What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-03-17 compared with 2021-03-18 · 59 added, 49 removed, 224 unchanged (33% of the section changed)

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Our company is focused on developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen.

Our gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a functional copy of the gene that is defective in the target disease.

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

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These lysosomal disorders have well-understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market opportunities with approximately $3.4 billion in worldwide net sales in 2021.

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

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

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

AVR-RD-04 for the treatment of cystinosis;

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

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

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

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

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

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

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

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

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

AVR-RD-04 is currently being studied for the treatment of cystinosis by our collaborators at the University of California, San Diego, or UCSD, in a Phase 1/2 collaborator-sponsored clinical trial, and as of March 1, 2022 four patients have been dosed.

Three patients have been dosed as of March 1, 2022 in our Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for the treatment of Gaucher disease type 1, which we refer to as the Guard1 clinical trial, and we are actively recruiting additional potential patients for our currently active sites.

AVR-RD-06 is our preclinical program for the treatment of Gaucher disease type 3, and we expect to engage with regulatory authorities this year to discuss a potential Phase 2/3 clinical trial.

Our AVR-RD-03 program for Pompe disease has completed preclinical development, and we are planning to engage with regulatory authorities this year to discuss a potential path to the clinic with the goal of initiating a clinical trial in 2023.

In January 2022 we announced the deprioritization of AVR-RD-01, our investigational gene therapy program for Fabry disease.

This decision was made due to several factors, including new clinical data showing variable engraftment patterns from the five most recently dosed patients in the Company’s Phase 2 clinical trial of AVR-RD-01 for the treatment of Fabry disease, which we refer to as the FAB-GT clinical trial.

As a result of the deprioritization, the Company has stopped enrollment of its Phase 2 FAB-GT clinical trial and will focus on its other pipeline programs.

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

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ended December 31, 2021 and 2020 , respectively.

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

As of December 31, 2021 , we had an accumulated deficit of $ 383.5 million.

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

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

O ur pipeline consists of five investigational gene therapies, two of which are currently in clinical development.

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

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

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

Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to be derived from sales of equity, including the net proceeds from our follow-on offerings and sales of common stock under our “ at-the-market” facility, or ATM Facility, as well as proceeds from our Loan and Security Agreement, or Term Loan Agreement, with the lenders party thereto from time to time, or the Lenders, and Silicon Valley Bank, as administrative agent and collateral agent for the Lenders, or the Agent .

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

research and development incentive payments from the Australian government;

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

Other Income (Expense), net

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

Other (Expense) Income, net

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

Consolidated Results of Operations

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Loss from operations

Other income (expense):

Interest income

Other (expense) income:

Interest (expense) income, net

Other expense

Total other income, net

Total other (expense) income, net

Research and Development Expenses

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

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

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

Research and development expenses decreased by $4.1 million to $83.1 million for the year ended December 31, 2021, from approximately $87.2 million for the year ended December 31, 2020.

This decrease was attributable to $9.1 million in non-recurring license fees incurred in 2020, which included an $8.0 million expense related to a one-time, upfront fee paid as consideration for in-licensing the Hunter syndrome program, a $1.2 million decrease in non-cash stock-based compensation, and a $0.5 million decrease in other expenses.

These decreases were partially offset by a $6.7 million increase in personnel-related costs.

General and Administrative Expenses

General and administrative expenses increased by $2.7 million to $35.7 million for the year ended December 31, 2021, from $33.0 million for the year ended December 31, 2020.

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

Other Income (Expense), net

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

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

This increase was attributable to a $4.2 million increase in non-cash stock-based compensation and a $1.5 million increase in personnel-related costs, offset in part by a decrease in other expenses, primarily related to facilities costs, professional fees and legal fees, of $3.0 million.

Other (Expense) Income, net

Other (expense) income, net was $(0.3) million for the year ended December 31, 2021, compared to $0.5 million of other income, net for the year ended December 31, 2020.

The change was primarily due to a decrease of $0.6 million related to a decrease in interest income and $0.2 million in interest expense related to the Term Loan Agreement which was entered into during 2021.

Liquidity and Capital Resources

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

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

Through December 31, 2021, we had received gross cash proceeds of $87.5 million from sales of our preferred stock;

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

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

$23.5 million in gross proceeds from the sale of our common stock under our ATM Facility;

and we had drawn $15.0 million in term loans under our Term Loan Agreement.

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

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

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

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

In June 2020, we sold an aggregate of 384,140 shares of common stock under the ATM Facility for net proceeds, after deducting commissions and other offering expenses payable by us, of $8.1 million.

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

The net proceeds to us from the November 2020 Follow- On Offering, after deducting underwriting discounts and commissions and other offering expenses payable by us , were $70 .2 million .

In May 2021, we sold an aggregate of 1,829,268 shares of common stock under the ATM Facility for net proceeds, after deducting commissions and other offering expenses payable by us, of $14.5 million.

As of December 31, 2021, approximately $26.5 million of common stock remained available for future issuance under the ATM Facility.

On November 2, 2021, or the Closing Date, we entered into the Term Loan Agreement.

The Term Loan Agreement provided for (i) on the Closing Date, $30.0 million aggregate principal amount of term loans available through October 31, 2023;

(ii) an additional $20.0 million in term loan facilities available through October 31, 2023 upon the achievement of certain regulatory or clinical milestones prior to the time of draw, or the Milestone Funding;

and (iii) an additional discretionary $15.0 million term loan facility available upon our request and approval by the Agent and the Lenders, or, collectively, the Term Loans.

We drew $15.0 million in term loans on the Closing Date.

A s a result of the deprioritization of our Fabry disease program, we are no longer able to draw the $20.0 million of Milestone Funding per the terms of the Term Loan Agreement.

The loan repayment schedule provides for interest only payments until November 1, 2024, followed by consecutive monthly payments of principal and interest.

All unpaid principal and accrued and unpaid interest with respect to each term loan is due and payable in full on October 1, 2026.

As of December 31, 2021, we had cash and cash equivalents of $189.6 million.

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Net cash provided by financing activities

Net increase in cash, cash equivalents and restricted

Net (decrease) increase in cash, cash equivalents and restricted

Operating Activities

During the year ended December 31, 2021, operating activities used $98.0 million of cash and cash equivalents, resulting from our net loss of $119.1 million, partially off-set by net cash provided by changes in our operating assets and liabilities of $1.3 million and non-cash charges of $19.8 million.

Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2021 consists primarily of a $2.1 million increase in accrued expenses and other current liabilities, a $0.4 million decrease in other assets, and a $0.8 million increase in accounts payable, partially offset by a $2.0 million increase in prepaid expenses and other current assets.

The increase in accrued expenses and other current liabilities was primarily due to an increase in accrued compensation and benefit costs.

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

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

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

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

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

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

Investing Activities

Net cash used in investing activities was $2.5 million for the year ended December 31, 2021 compared to $1.2 million for the year ended December 31, 2020.

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

The increase in cash used in investing activities was primarily due to an increase in purchases of property and equipment.

Financing Activities

Net cash provided by financing activities was $30.4 million for the year ended December 31, 2021 compared to $172.6 million for the year ended December 31, 2020.

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

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

The decrease in cash provided by financing activities was primarily due to the $14.6 million in proceeds raised through our ATM Facility in 2021 and $15.0 million raised through the Term Loan Agreement in 2021, as compared to proceeds of $164.1 million raised collectively from the February 2020 Follow-On Offering and November 2020 Follow-On Offering, and proceeds of $8.1 million raised from our ATM Facility in 2020.

Funding Requirements

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Our expenses will also increase as we:

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

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

continue our development of our product candidates, including continuing enrollment in the ongoing collaborator-sponsored clinical trial of AVR-RD-04 and our ongoing clinical trial of AVR-RD-02;

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

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

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establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing approval;

hire and retain additional personnel, such as clinical, quality control, commercial and scientific personnel;

expand our infrastructure, office space and facilities to accommodate our growing employee base, including adding equipment and physical infrastructure to support our research and development;

hire and retain additional personnel, such as clinical, quality control, and scientific personnel;

expand our infrastructure, office space and facilities to accommodate our employee base, including adding equipment and physical infrastructure to support our research and development;

continue to incur additional public company-related costs.

We believe that our $189.6 million of existing cash and cash equivalents as of December 31, 2021, will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2024.

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

We have based these

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

If we receive regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to commercialize.

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

Those leases will expire from April 2022 to June 2025.

Those leases will expire from January 2023 to June 2025.

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

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

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

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

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

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

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

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

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

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

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We have issued stock options, restricted stock and restricted stock units with service-based vesting conditions.

Modifications to stock-based awards are treated as an exchange of the original award for a new award with total compensation equal to the grant-date fair value of the original award plus any incremental value of the modification.

The incremental value is based on the excess of the fair value of the modified award over the fair value of the original award immediately before the modification.

Prior to the adoption of Accounting Standards Update (ASU) No.

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

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

F ollowing the closing of our IPO, it was no longer necessary for our board of directors to estimate the fair market value of our common stock in connection with our accounting for granted equity awards.

Expected Term.

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We may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company.

We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

Off-Balance Sheet Arrangements

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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 7. Management’s Discussion and Analysis