UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: 001-36361
Aravive, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Delaware |
|
2834 |
|
26-4106690 |
(State or Other Jurisdiction of Incorporation or Organization) |
|
(Primary Standard Industrial Classification Code Number)
|
|
(I.R.S. Employer Identification Number) |
River Oaks Tower
3730 Kirby Drive, Suite 1200
Houston, Texas 77098
(Address of principal executive offices)
(936) 355-1910
(Registrant’s Telephone Number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
|
Trading Symbol(s) |
|
Name of each exchange on which registered |
Common stock, par value $0.0001 per share |
|
ARAV |
|
Nasdaq Global Select Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
☐ |
|
Accelerated filer |
☒ |
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☒ |
Emerging growth company |
☒ |
|
|
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 29, 2019, there were 11,313,271 outstanding shares of common stock, par value $0.0001 per share, of Aravive, Inc.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019
PART I. FINANCIAL INFORMATION
Item |
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Page |
1. |
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a. Condensed Consolidated Balance Sheets at September 30, 2019 and December 31, 2018 |
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3 |
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4 |
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5 |
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6 |
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7 |
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2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
3. |
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23 |
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4. |
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24 |
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PART II. OTHER INFORMATION |
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1. |
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25 |
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1A. |
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25 |
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6. |
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29 |
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30 |
2
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
September 30, |
|
|
December 31, |
|
||
|
2019 |
|
|
2018 |
|
||
|
(unaudited) |
|
|
(See Note 1) |
|
||
Assets |
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
Cash and cash equivalents |
$ |
44,975 |
|
|
$ |
56,992 |
|
Prepaid expenses and other current assets |
|
3,493 |
|
|
|
1,038 |
|
Total current assets |
|
48,468 |
|
|
|
58,030 |
|
Restricted cash |
|
2,418 |
|
|
|
2,396 |
|
Property and equipment, net |
|
1,902 |
|
|
|
32 |
|
Operating lease right-of-use assets |
|
9,092 |
|
|
|
— |
|
Build-to-suit lease asset |
|
— |
|
|
|
8,651 |
|
Intangible asset, net |
|
249 |
|
|
|
341 |
|
Other assets |
|
457 |
|
|
|
20 |
|
Total assets |
$ |
62,586 |
|
|
$ |
69,470 |
|
Liabilities and stockholders' equity |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
Accounts payable |
$ |
2,364 |
|
|
$ |
426 |
|
Accrued liabilities |
|
1,557 |
|
|
|
1,365 |
|
Operating lease obligation, current portion |
|
2,464 |
|
|
|
— |
|
Deferred revenue |
|
— |
|
|
|
146 |
|
Total current liabilities |
|
6,385 |
|
|
|
1,937 |
|
Contingent payable |
|
264 |
|
|
|
264 |
|
Operating lease obligation |
|
8,407 |
|
|
|
— |
|
Build-to-suit lease obligation |
|
— |
|
|
|
7,324 |
|
Total liabilities |
|
15,056 |
|
|
|
9,525 |
|
Commitments and contingencies (Note 6) |
|
|
|
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|
|
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Stockholders' equity |
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|
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Common stock, $0.0001 par value, 100,000,000 shares authorized at September 30, 2019 and December 31, 2018; 11,284,964 and 11,266,151 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively |
|
1 |
|
|
|
1 |
|
Additional paid-in capital |
|
513,312 |
|
|
|
510,509 |
|
Accumulated deficit |
|
(465,783 |
) |
|
|
(450,565 |
) |
Total stockholders' equity |
|
47,530 |
|
|
|
59,945 |
|
Total liabilities and stockholders’ equity |
$ |
62,586 |
|
|
$ |
69,470 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant revenue |
$ |
— |
|
|
$ |
— |
|
|
$ |
4,753 |
|
|
$ |
— |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
3,840 |
|
|
|
1,027 |
|
|
|
10,325 |
|
|
|
8,065 |
|
General and administrative |
|
3,158 |
|
|
|
5,191 |
|
|
|
11,039 |
|
|
|
16,111 |
|
Total operating expenses |
|
6,998 |
|
|
|
6,218 |
|
|
|
21,364 |
|
|
|
24,176 |
|
Loss from operations |
|
(6,998 |
) |
|
|
(6,218 |
) |
|
|
(16,611 |
) |
|
|
(24,176 |
) |
Interest income |
|
232 |
|
|
|
261 |
|
|
|
811 |
|
|
|
703 |
|
Other income (expense), net |
|
624 |
|
|
|
(593 |
) |
|
|
1,910 |
|
|
|
(1,906 |
) |
Net loss |
$ |
(6,142 |
) |
|
$ |
(6,550 |
) |
|
$ |
(13,890 |
) |
|
$ |
(25,379 |
) |
Net loss per share - basic and diluted |
$ |
(0.54 |
) |
|
$ |
(1.08 |
) |
|
$ |
(1.23 |
) |
|
$ |
(4.23 |
) |
Weighted-average common shares used to compute basic and diluted net loss per share |
|
11,285 |
|
|
|
6,040 |
|
|
|
11,280 |
|
|
|
5,998 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
CONDENSED STATEMENTS OF STOCKHOLDERS' EQUITY
(unaudited)
(in thousands, except share data)
|
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Three and Nine Months Ended |
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September 30, 2019 |
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|||||||||||||||||
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Additional |
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Total |
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||
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders' |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
Balances at January 1, 2019 |
|
|
11,266,151 |
|
|
$ |
1 |
|
|
$ |
510,509 |
|
|
$ |
(450,565 |
) |
|
$ |
59,945 |
|
Issuance of common stock under employee benefit plans |
|
|
10,349 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,048 |
|
|
|
— |
|
|
|
1,048 |
|
Cumulative-effect adjustment to equity due to adoption of ASU 2016-02 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,328 |
) |
|
|
(1,328 |
) |
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,704 |
) |
|
|
(4,704 |
) |
Balances at March 31, 2019 |
|
|
11,276,500 |
|
|
|
1 |
|
|
|
511,557 |
|
|
|
(456,597 |
) |
|
|
54,961 |
|
Issuance of common stock upon exercise of options |
|
|
2,000 |
|
|
|
— |
|
|
|
2 |
|
|
|
— |
|
|
|
2 |
|
Issuance of common stock under employee benefit plans |
|
|
6,080 |
|
|
|
— |
|
|
|
11 |
|
|
|
— |
|
|
|
11 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
941 |
|
|
|
— |
|
|
|
941 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(3,044 |
) |
|
|
(3,044 |
) |
Balances at June 30, 2019 |
|
|
11,284,580 |
|
|
|
1 |
|
|
|
512,511 |
|
|
|
(459,641 |
) |
|
|
52,871 |
|
Issuance of common stock under employee benefit plans |
|
|
384 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
800 |
|
|
|
— |
|
|
|
800 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,142 |
) |
|
|
(6,142 |
) |
Balances at September 30, 2019 |
|
|
11,284,964 |
|
|
$ |
1 |
|
|
$ |
513,312 |
|
|
$ |
(465,783 |
) |
|
$ |
47,530 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three and Nine Months Ended |
|
|||||||||||||||||
|
|
September 30, 2018 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Total |
|
||
|
|
Common Stock |
|
|
Paid-In |
|
|
Accumulated |
|
|
Stockholders' |
|
||||||||
|
|
Shares |
|
|
Amount |
|
|
Capital |
|
|
Deficit |
|
|
Equity |
|
|||||
Balances at January 1, 2018 |
|
|
5,989,645 |
|
|
$ |
1 |
|
|
$ |
456,984 |
|
|
$ |
(374,232 |
) |
|
$ |
82,753 |
|
Issuance of common stock upon exercise of options |
|
|
3,643 |
|
|
|
— |
|
|
|
35 |
|
|
|
— |
|
|
|
35 |
|
Issuance of common stock under employee benefit plans |
|
|
18,300 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,820 |
|
|
|
— |
|
|
|
2,820 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,981 |
) |
|
|
(8,981 |
) |
Balances at March 31, 2018 |
|
|
6,011,588 |
|
|
|
1 |
|
|
|
459,839 |
|
|
|
(383,213 |
) |
|
|
76,627 |
|
Issuance of common stock under employee benefit plans |
|
|
28,477 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
2,155 |
|
|
|
— |
|
|
|
2,155 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,848 |
) |
|
|
(9,848 |
) |
Balances at June 30, 2018 |
|
|
6,040,065 |
|
|
|
1 |
|
|
|
461,994 |
|
|
|
(393,061 |
) |
|
|
68,934 |
|
Issuance of common stock under employee benefit plans |
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
|
|
18 |
|
Stock-based compensation |
|
|
— |
|
|
|
— |
|
|
|
1,313 |
|
|
|
— |
|
|
|
1,313 |
|
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(6,550 |
) |
|
|
(6,550 |
) |
Balances at September 30, 2018 |
|
|
6,040,065 |
|
|
$ |
1 |
|
|
$ |
463,325 |
|
|
$ |
(399,611 |
) |
|
$ |
63,715 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
|
Nine Months Ended |
|
|||||
|
September 30, |
|
|||||
|
2019 |
|
|
2018 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
Net loss |
$ |
(13,890 |
) |
|
$ |
(25,379 |
) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
Depreciation and amortization |
|
373 |
|
|
|
975 |
|
Stock-based compensation expense |
|
2,789 |
|
|
|
6,289 |
|
Changes in assets and liabilities |
|
|
|
|
|
|
|
Prepaid expenses and other assets |
|
(2,892 |
) |
|
|
98 |
|
Accounts payable |
|
1,938 |
|
|
|
(1,163 |
) |
Deferred revenue |
|
(146 |
) |
|
|
— |
|
Accrued and other liabilities |
|
(181 |
) |
|
|
(1,300 |
) |
Net cash used in operating activities |
|
(12,009 |
) |
|
|
(20,480 |
) |
Cash flows from financing activities |
|
|
|
|
|
|
|
Inducement on build-to-suit lease obligation |
|
— |
|
|
|
1,896 |
|
Proceeds from issuance of common stock in connection with employee benefit plans |
|
14 |
|
|
|
52 |
|
Net cash provided by financing activities |
|
14 |
|
|
|
1,948 |
|
Net change in cash, cash equivalents, and restricted cash |
|
(11,995 |
) |
|
|
(18,532 |
) |
Cash, cash equivalents, and restricted cash at beginning of period |
|
59,388 |
|
|
|
83,529 |
|
Cash, cash equivalents, and restricted cash at end of period |
$ |
47,393 |
|
|
$ |
64,997 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Formation and Business of the Company
Aravive, Inc. (“Aravive” or the “Company”) was incorporated on December 10, 2008 in the State of Delaware. Aravive is a clinical-stage biopharmaceutical company developing treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis. Prior to the merger with Aravive Biologics, Inc. (the “Merger”), Aravive (then known as Versartis, Inc.) was an endocrine-focused biopharmaceutical company that was developing a long-acting recombinant human growth hormone for the treatment of growth hormone deficiency. The “Company” refers to Aravive as a combined company following the completion of the Merger with Aravive Biologics, Inc. (“Private Aravive”). The Merger became effective on October 12, 2018. On October 15, 2018, Versartis, Inc. changed its name to Aravive, Inc.
The Company has been primarily performing research and development activities, including clinical trials, filing patent applications, and raising capital to support and expand these activities. Its headquarters and principal operations are located in Houston, Texas.
The Company’s lead product candidate, AVB-500 (previously referred to as AVB-S6-500), is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway. By capturing serum GAS6, AVB-500 starves the AXL pathway of its signal, potentially halting the biological programming that promotes disease progression. AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression. The GAS6-AXL signaling pathway also plays a significant role in fibrogenesis.
Importantly, the lead protein candidate had a favorable safety profile preclinically and in the first in human study. The Company has initiated the Phase 1b portion of a Phase 1b/2 clinical trial of AVB-500 combined with standard of care therapies in patients with platinum-resistant ovarian cancer and is currently enrolling the expansion cohort in the Phase 1b portion. The Company’s current development program benefits from the availability of a complementary serum-based biomarker that it expects will help accelerate drug development and reduce risk by allowing the Company to select a pharmacologically active dose. In its Phase 1 clinical trial in healthy volunteers with AVB-500, the Company demonstrated proof of mechanism for AVB-500 in neutralization GAS6. The Company has also generated preclinical data for AVB-500 in both acute myeloid leukemia and certain advanced solid tumors including ovarian, renal, pancreatic, and breast cancers. The Company intends to expand development into additional oncology and fibrotic indications.
In July 2016, Private Aravive was approved for a $20 million Product Development Award from the Cancer Prevention and Research Institute of Texas (“CPRIT Grant”). The CPRIT Grant is expected to allow Private Aravive to develop the product candidate referenced above through clinical trials. The CPRIT Grant is effective as of June 1, 2016 and terminates on November 30, 2019. Private Aravive’s royalty and other obligations, including its obligation to repay the disbursed grant proceeds under certain circumstances, survive the termination of the agreement. The CPRIT Grant is subject to customary CPRIT funding conditions including a matching funds requirement where Private Aravive will match 50% of funding from the CPRIT Grant. Consequently, Private Aravive was required to raise $10.0 million in matching funds over the three-year project. Private Aravive has raised all of its required $10.0 million in matching funds.
Private Aravive’s award from CPRIT requires it to pay CPRIT a portion of its revenues from sales of certain products, or received from its licensees or sublicensees, at tiered percentages of revenue in the low- to mid-single digits until the aggregate amount of such payments equals 400% of the grant award proceeds, and thereafter at a rate of less than one percent for as long as Private Aravive maintains government exclusivity. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of the full amount of the grant proceeds under certain specified circumstances involving relocation of Private Aravive’s principal place of business outside Texas.
As consideration for the rights granted as part of a license agreement with Stanford University, Private Aravive is obligated to pay yearly license fees and milestone payments, and a royalty based on net sales of products covered by the patent-related rights. More specifically, Private Aravive is obligated to pay Stanford University (i) annual license payments (ii) milestone payments of up to an aggregate of $1,000,000 upon achievement of clinical and regulatory milestones, and (iii) royalties equal to a percentage (in the low single digits) of net sales of licensed products; provided that the annual license payments made will offset (and be credited against) any royalties due in such license year. In the event of a sublicense to a third party of any rights based on the patents that are solely owned by Stanford University, Private Aravive is obligated to pay royalties to Stanford University equal to a percentage of what Private Aravive would have been required to pay to Stanford University had it sold the products under sublicense itself. In addition, in such event it is required to pay to Stanford University a percent of sublicensing income. In the event of a termination, Private Aravive will be obligated to pay all amounts that accrued prior to such termination.
7
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Unaudited Interim Financial Information
In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2019 and, its results of operations for each of the three and nine months ended September 30, 2019 and 2018, and cash flows for the three and nine months ended September 30, 2019, and 2018. The December 31, 2018 condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States of America, or GAAP. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed by the Company on March 15, 2019 or the Annual Report with the U.S. Securities and Exchange Commission, or the SEC.
2. Summary of Significant Accounting Policies
Significant Accounting Policies
As of January 1, 2019, the Company adopted Accounting Standards Codification or ASC 842 – Leases, as discussed in the section titled “Recent Accounting Pronouncements” of this Note 2. As a result, the Company added a new significant accounting policy “Leases” as described below. There have been no other significant changes to the Company’s accounting policies described in the Annual Report.
Basis of Presentation and Use of Estimates
The accompanying condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of the accompanying condensed consolidated financial statements in accordance 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 condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
The accompanying unaudited condensed consolidated financial position as of September 30, 2019 and as of December 31, 2018, the results of operations for each of the three and nine months ended September 30, 2019 and 2018, and cash flows for the three and nine months ended September 30, 2019 and 2018 include the accounts of Aravive, Inc. and its wholly-owned subsidiaries, Versartis Cayman Holdings Company, incorporated in 2014, Versartis GmbH, incorporated in 2015 and Private Aravive, incorporated in 2007, which was not included as a subsidiary in 2018. After 2015, the Cayman and GmbH subsidiaries became dormant. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's subsidiaries and consolidated operations.
As of September 30, 2019, the Company had a cash and cash equivalents balance of approximately $45.0 million consisting of cash and cash equivalents in highly liquid U.S. money market funds. The Company believes that its existing cash and cash equivalents will be sufficient to sustain operations for at least the next 12 months from the issuance of these financial statements, based on its current business plan. The Company’s expected primary use of cash will be to fund the Company’s clinical development programs, specifically for its product candidate AVB-500. Since inception, the Company has incurred net losses and negative cash flows from operations supporting the Company’s clinical development programs and related general and administrative expenses. At September 30, 2019, the Company had an accumulated deficit of approximately $465.8 million and working capital of approximately $42.1 million. The Company expects to continue to incur losses supporting its clinical development program and related administrative expenses. The Company anticipates it may need additional financing to support its business plan as it moves forward. Although management has been successful in raising capital in the past, there can be no assurance that the Company will be successful or that any needed financing will be available in the future at terms acceptable to the Company.
Segments
The Company operates in one segment. Management uses one measurement of performance and does not segregate its business for internal reporting. All long-lived assets are maintained in the United States of America.
8
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. All of the Company’s cash and cash equivalents are held at several financial institutions that management believes are of high credit quality. Such deposits may exceed federally insured limits.
Risk and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships or a strategic transaction and dependence on key individuals and sole source suppliers.
Products developed by the Company require clearances from the U.S. Food and Drug Administration, or the FDA, the Pharmaceuticals Medicines and Devices Agency, or the PMDA, or other international regulatory agencies prior to commercial sales. There can be no assurance that the products will receive the necessary clearances. If the Company was denied clearance, clearance was delayed, or the Company was unable to maintain clearance, it could have a materially adverse impact on the Company.
The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to develop, launch and commercialize any product candidates for which it receives regulatory approval.
Cash and cash equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At September 30, 2019 and December 31, 2018, the Company’s cash and cash equivalents were held at multiple institutions in the United States and included deposits in money market funds which were unrestricted as to withdrawal or use.
Restricted Cash
Restricted cash includes cash and cash equivalents that is restricted through legal contracts, regulations or the Company’s intention to use the cash for a specific purpose. The Company’s restricted cash primarily relates to the letter of credit provided to its landlord for the Company’s facilities in Menlo Park, California (as described in Note 5) to secure its obligations under the lease.
Property and equipment, Net
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.
Leases
The Company adopted ASC 842 on January 1, 2019. For the periods prior to January 1, 2019, the Company’s leases were accounted for under ASC 840. The Company leases all of its office space in conducting its business. At inception, the Company determines whether an agreement represents a lease and at commencement the Company evaluates each lease agreement to determine whether the lease is an operating or financing lease. As described below under "Recent Accounting Pronouncements”, the Company adopted the Financial Accounting Standards Board Accounting Standards Update, or ASU, "Leases," or ASU 2016-02. The Company elected to adopt the standard on January 1, 2019 using the alternative transition method provided by ASU 2018-11 whereby the Company recorded right-of-use (“ROU”) assets and lease liabilities for its existing leases as of January 1, 2019, as well as a cumulative-effect adjustment to accumulated deficit of initially applying the new standard as of January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. The Company has elected the practical expedient allowing the use-of-hindsight which doesn’t require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date.
The new guidance also provides practical expedients for ongoing lease accounting. The Company has elected the recognition exemption for short-term lease for all leases that qualify. Under this exemption, the Company will not recognize ROU assets or lease liabilities on the balance sheet for those leases that qualify as a short-term lease, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company has also elected the practical expedient to not separate lease and non-lease components for all equipment and real-estate leases.
9
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
With the adoption of ASU 2016-02, the Company recorded an operating lease right-of-use asset and an operating lease obligation on the consolidated balance sheet. ROU assets represent the Company’s ROU of the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. ROU obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term and ROU assets are calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease agreements the Company has combined lease and nonlease components. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Prior to the Company’s adoption of ASU 2016-02, when the Company’s lease agreements contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, the Company recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the statements of operations over the term of each lease.
Impairment of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by the comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value (i.e. determined through estimating projected discounted future net cash flows or other acceptable methods of determining fair value) arising from the asset. There have been no such impairments of long-lived assets as of September 30, 2019 or December 31, 2018.
Fair Value of Financial Instruments
The carrying value of the Company’s cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability 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.
The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:
Level 1Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and
Level 3Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
The Company’s financial instruments consist of Level 1 assets as of September 30, 2019. Level 1 assets are comprised of highly liquid money market funds.
10
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Preclinical and Clinical Trial Accruals
The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and clinical research organizations, or CROs, that conduct and manage clinical trials on the Company’s behalf.
The Company estimates preclinical and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.
Research and development
Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, laboratory supplies, consulting costs, external research and development expenses and allocated overhead, including rent, equipment depreciation, and utilities. Costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use are expensed to research and development costs when incurred.
Income taxes
The Company accounts for income taxes under the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.
Stock-Based compensation
For stock options granted to employees, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair value. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option pricing model. The determination of fair value for stock-based awards on the date of grant using an option pricing model requires management to make certain assumptions regarding a number of complex and subjective variables.
Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the fair value of the stock options, determined using the Black-Scholes option pricing model, as they are earned. The awards generally vest over the time period the Company expects to receive services from the nonemployee.
Stock-based compensation expense, net of estimated forfeitures, is reflected in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
$ |
120 |
|
|
$ |
95 |
|
|
$ |
318 |
|
|
$ |
1,855 |
|
General and administrative |
|
680 |
|
|
|
1,218 |
|
|
|
2,471 |
|
|
|
4,434 |
|
Total |
$ |
800 |
|
|
$ |
1,313 |
|
|
$ |
2,789 |
|
|
$ |
6,289 |
|
11
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Specifically, the Company includes cumulative foreign currency translation adjustments and net unrealized gains. There was no difference between net loss and comprehensive loss for all periods presented.
Net Loss per Share of Common Stock
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options, restricted stock units and shares issued under the Company’s Employee Stock Purchase Plan are considered to be potentially dilutive securities. Because the Company has reported a net loss for all of the periods presented, diluted net loss per common share is the same as basic net loss per common share for those periods.
Intangible Asset
Intangible assets consist of an assembled workforce which was acquired as part of the Merger. Intangible assets with definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment. The estimated useful life of the assembled workforce is 3 years.
Revenue Recognition
The Company’s sole source of revenue for 2019 and 2018 was grant revenue related to the CPRIT Grant, which is being recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the award have been met for collection. Proceeds received prior to the costs being incurred or the conditions of the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met.
For the nine months ended September 30, 2019, the Company has recognized approximately $4.8 million from the CPRIT Grant. Funds received are reflected in deferred revenue as a liability until revenue is earned. Grant revenue is recognized when qualifying costs are incurred. As of September 30, 2019, the Company had an unbilled receivable from CPRIT of $2.0 million, which is reflected in prepaid expenses and other current assets on the accompanying condensed consolidated balance sheet.
Quarterly reclassifications
Certain reclassifications of prior period amounts have been made within the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019. Specifically, during the fourth quarter ended December 31, 2018, the Company determined that the amount related to the inducement on build-to-suit lease obligation as reflected within one line in the investing activities section of the unaudited consolidated statement of cash flows for the nine months ended September 30, 2018 included in the Form 10-Q, should have been classified as cash flows provided from financing activities. There is no impact to the consolidated statements of operations and comprehensive loss or consolidated balance sheets for any of these periods. The Company evaluated the effect of this misclassification and concluded it was not material to any of its previously issued unaudited consolidated financial statements. Upon revision, cash flows from investing activities for the nine months ended September 30, 2018, decreased by $1.9 million and cash flows from financing activities for the respective period increased by $1.9 million. This adjustment had no impact to the Company’s financial position, results of operations or cash flows as of and for the year ended December 31, 2018.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting. This amendment provides additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees. The guidance will be effective for the Company for fiscal years beginning after December 15, 2018, including the interim periods within that fiscal year. The Company has adopted this new guidance as of January 1, 2019, which had no material impact on the Company’s consolidated financial statements.
12
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
In June 2018, the FASB issued ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which is intended to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments in ASU No. 2018-08 should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transaction) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. This amendment applies to all entities that make or receive grants or contributions. This ASU is effective for public companies serving as a resource recipient for fiscal years beginning after June 15, 2018, including interim periods within that fiscal year. The Company has adopted this guidance as of January 1, 2019 which had no material impact to its consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842)-- Targeted Improvements, that allows entities to apply the provisions of the new standard at the effective date (e.g. January 1, 2019), as opposed to the earliest period presented under the modified retrospective transition approach (January 1, 2017) and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company adopted ASC Topic 842 with the cumulative effect of adoption recognized to accumulated deficit on January 1, 2019, as described in Note 2.
As a result of the adoption of ASC 842 on January 1, 2019, the Company derecognized $8.6 million for the existing asset; $7.3 million for the obligation and $1.3 million to the opening balance of the accumulated deficit. The existing asset and obligation on the consolidated balance sheet resulted from the build-to-suit lease arrangement at 1020 Marsh Road, Menlo Park, California or the 1020 Space, which did not meet the criteria for “sale-leaseback” treatment at the time construction was completed in 2017, and the Company has applied the general lessee transition guidance to this lease. Based on the Company’s assessment of the 1020 Space, qualifies as an operating lease under ASC 842.
Additionally, as a result of adoption of ASC 842, the Company recognized operating lease ROU assets of approximately $10.4 million, $2.1 million of leasehold improvements, an operating lease obligation of $12.6 million and derecognition of deferred rent of $0.1 million as of January 1, 2019.
3. Balance Sheet Components
Prepaid expenses and other current assets (in thousands)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
Preclinical and clinical (1) |
|
$ |
581 |
|
|
$ |
416 |
|
Lease receivable |
|
|
911 |
|
|
|
606 |
|
Unbilled receivable from CPRIT |
|
|
2,000 |
|
|
|
— |
|
Other |
|
|
1 |
|
|
|
16 |
|
Total |
|
$ |
3,493 |
|
|
$ |
1,038 |
|
(1) |
These prepayments consist primarily of advances to the Company’s contract manufacturers and contract research organizations |
13
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Property and equipment, net (in thousands)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
Equipment and furniture |
|
$ |
1,442 |
|
|
$ |
1,442 |
|
Buildings, leasehold and building improvements |
|
|
2,674 |
|
|
|
134 |
|
|
|
|
4,116 |
|
|
|
1,576 |
|
Less: Accumulated depreciation and amortization |
|
|
(2,214 |
) |
|
|
(1,544 |
) |
Property and equipment, net |
|
$ |
1,902 |
|
|
$ |
32 |
|
Depreciation expense was approximately $0.1 million and $0.3 million for the three and nine months ended September 30, 2019 respectively and approximately $0.7 million and $1.0 million for the three and nine months ended September 30, 2018, respectively. Additionally, as a result of the adoption of ASC 842, the Company recognized accumulated depreciation of approximately $0.5 million for its leasehold improvements associated with the 1020 Space as of January 1, 2019.
Accrued Liabilities (in thousands)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2019 |
|
|
2018 |
|
||
Payroll and related |
|
$ |
1,143 |
|
|
$ |
509 |
|
Preclinical and clinical |
|
|
414 |
|
|
|
563 |
|
Other |
|
|
— |
|
|
|
293 |
|
Total |
|
$ |
1,557 |
|
|
$ |
1,365 |
|
4. Fair Value Measurements
The Company’s financial instruments consist principally of cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):
|
|
Fair Value Measurements at September 30, 2019 |
|
|||||
|
|
(unaudited) |
|
|||||
|
|
Total |
|
|
Level 1 |
|
||
Assets |
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
43,711 |
|
|
$ |
43,711 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018 |
|
|||||
|
|
Total |
|
|
Level 1 |
|
||
Assets |
|
|
|
|
|
|
|
|
Money market funds |
|
$ |
48,389 |
|
|
$ |
48,389 |
|
5. Leases
In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at the 1020 Space. The lease commenced in August 2017 for a period of 87 months with one renewal option for a five-year term. The Company did not include the renewal option period as the Company determined it was not reasonably certain the lease would be renewed as of the modification date.
In October 2018, the Company executed a sublease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the sublease commenced on October 30, 2018 and expires August 31, 2020.
During the three and nine months ended September 30, 2019, the Company’s operating lease costs were $0.5 million and $1.6 million, respectively and cash paid for amounts included in the measurement of lease obligations for operating cash flows from operating leases for the nine months ended September 30, 2019 was $2.0 million. As of September 30, 2019, the Company’s operating leases had a weighted average remaining lease term of 4.9 years and a weighted average discount rate of 7.75%, which approximates the Company’s incremental borrowing rate.
14
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
As of September 30, 2019, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):
Year Ending December 31, |
|
|
|
|
2019 (3 months remaining) |
|
$ |
677 |
|
2020 |
|
|
2,668 |
|
2021 |
|
|
2,618 |
|
2022 |
|
|
2,697 |
|
2023 |
|
|
2,777 |
|
Thereafter |
|
|
2,373 |
|
Total operating lease payments |
|
|
13,810 |
|
Less imputed interest |
|
|
(2,939 |
) |
Total operating lease obligations |
|
|
10,871 |
|
Less current operating lease obligations |
|
|
(2,464 |
) |
Noncurrent operating lease obligations |
|
$ |
8,407 |
|
1020 Marsh Sublease
In August 2018, the Company entered into an operating sublease agreement with EVA Automation, Inc. (“EVA”) for the 1020 Space referenced above. The 1020 Space sublease commenced on October 1, 2018 for 72 months. EVA is entitled to an abatement of base rent of approximately $0.9 million for the first five full calendar months of the term of the sublease. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statement of operations. The Company has recorded lease income associated with this sublease of approximately $0.6 million and $1.9 million for the three and nine months ended September 30, 2019, respectively. During the nine months ended September 30, 2019, cash received from EVA was $1.4 million, which amount was included in other current assets for operating cash flows.
Future base rent and additional rent EVA shall pay to the Company over the sublease term as of September 30, 2019, are as follows (in thousands):
|
|
|
|
|
Year Ending December 31, |
|
|
|
|
2019 (3 months remaining) |
|
$ |
637 |
|
2020 |
|
|
2,563 |
|
2021 |
|
|
2,628 |
|
2022 |
|
|
2,695 |
|
2023 |
|
|
2,764 |
|
Thereafter |
|
|
2,355 |
|
Total |
|
$ |
13,642 |
|
6. Commitments and Contingencies
In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
15
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Equity Incentive Plans
The Company’s Board of Directors, or Board, and stockholders approved the 2019 Equity Incentive Plan, or the 2019 Plan, which became effective on September 12, 2019. The 2019 Plan is a successor to and continuation of all prior plans including the Company’s 2014 Equity Incentive Plan and Private Aravive’s 2017 Equity Incentive Plan and the 2010 Equity Incentive Plan, as amended (Prior Plans). As of September 30, 2019, the total number of shares of common stock available for issuance under the 2019 Plan was approximately 1,338,434. In addition, if the shares subject to outstanding stock options or other awards under the Prior Plans: (I) terminate or expire prior to exercise or settlement; (II) are not issued because the award is settled in cash; (III) are forfeited because of failure to vest; (IV) or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, such shares will become available for issuance under the 2019 Plan. Unless the Board provides otherwise, beginning January 1, 2020 with expiration of January 1, 2029, the total number of shares of common stock available for issuance will automatically increase annually on January 1 of each calendar year by 4.5% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. The 2019 Plan provides for granting of equity awards to employees, directors and consultants, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance awards.
Activity under the Company’s stock option plan is set forth below:
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Remaining |
|
|
Aggregate |
|
|||
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|||
|
|
|
Number of |
|
|
Exercise |
|
|
Life |
|
|
Value |
|
||||
|
|
|
Shares |
|
|
Price |
|
|
(in years) |
|
|
(in thousands) |
|
||||
Balances, January 1, 2019 |
|
|
|
1,515,923 |
|
|
$ |
18.65 |
|
|
|
|
|
|
|
|
|
Options granted |
|
|
|
483,328 |
|
|
|
5.55 |
|
|
|
|
|
|
|
|
|
Options cancelled |
|
|
|
(97,382 |
) |
|
|
96.15 |
|
|
|
|
|
|
|
|
|
Options exercised |
|
|
|
(2,000 |
) |
|
|
0.66 |
|
|
|
|
|
|
|
|
|
Balances, September 30, 2019 |
|
|
|
1,899,869 |
|
|
$ |
11.35 |
|
|
|
7.0 |
|
|
$ |
9,294 |
|
Outstanding and expected to vest as of September 30, 2019 |
|
|
|
1,870,009 |
|
|
$ |
11.41 |
|
|
|
6.9 |
|
|
$ |
9,244 |
|
Exercisable as of September 30, 2019 |
|
|
|
1,490,943 |
|
|
$ |
12.01 |
|
|
|
6.3 |
|
|
$ |
8,612 |
|
Stock Options Granted to Employees
During the nine months ended September 30, 2019, the Company granted stock options to officers, directors and employees to purchase shares of common stock with a weighted-average grant date fair value of $4.69 per share. The fair value is being expensed over the vesting period of the options, which is usually 4 years on a straight-line basis as the services are being provided. No tax benefits were realized from options and other share-based payment arrangements during the periods.
As of September 30, 2019, total unrecognized employee stock-based compensation related to stock options granted was $2.6 million, which is expected to be recognized over the weighted-average remaining vesting period of 3 years.
The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions:
|
|
September 30, |
|
|
|
|
2019 |
|
|
Expected volatility |
|
|
111.0 |
% |
Risk-free interest rate |
|
|
2.4 |
% |
Dividend yield |
|
|
0.0 |
% |
Expected life (in years) |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
16
ARAVIVE, INC. (FORMERLY KNOWN AS VERSARTIS, INC.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)
Restricted stock units are shares of common stock which are forfeited if the employee leaves the Company prior to vesting. These stock units offer employees the opportunity to earn shares of the Company’s stock over time, rather than options that give the employee the right to purchase stock at a set price. As a result of these restricted stock units, the Company recognized $0.4 million and $0.6 million in compensation expense during the three months ended September 30, 2019 and 2018, respectively and $1.2 million and $2.5 million during the nine months ended September 30, 2019 and 2018, respectively. As all of the restricted stock vests through 2019 and beyond, the Company will continue to recognize stock-based compensation expense related to the grants of these restricted stock units. If all of the remaining restricted stock units that were granted in prior years vest, the Company will recognize approximately $1.1 million in compensation expense over a weighted average remaining period of 1.4 years. However, no compensation expense will be recognized for restricted stock units that do not vest.
8. Net loss per share of Common Stock
The following table summarizes the computation of basic and diluted net loss per share of the Company (in thousands, except per share data):
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
September 30, |
|
|
September 30, |
|
||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
2018 |
|
||||
Net loss |
$ |
(6,142 |
) |
|
$ |
(6,550 |
) |
|
$ |
(13,890 |
) |
|
$ |
(25,379 |
) |
Basic and diluted net loss per common share |
$ |
(0.54 |
) |
|
$ |
(1.08 |
) |
|
$ |
(1.23 |
) |
|
$ |
(4.23 |
) |
Weighted-average shares used to compute basic and diluted net loss per share |
|
11,285 |
|
|
|
6,040 |
|
|
|
11,280 |
|
|
|
5,998 |
|
Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per share is computed by dividing the net loss per common share by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as-if converted method, for convertible securities, if inclusion of these is dilutive. Because the Company has reported a net loss for all periods presented, diluted net loss per share is the same as basic net loss per common share for those periods.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and notes thereto for the year ended December 31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed on March 15, 2019, and Amendment No. 1 thereto filed on April 30, 2019, or the 2018 Annual Report, with the U.S. Securities and Exchange Commission, or SEC.
Special note regarding forward-looking statements
This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those discussed in the forward-looking statements. The statements contained in this report that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements are often identified by the use of words such as, but not limited to, “anticipate,” “believe,” “can,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “project,” “seek,” “should,” “strategy,” “target,” “will,” “would” and similar expressions or variations intended to identify forward-looking statements. These statements are based on the beliefs and assumptions of our management based on information currently available to management. Such forward-looking statements are subject to risks, uncertainties and other important factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the section titled “Risk Factors” included under Part II, Item 1A below and those identified under Part 1, Item 1A of the 2018 Annual Report. Furthermore, such forward-looking statements speak only as of the date of this report. Except as required by law, we undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.
Overview
We are a clinical-stage biopharmaceutical company developing treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis. Prior to the merger (the “Merger”) with Aravive Biologics, Inc. (“Private Aravive”), we (then known as Versartis, Inc.) were an endocrine-focused biopharmaceutical company that was developing a long-acting recombinant human growth hormone for the treatment of growth hormone deficiency.
Our focus has been primarily performing research and development activities, including clinical trials, filing patent applications, and raising capital to support and expand these activities. Our headquarters and principal operations are located in Houston, Texas.
Our lead product candidate, AVB-500, is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway. By capturing serum GAS6, AVB-500 starves the AXL pathway of its signal, potentially halting the biological programming that promotes disease progression. AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression. The GAS6-AXL signaling pathway also plays a significant role in fibrogenesis.
In our Phase 1 clinical trial with its clinical lead product candidate, AVB-500, we have demonstrated proof of mechanism for AVB-500 in neutralizing GAS6. Importantly, AVB-500 had a favorable safety profile preclinically and in the first in human study. We have initiated the Phase 1b portion of a Phase 1b/2 clinical trial of AVB-500 combined with standard of care therapies in patients with platinum-resistant ovarian cancer and is currently enrolling the expansion cohort in the Phase 1b. Our current development program benefits from the availability of a complementary serum-based biomarker that it expects will help accelerate drug development and reduce risk by allowing us to select a pharmacologically active dose. We have also generated preclinical data for AVB-500 in both acute myeloid leukemia and certain advanced solid tumors including ovarian, renal, pancreatic, and breast cancers. We intend to expand development into additional oncology and fibrotic indications.
Recent Developments
On September 27, 2019, we presented positive data from the initial 12 patients of the ongoing Phase 1b portion of our Phase 1b/2 study of AVB-500 in patients with platinum-resistant ovarian cancer treated with 10mg/kg in a late breaking oral presentation at the European Society for Medical Oncology (ESMO) Congress in Barcelona.
The open-label, Phase 1b portion of the study of AVB-500 in patients with platinum-resistant recurrent ovarian cancer enrolled patients into two cohorts, one investigating a combination of AVB-500 with pegylated liposomal doxorubicin (PLD) and the other, a combination with paclitaxel (PAC). In both study groups, AVB-500 treatment led to early proof of concept with overall best response rate (ORR) by investigator determined RECIST v1.1 criteria and durable response in responders. AVB-500 was well tolerated with no dose limiting toxicities (DLT). The data from the initial 12 patients were summarized as follows:
|
• |
Clinical benefit [Partial Response (PR) + Stable Disease (SD)] in 7 out of 12 patients (58 percent) |
|
• |
Partial responses (PR) in 5 out of 12 patients (42 percent) |
|
• |
The mean response rate in patients treated was 50 percent with AVB-500+PAC, and 33 percent with AVB-500+PLD |
18
|
• |
Two responders had more than 80 percent tumor regression |
|
• |
The current average treatment duration for responders is 7 months and 4 of 5 patients who responded remain on study |
|
• |
Two patients who responded have completed their chemotherapy regimen and are receiving AVB-500 alone |
We continue to use Model-Informed Drug Development (MIDD) to guide selection of higher drug doses for evaluation in Phase 1b and identify the optimal drug dose for AVB-500 in the treatment of cancer.
In addition, on September 27, 2019, we also announced, separate from the ESMO presentation, the following information for the 28 evaluable patients in the ongoing expanded Phase 1b portion of our Phase 1b/2 study of AVB-500 in platinum-resistant ovarian cancer patients treated with 10mg/kg.
|
• |
AVB-500 continues to be well tolerated |
|
• |
Current response rates correlate with drug exposure (we caution that the statistical significance associated with these estimates is marginal, given the n=28): |
|
• |
Peak and trough levels after first dose of AVB-500 appear to predict anti-tumor activity. The relationship of peak drug level with response rate (PR) and clinical benefit rate (PR + SD) were statistically significant with p-values of 0.0236, 0.0337 respectively |
|
• |
72.7 percent of patients with peak drug level > 225 mg/L (high drug level) achieved clinical benefit (PR + SD) compared to 17.6 percent with peak drug level <= 225 mg/L (low drug level). At a confidence level of 0.95, the p-value was 0.0118 |
|
• |
A review of the baseline characteristics and demographics of the patients did not reveal any apparent differences, suggesting that the drug exposure is the primary driver of anti-tumor activity |
|
• |
This exposure-response relationship has guided us to study higher doses of the drug in the expansion cohort (15 mg/kg and 20 mg/kg every two weeks) |
|
• |
The clinical benefit rate in the initial 28 patients is currently at 61 percent with 25 percent PR. As the data continues to mature, the response rates are subject to change |
Important Note
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) includes a discussion of our operations for the three and nine months ended September 30, 2019, which reflects the operations of Private Aravive, that are not included in the discussion for the three and nine months ended September 30, 2018 due to the fact that the Merger was consummated in October 2018. Accordingly, the results of operations reported for the three and nine months ended September 30, 2019 and 2018, in this Management’s Discussion and Analysis are not comparable.
Due to the substantial changes in our assets, liabilities and operations resulting from the completion of the Merger on October 12, 2018, our historical financial results do not provide a reasonable basis from which to predict the merged company’s future financial results or condition.
References in this report to “we,” “us,” “our” and similar first-person expressions refer to Aravive, Inc. (formerly known as Versartis, Inc.) and its subsidiaries, including Private Aravive. References to “Versartis, Inc.” or “Private Aravive” refer to those respective companies prior to the completion of their merger in October 2018.
Financial overview
Revenue
We have never generated net income from operations on an annual basis, and, as of September 30, 2019, we had an accumulated deficit of approximately $465.8 million, primarily as a result of research and development and general and administrative expenses. We have never earned revenue from commercial sales of any of our product candidates. We generated grant revenue of approximately $4.8 million for the nine months ended September 30, 2019 and $1.4 million for the year ended December 31, 2018.
In the future, we may generate revenue from a variety of sources, including product sales if we develop products which are approved for sale, license fees, milestones, research and development and royalty payments in connection with strategic collaborations or government contracts, or licenses of our intellectual property.
19
Research and development expenses
Research and development costs are expensed as incurred. Research and development expenses include payroll and personnel expenses; consulting costs; external contract research and development expenses; and allocated overhead, including rent, equipment depreciation and utilities, and relate to both company-sponsored programs as well as costs incurred pursuant to reimbursement arrangements. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed.
As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each consolidated balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees to:
|
• |
contract manufacturers in connection with the production of clinical trial materials; |
|
• |
contract research organizations and other service providers in connection with clinical studies; |
|
• |
investigative sites in connection with clinical studies; |
|
• |
vendors in connection with preclinical development activities; and |
|
• |
professional service fees for consulting and related services. |
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. 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 our reporting changes in estimates in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred. However, due to the nature of these estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity.
General and administrative expenses
General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not included in research and development.
Other income (expense), net
Other income (expense), net is primarily comprised of sublease income for our 1020 Marsh property lease, interest charges related to our build-to-suite lease obligation, and gains and losses on foreign currency transactions related to third party contracts with foreign-based contract manufacturing organizations.
Critical accounting policies, significant judgments and use of estimates
Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed consolidated financial statements and in Note 2 to our audited consolidated financial statements contained in the 2018 Annual Report.
20
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersede the leases requirements in Topic 840, Leases. Topic 842 specifies the accounting for leases. The objective of Topic 842 is to establish the principles that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. The result of retaining a distinction between finance leases and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 became effective for us on January 1, 2019, we wrote off our previously recorded build-to-suit asset as a result of adoption and recorded a right-of-use asset for our existing leases. The full adoption impact of the ASU 2016-02 is illustrated in the accompanying consolidated financial statements.
Other than as discussed above, there have been no significant or material changes in our critical accounting policies during the nine months ended September 30, 2019, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Use of Estimates” in the 2018 Annual Report.
Results of operations
Comparison of the Three and Nine Months Ended September 30, 2019 and 2018
The following table summarizes our net loss during the periods indicated (in thousands, except percentages):
|
|
Three Months Ended |
|
|
Increase/ |
|
|
Nine Months Ended |
|
|
Increase/ |
|
||||||||||||||||||||
|
|
September 30, |
|
|
(Decrease) |
|
|
September 30, |
|
|
(Decrease) |
|
||||||||||||||||||||
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grant revenue |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
$ |
4,753 |
|
|
$ |
— |
|
|
$ |
4,753 |
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
|
3,840 |
|
|
|
1,027 |
|
|
|
2,813 |
|
|
|
274 |
% |
|
|
10,325 |
|
|
|
8,065 |
|
|
|
2,260 |
|
|
|
28 |
% |
General and administrative |
|
|
3,158 |
|
|
|
5,191 |
|
|
|
(2,033 |
) |
|
|
-39 |
% |
|
|
11,039 |
|
|
|
16,111 |
|
|
|
(5,072 |
) |
|
|
-31 |
% |
Total operating expenses |
|
|
6,998 |
|
|
|
6,218 |
|
|
|
780 |
|
|
|
13 |
% |
|
|
21,364 |
|
|
|
24,176 |
|
|
|
(2,812 |
) |
|
|
-12 |
% |
Loss from operations |
|
|
(6,998 |
) |
|
|
(6,218 |
) |
|
|
780 |
|
|
|
13 |
% |
|
|
(16,611 |
) |
|
|
(24,176 |
) |
|
|
(7,565 |
) |
|
|
-31 |
% |
Interest income |
|
|
232 |
|
|
|
261 |
|
|
|
(29 |
) |
|
|
-11 |
% |
|
|
811 |
|
|
|
703 |
|
|
|
108 |
|
|
|
15 |
% |
Other income (expense), net |
|
|
624 |
|
|
|
(593 |
) |
|
|
(1,217 |
) |
|
|
-205 |
% |
|
|
1,910 |
|
|
|
(1,906 |
) |
|
|
(3,816 |
) |
|
|
-200 |
% |
Net loss |
|
$ |
(6,142 |
) |
|
$ |
(6,550 |
) |
|
$ |
(408 |
) |
|
|
-6 |
% |
|
$ |
(13,890 |
) |
|
$ |
(25,379 |
) |
|
$ |
(11,489 |
) |
|
|
-45 |
% |
Grant revenue
Grant revenue for the nine months ended September 30, 2019 was $4.8 million which was derived solely from the CPRIT grant for the research and development of AVB-500. There was no grant revenue during the three months ended September 30, 2019.
Research and development expense
Research and development expense increased by $2.8 million, or 274%, to $3.8 million for the three months ended September 30, 2019 from $1.0 million for the same period in 2018. For the nine months ended September 30, 2019 research and development increased $2.3 million, or 28%, to $10.3 million from $8.0 million for the same period in 2018. The increase in the three and nine months ended September 30, 2019 was primarily due to increased expenses incurred in the clinical, pre-clinical and manufacturing activities of AVB-500 in 2019 compared to the continued winddown expenses in 2018 relating to the somavaratan program which was terminated following the Phase 3 VELOCITY trial failure.
General and administrative expense
General and administrative expense decreased by $2.0 million, or 39%, to $3.2 million for the three months ended September 30, 2019 from $5.2 million for the same period in 2018. For the nine months ended September 30, 2019 general and administrative expense decreased $5.1 million, or 31%, to $11.0 million from $16.1 million for the same period in 2018. The decrease was primarily driven by a smaller workforce, absence of Merger related costs and other operating expenses as a result of the termination of the somavaratan program following the Phase 3 VELOCITY trial failure. The decrease is partially offset by an increase in our operating lease expenses in 2019 related to the adoption of the new lease accounting standard.
21
Other expense, decreased by $1.2 million, or 205%, to $0.6 million of other income for the three months ended September 30, 2019 from $0.6 million of other expense for the same period in 2018. For the nine months ended September 30, 2019 other expense decreased $3.8 million, or 200%, to $1.9 million of other income from $1.9 million of other expense for same period in 2018. This decrease in other expense for both the three and nine months ended September 30, 2019 was primarily due to sublease income of approximately $0.6 million and $1.9 million for the three and nine months ended September 30, 2019 respectively and a reduction in interest charges related to our build-to-suite lease obligation which was accounted as part of general and administrative expense in 2019 due to the adoption of the new lease accounting standard.
Liquidity and capital resources
Since our inception and through September 30, 2019, we have financed our operations through private placements of our equity securities, debt financing, CPRIT grant proceeds, and our initial public offering in 2014 along with additional common stock offerings in January 2015 and October of 2016, as well as a $40.0 million upfront payment received from our strategic license agreement with Teijin. At September 30, 2019, we had cash and cash equivalents of approximately $45.0 million, a majority of which is invested in money market funds at several highly rated financial institutions. As a result of the Merger with Private Aravive, we acquired approximately $5.3 million of additional cash and cash equivalents, and as a merged company our primary use of our capital has been to fund our clinical development programs, specifically for our product candidate AVB-500. During the nine months ended September 30, 2019 we have received approximately $2.6 million of additional funding from our CPRIT research grant. At September 30, 2019, we have an unbilled receivable balance from CPRIT of $2.0 million.
We will need to obtain additional financing to pursue our clinical development programs, build out our pipeline and fund operations for the foreseeable future and we will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. Although management has been successful in raising capital in the past, there can be no assurance that we will be successful or that any needed financing will be available in the future at terms acceptable to us. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:
|
• |
the rate of progress and cost of any future potential clinical studies; |
|
• |
the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities; |
|
• |
the cost of preparing to manufacture on a larger scale; |
|
• |
the costs of commercialization activities if any future product candidate is approved, including product sales, marketing, manufacturing and distribution; |
|
• |
the degree and rate of market acceptance of any products launched by us or future partners; |
|
• |
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
|
• |
our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and |
|
• |
the emergence of competing technologies or other adverse market developments. |
If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of potential development programs and clinical trials. We may also be required to sell or license to others technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves.
Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
|
Nine Months |
|
|||||
|
September 30, |
|
|||||
|
2019 |
|
|
2018 |
|
||
|
(In thousands) |
|
|||||
Net cash (used in) provided by: |
|
|
|
|
|
|
|
Operating activities |
$ |
(12,009 |
) |
|
$ |
(20,480 |
) |
Investing activities |
|
— |
|
|
|
— |
|
Financing activities |
|
14 |
|
|
|
1,948 |
|
Net decrease in cash and cash equivalents |
$ |
(11,995 |
) |
|
$ |
(18,532 |
) |
22
Cash used in operating activities
Net cash used in operating activities was $12.0 million and $20.5 million during the nine months ended September 30, 2019 and 2018, respectively. Cash used in operating activities in 2019 is primarily attributable to the use of funds in our operations related to the development of AVB-500, our product candidate. Cash used in operating activities in 2019 decreased significantly compared to 2018 due to the termination of a number of supplier contracts that occurred in 2018 partially offset by the receipt of CPRIT funds of approximately $2.6 million in the first three quarters of 2019.
Cash used in investing activities
Net cash used in investing activities was zero during each of the nine months ended September 30, 2019 and 2018.
Cash provided by financing activities
Net cash provided by financing activities was $14 thousand and $2.0 million during the nine months ended September 30, 2019 and 2018, respectively. Cash provided by financing activities in 2018, primarily relates to inducement payments received from the landlord of our leased facility in Menlo Park, California and proceeds from issuance of common stock in connection with employee benefit plans.
As of September 30, 2019, we had cash and cash equivalents of approximately $45.0 million. We believe that our existing cash and cash equivalents will be sufficient to sustain operations for at least the next 12 months from the issuance of these financial statements, based on our current business plan.
Contractual obligations and commitments
During the nine months ended September 30, 2019, there were no other material changes to our contractual obligations and commitments described under Management’s Discussion and Analysis of Financial Condition and Results of Operations in the 2018 Annual Report.
Off-balance sheet arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
Item 3. Quantitative and qualitative disclosures about market risk
Interest Rate and Market Risk
The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our cash and cash equivalents without assuming significant risk. To achieve our objectives, we invest our cash and cash equivalents in money market funds. As of September 30, 2019, we had cash and cash equivalents of approximately $45.0 million consisting of cash and investments in highly liquid U.S. money market funds. A portion of our investments may be subject to interest rate risk and could decrease in value if market interest rates increase. However, because our investments are substantially all short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.
23
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
An evaluation as of September 30, 2019 was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures.” Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, defines “disclosure controls and procedures” as controls and other procedures of a company that are designed to ensure that the 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, and that such information is accumulated and communicated to a company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective at September 30, 2019.
Changes in Internal Control over Financial Reporting
Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2019, and has concluded that there was no change during such quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Accordingly, our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met. As set forth above, our Chief Executive Officer and Chief Financial Officer have concluded, based on the evaluation as of the end of the period covered by this report, that our disclosure controls and procedures were effective to provide reasonable assurance that the objectives of our disclosure control system were met.
24
We are not currently subject to any material legal proceedings.
Investing in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all the other information in this Form 10-Q, including our condensed consolidated financial statements and notes thereto. If any of the following risks actually materializes, our operating results, financial condition and liquidity could be materially adversely affected. As a result, the trading price of our common stock could decline and you could lose part or all of your investment. The following information updates, and should be read in conjunction with, the information disclosed in Part I, Item 1A, “Risk Factors,” contained in our 2018 Form 10-K. Except as disclosed below, there have been no material changes from the risk factors disclosed in our 2018 Form 10-K.
Risks related to our financial position and capital requirements.
We have incurred significant losses since inception and expect to continue to incur significant losses for the foreseeable future and may never achieve or maintain profitability.
We have incurred significant operating losses in each year since our inception and expect to incur substantial and increasing losses for the foreseeable future. As of September 30, 2019, we had an accumulated deficit of approximately $465.8 million. Other than our financial statements for the quarter ended September 30, 2019 and year ended December 31, 2018, our historical financial statements are solely those of Versartis, Inc., our accumulated deficit does not reflect the cumulative deficit of Private Aravive.
To date, we have financed our operations primarily through private placements of our convertible preferred stock, grant proceeds, the initial public offering of our common stock in 2014 and follow-on public offerings of our common stock in 2015 and 2016. A significant portion of Private Aravive’s funding has been through a $20 million grant it received from the Cancer Prevention and Research Institute of Texas, or CPRIT. We have devoted substantially all of our efforts to research and development, including clinical studies, but have not completed development of any product candidate, and our Phase 3 clinical trial of somavaratan failed to meet its primary endpoint. We anticipate that our expenses will increase to the extent we:
|
• |
continue the research and development of our only product candidate, AVB-500, and any future product candidates; |
|
• |
conduct additional clinical studies of AVB-500 in the future; |
|
• |
seek to discover or in-license additional product candidates; |
|
• |
seek regulatory approvals for AVB-500 and any future product candidates that successfully complete clinical studies; |
|
• |
establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize AVB-500 or other future product candidates if they obtain regulatory approval, including process improvements in order to manufacture AVB-500 at commercial scale; and |
|
• |
enhance operational, financial and information management systems and hire more personnel, including personnel to support development of AVB-500 and any future product candidates and, if a product candidate is approved, our commercialization efforts. |
To be profitable in the future, we must succeed in developing and eventually commercializing AVB-500 as well as other products with significant market potential. This will require us to be successful in a range of activities, including advancing AVB-500 and any future product candidates, completing clinical studies of these product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which we may obtain regulatory approval. We may not succeed in these activities and may never generate revenue that is sufficient to be profitable in the future. Even if we are profitable, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to achieve sustained profitability would depress the value of our company and could impair our ability to raise capital, expand our business, diversify our product candidates, market our product candidates, if approved, or continue our operations.
25
To date, our only completed clinical trial with AVB-500 has been our recently completed Phase 1 clinical trial with 42 dosed subjects. We expect our research and development expenses to increase significantly as our product candidates advance in clinical development. Because of numerous risks and uncertainties involved in our business, the timing or amount of increased development expenses cannot be accurately predicted and, our expenses could increase beyond expectations if we are required by the FDA, or comparable non-U.S. regulatory authorities, to perform studies or clinical trials in addition to those we currently anticipate. Even if our product candidate is approved for commercial sale, we anticipate incurring significant costs associated with the commercial launch of and the related commercial-scale manufacturing requirements for our product candidate. As a result, we expect to continue to incur significant and increasing operating losses and negative cash flows for the foreseeable future. Because of the numerous risks and uncertainties associated with biopharmaceutical product development and commercialization, we are unable to accurately predict the timing or amount of future expenses or when, or if, we will be able to achieve or maintain profitability. These losses have had and will continue to have an adverse effect on our financial position and working capital.
We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts. Raising additional capital may subject us to unfavorable terms, cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates and technologies.
The completion of the development and the potential commercialization of AVB-500 and any future product candidates, should they receive approval, will require substantial funds. As of September 30, 2019, we had approximately $45.0 million in cash and cash equivalents. We believe that our existing cash and cash equivalents, will be sufficient to sustain operations for at least the next 12 months based on our existing business plan; however, our existing cash and cash equivalents will not be sufficient to enable us to complete the clinical development and commercialization of AVB-500. Our future financing requirements will depend on many factors, some of which are beyond our control, including the following:
|
• |
the rate of progress and cost of our future clinical studies; |
|
• |
the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities; |
|
• |
the cost of preparing to manufacture AVB-500 on a larger scale, should we elect to do so; |
|
• |
the costs of commercialization activities if AVB-500 or any future product candidate is approved, including product sales, marketing, manufacturing and distribution; |
|
• |
the degree and rate of market acceptance of any products launched by us or future partners; |
|
• |
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
|
• |
our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; |
|
• |
the emergence of competing technologies or other adverse market developments; and |
|
• |
the costs of attracting, hiring and retaining qualified personnel. |
We do not have any material committed external source of funds or other support for our development efforts, and the failure of our Phase 3 VELOCITY trial to meet its primary endpoint may make it more difficult to raise funds in the future. Until we can generate a sufficient amount of product revenue to finance our cash requirements, which we may never do, we expect to finance future cash needs through a combination of public or private equity offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Additional financing may not be available to us when we need it or it may not be available on favorable terms. In addition, certain SEC and Nasdaq limitations with respect to fundraising may make it more difficult to raise additional funds. If we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish certain valuable rights to AVB-500 or potential future product candidates, technologies, future revenue streams or research programs, or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, or suspend one or more of our clinical studies or research and development programs or our commercialization efforts.
26
Reliance on government funding for our programs may impose requirements that limit our ability to take certain actions, and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition and results of operations.
A significant portion of our funding has been through a grant Private Aravive received from CPRIT. The CPRIT Grant (as described below) includes provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to potentially require repayment of all or a portion of the grant award proceeds, in certain cases with interest, in the event we violate certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas. CPRIT has granted subsequent to the end of the quarter an extension of its grant termination date from May 31, 2019 to November 30, 2019. After the termination date, our royalty and other obligations, including our obligation to repay the disbursed grant proceeds under certain circumstances, survive the termination of the agreement. We have received $18.0 million of the grant proceeds and expect to expend all of the grant award proceeds by the agreement termination date. We have recorded a CPRIT receivable balance of $2.0 million for the remaining grant award for reimbursement of eligible expenses.
Our award from CPRIT requires us to pay CPRIT a portion of our revenues from sales of certain products by us, or received from our licensees or sublicensees, at tiered percentages of revenue in the low- to mid-single digits until the aggregate amount of such payments equals 400% of the grant award proceeds, and thereafter at a rate of less than one percent for as long as we maintain government exclusivity, subject to our right, under certain circumstances, to make a one-time payment in a specified amount to CPRIT to terminate such payment obligations. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of some amount not to exceed the full amount of the grant proceeds under certain specified circumstances involving relocation of our principal place of business outside Texas.
The CPRIT Grant requires us, as a Texas-based company, to meet certain criteria, including among other things, that we maintain our headquarters in Texas and use certain vendors, consultants and employees that are located in Texas. As we expand our operations, we will need to hire additional qualified personnel with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing, sales and marketing and accounting and financing located in Texas. We will compete for qualified individuals with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and there can be no assurance that the search for such personnel will be successful, especially in light of the territorial restrictions imposed by CPRIT. Attracting and retaining qualified personnel will be critical to our access to the CPRIT Grant.
If we fail to maintain compliance with any such requirements that may apply to us now or in the future, we may be subject to potential liability including CPRIT Grant repayment obligation, which could result in significant expense to us.
Risks Related to the ownership of our common stock
Our stock price may be volatile, and investors in our common stock could incur substantial losses.
Our stock price has fluctuated in the past and may be volatile in the future. From January 1, 2015 through September 30, 2019, the reported sale price of our common stock has fluctuated between $3.07 and $144.00 per share. Following the announcement of the failure of our Phase 3 clinical trial to meet its primary endpoint in September 2017, our stock price declined substantially. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The market price for our common stock may be influenced by many factors, including the following:
|
• |
investor reaction to our new business strategy resulting from the Merger; |
|
• |
the success of competitive products or technologies; |
|
• |
results of clinical studies of AVB-500 or future product candidates or those of our competitors; |
|
• |
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products; |
|
• |
introductions and announcements of new products by us, results of clinical trials, our commercialization partners, or our competitors, and the timing of these introductions or announcements; |
|
• |
actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms; |
|
• |
variations in our financial results or those of companies that are perceived to be similar to us; |
27
|
• |
developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners; |
|
• |
developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner; |
|
• |
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
|
• |
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products; |
|
• |
our ability or inability to raise additional capital and the terms on which we raise it; |
|
• |
the recruitment or departure of key personnel; |
|
• |
changes in the structure of healthcare payment systems; |
|
• |
market conditions in the pharmaceutical and biotechnology sectors; |
|
• |
actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; |
|
• |
trading volume of our common stock; |
|
• |
sales of our common stock by us or our stockholders; |
|
• |
general economic, industry and market conditions; and |
|
• |
the other risks described in this “Risk factors” section. |
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects.
28
|
|
|
|
Incorporation by Reference |
||||||
Exhibit Number |
|
Exhibit Description |
|
Form |
|
SEC File No. |
|
Exhibit |
|
Filing Date |
4.1 |
|
|
S-8 |
|
333-233866 |
|
99.1 |
|
9/20/19 |
|
|
|
|
|
|
|
|
|
|
|
|
10.1 |
|
Option Agreement and Notice of Exercise under the 2019 Equity Incentive Plan |
|
S-8 |
|
333-233866 |
|
99.2 |
|
9/20/19 |
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
S-8 |
|
333-233866 |
|
99.3 |
|
9/20/19 |
|
|
|
|
|
|
|
|
|
|
|
|
31.1* |
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31.2* |
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.1*+ |
|
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32.2*+ |
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
|
|
|
|
|
* |
Filed Herewith. |
+ |
This certification accompanies the Quarterly Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
29
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
ARAVIVE, INC. |
|
|
(Registrant) |
|
|
|
Date: November 7, 2019 |
|
/s/ Jay P. Shepard |
|
|
Jay P. Shepard Chief Executive Officer (Principal Executive Officer) |
|
|
ARAVIVE, INC. |
|
|
(Registrant) |
|
|
|
Date: November 7, 2019 |
|
/s/ Vinay Shah |
|
|
Vinay Shah Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
30
Exhibit 31.1
Certification of Chief Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Jay P. Shepard, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Aravive, Inc. |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c. |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
|
|
|
By: |
/s/ Jay P. Shepard |
|
|
|
Name: Jay P. Shepard |
|
|
Title: Chief Executive Officer (Principal Executive Officer) |
Exhibit 31.2
Certification of Chief Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Vinay Shah, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Aravive, Inc. |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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a. |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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b. |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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d. |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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a. |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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b. |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: November 7, 2019 |
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By: |
/s/ Vinay Shah |
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Name: Vinay Shah |
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Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Jay P. Shepard, Chief Executive Officer (Principal Executive Officer) of Aravive, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. |
Dated: November 7, 2019 |
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By: |
/s/ Jay P. Shepard |
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Name: Jay P. Shepard |
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Title: Chief Executive Officer (Principal Executive Officer) |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
I, Vinay Shah, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of Aravive, Inc. (the “Company”), do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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1. |
The Company’s Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Form 10-Q”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended; and |
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2. |
The information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company for the periods presented. |
Dated: November 7, 2019 |
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By: |
/s/ Vinay Shah |
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Name: Vinay Shah |
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Title: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
Stockholder's Equity (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Stock Option Activity |
Activity under the Company’s stock option plan is set forth below:
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Summary of Fair Value of Employee Stock Options |
The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions:
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Summary of Significant Accounting Policies - Schedule of Estimated Stock-Based Compensation Expense (Detail) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
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Sep. 30, 2019 |
Sep. 30, 2018 |
Sep. 30, 2019 |
Sep. 30, 2018 |
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Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | $ 800 | $ 1,313 | $ 2,789 | $ 6,289 |
Research and development [Member] | ||||
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | 120 | 95 | 318 | 1,855 |
General and administrative [Member] | ||||
Employee Service Share Based Compensation Allocation Of Recognized Period Costs [Line Items] | ||||
Stock-based compensation expense | $ 680 | $ 1,218 | $ 2,471 | $ 4,434 |
Balance Sheet Components - Accrued Liabilities (Detail) - USD ($) $ in Thousands |
Sep. 30, 2019 |
Dec. 31, 2018 |
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Payables And Accruals [Abstract] | ||
Payroll and related | $ 1,143 | $ 509 |
Preclinical and clinical | 414 | 563 |
Other | 293 | |
Total | $ 1,557 | $ 1,365 |
Stockholder's Equity - Summary of Fair Value of Employee Stock Options (Detail) |
9 Months Ended |
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Sep. 30, 2019 | |
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract] | |
Expected volatility | 111.00% |
Risk-free interest rate | 2.40% |
Dividend yield | 0.00% |
Expected life (in years) | 6 years |
Leases - Summary of Minimum Lease Payments Under Non-cancelable Operating Leases (Detail) $ in Thousands |
Sep. 30, 2019
USD ($)
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Leases [Abstract] | |
2019 (3 months remaining) | $ 677 |
2020 | 2,668 |
2021 | 2,618 |
2022 | 2,697 |
2023 | 2,777 |
Thereafter | 2,373 |
Total operating lease payments | 13,810 |
Less imputed interest | (2,939) |
Total operating lease obligations | 10,871 |
Less current operating lease obligations | (2,464) |
Noncurrent operating lease obligations | $ 8,407 |
Commitments and Contingencies |
9 Months Ended |
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Sep. 30, 2019 | |
Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies |
6. Commitments and Contingencies In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
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Summary of Significant Accounting Policies (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Estimated Stock-Based Compensation Expense |
Stock-based compensation expense, net of estimated forfeitures, is reflected in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
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