual Report on Form 10-K for the year ended December 31, 2018, we reported material weaknesses in our internal control over financial reporting related to deficiencies in our controls over the financial statement close process, including over complex accounting issues, expense classification and accrued research and development expenses, as well as the cash disbursement process.

During 2019, we took a number of actions, including the efforts outlined below, designed to improve our internal control over financial reporting to remediate these material weaknesses.

These efforts include:

hiring additional qualified accounting and financial planning and analysis personnel, including an Assistant Controller and Senior Director of Financial Planning and Analysis;

conducting a review of our IT infrastructure, personnel and services, and hiring a Senior Director of Information Technology;

engaging a professional accounting services firm to help us assess and commence documentation of our internal controls for complying with the Sarbanes-Oxley Act of 2002;

strengthening, formalizing, documenting and testing accounting processes and internal controls;

engaging consultants to provide additional technical accounting expertise;

implementing new financial software systems including a purchase requisition system, expense reporting system and a system to track and account for stock-based awards to automate these processes.

We believe significant progress was made in 2019 to enhance and strengthen our internal control over financial reporting.

However, while we believe our internal controls were properly designed and implemented as of December 31, 2019, they were not in all cases in place for a sufficient period of time to demonstrate operating effectiveness as of December 31, 2019.

As a result, management has concluded that the material weaknesses were not fully remediated as of December 31, 2019.

The measures we are implementing are subject to continued management review supported by confirmation and testing, as well as audit committee oversight.

Management remains committed to remediating these material weaknesses.

We will continue to implement measures to remedy our internal control deficiencies, though there can be no assurance that our efforts will be successful or avoid potential future material weaknesses.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company.

Our internal control over financial reporting is designed to provide reasonable assurances regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with U.S.

generally accepted accounting principles, or GAAP, and includes those policies and procedures that:

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company;

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.

Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, assessed our internal control over financial reporting as of December 31, 2020.

Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal control over financial reporting was effective at the reasonable assurance level as of December 31, 2020.

This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to a transition period established by rules of the SEC for “emerging growth companies”.

Remediation of Previously Reported Material Weaknesses

During the year ended December 31, 2018, we reported material weaknesses in our internal control over financial reporting related to deficiencies in our controls over the financial statement close process, including over complex accounting issues, expense classification and accrued research and development expenses, as well as the cash disbursement process.

We took a number of actions in 2018 and 2019 to improve our internal control over financial reporting to remediate these material weaknesses.

For the year ended December 31, 2020, we completed our testing of the operating effectiveness of the implemented controls and determined they were effective.

As a result, we have concluded the material weaknesses identified in fiscal year 2018 have been remediated as of December 31, 2020.

We cannot assure you that material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

For additional information see the related risks in the section titled “Risk Factors” in Part I, Section 1.A of this Annual Report.

Changes in Internal Control over Financial Reporting

Other than the changes intended to remediate the material weaknesses noted above, no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Other Information

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

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Consolidated Statements of Operations and Comprehensive Loss

Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders’ (Deficit) Equity

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Regist ered Public Accounting Firm

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of AVROBIO, Inc.

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We have audited the accompanying consolidated balance sheets of AVROBIO, Inc.

(the Company) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, redeemable convertible preferred stock and stockholders’ (deficit) equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years then ended, in conformity with U.S.

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CONSOLIDATED BALANCE SHEETS

(amounts in thousands, except share and per share data)

(amounts in thousands, except per share data)

Current assets:

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Property and equipment, net

Restricted cash

Liabilities and stockholders’ equity

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Accrued expenses and other current liabilities

Deferred rent

Total current liabilities

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(amounts in thousands, except share and per share data)

(amounts in thousands, except per share data)

Year Ended December 31,

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Interest income

Change in fair value of preferred stock warrant liability

Change in fair value of derivative liability

Other expense

Total other income (expense), net

Other expense, net

Total other income, net

Comprehensive loss

Reconciliation of net loss to net loss attributable to common stockholders:

Accretion of issuance costs on redeemable convertible preferred stock

Net loss attributable to common stockholders—basic and diluted

Net loss per share attributable to common stockholders—basic and

diluted (Note 13)

Weighted-average number of common shares used in computing net loss

per share attributable to common stockholders—basic and diluted

Net loss per share —basic and diluted

Weighted-average number of common shares outstanding—basic and diluted

The accompanying notes are an integral part of these consolidated financial statements.

AVROBIO, INC.

CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND

STOCKHOLDERS’ (DEFICIT) EQUITY

(amounts in thousands, except share data)

Preferred Stock

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(amounts in thousands)

Stockholders’

(Deficit) Equity

Balance as of December 31, 2018

Issuance of series B redeemable convertible

preferred stock, net of issuance costs of

Issuance of series B redeemable convertible

preferred stock to settle accrued liability

of license cost

Accretion of issuance costs related to

redeemable convertible preferred stock

Issuance of common stock upon IPO,

net of issuance costs of $2,628

Stock-based compensation expense

Reclassification of warrants to purchase

redeemable convertible stock into

warrants to purchase common stock

Conversion of redeemable convertible

preferred stock into common stock

Exercise of warrants to purchase

Vesting of restricted stock awards

Vesting of restricted stock awards and units

Exercise of stock options

Issuance of common stock upon public

offering, net of offering costs of $ 525

Issuance of common stock under 2018 employee stock

purchase plan

Stock-based compensation expense

Balance as of December 31, 2019

Vesting of restricted stock awards

Vesting of restricted stock awards and units

Exercise of stock options

Issuance of common stock upon public

offering, net of offering costs of $525

offerings, net of offering costs of $ 697

Issuance of common stock under

employee stock purchase plan

ATM facility, net of offering costs of $ 67

Issuance of common stock under 2018 employee stock

purchase plan

Stock-based compensation expense

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Depreciation and amortization expense

Amortization of deferred offering costs

Impairment loss of property and equipment

Deferred rent expense

Change in fair value of preferred stock warrant liability

Change in fair value of derivative liability

Changes in operating assets and liabilities:

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Cash flows from financing activities:

Proceeds from issuance of redeemable convertible preferred stock, net of

issuance costs

Proceeds from issuance of common shares upon completion of public

offering, net of offering costs

Payment of dilution liability

Proceeds from issuance of common stock upon completion of public

offerings, net of offering costs

Proceeds from issuance of common stock under ATM facility, net of offering costs

Exercise of stock options

Proceeds from the issuance of shares under the employee stock purchase plan

Proceeds from issuance of common stock under 2018 employee stock purchase plan

Net cash provided by financing activities

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accrued expenses

Property and equipment held for sale

Deferred offering costs included in accrued expenses and accounts payable

Purchase of property and equipment paid for by landlord

Accretion of issuance costs related to redeemable convertible preferred stock

Common stock offering costs incurred but unpaid at period end

Reconciliation of cash, cash equivalents and restricted cash reported within the consolidated balance sheets:

Cash and cash equivalents, end of period

Restricted cash

Cash, cash equivalents and restricted cash, end of period

The accompanying notes are an integral part of these consolidated financial statements.

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Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.

Through December 31, 2019, the Company has funded its operations primarily with proceeds from the sale of Seed redeemable convertible preferred stock (the “Series Seed Preferred Stock”), series A redeemable convertible preferred stock (the “Series A Preferred Stock”) and series B redeemable convertible preferred stock (the “Series B Preferred Stock”), (the Series Seed Preferred Stock, the Series A Preferred Stock and the Series B Preferred Stock are collectively referred to as the “Preferred Stock”) and common stock through the Company’s initial public offering (“IPO”).

The Company has incurred recurring losses since its inception, including net losses of $72,965 and $46,361 for the years ended December 31, 2019 and 2018, respectively.

In addition, as of December 31, 2019, the Company had an accumulated deficit of $144,704.

Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of December 31, 2019 of $187,043, together with net proceeds from the follow on public offering completed in February 2020 (“the February 2020 Follow-On Offering”) (see Note 17) will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the filing date of this Annual Report on Form 10-K with the SEC.

The Company has devoted substantially all of its efforts to research and development, business planning, acquiring operating assets, seeking protection for its technology and product candidates, and raising capital.

Since inception, the Company has funded its operations through sales of preferred stock and common stock.

As of December 31, 2020, the Company had an accumulated deficit of $ 264,416 .

Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of December 31, 2020 of $ 259,682 will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the filing date of this Annual Report on Form 10-K with the SEC.

However, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations.

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All intercompany transactions and balances have been eliminated in consolidation.

Segment Information

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance.

The Company’s chief operating decision maker is the chief executive officer (“CEO”).

The Company and the CEO view the Company’s operations and manage its business as one operating segment.

All material long-lived assets of the Company reside in the United States.

Reclassifications

Restricted cash totaling $ 492 as of December 31, 2019 has been reclassified from “Other assets” to “Restricted cash” in order to conform to the current period presentation.

Additionally, the Company has reclassified $ 214 which was previously classified as “Accrued expenses and other current liabilities” as of December 31, 20219 to “Deferred rent” in order to

conform to the current period presentation.

These reclassifications had no effect on the consolidated results of operation or cash flows for the year ended December 31, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods.

Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, the accrual for research and development expenses, stock-based compensation expense, the valuation of equity and derivative instruments and the recoverability of the Company’s net deferred tax assets and related valuation allowance.

Estimates are periodically reviewed in light of changes in circumstances, facts and experience.

Changes in estimates are recorded in the period in which they become known.

Actual results could differ materially from those estimates.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

The preparation of financial statements in conformity with GAAP requires that the Company make estimates and judgments that may affect the reported amounts of assets, liabilities and expenses and the related disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting periods .

On an on‑going basis, the Company evaluates its estimates, judgments and methodologies.

The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

Actual results may differ from these estimates.

Changes in estimates are reflected in reported results in the period in which they become known.

Cash and Cash Equivalents

The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents.

Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market accounts.

Cash equivalents are carried at cost, which approximates their fair market value.

Restricted Cash

As of both December 31, 2019 and 2018, restricted cash consisted of $492 used to secure the letters of credit for the benefit of the landlord in connection with the Company’s lease agreements (Note 14).

These amounts are classified as other assets in the Company’s consolidated balance sheets.

The Company considers all highly liquid investments purchased with original maturities of three months or less at acquisition to be cash equivalents.

As of December 31, 2020 and 2019, cash and cash equivalents were primarily held in interest-bearing money market funds.

Concentrations of Credit Risk

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There were no amounts deferred as of December 31, 2020.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

Level 1— Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts payable, and accrued expenses, approximated their fair values as of December 31, 2020 and 2019 due to the short ‑term nature of these instruments.

The Company has evaluated the estimated fair value of financial instruments using available market information.

The use of different market assumptions, estimation methodologies, or both, could have a significant effect on the estimated fair value amounts.

See Note 4 “ Fair Value of Financial Assets and Liabilities” for further discussion.

Property and Equipment

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Laboratory and office equipment

Computer equipment and software

Computer equipment

Leasehold improvements

Lesser of lease term or 10 years

Upon disposal, retirement or sale, the cost of assets disposed of and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations.

Expenditures for repairs and maintenance that do not improve or extend the lives of the respective assets are charged to expense as incurred.

Impairment of Long-Lived Assets

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The impairment loss would be based on the excess of the carrying value of the impaired asset group over its fair value, determined based on discounted cash flows.

During the year ended December 31, 2018, the Company recorded an

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

impairment loss of $235 on long-lived assets related to leasehold improvements.

The Company did not record any impairment loss during the year ended December 31, 2019.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP (see Note 3).

Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

Level 1—Quoted prices in active markets for identical assets or liabilities.

The carrying amounts of the Company’s financial instruments, which include cash and cash equivalents, restricted cash, accounts payable, and accrued expenses, approximated their fair values at December 31, 2019 and 2018 due to the short‑term nature of these instruments.

The Company has evaluated the estimated fair value of financial instruments using available market information.

The use of different market assumptions, estimation methodologies, or both, could have a significant effect on the estimated fair value amounts.

See Note 3 for further discussion.

Segment Information

The Company’s chief operating decision maker is the chief executive officer (“CEO”).

The Company and the CEO view the Company’s operations and manage its business as one operating segment.

All material long-lived assets of the Company reside in the United States.

Research and Development Costs

The Company did no t record any impairment loss during the years ended December 31, 2020 and 2019.

The Company categorizes leases at their inception as either operating or capital leases.

On certain lease arrangements, the Company may receive rent holidays or other incentives.

The Company recognizes lease costs on a straight-line basis once control of the space is achieved, without regard to deferred payment terms, such as rent holidays, that defer the commencement date of required payments or escalating payment amounts.

The difference between required lease payments and rent expense has been recorded as deferred rent and accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Additionally, incentives received are treated as a reduction of costs over the term of the agreement, as they are considered an inseparable part of the lease agreement.

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’ equity (deficit) which includes certain changes in equity that are excluded from net income (loss).

Comprehensive loss has been disclosed in the accompanying consolidated statements of operations and comprehensive loss and equals the Company’s net loss for all periods presented.

Foreign Currency Translation

The functional currency of the Company’s international operations in Canada and Australia is the U.S.

Accordingly, all operating assets and liabilities of these international subsidiaries are remeasured into U.S.

dollars using the exchange rates in effect at the balance sheet date or historical rates, as appropriate, while expenses are remeasured into U.S.

dollars at the average rates in effect during the period.

Any differences resulting from the remeasurement of assets, liabilities, and operations of the Canadian and Australian subsidiaries are recorded within other income (expense), net in the consolidated statements of operations and comprehensive loss.

During the years ended December 31, 2020 and 2019, the Company recorded foreign exchange losses of $ 203 and $ 90 , respectively, in other expense.

Research and Development Expenses

Research and development costs are expensed as incurred.

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The Company’s historical accrual estimates have not been materially different from the actual costs.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Stock-Based Compensation

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Improvements to Nonemployee Share-Based Payment Accounting , 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.

After 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.

Since the Company’s adoption of ASU 2018-07 in 2018, 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.

For stock-based awards granted to nonemployees subject to graded vesting that only contain service conditions, the Company has elected to recognize stock-based compensation expense using the straight-line recognition method.

The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner in which the award recipient’s cash compensation costs are classified.

Given the absence of an active market for the Company’s common stock prior to the IPO, the Company and the Board, the members of which the Company believes have extensive business, finance, and venture capital experience, were required to estimate the fair value of the Company’s common stock at the time of each grant of a stock-based award.

Given the absence of an active market for the Company’s common stock prior to its initial public offering (“IPO”), the Company and the Board, the members of which the Company believes have extensive business, finance, and venture capital experience, were required to estimate the fair value of the Company’s common stock at the time of each grant of a stock-based award.

The Company and the Board determined the estimated fair value of the Company’s equity instruments based on a number of factors, including external market conditions affecting the biotechnology industry sector.

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therefore, the expected dividend yield is assumed to be zero .

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

See Note 10 for the assumptions used by the Company in determining the grant date fair value of stock-based awards granted, as well as a summary of the stock-based award activity under the Company’s stock-based compensation plan for the year ended December 31, 2019.

Warrant to Purchase Preferred Stock

Prior to the IPO, the Company classified the warrant for the purchase of shares of its redeemable convertible preferred stock (see Note 7) as a liability on its consolidated balance sheets as the warrant was a free-standing financial instrument that may require the Company to transfer assets upon exercise.

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

Changes in the fair value of the warrant to purchase preferred stock were recognized as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

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

The Company 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 redeemable convertible preferred stock issuable upon exercise of the warrant, the remaining contractual term of the warrant, the risk-free interest rate, the expected dividend yield and the expected volatility of the price of the underlying redeemable convertible preferred stock.

Upon the 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 IPO was transferred to the account of additional paid in capital.

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

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’ (deficit) equity which includes certain changes in equity that are excluded from net income (loss).

Comprehensive loss has been disclosed in the accompanying statements of operations and comprehensive loss and equals the Company’s net loss for all periods presented.

Foreign Currency Translation

The functional currency of the Company’s international operations in Canada and Australia is the U.S.

Accordingly, all operating assets and liabilities of these international subsidiaries are remeasured into U.S.

dollars using the exchange rates in effect at the balance sheet date or historical rates, as appropriate, while expenses are remeasured into U.S.

dollars at the average rates in effect during the period.

During the years ended December 31, 2019 and 2018, the Company recorded foreign exchange losses of $90 and $51, respectively, in other expense.

Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.

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The provision for income taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and penalties.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

The Company categorizes leases at their inception as either operating or capital leases.

On certain lease arrangements, the Company may receive rent holidays or other incentives.

The difference between required lease payments and rent expense has been recorded as deferred rent and other accrued expenses and other current liabilities in the accompanying consolidated balance sheets.

Additionally, incentives received are treated as a reduction of costs over the term of the agreement, as they are considered an inseparable part of the lease agreement.

Net Income (Loss) per Share Attributable to Common Stockholders

Net income (loss) per share attributable to common stockholders is determined using the two-class method, which includes the weighted-average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security).

In periods of income, the redeemable convertible preferred stock would be considered participating securities because the shares include rights to participate in dividends with the common stock;

however, the redeemable convertible preferred stock is not considered a participating security in periods of loss as they do not have an obligation to share in the Company’s net losses.

Under the two-class method, basic net income (loss) per share attributable to common stockholders is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

Diluted net income (loss) per share attributable to common stockholders is computed using the more dilutive of (1) the two-class method or (2) the if-converted method.

The Company allocates net income first to the holders of Preferred Stock based on dividend rights under the Company’s certificate of incorporation and then to preferred and common stockholders based on ownership interests.

Net Loss per Share

Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of potential dilutive securities.

Diluted net loss per share is computed by adjusting the weighted-average shares outstanding for the potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method.

For purposes of the diluted net loss per share calculation, stock options and restricted stock units are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Therefore, basic and diluted net loss per share were the same for all periods presented.

Subsequent Event Considerations

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Subsequent events have been evaluated as required.

The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure, other than as disclosed in these notes to the consolidated financial statements.

See Note 17 for further information.

The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure.

Emerging Growth Company Status

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Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU No.

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

Improvements to Nonemployee Share-Based Payment Accounting (“ASU 2018-07”).

ASU 2018-07 amends the FASB Accounting Standards Codification (“ASC”) to expand the scope of FASB ASC Topic 718, Compensation-Stock Compensation , to include accounting for share-based payment transactions for acquiring goods and services from non-employees.

The amendments in ASU 2018-07 are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

Early adoption is permitted.

The Company early adopted this guidance at the beginning of the fourth quarter of 2018.

There was no material impact on the consolidated financial statements as a result of this adoption.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

In May 2014, the FASB issued ASU No.

2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP.

The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The standard defines a five-step process to achieve this principle and will require companies to use more judgment and make more estimates than under the current guidance.

The Company expects that these judgments and estimates will include identifying performance obligations in the customer contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts.

The Company early adopted ASU 2014-09 at the beginning of the fourth quarter of 2018.

The adoption of ASU 2014-09 did not have an impact on the Company’s consolidated financial statements as the Company does not currently have any revenue-generating arrangements.

In May 2017, the FASB issued ASU No.

2017-09, Compensation—Stock Compensation (Topic 718):

Scope of Modification Accounting (“ASU 2017-09”), which clarifies when to account for a change to the terms or conditions of a share-based payment award as a modification.

Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions.

The standard is effective for annual periods beginning after December 15, 2017.

Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance.

The Company adopted this guidance at the beginning of the fourth quarter of 2018.

There was no material impact on the consolidated financial statements as a result of this adoption.

In November 2018, the FASB issued ASU No.

2016-18, Statement of Cash Flows (Topic 230) Restricted Cash (“ASU 2016-18”), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and restricted cash.

Therefore, amounts described as restricted cash should be included with cash and cash equivalents when reconciling the beginning of period and end of period amounts shown on the statement of cash flows.

The Company early adopted this guidance at the beginning of the fourth quarter of 2018.

ASU 2016-18 is effective on a retrospective basis.

The cash, cash equivalents and restricted cash balances as of December 31, 2019 and 2018, which are presented in the Company’s consolidated statements of cash flows subsequent to the adoption of ASU 2016-18, consisted of the following:

Cash and cash equivalents

Cash, cash equivalents and restricted cash

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes , or ASU 2019-12.

ASU 2019-12 eliminates certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

It also clarifies and simplifies other aspects of the accounting for income taxes.

The guidance is effective for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years, with early adoption permitted.

The Company is currently evaluating the impact that the adoption of ASU 2019-12 will have on its consolidated financial statements.

2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606 , or ASU 2018-18.

The amendments in ASU 2018-18 clarify that certain transactions between collaborative arrangement participants should be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account.

The amendments under ASU 2018-18 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted.

The amendments in ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606.

The Company adopted ASU 2018-18 during the quarter ended March 31, 2020.

The adoption did not have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40), or ASU 2018-15.

ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract.

The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted.

The Company adopted ASU 2018-15 during the quarter ended March 31, 2020.

The adoption did not have a material impact on the consolidated financial statements.

In August 2018, the FASB issued ASU No.

2018-13, Fair Value Measurement (Topic 820):

4 unchanged sentences

All other amendments are to be applied retrospectively to all periods presented.

The Company is currently evaluating the effects the adoption of ASU 2018-13 will have on its disclosures.

In August 2018, the FASB issued ASU No.

2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40) (“ASU 2018-15”).

ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

cloud computing arrangement that is a service contract.

The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted.

The Company does not expect the adoption of ASU 2018-15 to have a material impact on its consolidated financial statements.

In November 2018, the FASB issued ASU No.

2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808 and Topic 606 (“ASU 2018-18”).

The amendments under ASU 2018-18 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted.

The amendments in ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606.

The Company does not expect the adoption of ASU 2018-18 to have a material impact on its consolidated financial statements.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”).

ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred.

The accounting guidance currently in effect is based on an incurred loss model.

For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

The amendments under ASU 2016-13 are effective for interim and annual fiscal periods beginning after December 15, 2019.

The Company does not expect the adoption of ASC 2016-13 to have a material impact on its consolidated financial statements.

The Company adopted ASU 2018-13 during the quarter ended March 31, 2020.

The adoption did not have a material impact on the consolidated financial statements.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No.

2016-02, (Topic 842) Leases (“ASU 2016-02”).

2016-02, (Topic 842) Leases, or ASU 2016-02.

ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases.

4 unchanged sentences

The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its consolidated financial statements.

Based on this evaluation t he Company currently expects that its operating lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard, which will increase the Company’s total assets and total liabilities.

In June 2016, the FASB issued ASU No.

2016-13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , or ASU 2016-13.

ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the entity's current estimate of credit losses expected to be incurred.

The accounting guidance currently in effect is based on an incurred loss model.

For available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the investment.

ASU 2016-13 is effective for non-emerging growth companies (“EGCs”) for fiscal years beginning December 15, 2019 and interim periods within those fiscal years, and will be effective for the Company for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, assuming the Company remains an EGC.

Early adoption is permitted.

The Company is currently evaluating the effects the adoption of ASU 2016-13 may have on its financial statements.

In November 2019, the FASB issued ASU 2019-11, “ Codification Improvements to Topic 326, Financial Instruments – Credit Losses ”, or ASU 2019-11.

ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “ Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .” The amendments update guidance on reporting credit losses for financial assets.

These amendments affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope that have the contractual right to receive cash.

The amendments in both ASU 2016-13 and ASU 2019-11 are

effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years.

As a result of the Company having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13 and ASU 2019-11 are effective for the Company for fiscal years beginning after December 15, 202 2 , and interim periods within those fiscal years.

The Company is currently evaluating ASU 2016-13 and ASU 2019-11 and their impact on its consolidated financial statements and financial statement disclosures.

In December 2019, the FASB issued ASU No.

2019-12, Simplifying the Accounting for Income Taxes , or ASU 2019-12.

It also clarifies and simplifies other aspects of the accounting for income taxes.

ASU 2019-12 is effective for non-EGCs for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years and will be effective for the Company for fiscal years beginning after December 15, 2021 and interim periods beginning after December 15, 2022, assuming the Company remains an EGC.

Early adoption is permitted.

The Company is currently evaluating the effects the adoption of ASU 2019-12 may have on its financial statements.

License Agreements

Agreement with The University of Manchester

On September 30, 2020, the Company entered into an agreement (“MPSII License Agreement”) with The University of Manchester, England (“UoM”), whereby UoM granted to the Company an exclusive worldwide license under certain patent and other intellectual property rights, subject to certain retained rights, to develop, commercialize and sell an ex vivo lentiviral gene therapy for use in the treatment of Hunter syndrome, or mucopolysaccharidosis type II (“MPSII”) .

As consideration for the MPSII License Agreement, the Company agreed to pay UoM an upfront, one-time fee of $ 8,000 , which was recognized as research and development expense during the year ended December 31, 2020.

As part of the agreement, the Company is obligated to make milestone payments of up to an aggregate of $ 80,000 upon the achievement of specified development and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a mid-single digit percentage based on net sales of products licensed under the agreement and to pay a low double digit percentage of any sublicense fees received by the Company.

The next anticipated payment milestones under the MPSII License Agreement include $ 2,000 , which would become due following the date of regulatory approval of the clinical trial application for the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM, and $ 4,000 , upon the dosing of the first patient in the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM.

Unless terminated earlier, the agreement expires upon the later of 15 years from the effective date or the expiration of the last valid claim of the licensed patents , subject to certain surviving rights and obligations.

UoM and the Company can each terminate the agreement in the event of the bankruptcy or insolvency of the other party, or a material breach by the other party and failure to cure such breach within a certain period of time.

UoM has the right to terminate the agreement in the event of certain actions relating to challenge or opposition to the licensed intellectual property brought by the Company or its affiliates or sublicensees.

Concurrently with the MPSII License Agreement, the Company entered into a collaborative research funding agreement with UoM (“CRFA”).

Under the CRFA, the Company has agreed to fund the budgeted costs of an investigator-sponsored Phase 1/2 clinical trial to be sponsored by UoM in connection with the development activities under the MPSII License Agreement, which are currently estimated to equal approximately £ 9,100 in the aggregate .

For the year ended December 31, 2020, the Company recognized $ 565 of costs related to the CRFA.

Agreements with University Health Network (“UHN”)

Fabry License Agreement—

On January 27, 2016, the Company entered into an agreement with UHN, pursuant to which UHN granted the Company an option to enter into an exclusive license under the UHN intellectual property related to Fabry disease in accordance with the pre-negotiated licensing terms.

On November 4, 2016, the Company exercised its option and entered into a license agreement with UHN, pursuant to which UHN granted the Company an exclusive worldwide license under certain intellectual property rights and a non-exclusive worldwide license under certain know-how, in each case subject to certain retained rights, to develop, commercialize and sell products for use in the treatment of Fabry disease.

In addition, for three years following the execution of the agreement, UHN granted the Company an exclusive option to obtain a license under

certain improvements to the licensed intellectual property rights as well as an option to negotiate a license under certain other improvements.

Under this agreement, the Company paid an option fee of CAD $ 20 , an upfront license fee of CAD $ 75 , plus the annual license maintenance fee for the first year.

Thereafter, the Company is also required to pay UHN future annual license maintenance fees until the first sale of a licensed product in certain markets.

The Company is also obligated to make future milestone payments in an aggregate amount of up to CAD $ 2,450 upon the achievement of specified milestones as well as royalties on a country-by-country basis of a low to mid-single-digit percentage of annual net sales of licensed products and a lower single-digit royalty percentage in certain circumstances.

Additionally, the Company has agreed to pay a low double-digit royalty percentage of all sublicensing revenue.

The agreement requires the Company to meet certain performance milestones within specified timeframes.

UHN may terminate the agreement if the Company fails to meet these performance milestones despite using commercially reasonable efforts and the Company is unable to reach agreement with UHN on revised timeframes.

The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis upon the latest to occur of the expiration or termination of the last valid claim under the licensed intellectual property rights in such country, the tenth anniversary of the first commercial sale of such licensed product in such country and the expiration of any applicable regulatory exclusivity in such country.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products.

UHN can terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain insurance.

Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company can voluntarily terminate the agreement with prior notice to UHN.

For the years ended December 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of $ 344 and $ 783 , respectively, which consists of reimbursable funded study trial costs and license maintenance fees.

No milestone fees were incurred related to the Fabry license agreement in the years ended December 31, 2020 and 2019.

Interleukin 12 License Agreement—

On January 27, 2016, the Company entered into an exclusive license agreement with UHN, pursuant to which UHN granted the Company a license to certain patent rights for the commercial development, manufacture, distribution and use of any products or processes resulting from development of those patent rights related to Interleukin 12.

Upon execution of this agreement, the Company paid an upfront license fee of CAD $ 264 .

In addition, as part of the initial consideration for the license, the Company issued to UHN 1,161,665 shares of the Company’s common stock and agreed to pay UHN up to $ 2,000 upon the closing of an IPO if certain criteria are met .

The fair value of the shares issued to UHN of $ 480 and the upfront fee was expensed upon the execution of the agreement.

Upon the closing of the IPO in 2018, as the criteria were met, the Company paid UHN $ 2,000 .

The Company is also required to pay UHN future annual license maintenance fees of CAD $ 50 on each anniversary of the effective date of the license agreement prior to expiration or termination and potential future milestone payments of up to CAD $ 19,275 upon the achievement of specified clinical and regulatory milestones.

The Company also agreed to pay UHN royalties of a low single-digit percentage of net sales of licensed products sold by the Company.

If the Company grants any sublicense rights under the license agreement, the Company has agreed to pay UHN a low double-digit royalty percentage of any sublicense income received by the Company.

The agreement requires the Company to meet certain diligence requirements based upon specified milestones.

The agreement expires on the later of the date the last patent rights expire in the last country or ten years from the date of first sale.

The Company can voluntarily terminate the agreement with prior notice to UHN.

Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

For the years ended December 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of $ 37 and $ 38 , respectively, which consists of license maintenance fees.

No milestone fees were incurred related to the Interleukin 12 license agreement in the years ended December 31, 2020 and 2019.

Agreement with BioMarin Pharmaceutical Inc.

On August 31, 2017, the Company entered into a license agreement with BioMarin, pursuant to which BioMarin granted the Company an exclusive worldwide license under certain intellectual property rights owned or controlled by BioMarin to develop, commercialize and sell products for use in the treatment of Pompe disease.

The license agreement was amended in February 2018 and again in January 2020 to, among things, provide that BioMarin would supply the Company with certain technology materials.

As consideration for this agreement, the Company paid an upfront license fee of $ 500 in cash and issued 233,765 shares of Series B Preferred Stock to BioMarin at the time of the Company’s Series B Preferred Stock financing in January 2018.

The Company is also obligated to make future milestone payments of up to $ 13,000 upon the achievement of certain specified milestones and agreed to pay BioMarin royalties of a low single-digit percentage of net sales of licensed products sold by the Company or its affiliates covered by patent rights in a relevant country.

No expenses related to the license were recorded for the years ended December 31, 2020 and 2019.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world.

BioMarin and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company may terminate the agreement at will upon written notice to BioMarin.

BioMarin has the right to terminate the agreement upon the Company’s bankruptcy or insolvency, or in the event of any challenge or opposition to the licensed patent rights or related actions brought by the Company or its affiliates or sublicensees, or if the Company, its affiliates or sublicensees knowingly assist a third-party in challenging or otherwise opposing the licensed patent rights, except as required under a court order or subpoena.

Agreement with GenStem Therapeutics, Inc.

On October 2, 2017, the Company entered into a license agreement with GenStem, pursuant to which GenStem granted the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights owned or controlled by GenStem to develop, commercialize and sell products for use in the treatment of cystinosis.

Under this agreement, the Company paid an upfront license fee of $ 1,000 and is required to make payments upon completion of certain milestones up to an aggregate of $ 16,000 .

The Company also agreed to pay GenStem a tiered mid to high single-digit royalty percentage on annual net sales of licensed products as well as a low double-digit percentage of sublicense income received from certain third-party licensees.

The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis on the eleventh anniversary of the first commercial sale of such licensed product in such country or the expiration of the last valid claim under the licensed patent rights covering such licensed product in such country, whichever is later.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world.

GenStem and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company may terminate the agreement at will upon the specified prior written notice to GenStem.

For the year ended December 31, 2020 the Company recorded no research and development expense related to milestone payments.

For the year ended December 31, 2019 the Company recorded $ 2,000 related to milestone payments.

Agreement with Lund University Rights Holders

On November 17, 2016, the Company entered into a license agreement with affiliates of Lund University, along with certain other relevant rights holders that may be added from time to time, pursuant to which such rights holders granted to the Company an exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights to develop, commercialize and sell products in any and all uses relevant to Gaucher disease.

As consideration for the license, the Company is required to make payments in connection with the achievement of certain milestones up to an aggregate of $ 550 .

The agreement expires on the latest of (i) the twentieth anniversary of the end of a certain research project the Company is funding pursuant to an agreement with Lund University, (ii) the expiration of the term of any patent filed on the licensed rights that covers a licensed product, (iii) the expiration of any applicable marketing exclusivity right and (iv) such time that neither the Company nor any sublicensees, partners or contractors are commercializing a licensed product.

Either the Company or the rights holders acting together may terminate the license agreement if the other such party commits a material breach and fails to cure such breach within a certain period of time, or if the other party enters into liquidation, becomes insolvent, or enters into composition or statutory reorganization proceedings.

No expenses related to the license were recorded for the years ended December 31, 2020 and 2019.

Fair Value of Financial Assets and Liabilities

1 unchanged sentence

Fair Value Measurements as of

December 31, 2019 Using:

Money market funds

Restricted cash

December 31, 2020

Cash equivalents—money market funds

Fair Value Measurements as of

December 31, 2018 Using:

Money market funds

Restricted cash

During the years ended December 31, 2019 and 2018, there were no transfers between Level 1, Level 2 and Level 3.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Valuation of the Warrant to Purchase Preferred Stock

In connection with a loan and security agreement in 2017 (the “Loan Agreement”) (Note 7), the Company agreed to issue a warrant to the lender for the purchase shares of Series A Preferred Stock.

The fair value of the warrant to purchase preferred stock was determined based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy.

In order to determine the fair value of the warrant to purchase preferred stock, the Company utilized available facts and circumstances to estimate the number of shares of Series A Preferred Stock for which the warrant would ultimately be exercisable.

The Company then used the Black-Scholes option-pricing model, which incorporates assumptions and estimates, to value the warrant to purchase preferred stock.

Estimates and assumptions impacting the fair value measurement included the fair value of the underlying shares of Series A Preferred Stock, the remaining contractual term of the warrant, risk-free interest rate, expected dividend yield and expected volatility of the price of the underlying preferred stock.

The Company determined the fair value of the underlying preferred stock based on various valuation methodologies.

The Company lacks company-specific historical and implied volatility information of its stock.

Therefore, it estimated its expected stock volatility based on the historical volatility of publicly traded guideline 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.

The Company estimated no expected dividend yield based on the fact that the Company has never paid or declared dividends and does not intend to do so in the foreseeable future.

Upon the IPO, the warrant to purchase preferred stock was converted to a warrant to purchase common stock.

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

The following table sets forth a summary of changes in the fair value of the Company’s preferred stock warrant liability for which fair value was determined by Level 3 inputs:

Balance as of December 31, 2017

Change in fair value

Conversion of preferred stock warrant to common

stock warrant

Balance as of December 31, 2018

Valuation of Derivative

In January 2016, in connection with a license agreement entered into with University Health Network (“UHN”), and as part of the initial consideration for the license, the Company issued 1,161,665 shares of common stock to UHN pursuant to a stock purchase agreement (the “Stock Purchase Agreement”).

The Stock Purchase Agreement contained a provision requiring the Company to make a cash payment to UHN of up to $2,000 if UHN’s fully diluted ownership is reduced within specified percentages as part of an initial public offering by the Company.

The Company concluded the anti-dilution feature represented a derivative instrument and should be measured at fair value, with changes in fair value recognized as a gain or loss to other income (expense), net in the consolidated statements of operations and comprehensive loss.

On June 21, 2018, in connection with the Company’s IPO, the Company remeasured the fair value of the derivative to $2,000 as the Company was required to pay the dilution payment as mentioned above, which the Company paid in July 2018.

An increase in fair value of $1,629 was recorded in other expense in the accompanying consolidated statement of operations and comprehensive loss for the year ended December 31, 2018.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

The following table sets forth a summary of changes in the fair value of the Company’s derivative liability for which fair value is determined by Level 3 inputs:

Balance as of December 31, 2017

Change in fair value

Balance as of December 31, 2018

December 31, 2019

Cash equivalents—money market funds

During the years ended December 31, 2020 and 2019, there were no transfers between levels.

Supplemental Balance Sheet Information

Prepaid expenses and Other Current Assets

1 unchanged sentence

Tax incentive refund

Prepaid research and development costs

Prepaid research and development expenses

Prepaid insurance

Prepaid compensation benefits

Interest income receivable

4 unchanged sentences

Leasehold improvements

Computer equipment and software

Computer equipment

Accumulated depreciation and amortization

Property and equipment, net

Depreciation and amortization expense for the years ended December 31, 2020 and 2019 was $ 1,207 and $ 850 , respectively.

Restricted Cash

As of December 31, 2020 and 2019, the Company had restricted cash as presented in the table below, which consists of cash used to secure letters of credit for the benefit of the landlord in connection with the Company’s lease agreements.

The cash will be restricted until the termination or modification of the lease arrangement.

Restricted cash

Accrued Expenses

1 unchanged sentence

Compensation and benefit costs

Research and development costs

Research and development expenses

Consulting and professional fees

Other liabilities

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Loan Agreement and Warrant to Purchase Preferred Stock

On June 23, 2017, the Company entered into the Loan Agreement with a lender, which provided for the issuance of term loans of up to $10,000, subject to the achievement of various development and corporate milestones.

Any outstanding principal amounts under the Loan Agreement accrued interest at a floating per annum rate equal to the greater of 1% and the “prime rate,” as defined in the Loan Agreement, minus 3%.

As of October 31, 2018, the Company had not drawn down from the facility and the Loan Agreement expired on October 31, 2018.

In connection with the Loan Agreement, the Company agreed to issue a warrant to the lender for the purchase of up to 188,702 shares of the Company’s Series A Preferred Stock with an exercise price of $0.7949 per share.

The warrant expires on June 22, 2027.

The warrant was initially exercisable for the purchase of up to 28,305 shares of Series A Preferred Stock and could become exercisable for up to an additional 160,397 shares of Series A Preferred Stock based on the amounts drawn under the Loan Agreement.

On the issuance date of the warrant, the Company recorded a deferred financing cost and a liability for the warrant to purchase preferred stock in the Company’s consolidated balance sheet equal to the issuance-date fair value of the warrant.

Upon closing of the IPO, the carrying amount of the warrant to purchase preferred stock as of the date of IPO was transferred to the account of additional paid in capital (Note 3).

The Company recognized a loss of $162 in the consolidated statements of operations and comprehensive loss for the year ended December 31, 2018 related to the change in fair value of the warrant.

On July 13, 2018, the lender of the Loan Agreement exercised its common stock warrants to purchase 6,850 shares of common stock on a net basis, resulting in the issuance of 6,091 shares of common stock.

Redeemable Convertible Preferred Stock

Prior to the IPO, the authorized capital stock of the Company included 63,491,857 shares of $0.0001 par value preferred stock, of which 3,333,333 shares have been designated as Series Seed Preferred Stock, 31,639,202 shares have been designated as Series A Preferred Stock and 28,519,322 shares have been designated as Series B Preferred Stock.

On January 19, 2018, the Company entered into a stock purchase agreement for the sale of 28,285,557 shares of Series B Preferred Stock for $2.1389 per share.

The total gross proceeds received were $60,500 and issuance costs were $2,243.

In addition, the Company issued 233,765 shares of Series B Preferred Stock to BioMarin as required by the Company’s license agreement with BioMarin (Note 11).

Upon closing of the IPO, all outstanding shares of Preferred Stock were converted into 15,320,213 shares of common stock.

The holders of the Company’s Preferred Stock had certain voting, dividend, and redemption rights, as well as liquidation preferences and conversion privileges.

All rights, preferences, and privileges associated with the preferred stock were terminated at the time of the Company’s IPO in conjunction with the conversion of all outstanding shares of Preferred Stock into shares of common stock.

Commitments and Contingencies

Lease Agreements

On January 12, 2018, the Company entered into a lease agreement for office space located in Cambridge, Massachusetts.

The lease agreement expires in January 2023 .

The annual lease payments are subject to a 3 % increase each year.

The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent for rent expense incurred but not yet paid.

The Company received a tenant incentive allowance of $ 842 in 2018.

Such incentive allowance is being amortized as a reduction of rent expense on a straight-line basis over the lease period.

In accordance with the lease agreement, the Company is required to maintain a security deposit of $ 209 , which was recorded in restricted cash as of December 31, 2020 and 2019.

On August 31, 2018, the Company entered into a sub-lease agreement for lab space located in Cambridge Massachusetts, United States, which was set to expire in October 2020 .

On June 9, 2020, the Company amended the terms of the sublease, which is now set to expire in April 2022 .

The annual lease payments are subject to a 5 % increase each year.

In accordance with the lease agreement, the Company is required to maintain a security deposit of $ 283 , which was recorded in restricted cash as of December 31, 2020 and 2019.

On June 1, 2020, the Company entered into a lease agreement for office space located in Toronto, Ontario, Canada, which is set to expire in June 2025 .

The annual lease payments are fixed for years 1 and 2, and then subject to a 6.67 % increase for years 3 through 5 .

In accordance with the lease agreement, the Company is required to maintain a security deposit of CAD $ 27 , which was recorded in other long-term assets as of December 31, 2020.

The Company recorded rent expense of $ 2,352 and $ 2,257 during the years ended December 31, 2020 and 2019, respectively.

The following table summarizes the future minimum lease payments due under operating leases as of December 31, 2020:

Year Ending December 31,

Other Funding Commitments

As of December 31, 2020, the Company had several ongoing clinical and non-clinical studies for its various pipeline programs.

The Company enters into contracts in the normal course of business with contract research organizations and clinical sites for the conduct of clinical trials, professional consultants for expert advice and other vendors for clinical supply manufacturing or other services.

These contracts are generally cancellable, with notice, at the Company’s option and do not have significant cancellation penalties.

The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions.

These typically include agreements with directors and officers, business partners, contractors, landlords and clinical sites.

Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s activities.

These indemnification provisions generally survive termination of the underlying agreement.

The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited.

However, to date the Company has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions.

As a result, the estimated fair value of these obligations is minimal.

The Company, from time to time, may be party to litigation arising in the ordinary course of business.

The Company was not subject to any material legal proceedings during the years ended December 31, 2020 and 2019, and to the best of its knowledge, no material legal proceedings are currently pending or threatened.

The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met as of December 31, 2020 and 2019, or royalties on future sales of specified products.

No milestone or royalty payments under these agreements are expected to be payable in the immediate future.

See Note 3 “Licenses Agreements” for discussion of these arrangements.

The Company enters into standard indemnification agreements in the ordinary course of business.

Pursuant to the agreements, the Company agrees to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners, in connection with any U.S.

patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products.

The term of these indemnification agreements is generally perpetual any time after execution of the agreement.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

As of December 31, 2020 and 2019, the authorized capital stock of the Company included 150,000,000 shares of common stock, $ 0.0001 par value, and 10,000,000 shares of undesignated preferred stock.

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Through December 31, 2020, no cash dividends have been declared or paid.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Initial Public Offering

On June 20, 2018, the Company’s registration statement on Form S-1 relating to its IPO was declared effective by the SEC.

The IPO closed on June 25, 2018 and the Company issued and sold 5,247,958 common shares at a public offering price of $19.00 per share for net proceeds of $90,103 after deducting underwriting discounts and commissions of $6,980 and other offering expenses of approximately $2,628.

Simultaneously, on June 25, 2018, the Company issued and sold 787,193 additional common shares, pursuant to the full exercise of the underwriters’ option to purchase additional shares, for net proceeds of $13,910 after deducting underwriting discounts and commissions of $1,047.

The aggregate net proceeds to the Company from the IPO, after deducting underwriting discounts and commissions and other offering costs, were $104,013.

Follow-On Public Offering

In July 2019, the Company closed an underwritten public offering of 7,475,000 shares of its common stock at a public offering price of $18.50 per share, which included 975,000 shares of the Company’s 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 “July 2019 Follow-on Offering”).

The net proceeds to the Company from the July 2019 Follow-on Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were approximately $129,500.

Public Offerings

In July 2019, the Company closed an underwritten public offering of 7,475,000 shares of its common stock at a public offering price of $ 18.50 per share (the “July 2019 Follow-on Offering”), which included 975,000 shares of the Company’s 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 the Company from the July 2019 Follow-on Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were $ 129,464 .

In February 2020, the Company closed an underwritten public offering of 4,350,000 shares of its common stock at a public offering price of $ 23.00 per share (the “February 2020 Follow-on Offering”).

The net proceeds to the Company from the February 2020 Follow-on Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were $ 93,627 .

In June 2020, the Company sold an aggregate of 384,140 shares of common stock under its “at-the-market” facility (the “ATM Facility”) for net proceeds, after deducting commissions and other offering expenses payable by the Company, of $ 8,130 .

As of December 31, 2020, approximately $ 41,549 of common stock remained available for future issuance under the ATM Facility.

In November 2020, the Company closed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of $ 15.00 per share (the “November 2020 Follow-on Offering”).

The net proceeds to the Company from the November 2020 Follow-on Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the Company, were $ 70,221 .

Common Stock Reserved for Future Issuance

At December 31, 2019 and 2018, the Company has reserved the following shares of common stock for future issuance:

As of December 31, 2020 and 2019, the Company has reserved the following shares of common stock for future issuance:

Shares reserved for vesting of restricted stock awards

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Shares reserved for issuance under the 2019 Inducement

Shares reserved for issuance under the 2020 Inducement

Total shares of authorized common stock reserved for

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The total number of common shares that may be issued under the 2015 Plan was 2,008,564 shares.

Following the IPO, no further grants will be made under 2015 plan.

Shares that expire, are terminated, surrendered or canceled under the 2015 Plan without having been fully exercised will be available for future awards under the 2018 Plan (as defined below).

Following the IPO, no further grants have been made under 2015 plan.

Shares that expire, are terminated, surrendered or cancelled under the 2015 Plan without having been fully exercised will be available for future awards under the 2018 Plan (as defined below).

In addition, shares of common stock that are tendered to the Company by a participant to exercise an award are added to the number of shares of common stock available for future awards.

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Equity awards granted to employees and members of the Board typically vest over four years .

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

2018 Stock Option and Incentive Plan

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This number is subject to adjustment in the event of a stock split, stock dividend or other change in its capitalization.

The number of options available for future grant under the 2018 Plan was 332,513 as of December 31, 2019, which does not include the shares added to the 2018 Plan reserve on January 1, 2020 as a result of the Plan Evergreen for the year ended December 31, 2019.

On April 16, 2020, the Board adopted an amendment to the 2018 Plan (the “Amendment”), to (i) increase the number of shares of common stock currently reserved for issuance under the 2018 Plan by 3,300,000 shares and (ii) automatically terminate the 2018 Plan’s annual increase (or “evergreen”) provision after January 2022.

The Amendment was approved by the Board on June 4, 2020 and the Company’s stockholders on June 4, 2020.

The number of shares of common stock available for future grant under the 2018 Plan was 3,877,478 as of December 31, 2020, which does not include the shares added to the 2018 Plan reserve on January 1, 2021 as a result of the Plan Evergreen for the year ended December 31, 2020.

During the years ended December 31, 2020 and 2019, the Company granted options to purchase 3,019,663 and, 1,677,967 shares, respectively, of common stock to employees, nonemployees and members of the Board.

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The Company’s 2018 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board on June 1, 2018 and approved by stockholders on June 7, 2018 and became effective upon the effectiveness of the Company’s Registration Statement on Form S-1.

The ESPP is intended to qualify as an “employee stock purchase plan” within the meaning of Section 423(b) of the Code.

The ESPP is intended to qualify as an “employee sto

ck purchase plan” within the meaning of Section 423(b) of the Code.

The ESPP initially reserves and authorizes the issuance of up to a total of 223,200 shares of common stock to participating employees.

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During the years ended December 31, 2020 and 2019, the Company issued 13,425 and 1,671 shares, respectively of common stock.

The total number of common shares that may be issued under the ESPP was 461,266 shares as of December 31, 2019, of which 459,595 shares remained available for future grant, and which does not include the shares added to the ESPP reserve on January 1, 2020 as a result of the ESPP Evergreen for the year ended December 31, 2019.

The total number of shares of common stock that may be issued under the ESPP was 762,900 shares as of December 31, 2020, of which 762,900 shares remained available for future grant, and which does not include the shares added to the ESPP reserve on January 1, 2021 as a result of the ESPP Evergreen for the year ended December 31, 2020.

2019 Inducement Plan

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The Company initially reserved 1,800,000 shares of its common stock for the issuance of awards under the 2019 Plan.

The number of options available for future grant under the 2019 Plan was 1,800,000 as of December 31, 2019.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

The number of shares of common stock available for future grant under the 2019 Plan was 365,050 as of December 31, 2020.

2020 Inducement Plan

The Company’s 2020 Inducement Plan (the “2020 Plan”) was adopted by the Board on December 9, 2020.

The purpose of the 2020 Plan is to allow the Company to grant equity awards to new employees as inducements material to such new employee’s acceptance of employment with the Company.

The Company intends that the shares underlying the 2020 Plan be reserved for persons to whom the Company may issue securities without stockholder approval as an inducement pursuant to Rule 5635(c)(4) of the Nasdaq marketplace rules.

The Company initially reserved 1,700,000 shares of its common stock for the issuance of awards under the 2020 Plan.

The number of shares of common stock available for future grant under the 2020 Plan was 1,700,000 as of December 31, 2020.

Stock Option Valuation

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Restricted Common Stock

The Company has granted restricted common stock with time-based vesting conditions to certain employees of the Company.

The Company has granted restricted common stock (or restricted stock awards) with time-based vesting conditions to certain employees of the Company.

The purchase price of the restricted stock awards are determined by the Board.

Unvested shares of restricted common stock may not be sold or transferred by the holder.

Unvested shares of restricted stock awards may not be sold or transferred by the holder.

These restrictions lapse according to the time-based vesting conditions of each award.

The Company has the option to repurchase the restricted stock awards at the original purchase price if the grantee terminates its working relationship with the Company prior to the vesting date.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

The following table summarizes the Company’s restricted common stock activity for the year ended December 31, 2019:

There were no unvested restricted stock awards as of December 31, 2020.

Restricted stock units

Restricted stock units represent an unsecured promise to grant at no cost a set number of shares of common stock upon vesting.

With respect to restricted stock units, recipients are not entitled to cash dividends and have no voting rights during the vesting period.

The following table summarizes the Company’s restricted stock award and restricted stock unit activity for the year ended December 31, 2020:

Issued and unvested as of December 31, 2019

Forfeited, canceled or expired

Forfeited, cancelled or expired

Issued and unvested as of December 31, 2020

The total fair value of restricted common stock vested during the years ended December 31, 2019 and 2018 was $50 and $52, respectively.

The total fair value of restricted stock awards and restricted stock units vested during the years ended December 31, 2020 and 2019 was $ 29 and $ 50 , respectively.

Stock-Based Compensation

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As of December 31, 2020, total unrecognized compensation cost related to unvested stock-based awards was $ 36,045 , which is expected to be recognized over a weighted-average period of 3.01 years.

License Agreements

Agreements with UHN

Fabry License Agreement—

In addition, for three years following the execution of the agreement, UHN granted the Company an exclusive option to obtain a license under certain improvements to the licensed intellectual property rights as well as an option to negotiate a license under certain other improvements.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Under this agreement, the Company paid an option fee of CAD $20, an upfront license fee of CAD $75, plus the annual license maintenance fee for the first year.

Thereafter, the Company is also required to pay UHN future annual license maintenance fees until the first sale of a licensed product in certain markets.

The Company is also obligated to make future milestone payments in an aggregate amount of up to CAD $2,450 upon the achievement of specified milestones as well as royalties on a country-by-country basis of a low to mid-single-digit percentage of annual net sales of licensed products and a lower single-digit royalty percentage in certain circumstances.

Additionally, the Company has agreed to pay a low double-digit royalty percentage of all sublicensing revenue.

The agreement requires the Company to meet certain performance milestones within specified timeframes.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products.

Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company can voluntarily terminate the agreement with prior notice to UHN.

For the years ended December 31, 2019 and 2018, the Company recorded research and development expense related to this agreement with UHN of $783 and $15, respectively, which consists of reimbursable funded study trial costs and license maintenance fees.

No milestone fees were incurred related to the Fabry license agreement in the years ended December 31, 2019 and 2018.

Interleukin 12 License Agreement—

Upon execution of this agreement, the Company paid an upfront license fee of CAD $264.

In addition, as part of the initial consideration for the license, the Company issued to UHN 1,161,665 shares of the Company’s common stock.

The fair value of the shares issued to UHN of $480 and the upfront fee was expensed upon the execution of the agreement.

In addition, the Company agreed to pay UHN up to $2,000 upon the closing of an IPO if certain criteria are met.

This obligation was considered a derivative instrument and was initially recorded at fair value of $49 (Note 3).

The Company is also required to pay UHN future annual license maintenance fees of CAD $50 on each anniversary of the effective date of the license agreement prior to expiration or termination and potential future milestone payments of up to CAD $19,275 upon the achievement of specified clinical and regulatory milestones.

The Company also agreed to pay UHN royalties of a low single-digit percentage of net sales of licensed products sold by the Company.

If the Company grants any sublicense rights under the license agreement, the Company has agreed to pay UHN a low double-digit royalty percentage of any sublicense income received by the Company.

The agreement requires the Company to meet certain diligence requirements based upon specified milestones.

The agreement expires on the later of the date the last patent rights expire in the last country or ten years from the date of first sale.

The Company can voluntarily terminate the agreement with prior notice to UHN.

Either the Company or UHN may terminate the license agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

For the years ended December 31, 2019 and 2018, the Company recorded research and development expense related to this agreement with UHN of $38 and $41, respectively, which consists of license maintenance fees.

No milestone fees were incurred related to the Interleukin 12 license agreement in the years ended December 31, 2019 and 2018.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Agreement with BioMarin Pharmaceutical Inc.

The license agreement was amended in February 2018 and again in January 2020 to, among things, provide that BioMarin would supply the Company with certain technology materials.

As consideration for this agreement, the Company paid an upfront license fee of $500 in cash and issued 233,765 shares of Series B Preferred Stock to BioMarin at the time of the Company’s Series B Preferred Stock financing in January 2018.

Both the upfront cash payment of $500 and the value of the shares Series B Preferred Stock issued of $500 were recorded as research and development expense during the year ended December 31, 2017.

The Company is also obligated to make future milestone payments of up to $13,000 upon the achievement of certain specified milestones and agreed to pay BioMarin royalties of a low single-digit percentage of net sales of licensed products sold by the Company or its affiliates covered by patent rights in a relevant country.

The Company recorded research and development expense related to this agreement with BioMarin of $1,000 related to the license for the year ended December 31, 2017.

No expenses related to the license were recorded for the years ended December 31, 2019 and 2018.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world.

BioMarin and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company may terminate the agreement at will upon written notice to BioMarin.

Agreement with GenStem Therapeutics, Inc.

Under this agreement, the Company paid an upfront license fee of $1,000 and is required to make payments upon completion of certain milestones up to an aggregate of $16,000.

Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the world.

GenStem and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.

The Company may terminate the agreement at will upon the specified prior written notice to GenStem.

The Company recorded research and development expense of $1,000 for the year ended December 31, 2017, which consisted of upfront fees related to the license.

For the year ended December 31, 2019, the Company recorded research and development expense of $2,000 , which related to milestone payments.

No expense related to the license was recorded for the year ended December 31, 2018.

Agreement with Lund University Rights Holders

As consideration for the license, the Company is required to make payments in connection with the achievement of certain milestones up to an aggregate of $550.

No expenses related to the license were recorded for the years ended December 31, 2019 and 2018.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

For the years ended December 31, 2019 and 2018, the Company did not record a current or deferred income tax expense or (benefit) due to current and historical losses incurred by the Company.

As of December 31, 2020, the Company modified certain awards in conjunction with employee terminations.

The modification provided for the extension of the post-employment exercise period.

The modifications resulted in approximately $ 417 of additional research and development expenses for the year ended December 31, 2020.

401(k) Savings Plan

The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code.

Eligible employees may make pretax contributions to the 401(k) Plan up to statutory limits.

At the election of the Board, the Company may elect to match employee contributions.

Currently, the Company makes matching contributions at a rate of 50 % of the first 6 % of employee contributions.

The Company recorded $ 468 and $ 224 of expenses related to its 401(k) match for the years ended December 31, 2020 and 2019, respectively.

For the years ended December 31, 2020 and 2019, the Company did no t record a current or deferred income tax expense or (benefit) due to current and historical losses incurred by the Company.

The Company’s operations are predominantly based in the United States and the Company’s foreign subsidiaries generated de minimis losses for the years ended December 31, 2020 and 2019.

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Equity based compensation

Derivative liability

Licensing agreements

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The valuation allowance increased $ 32,066 and $ 19,968 during the years ended December 31, 2020 and 2019, respectively, due primarily to net operating losses generated.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

As of December 31, 2020 and 2019, the Company had U.S.

6 unchanged sentences

These losses expire at various dates through 2040.

As of December 31, 2019 and 2018, the Company had foreign net operating loss carryforwards of $ 2 , 44 0 and $1,201, respectively.

The foreign net operating losses can be carried forward indefinitely.

As of December 31, 2020 and 2019, the Company has federal research and development tax credit carryforwards of $ 3,677 and $ 1,547 , respectively.

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As the Company carries out extensive research and development activities, it seeks to benefit from the Australian research and development tax credit cash rebate regime.

Under this regime, the Company’s Australian subsidiary, AVROBIO Australia, may be eligible to surrender the trading losses that arise from its research and development activities for a payable tax credit of up to approximately 43.5% of eligible research and development expenditures.

Under this regime, the Company’s Australian subsidiary may be eligible to surrender the trading losses that arise from its research and development activities for a payable tax credit of up to approximately 43.5 % of eligible research and development expenditures.

Qualifying expenditures largely comprise employment costs for research staff, consumables, certain internal overhead costs and subcontracted expenditures as part of research projects for which the Company does not receive income.

For the year ended December 31, 2019, the Company recorded $0.9 million in research and development tax credits as an offset to research and development expenses.

For the year ended December 31, 2020, the Company recorded $ 589 in research and development tax credits as an offset to research and development expenses.

Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities.

Net operating loss and tax credit carryforwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

and 383 of the Internal Revenue Code, respectively, as well as similar state provisions.

This could limit the amount of tax attributes that can be utilized annually to offset future tax liabilities.

5 unchanged sentences

To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by foreign tax authorities, the Internal Revenue Service, or state tax authorities to the extent utilized in a future period.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Net Loss per Share Attributable to Common Stockholders

For purposes of the diluted net loss per share calculation, stock options and unvested restricted stock are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Net Loss per Share

For purposes of the diluted net loss per share calculation, stock options, unvested restricted stock awards and unvested restricted stock units are considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented.

Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share attributable to common stockholders is the same.

The following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, were excluded from the computation of diluted net loss per share attributable to common stockholders for the periods indicated:

Year Ended December 31,

Options to purchase common stock

Restricted common stock

Commitments and Contingencies

Lease Agreements

In August 2017, the Company entered into a sub-lease agreement for laboratory space located in Cambridge Massachusetts, United States, which expires in August 2020.

The annual lease payments are subject to a 3% increase each year.

The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent for rent expense incurred but not yet paid.

On December 4, 2018, the Company terminated the sub-lease without any penalty.

The leasehold improvement cost was written off to rental expenses during the year ended December 31, 2018.

On January 12, 2018, the Company entered into a lease agreement for office space located in Cambridge, Massachusetts.

The lease agreement expires in January 2023, with a landlord who is an affiliate of the landlord of the Company’s prior lease facility.

The annual lease payments are subject to a 3% increase each year.

The Company recognizes rent expense on a straight-line basis over the lease period and has recorded deferred rent for rent expense incurred but not yet paid.

The Company received a tenant incentive allowance of $842 in 2018.

Such incentive allowance is being amortized as a reduction of rent expense on a straight-line basis over the lease period.

In accordance with the lease agreement, the Company is required to maintain a security deposit of $209, which was recorded in other assets as of December 31, 2019 and 2018.

In contemplation of this agreement, the Company terminated its prior lease agreement.

On August 31, 2018, the Company entered into a sub-lease agreement for lab space located in Cambridge Massachusetts, United States, which expires in October 2020.

The annual lease payments are subject to a 3% increase each year.

In accordance with the lease agreement, the Company is required to maintain a security deposit of $283, which was recorded in other assets as of December 31, 2019 and 2018.

The Company recorded rent expense of $2,257 and $1,295 during the years ended December 31, 2019 and 2018, respectively.

The following table summarizes the future minimum lease payments due under operating leases as of December 31, 2019:

Year Ending December 31,

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Legal Proceedings

The Company, from time to time, may be party to litigation arising in the ordinary course of business.

The Company was not subject to any material legal proceedings during the years ended December 31, 2019 and 2018, and to the best of its knowledge, no material legal proceedings are currently pending or threatened.

The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met at December 31, 2019 and 2018, or royalties on future sales of specified products.

No milestone or royalty payments under these agreements are expected to be payable in the immediate future.

See Note 11 for discussion of these arrangements.

The Company enters into standard indemnification agreements in the ordinary course of business.

patent or any copyright or other intellectual property infringement claim by any third-party with respect to the Company’s products.

The term of these indemnification agreements is generally perpetual any time after execution of the agreement.

The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited.

The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.

Restricted stock awards and units

Related Party Transactions

In connection with the Company’s entry into a license agreement with UHN on January 27, 2016, the Company issued UHN 1,161,665 shares of its common stock.

Upon the closing of the IPO, as UHN’s fully-diluted percentage ownership of the Company was reduced within a range of specified percentages, the Company was obligated to pay UHN an amount of $2,000, which was paid in July 2018.

See Note 3 for further discussion on the accounting treatment for this provision.

Upon the closing of the IPO in 2018, as UHN’s fully-diluted percentage ownership of the Company was reduced within a range of specified percentages, the Company was obligated to pay UHN an amount of $ 2,000 , which was paid in July 2018.

For the years ended December 31, 2020 and 2019, the Company recognized $ 381 and $ 821 , respectively, of research and development expense related to the license agreements with UHN.

Refer to Note 11 for additional information regarding the UHN license agreements.

Refer to Note 3 “License Agreements” for additional information regarding the UHN license agreements.

For the years ended December 31, 2020 and 2019, the Company recorded expenses of $ 1,488 and $ 1,451 , respectively, related to a sublease to rent lab space, provided by an entity affiliated with a member of the board.

For the years ended December 31, 2019 and 2018, the Company recorded expenses of $0 and $40, respectively, related to consulting services provided by an entity affiliated with an officer of the Company and a member of the Board.

Benefit Plans

The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code.

This plan covers substantially all employees who meet minimum age and service requirements and allows participants to defer a portion of their annual compensation on a pre-tax basis.

In August 2018, the Company’s Board approved a company matching contribution of up to 3%, effective October 1, 2018.

The Company made matching contributions of $224 and $35 to the plan during the years ended December 31, 2019 and 2018, respectively.

AVROBIO, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

(amounts in thousands, except share and per share data)

Subsequent Events

On December 20, 2019, the Company filed a shelf registration statement on Form S-3 with the SEC (the “December 2019 Shelf,” which covers the offering, issuance and sale by the Company of up to an aggregate of $250.0 million of the Company’s common stock, preferred stock, debt securities, warrants and/or units.

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

In February 2020, the Company closed an underwritten public offering of 4,350,000 shares of its common stock at a public offering price of $23.00 per share, less underwriting discounts and commissions.

The net proceeds to the Company from this offering, after deducting underwriting discounts and commissions and other estimated offering expenses payable by the Company, were approximately $93,547.

EXHIBIT INDEX

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001-38537) and incorporated herein by reference)

Certificate of Change of Registered Agent and/or Registered Office of the Registrant (filed as Exhibit 3.2 to the Registrant’s Quarterly Report on Form 10-Q filed on November 5, 2020 (File No.

001-38537) and incorporated herein by reference)

Amended and Restated By-laws (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on June 25, 2018 (File No.

4 unchanged sentences

333-225213) and incorporated herein by reference)

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended

Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed as Exhibit 4.3 to the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No.

001-38537) and incorporated herein by reference)

2015 Amended and Restated Stock Option and Grant Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.1 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No.

2 unchanged sentences

333-225213) and incorporated herein by reference)

First Amendment to the AVROBIO, Inc.

2018 Stock Option and Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on June 9, 2020 (File No.

333-225213) and incorporated herein by reference)

Senior Executive Cash Incentive Bonus Plan (filed as Exhibit 10.3 to the Registrant’s Second Amendment to the Registration Statement on Form S-1 filed on June 11, 2018 (File No.

7 unchanged sentences

Amendment No.

1 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated February 21, 2018

1 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated February 21, 2018 (filed as Exhibit 10.7 to the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No.

001-38537) and incorporated herein by reference)

Amendment No.

2 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated January 7, 2020

2 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated January 7, 2020 (filed as Exhibit 10.8 to the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No.

001-38537) and incorporated herein by reference)

Exclusive License Agreement, by and among the Registrant, Stefan Karlsson and Maria Dahl, dated January 30, 2017 (filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No.

333-225213) and incorporated herein by reference)

EXHIBIT INDEX

License Agreement, by and between the Registrant and GenStem Therapeutics, Inc., dated October 2, 2017 (filed as Exhibit 10.8 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No.

4 unchanged sentences

001-38537) and incorporated herein by reference)

EXHIBIT INDEX

Employment Agreement, by and between the Registrant and Steven Avruch, dated December 17, 2018 (filed as Exhibit 10.13 to the Registrant’s Annual Report on Form 10-K filed on March 25, 2019 (File No.

4 unchanged sentences

001-38537) and incorporated herein by reference)

Employment Agreement, by and between the Registrant and Deanna Petersen, dated September 1, 2018

Separation Agreement and Release, by and between the Registrant and Birgitte Volck, M.D., Ph.D., dated July 16, 2020 (filed as Exhibit 10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2020 (File No.

001-38537) and incorporated herein by reference).

Employment Agreement, by and between the Registrant and Deanna Petersen, dated September 1, 2018 (filed as Exhibit 10.16 to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No.

001-38537) and incorporated herein by reference)

Employment Agreement, by and between the Registrant and Chris Mason, dated September 1, 2018

Employment Agreement, by and between the Registrant and Diana Escolar, dated December 4, 2020

2018 Employee Stock Purchase Plan (filed as Exhibit 10.14 to the Registrant’s Second Amendment to the Registration Statement on Form S-1 filed on June 11, 2018 (File No.

7 unchanged sentences

333-230493)) and incorporated herein by reference)

2020 Inducement Plan and form of award agreement thereunder

Subsidiaries of the Registrant

4 unchanged sentences

Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

EXHIBIT INDEX

Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline XBRL”).

Inline XBRL Taxonomy Extension Schema Document

Inline XBRL Taxonomy Extension Calculation Linkbase Document

Inline XBRL Taxonomy Extension Definition Linkbase Document

Inline XBRL Taxonomy Extension Label Linkbase Document

Inline XBRL Taxonomy Extension Presentation Linkbase Document

Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101.*).

Confidential treatment has been granted for portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933, as amended.

10 unchanged sentences

/s/ Geoff MacKay

President, Chief Executive Officer and Director

President, Chief Executive Officer and

(Principal Executive Officer)

11 unchanged sentences

March 18, 2021

/s/ Gail Farfel, Ph.D.

March 18, 2021

/s/ Phillip B.

10 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures