UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
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
(State or Other Jurisdiction of
Incorporation or Organization)
26-4106690
(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
Common stock, par value $0.0001 per share
Trading Symbol(s)
ARAV
Name of each exchange on which registered
Nasdaq Global Select Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. YES ☐ NO ☒
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒ NO ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the
definition of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer
Non-accelerated filer
☐
☒
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section
404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on The Nasdaq Global
Select Market on June 30, 2020, the last business day of the registrant’s most recently completed second fiscal quarter, was $140,629,591.
The number of shares of registrant’s Common Stock outstanding as of March 10, 2021 was 19,659,860.
Documents incorporated by reference: None
PART I
Table of Contents
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
PART II
Item 5.
Item 6.
Item 7.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
PART III
Executive Compensation
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedule
Item 16. Form 10-K Summary
i
Page
3
25
57
57
57
57
58
58
59
66
67
67
67
67
68
74
87
88
90
92
92
PART I
GENERAL
Unless otherwise indicated, all references to “Aravive,” “we,” “us,” “our” or the “Company” in this Annual Report on Form 10-K refer to Aravive, Inc.
and our wholly owned subsidiary, Aravive Biologics, Inc.
“Aravive®” and our other registered and common law trade names, trademarks and service marks are the property of Aravive, Inc. Other trade names,
trademarks and service marks used in this Annual Report on Form 10-K are the property of their respective owners. Solely for convenience, the trademarks
and trade names in this Annual Report on Form 10-K may be referred to without the ® and ™ symbols, but such references should not be construed as any
indicator that their respective owners will not assert their rights thereto.
We may announce material business and financial information to our investors using our investor relations website at
http://ir.aravive.com/investors/financial-information. We therefore encourage investors and others interested in Aravive to review the information that we
make available on our website, in addition to following our filings with the Securities and Exchange Commission, or the SEC, webcasts, press releases and
conference calls. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Annual Report on Form
10-K, and you should not consider information on our website to be part of this Annual Report on Form 10-K.
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 of 1933, as amended, or 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 I, Item 1A below. 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.
This Annual Report on Form 10-K also contains market data related to our business and industry. These market data include projections that are based
on a number of assumptions. If these assumptions turn out to be incorrect, actual results may differ from the projections based on these assumptions. As a
result, our markets may not grow at the rates projected by these data, or at all. The failure of these markets to grow at these projected rates may harm on our
business, results of operations, financial condition and the market price of our common stock.
Summary Risk Factors
The following is a summary of the key risks relating to the Company. A more detailed description of each of the risks can be found below in Item 1A.
Risk Factors.
Risks related to our financial position and capital requirements
• We have a limited operating history with which to compare and have incurred significant losses since our inception and expect to incur
substantial and increasing losses for the foreseeable future.
•
The funding required to support our current and future operations may not be available to us on acceptable terms, or at all.
• We will seek to raise funds to continue our operations through equity financings, which may cause dilution to existing stockholders.
•
The failure of EVA Automation, Inc. or EVA to fulfill its payment obligations with respect to our sublease could result in a substantial decrease
in sublease income.
Risks Related To Our Business
•
Global health crises may adversely affect our planned operations and the coronavirus pandemic could adversely impact our business, including
our clinical trials.
1
•
•
Our reliance on government funding may impose requirements that limit our ability to take certain actions and subject us to potential financial
penalties.
If the licenses underlying the license agreements on which we rely were terminated, or if other rights that may be necessary for
commercialization of our intended products cannot be obtained, we would be materially adversely affected.
• We depend on collaborations with third parties for the development and commercialization of some of our products and product candidates,
including reliance on a third party to manufacture the drug substance of our product candidate. Our prospects with respect to those products and
product candidates will depend in part on the success of those collaborations.
• We currently have only one product candidate in clinical development and are dependent on its success, which requires significant additional
clinical testing before seeking regulatory approval. If regulatory approval is not granted our business may be harmed;
•
•
Any problems obtaining the standard of care drugs that we are administering or plan to administer with our clinical product candidate, AVB-500,
could result in a delay or interruption in our clinical trials.
Our clinical product candidate may cause adverse effects or have other properties that could delay or prevent our regulatory approval or limit the
scope of any approved label or market acceptance.
• We rely on third parties as vendors, manufacturers and for various services, over which we have no control and whose reliability cannot be
assured.
• We may not be able to retain key personnel or attract, retain and motivate qualified personnel.
• We may be unable to manufacture our product candidate in sufficient quantities for commercialization.
Risks Related to Clinical Development, Regulatory Approval and Commercialization
•
•
•
If the results from preclinical studies or clinical trials of our product candidate are unfavorable, we could be delayed or precluded from the further
development or commercialization of the product candidate.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be
delayed in commercializing, our clinical product candidate, AVB-500, and our ability to generate revenue will be impaired.
Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to
demonstrate safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, we will be unable to commercialize our clinical
product candidate, AVB-500.
• We face significant competition from other biotechnology and pharmaceutical companies and we may not compete effectively.
•
•
•
Our product candidate may not receive market acceptance by physicians, patients, third-party payors or others in the medical community
necessary for commercial success, or may exhibit undesirable side effects when used alone or in combination with other approved
pharmaceutical products which may delay or preclude development of regulatory approval.
Any failures to comply with state and federal healthcare regulatory laws could result in substantial penalties, damages, fines, disgorgement,
exclusion from participation in governmental healthcare programs, and the curtailment of operations.
As a pharmaceutical company, our product candidate subjects us to product liability risks which could result in lawsuits that may require us to
incur substantial liabilities.
Risks Related to Our Intellectual Property
• We may be unable to obtain and maintain patent protection for AVB-500, or the scope of any patent protection we do obtain may be insufficient.
Risks Related to the ownership of our common stock
•
Our stock price is volatile.
• We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance
initiatives.
•
Our executive officers, directors, entities under their control and principal stockholders can exert significant influence on all matters submitted to
stockholder for approval due to their share ownership.
• We are currently a “smaller reporting company,” as defined in the Exchange Act and have elected to take advantage of certain of the
scaled disclosures available to smaller reporting companies. We may fail to satisfy applicable Nasdaq listing requirements.
•
An active trading market for our common stock may not be maintained.
2
Item 1. Business.
Overview
We are a clinical-stage oncology company developing transformative treatments designed to halt the progression of life-threatening diseases.
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.
Our current development program benefits from the availability of a proprietary serum-based biomarker that has accelerated AVB-500 drug
development by allowing us to select a pharmacologically active dose and may potentially identify the cancer patients that have the best chance of
responding to AVB-500.
In our completed Phase 1 clinical trial in healthy volunteers with our clinical lead product candidate, AVB-500, we 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 trial and Phase 1b clinical
trial in cancer patients. In December 2018, we initiated our Phase 1b clinical trial of AVB-500 combined with standard of care therapies in patients with
platinum-resistant ovarian cancer, or PROC, for which we reported results in July 2020.
In August 2018, the U.S. Food and Drug Administration, or FDA, designated as a Fast Track development program the investigation of our lead
development candidate, AVB-500, for platinum-resistant recurrent ovarian cancer. We initiated a pivotal Phase 3 trial of AVB-500 in PROC during the first
quarter of 2021.
In January 2020, we announced that the FDA has cleared our Investigational New Drug or IND application for investigation of AVB-500, in the
treatment of our second oncology indication, clear cell renal cell carcinoma or ccRCC. During the fourth quarter of 2020, we initiated our Phase 1b/2 trial
of AVB-500 in ccRCC and dosed our first patient in the trial during the first quarter of 2021. Our pipeline, as of December 31, 2020, is shown in Figure 1.
In April 2020, we entered into a license and collaboration agreement with WuXi Biologics (Hong Kong) Limited, the objective of which is to identify
and develop novel high-affinity bispecific antibodies against CCN2, also known as connective tissue growth factor (CTGF), implicated in cancer and
fibrosis and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to generate a
best-in-class therapeutic targeting desmoplasia and tumor growth in the clinic in 2023.
On November 6, 2020, we entered into a collaboration and license agreement with 3D Medicines Inc., or 3D Medicines, whereby we granted 3D
Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance for the diagnosis, treatment or
prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau.
With the global spread of the ongoing novel coronavirus, or COVID-19 pandemic, we have implemented business continuity plans designed to address
and mitigate the impact of the COVID-19 pandemic on our employees and our business. While we are experiencing limited financial impacts at this time,
given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the
pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. As we advance our clinical
programs, we are in close contact with our clinical research organizations and clinical sites and are assessing the impact of COVID-19 on our planned
studies and current timelines and costs. While we currently do not anticipate any interruptions in our operations due to COVID-19 if the COVID-19
pandemic continues and persists for an extended period of time, we could experience significant disruptions to our clinical development timeline, which
would adversely affect our business, financial condition, results of operations and growth prospects.
3
Figure 1: Aravive Pipeline
First Oncology Indication - Ovarian Cancer and Current Market Opportunity
The decision to select high grade platinum-resistant recurrent ovarian cancer as our first indication was based upon the preclinical data that we
generated with AVB-500 in platinum resistant ovarian cancer, the fact that high grade platinum resistant ovarian tumors are highly AXL positive and the
high unmet medical need for effective therapies to treat platinum resistant ovarian cancer. In August 2018, the FDA had granted Fast Track Designation to
AVB-500 for platinum-resistant recurrent ovarian cancer.
Ovarian cancer ranks fifth in cancer deaths among women in the U.S., accounting for more deaths than any other cancer of the female reproductive
system. According to the American Cancer Society, it is estimated that in 2021 there will be approximately 21,410 new cases of ovarian cancer diagnosed
in the United States and approximately 13,770 ovarian cancer deaths in the United States. A woman’s risk of getting ovarian cancer during her lifetime is
about 1 in 78. Her lifetime chance of dying from ovarian cancer is about 1 in 108. Due to the nonspecific nature of disease symptoms, currently
approximately 70% of ovarian cancer patients are diagnosed with advanced-stage disease, at which point their prognosis is poor. Improving the ability to
detect ovarian cancer early is a research priority, given that women diagnosed with localized-stage disease have more than a 90% five-year survival rate.
Decision Resources Group, LLC or DRG in its December 2019 Ovarian Cancer Disease Landscape and Forecast estimates the total ovarian cancer
market to grow in the major markets (United States, France, Germany, Italy, Spain, the United Kingdom and Japan) at an annual rate of 15.6% from nearly
$2.3 billion in 2018 to nearly $9.6 billion in 2028.
Treatment of patients with second- and third-line platinum-resistant ovarian cancer (patients whose disease progresses within 6 months of their last
platinum-based therapy) consists of a nonplatinum monotherapy as sequential single-agent salvage chemotherapy has been shown to be superior to
multiagent chemotherapy in this setting (DRG- December 2019 Ovarian Cancer Disease Landscape and Forecast). Widely used single-agent therapies in
this population include gemcitabine, pegylated-liposomal doxorubicin, topotecan, and paclitaxel with or without bevacizumab or Avastin. The median
progression free survival rate for patients given standard of care (paclitaxel or doxil/pegylated liposomal doxorubicin) to treat platinum-resistant recurrent
ovarian cancer is 3-4 months, with a median overall survival of 9-12 months (A. Davis et al. / Gynecologic Oncology 133 (2014) 624–631). Adding
bevacizumab to the chemotherapy resulted in a median progression free survival of 6.7 months (Pujade-Lauraine, et al., J Clin Oncol 32:1302-1308) but
there was no overall survival benefit (Stockler MR, et al. J Clin Oncol. 2014 May 1;32(13):1309-16). In the United States, another treatment option in
third-line platinum-resistant/refractory ovarian cancer are poly ADP ribose polymerase inhibitors (PARPi) which are indicated as a monotherapy for the
treatment of patients with deleterious BRCA mutation (germline and/or somatic) with advanced ovarian cancer who have been treated with two or more
chemotherapies. There is no standard of care for patients with non-BRCA mutated/ HR proficient ovarian cancer in the fourth- and subsequent-line
settings. The majority of these patients have become platinum-resistant and are typically managed with monotherapy chemotherapy treatments.
4
Overview of Our Phase 1b Clinical Trial for the Treatment of Patients with PROC
In December 2018, following a normal healthy volunteer trial that identified a dose of 10mg/kg AVB-500 as sufficient to suppress serum GAS6 levels
for a two-week period, we began treating patients in our Phase 1b clinical trial combining 10mg/kg (administered every 2 weeks) AVB-500 with standard-
of-care therapies (specifically, paclitaxel (PAC) or pegylated liposomal doxorubicin (PLD)) in patients with PROC.
The Phase 1b clinical trial was designed, in part, to confirm the dosing regimen predicated on the Phase 1 trial in healthy volunteers and to identify the
dose to investigate in later stage trials. The primary objective of the Phase 1b clinical trial was to assess the safety and tolerability of AVB-500 in
combination with PAC or PLD, and secondary objectives were to assess pharmacokinetics and pharmacodynamics or PK/PD (serum GAS6 and soluble
AXL (sAXL) levels), efficacy, and potential immunogenicity of AVB-500. Exploratory objectives included efficacy endpoints in biomarker (GAS6, AXL)
defined populations based on expression of those biomarkers in serum and/or tumor tissue.
In September 2019, we presented positive data from the initial 12 patients of the Phase 1b clinical trial in a late breaking oral presentation at the
European Society for Medical Oncology (ESMO) Congress in Barcelona and based upon our analysis of the data decided to study higher doses of the drug
and expanded the Phase 1b trial to study 15 mg/kg and 20 mg/kg dose levels.
Data from the Phase 1b Clinical Trial of AVB-500
On July 23, 2020, we issued a press release presenting data from our Phase 1b clinical trial of AVB-500 combined with standard of care therapies in
patients with platinum-resistant ovarian cancer, the selection of 15 mg/kg as the recommended dose and other results of the trial. The Phase1b clinical trial
results are set forth below:
The safety of AVB-500 has been studied in 84 subjects, including 31 healthy volunteers in a Phase 1a clinical trial and 53 patients with PROC in a
Phase 1b clinical trial (40 in 10 mg/kg cohort, 6 in 15 mg/kg cohort, and 7 in 20 mg/kg cohort). The primary objective of the Phase 1b clinical trial was to
assess safety of AVB-500 in combination with PAC or PLD. Secondary endpoints included objective response rate (ORR), CA-125 response, clinical
benefit rate, progression free survival (PFS), overall survival, PK profile, GAS6 serum levels, and anti-drug antibody titers.
Safety Data: Analysis of all safety data to date demonstrates that AVB-500 has been generally well-tolerated with no dose-limiting toxicities or
unexpected safety signals. There have been no AVB-500-related significant adverse events reported to date. There were two types of adverse events that
were considered related to AVB-500, as determined by an independent medical monitor: infusion reactions and fatigue. A premedication regimen was
designed and implemented during the trial to manage potential infusion reactions.
Pharmacokinetics: Prior data analysis of 31 patients from the 10 mg/kg cohort showed that blood trough levels of AVB-500 demonstrated statistically
significant correlation with clinical activity, as patients who achieved minimal efficacious concentration or MEC >13.8 mg/L demonstrated a greater
likelihood of response and prolonged PFS. Updated modeling using actual data from all enrolled patients demonstrated that the 20 mg/kg dose is not
predicted to improve PFS relative to the 15 mg/kg dose so the dose of 15 mg/kg was selected as the recommended Phase 2 dose or RP2D for AVB-500.
Clinical Activity: While the Phase 1b clinical trial was a safety trial and not powered to demonstrate efficacy, the investigator-assessed best response or
RECIST V1.1 to AVB-500 across all cohorts supports promising clinical activity:
10 mg/kg cohort, 37 out of 40 patients evaluable:
•
•
•
•
21.6% Objective Response Rate or ORR (8/37) in all evaluable patients, regardless of their MEC or use of PAC or PLD
33% ORR (5/15) among those treated with AVB-500 in combination with PAC, with 1 complete response or CR.
50% ORR (4/8), with 1 CR in PAC patients who achieved MEC (13.8mg/L) of AVB-500.
The PFS among those patients treated with AVB-500 plus PAC who achieved MEC was 7.5 months versus 2.28 months in patients with blood
trough levels below MEC (p=0.0062).
15 mg/kg cohort, 5 out of 6 patients evaluable:
•
5/ 5 patients in this cohort experienced clinical benefit, with 1 CR, 2 partial responses (“PR”), and 2 stable disease (“SD”).
5
20 mg/kg cohort, 7 out of 7 patients evaluable:
•
•
Of the 7 patients in this cohort, there was 1 PR (with CR of target lesion), 1 SD, and 5 with progressive disease (“PD”)
A post-hoc analysis of tumor expression showed that 4 patients whose best response was PD did not express GAS6 (3) and/or had low amounts
of AXL (2) on immunohistopathology of their tumors. While they were enrolled per protocol in the Phase 1b clinical trial, these patients do not
appear to be representative of the eventual AVB-500 target population, as they are mostly rare subtypes of PROC and such patients based on their
clinical characteristics will not be eligible for the pivotal trial. The pivotal trial will only enroll patients with high grade serous ovarian cancer as
that is the pathology associated with elevated AXL expression (Rankin et al, Cancer Res; 70(19) October 1, 2010.)
Other notable findings:
•
AVB-500 plus PAC appeared to perform better than AVB-500 plus PLD: across all cohorts, AVB-500 plus PAC data show an ORR of 35% (8/23,
including 2 CRs) compared to ORR of 15% (4/26) in AVB-500 plus PLD.
• While not powered to demonstrate efficacy, drug exposure levels correlated with clinical response, supporting the use of higher dose of AVB-
500. AVB-500 combined with PAC had better clinical responses in patients whose trough levels were above the minimal efficacious
concentration (MEC) of 13.8mg/L compared to those patients whose trough levels were below the MEC.
•
•
•
•
•
AVB-500 demonstrated meaningful benefit in patients with later lines of therapy and showed improved clinical benefit over published data
showing response for patients who were on their third and fourth lines of therapy (Bruchim et al, European Journal of Obstetrics & Gynecology
and Reproductive Biology 166 (2013) 94–98) or who progressed in less than 3 months following their last platinum-containing regimen
(Kobayashi-Kato et al., Cancer Chemotherapy and Pharmacology (2019) 84:33-39 37).
AVB-500 plus chemo appeared to perform better in patients without previous exposure to bevacizumab.
o
In a subgroup analysis of patients who had not been previously exposed to bevacizumab in their prior lines of therapy, AVB-500
yielded an ORR of 60% (6/10 including 2 CR) when combined with PAC and an ORR of 19% (3/16) when combined with PLD. For
reference, control arms of the third-party AURELIA trial of bevacizumab (NCT00976911) showed ORR of 30.2% (out of 55 patients
total) with PAC alone and 7.8% (out of 64 patients total) with PLD alone.
Serum levels of soluble AXL (sAXL)/GAS6 ratio related to response to AVB-500 and may identify PROC patients more likely to respond to
AVB-500 chemotherapy combinations.
o
o
In the entire Phase 1b cohort, patients with a high sAXL/GAS6 ratio had 33% ORR (11/33) versus 0% ORR (0/15) in patients with a
low sAXL/GAS6 ratio.
This biomarker will be investigated in every clinical trial, including the P3 PROC trial, to see if it can be validated for use to enrich the
patient population likely to respond.
Patients who received 10 or 15 mg/kg in combination with PAC and whose trough level was above the MEC of 13.8mg/L demonstrated clinical
activity (
Table 1) greater than what was reported for PAC alone (bevacizumab naïve) patients in the AURELIA trial: 30.2% ORR (no CR reported); 3.9
months mPFS; and 13.2 months mOS (Poveda et al, Journal of Clinical Oncology, Vol 33, No 32 (November 10), 2015: pp 3836-3838).
6
Table 1: Clinical Activity Data for 10mg/kg and 15mg/kg Patients whose First Trough Level was above
the Minimal Efficacious Concentration of 13.8mg/L
Median PFS (months)
ORR
PAC (N = 10)
7.5
5 (50% [2CRs^ (20%])
Median Duration of Response (DoR) among
those who responded (months)
7.4
Median Overall Survival (OS) (months)
19.0
PLD (N = 14)
3.7
2 (14%)
5.3
12.7
• AVB-500 treatment alone demonstrated an ability to maintain tumor response. Three patients during the P1b clinical trial maintained their response
for 3-6 months following discontinuation of chemotherapy and while remaining on AVB-500 treatment alone. The tumor in one patient in the
15mg/kg group had completely responded (CR) and tumors in the other 2 patients in the 10 mg/kg group had partially responded (PRs) while
remaining on AVB-500 treatment alone.
• Two patients whose responses (CR and PR) were maintained on AVB-500 treatment alone for at least 6 months following discontinuation of
chemotherapy missed their next dose of AVB-500 (one because she was hospitalized with COVID and one because she wanted to take a vacation)
and their tumors showed progression at the next visit. These data suggest the responses these patients experienced was likely attributable to AVB-
500 treatment.
Planned Phase 3 Adaptive Registrational Trial Design in PROC
On November 19, 2020, Aravive announced that we had received guidance from the FDA on a registrational Phase 3 trial design for AVB-500 in
PROC. The FDA feedback received was that this trial, if successful, could support full approval of AVB-500 for the treatment of PROC. No further
preclinical or clinical pharmacology studies are required at this time. The global, randomized, double-blind, placebo-controlled adaptive trial is designed to
evaluate efficacy and tolerability of AVB-500 at a dose of 15 mg/kg in combination with paclitaxel. The Phase 3 trial is anticipated to initiate in the first
quarter of 2021. The pivotal, adaptive Phase 3 trial is expected to enroll approximately 300-500 patients with high-grade serous ovarian cancer who have
received one to four prior lines of therapy (Figure 2). This global trial is planned to be conducted at approximately 165 sites in the U.S. and Europe. The
primary endpoint for the trial is progression free survival (PFS), and secondary endpoints include overall survival, objective response rate based on
RECIST 1.1, safety and tolerability, duration of response, quality of life, clinical benefit rate, and pharmacokinetic and pharmacodynamic profile.
Prospectively defined interim analyses will investigate treatment differences in patients who have previously received bevacizumab versus those who have
not and will explore the biomarkers identified in the Phase 1b trial in an effort to test the hypotheses generated from the Phase 1b data. Based on the interim
analyses, the trial can be adapted to include only those patients who have not previously been treated with bevacizumab and/or those whose baseline serum
biomarker results meet the identified threshold. The objective of this adaptive design is to identify the most appropriate population for AVB-500 + PAC
treatment and conduct the final analysis on approximately 300 patients who meet those criteria. Thus, the randomized sample size may be larger than 300 if
the interim decisions alter the target population. Exploratory biomarkers include serum GAS6, serum sAXL and AVB-500 drug levels.
7
Figure 2: Phase 3 AVB-500-OC-004 Design
Second Oncology Indication-Clear Cell Renal Cell Carcinoma (ccRCC)
Clear Cell Renal Cell Carcinoma and Current Market Opportunity
The decision to select ccRCC as our second indication was based upon the strong preclinical data that we generated with AVB-500 and the fact that
AXL expression in primary tumors of ccRCC patients has been shown in third party studies as well as our own studies (Rankin et al, PNAS September 16,
2014 vol. 111 no. 37 13373–13378), to correlate with aggressive tumor behaviors.
Kidney cancer is a leading cause of cancer-related deaths in the United States and is among the 10 most common cancers in both men and women.
Metastasis to distant organs including the lung, bone, liver and brain is the primary cause of death in kidney cancer patients as only 12% of metastatic
kidney cancer will survive past 5 years. According to the American Cancer Society, it is estimated that there will be approximately 76,080 new cases of
kidney cancer and 13,780 people will die from this disease in the United States during 2021.
Clear cell renal cell carcinoma (ccRCC) is a cancer of the kidney. The name "clear cell" refers to the appearance of the cancer cells when viewed with a
microscope. ccRCC occurs when cells in the kidney quickly increase in number, creating a lump (mass). Though the exact cause of ccRCC is unknown,
smoking, excessive use of certain medications, and genetic predisposition conditions, e.g., von Hippel Lindau syndrome which involves genetic mutation in
VHL, a tumor suppressor gene controlling tumor initiation in ∼90% of ccRCC tumors, may contribute to the development of this type of cancer.
Treatment often begins with surgery to remove as much of the cancer as possible, and may be followed by radiation therapy, chemotherapy, biological
therapy, or targeted therapy. Most kidney cancer is chemotherapy and radiation resistant, resulting in a large unmet need for treatment options. As reported
in Decision Resources Group, LLC’s December 2019 Report on The Landscape & Forecast of Renal Cell Carcinoma, nivolumab and cabozantinib have
experienced strong uptake as second-line therapies since their FDA approvals (in 2015 and 2016, respectively). However, DRG anticipates that
nivolumab’s second-line patient shares, across the major markets, will begin to decline from 29-35% in 2018 to 22-27% in 2028, in part owing to its first-
line label expansion in combination with ipilimumab and then later as other combination regimens with PD-1/PD-L1 inhibitors enter the first-line setting.
In contrast, cabozantinib’s second-line patient share as monotherapy is expected to steadily increase over the forecast period as its use in the first-line
setting correspondingly declines, and it solidifies its position as the treatment of choice following a first-line immune checkpoint inhibitor combination. By
2023, it is estimated by DRG that cabozantinib will overtake nivolumab as the second-line sales and patient-share leader in all major markets; in 2028, it is
expected to earn patient shares of 31-43% across the major markets. Similarly, DRG expects axitinib’s second-line patient share will decline over the
forecast period, corresponding to the uptake of
8
cabozantinib and the notable uptake of pembrolizumab plus axitinib in the first-line setting; its major-market patient shares will then stabilize to 6-16%
between 2024 and 2028. These assumptions in renal cell carcinoma suggest the greatest need may be with respect to second line therapies and in
combination with cabozantanib.
Planned Phase 1b/ 2 Clinical Trial
In February 2019, we announced our plans to develop AVB-500 in our second oncology indication, ccRCC. On January 13, 2020, we announced that
we had received FDA clearance of our IND for investigation of our lead candidate, AVB-500, in the treatment of ccRCC.
The open-label trial has a Phase 1b safety portion and a Phase 2 randomized, controlled portion. The Phase 1b portion will investigate the safety and
tolerability of escalating doses of AVB-500 in combination with cabozantanib (with the ability to increase/ decrease dose based on tolerability) in up to 18
patients with advanced ccRCC that have progressed after front-line treatment. The primary endpoints for the Phase 1b portion of the clinical trial are
safety, pharmacokinetic and pharmacodynamic measurements with secondary endpoints including preliminary activity measures. The Phase 2 portion of
the clinical trial will investigate the recommended Phase 2 AVB-500 dose identified during the Phase 1b portion in combination with cabozantinib versus
cabozantinib alone in 45 patients with advanced ccRCC that have progressed on or after or were intolerant to front-line treatment. The Phase 2 portion will
be open-label, controlled and randomized with a primary endpoint of progression free survival (PFS) and secondary endpoints of overall response rate
(ORR), duration of response (DOR), clinical benefit rate (CBR) and overall survival (OS). The clinical trial will also explore AVB-500 effects on
biomarkers (sAXL and GAS6) in serum. We intend to initially dose patients at the 15 mg/kg dose and escalate up to potentially 20 and 25mg/kg doses,
higher doses than have been investigated in PROC patients as cabozantanib treatment has been reported to increase both sAXL and serum GAS6
(Leibowitz‑Amit et al. J Transl Med (2016) 14:12)
Figure 3: Rationale for Investigating AVB-500 in ccRCC
Non-Oncology Indication-IgA Nephropathy
During the third quarter of 2020, we terminated our IgA nephropathy (“IgAN”) trial, which initiated in December 2019, in order to focus on oncology.
Investigator Sponsored Trials
In May 2019 we entered into an institution sponsored clinical trial agreement with M.D. Anderson Cancer Center for the use of, and our supply of,
AVB-500, in combination with AstraZeneca Pharmaceuticals LP’s medicinal product durvalumab in a Phase 1/2 trial being conducted by the M.D.
Anderson Cancer Center for the treatment of patients with platinum-resistant, recurrent epithelial ovarian cancer.
9
In March 2020, we announced that the first patient was dosed in a Phase 1/2 trial for the use of, and our supply of, AVB-500, in combination with EMD
Serono’s medicinal product avelumab being conducted by the University of Oklahoma for the treatment of patients with advanced urothelial cancer
(COAXIN trial).
Development Strategy- Basket Trial Concept
We expect, subject to sufficient funding, to initiate additional clinical trials. We anticipate that such additional trials may include basket trials which will
allow for the expansion of the number of tumor types and combinations in which AVB-500 is evaluated. Such basket trials may include a Phase 1b/2
clinical trial of AVB-500 in combination with a PARP inhibitor in potential multiple indications such as HER negative breast cancer, uterine, and pancreatic
cancer, and a Phase 1b/2 clinical trial of AVB-500 in combination with a PD-1 inhibitor in potential multiple indications such as urothelial and non-small-
cell lung cancers.
Strategic Collaborations
In April 2020, we entered into a license and collaboration agreement with WuXi Biologics (Hong Kong) Limited, the objective of which is to identify
and develop novel high-affinity bispecific antibodies against CCN2, also known as connective tissue growth factor (CTGF), implicated in cancer and
fibrosis and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to generate a
best-in-class therapeutic targeting desmoplasia and tumor growth in the clinic in 2023.
On November 6, 2020, we entered into a collaboration and license agreement with 3D Medicines Inc., or 3D Medicines, whereby we granted 3D
Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance for the diagnosis, treatment or
prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau.
GAS6-AXL Pathway
As illustrated in the following graphic, AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis,
cancer cell survival, resistance to treatments, and immune suppression.
Figure 4: GAS6 and AXL are Overexpressed in Many Cancers and Associated with Tumor Growth,
Metastasis, Drug Resistance, and Poor Survival
In preclinical studies, we have also identified high AXL expression on tumors resistant to the combination of radiotherapy and immunotherapy and that
genetically inactivating AXL in tumors resistant to immunotherapy and radiotherapy restored anti-tumor immune response.
10
In preclinical studies conducted in Dr. Giaccia’s laboratories at Stanford University, Dr. Giaccia was able to demonstrate that the immune response
generated by loss of AXL leads to adaptive immune resistance through PD-L1 expression and Treg (regulatory T cells) infiltration. This resulted in tumors
that became sensitive to checkpoint immunotherapy when they were previously resistant. Thus, GAS6-AXL pathway inhibitors, in combination with
radiation or chemotherapy and immunotherapy, may be a promising treatment regimen and may restore anti-tumor immune response.
Aravive-S6 (AVB-S6)
AVB-S6 is comprised of a family of novel, high-affinity, soluble Fc-fusion proteins designed to block the activation of the GAS6-AXL signaling
pathway by intercepting GAS6 and interfering with its binding to its receptor AXL. AVB-S6 proteins have been engineered to have approximately 50 to
200 times greater affinity for human GAS6 compared to the native AXL receptor, effectively sequestering GAS6 and abrogating AXL signaling. We
believe this ‘decoy receptor’ approach is well suited for AXL inhibition compared to small molecule receptor tyrosine kinase inhibitors or antibodies, as
illustrated by the following graphic.
Figure 5: Approaches to Inhibiting the GAS6/AXL Signaling Pathway
Preclinical Results
Our AVB-S6 proteins have been shown to bind GAS6 with higher affinity than the endogenous AXL protein and inhibit GAS6/AXL signaling. Initial
preclinical pharmacology studies were conducted with a variety of engineered AVB-S6 proteins. The preclinical program demonstrated that high GAS6
binding affinity was critical and correlative with the ability of AVB-S6 to inhibit metastasis and disease progression in vivo. AVB-S6 proteins have
demonstrated significant efficacy in mouse models of metastatic ovarian, breast, renal, and pancreatic cancers.
Biomarker
GAS6 expression in tumors has been reported to be an adverse prognostic factor in several cancers, including urothelial, ovarian, lung adenocarcinoma,
gastric cancer, glioblastoma, oral squamous cell carcinoma, liver carcinoma, and renal cell carcinoma. In studies conducted by us, AVB-S6 proteins bind
GAS6 with higher affinity than the endogenous AXL protein and prevent GAS6 signaling at the AXL receptor. Preclinical efficacy data for the AVB-
S6 program demonstrated a relationship between reduced serum GAS6 and an anti-metastatic effect. We have developed an assay designed to measure
GAS6 levels in the blood before and after dosing of our development candidate. In the presence of a pharmacologically active dose of AVB-S6, serum
GAS6 has not been detectable. Thus, GAS6 levels in the blood of patients may be a pharmacodynamic biomarker that can aid AVB-S6 dose selection and
potentially serve as a predictive biomarker for response to treatment with AVB-S6. Additionally, our Phase1b clinical trial identified a relationship between
sAXL / GAS6 ratios as every patient that responded to treatment, regardless of chemotherapy being administered in combination, had a sAXL / GAS6 of
>0.773. We will continue to explore these biomarkers in our other clinical trials.
11
The following graphic indicates the relationship between AVB-500 protein levels and GAS6 levels in blood from humans participating in the AVB-
500 first in human trial.
Manufacturing
Manufacturing of our clinical trial material consists of three main phases, the production of bulk protein (drug substance), formulation/filling
operations, and labelling/packaging operations of the finished product. The protein has been manufactured at high yield and with high purity. The clinical
bulk drug substance is produced using industry standard manufacturing processes, as is the drug product.
Since September 2017, we have relied on a third-party contract manufacturer to manufacture clinical bulk drug substance and drug product of AVB-500
using a cell line and process developed by our contract manufacturer that has been licensed to us on a non-exclusive basis. We have manufactured enough
AVB-500 to dose patients through the planned Phase 3 ovarian cancer trial. The clinical bulk drug substance and drug product is manufactured pursuant to
the terms of a five-year Master Manufacturing Services Agreement that we entered into with our contract manufacturer in July 2016, which agreement
automatically renews for successive one (1) year periods, unless either party provides written notice to the other party of its desire not to renew at least 90
days prior to the expiration of the then-current term. The Master Manufacturing Services Agreement is terminable by us upon 45 days prior written notice,
by our contract manufacturer Limited upon 180 days prior written notice provided that all statements of work in progress at such time are completed and
upon 60 days prior written notice upon a breach of the terms of the agreement if such breach is not cured within such 60-day period.
We have also contracted with an independent third party located in Texas for the labeling, packaging, and distribution of our injectable protein.
Our personnel have significant technical, manufacturing, analytical, quality and project management experience to execute and manage manufacturing
process development, plus oversee the manufacture, testing, quality release, storage and distribution of drug products according to the current Good
Manufacturing Practice, or cGMPs, promulgated by the FDA and other regulatory requirements. The cGMP regulations include requirements relating to
the organization of personnel, buildings and facilities, equipment, control of components and drug product containers and closures, production and process
controls, packaging and labeling controls, holding and distribution, laboratory controls, records and reports, and returned or salvaged products. Our
facilities, and our third-party manufacturers, may be subject to periodic inspections by FDA and local authorities, which include, but are not limited to
procedures and operations used in the testing and manufacture of our biological drug candidates to assess our compliance with applicable regulations.
Failure to comply with statutory and regulatory requirements subjects a manufacturer to possible legal or regulatory action, including warning letters, the
seizure or recall of products, injunctions, and consent decrees causing significant restrictions on or suspending manufacturing operations plus causing
possible civil and criminal penalties. These actions could have a material impact on the availability of its biological drug candidates. Similar to contract
manufacturers, we may encounter difficulties involving production yields, quality control and quality assurance, as well as shortages of qualified personnel.
Research and Development
We have made and will continue to make substantial investments in research and development. Our research and development expenses totaled
$17.6 million and $12.8 million for the years ended December 31, 2020 and 2019, respectively.
12
In the ordinary course of business, we enter into agreements with third parties, such as clinical research organizations, medical institutions, clinical
investigators and contract laboratories, to conduct clinical trials and aspects of research and preclinical testing. These third parties provide project
management and monitoring services and regulatory consulting and investigative services.
Competition
The biotechnology and pharmaceutical industries are characterized by intense competition to develop new technologies and proprietary products. We
face competition from many different sources, including biotechnology and pharmaceutical companies, academic institutions, government agencies, as well
as public and private research institutions. Any products that we may commercialize will have to compete with existing products and therapies as well as
new products and therapies that may become available in the future.
At this time, there are no FDA or European Medicines Agency approved therapies targeting GAS6. We believe this mechanism of action represents a
novel approach to inhibiting tumor growth and metastasis, as well as addressing tumor immune evasion and resistance to other anticancer agents. Exelixis,
Inc. markets cabozantinib, a Tyrosine Kinase Inhibitor which is the only currently marketed compound that inhibits AXL in addition to inhibiting several
other kinases. We are aware of a number of companies focused on developing AXL inhibitors in various indications, including BerGenBio ASA, Astellas
Pharma Inc., Mirati Therapeutics, Inc., Les Laboratoires Servier, SAS, Eli Lilly and Company, Bristol-Myers Squibb Company, Tolero Pharmaceuticals,
Inc., Ignyta, Inc., as well as several companies addressing AXL inhibitors, and PARP 1/2 inhibitors and related signaling pathways.
Our competition may also include companies that are or will be developing therapies for the same therapeutic areas that we are targeting, including
ovarian cancer and renal cell carcinoma. Many of our potential competitors, alone or with their strategic partners may have substantially greater financial
resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and
marketing approved products than we do. These competitors also compete with us in recruiting and retaining qualified scientific and management personal,
establishing clinical trial sites and patient registration for clinical trials, and in acquiring technologies complementary to, or necessary for our programs.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have
fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA
or other regulatory approval for their products more rapidly than we may obtain approval for our product candidates, which could result in our competitors
establishing a strong market position before our product is able to enter the market. In addition, our ability to compete may be affected in many cases by
insurers or other third-party payors seeking to encourage the use of generic products.
License Agreement
In 2012, Aravive Biologics entered into an exclusive license agreement with Leland Stanford Junior University, or Stanford University, for intellectual
and tangible property rights relating to biologic inhibitors for therapeutic targeting the receptor tyrosine kinase AXL. The license agreement was amended
in 2012, 2015 and 2017 to modify certain of the stated milestones and expand the patent rights granted to Aravive Biologics. The term of the license is the
length of the last to expire patent. The license agreement grants Aravive Biologics exclusive, worldwide rights to make, use or sell licensed materials based
upon the following patent-related rights:
• U.S. patent application: Serial number PCT/US2012/069841, filed December 14, 2012; Serial Number 13/714,875, filed December 14, 2012 ; Serial
Number PCT/US2013/074786, filed December 12, 2013; Serial Number 14/650,854, filed June 9, 2015; Serial Number PCT/US2015/066498, filed
December 17, 2015; Serial Number 15/535,995, filed June 14, 2017; which patents are jointly owned with Private Aravive and all U.S. patents and
foreign patents and patent applications based on the application; as well as all divisionals, continuations, and those claims in continuations-in-parts
to the extent they are sufficiently described in the application, and any re-examinations or reissues of the foregoing.
• U.S. patent application: Serial Number PCT/US2011/022125, filed January 21, 2011; Serial Number 13/554,954, filed July 20, 2012; Serial Number
13/595,936, filed August 27, 2012; Serial Number 13/950,111, filed July 24, 2013; Serial Number 14/712,731, filed May 14, 2015; which patents are
solely owned by Stanford University, and all U.S. patents and foreign patents and patent applications based on the application; as well as all
divisionals, continuations, and those claims in continuations-in-parts to the extent they are sufficiently described in the application, and any re-
examinations or reissues of the foregoing.
As consideration for the rights granted in the license agreement, Aravive Biologics is obligated to pay Stanford University yearly license fees and
milestone payments, and a royalty based on net sales of products covered by the patent-related rights set forth above. More specifically, Aravive Biologics
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
13
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, Aravive Biologics is obligated to pay royalties to Stanford University equal to a percentage of what Aravive Biologics would have
been required to pay to Stanford University had it sold the products under sublicense itself. In addition, in such event Aravive Biologics is required to pay
to Stanford University a percent of sublicensing income. The license agreement may be terminated by Stanford University upon 30 days written notice if
Aravive Biologics breaches its obligations thereunder, including failing to make any milestone or other required payments or to exercise diligence to bring
licensed products to market. In the event of a termination, Aravive Biologics will be obligated to pay all amounts that accrued prior to such termination.
The license agreement also contains other customary clauses and terms as are common in similar agreements between industry and academia, including the
licensee’s agreement to indemnify Stanford University for any liabilities arising out of or related to the licensee’s exercise of its rights under, or breach of,
the license agreement, the reservation of the licensor of the right to use the licensed intellectual property rights for its internal, non-commercial purposes,
limitations/disclaimers of various warranties.
Cancer Prevention and Research Institute of Texas (CPRIT) Grant
In 2016, Aravive Biologics was approved for a $20.0 million grant, or the CPRIT Grant, from CPRIT for development of AVB-S6. The CPRIT Grant is
subject to customary CPRIT funding conditions including a matching funds requirement whereby Aravive Biologics was required to match $0.50 for every
$1.00 from CPRIT. Consequently, Aravive Biologics was required to raise $10.0 million in matching funds, and it raised $11.4 million since 2016. The
grant award, as is customary for all CPRIT awards, contains a requirement that Aravive Biologics pay CPRIT a tiered royalty on sales of commercial
products developed using CPRIT funds equal to a low- to mid-single digit percentage of revenue until such time as CPRIT has been paid an aggregate
amount equal to 400% of the grant award proceeds. After 400% of the grant award proceeds has been paid, Aravive Biologics will be obligated to pay
CPRIT a royalty of less than one percent for as long as Aravive Biologics maintains government exclusivity. The CPRIT Grant contract terminated on
November 30, 2019. After the termination date, we are not permitted to retain any unused grant award proceeds without CPRIT’s approval, but our royalty
and other obligations, including our obligation to repay the disbursed grant proceeds under certain circumstances, to maintain certain records and
documentation, to notify CPRIT of certain unexpected adverse events and our obligation to use reasonable efforts to ensure that any new or expanded
preclinical testing, clinical trials, commercialization or manufacturing related to any aspect of our CPRIT project take place in Texas, survive the
termination of the agreement. In addition, if we relocate our principal place of business outside of Texas within the three-year period after the date of final
payment of grant funds (which final payment was received in March 2020), we are required to repay to CPRIT all grant funds received. We have received
all $20 million of the grant award proceeds and have expended all of the grant award proceeds by the agreement termination date.
3D Medicines Inc. Agreement
On November 6, 2020, we entered into a collaboration and license agreement or the 3D Medicines Agreement with 3D Medicines Inc. or 3D Medicines,
whereby we granted 3D Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance, for the
diagnosis, treatment or prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau or the Territory.
Under the terms of the 3D Medicines Agreement, we received from 3D Medicines cash payments of $12 million within 15 business days of the
effective date of the Agreement, and we are eligible to receive up to an aggregate of $207 million in clinical development, regulatory and commercial
milestone payments from 3D Medicines over the term of the 3D Medicines Agreement. There can be no guarantee that any such milestones will in fact be
met. We are obligated to make certain payments to Stanford University based on certain amounts received from 3D Medicines under the 3D Medicines
Agreement pursuant to the existing license agreement by and between us and Stanford.
We will also be entitled to receive tiered royalties ranging from low double digits to mid-teens on sales in the Territory, if any, of products containing
AVB-500. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (i) the last-to-expire of specified patent rights
in such jurisdiction in the Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (iii) ten (10) years after the
first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Agreement will be subject to reduction on
account of generic competition under certain specified conditions, with any such reductions capped at certain percentages of the amounts otherwise payable
during the applicable royalty payment period.
• Under the terms and conditions of the 3D Medicines Agreement, 3D Medicines will be solely responsible for the development and
commercialization of licensed products in the Territory.
•
If either we or 3D Medicines materially breaches the 3D Medicines Agreement and does not cure such breach, the non-breaching party may
terminate the 3D Medicines Agreement in its entirety. Either party may also terminate the 3D Medicines Agreement, upon written notice, if the other
party files for bankruptcy, is dissolved or has a receiver appointed for substantially all of its property. We may terminate the 3D Medicines
Agreement if 3D Medicines, its affiliates or its sublicensees challenges the validity or enforceability of any of our patents covering any of the
licensed compounds or products or ceases substantially all
14
development and commercialization of licensed products in the Territory for a specified period, subject to certain exceptions. 3D Medicines may
also terminate the 3D Medicines Agreement for convenience provided certain notice is provided to us.
The Agreement contemplates that we will enter in ancillary arrangements with 3D Medicines, including a clinical supply agreement and a
manufacturing technology transfer agreement.
Intellectual Property
We strive to protect and enhance the proprietary technology, inventions and improvements that are commercially important to our business, including
seeking, maintaining, and defending patent rights. We also rely on trade secrets relating to our technology and know-how to develop, strengthen and
maintain our proprietary position in the field of targeting the GAS6-AXL pathway for the identification and development of therapeutic candidates for
cancer therapy and fibrosis. In addition, we rely on regulatory protection afforded through data exclusivity, market exclusivity and patent term extensions
where available. We also utilize trademark protection for our company name and expect to do so for products and/or services as they are marketed.
Our commercial success will depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important
technology, inventions and know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; and operate
without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering
to sell or importing our therapeutic candidates may depend on the extent to which we have rights under valid and enforceable patents or trade secrets that
cover these activities. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to
any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents
or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the
same.
Our patent position with respect to the GAS6-AXL program is comprised of nine comprehensive patent portfolios containing composition of matter
claims relating to novel GAS6-binding fusion proteins, claims to reagents and diagnostic methods for determining susceptibility or likelihood of a tumor to
become invasive and/or metastatic, and claims to the use of our novel fusion proteins for the treatment of various oncological conditions, as well as
antiviral and antifibrotic disorders. Our license agreement with Stanford University provides us with exclusive rights to intellectual property, or IP, that is
either solely owned by Stanford (Portfolio I below) or co-owned by Stanford and us (Portfolios II, III, and V below). We also have rights to IP that we
solely own (Portfolio IV and VI-IX below).
As of January 20, 2021, we have exclusive rights to 31 issued patents (including the 18 validated EP countries) and six pending patent applications that
are the subject of the license agreement with Stanford University. The expiration date for those patents/patent applications is 2031. We also have exclusive
rights to 32 issued patents (including the 18 validated EP countries for Portfolio III and the 7 validated EP countries for Portfolio V), 3 allowed
applications, and 5 pending applications that are jointly owned with Stanford University and that are the subject of the license agreement with Stanford.
The expiration dates for those patents/patent applications range from 2033-2035. We have 1 issued patent and 15 pending applications that we solely own.
The expiration dates for those patents range from 2035-2038. Additional details on our relevant portfolios are provided below:
• Portfolio I— “Inhibition of AXL Signaling in Anti-Metastatic Therapy” 13 Granted Patents*—6 Pending Applications US8618254, US9074192,
US9266927, US20160108378, AU2011207381, BR112012018022-3, CA2786149, CN-ZL201180014940, CN201610819620.7, EP2525824
(*Validated in 18 EP countries), EP17159334.6, HK 1242355 (Recorded), HK 1245806 (Recorded), IN6649/CHENP/2012, JP5965322, KR 127996-
6, KR10-20197004772, RU2556822, ZA2012/04866, ZA2013/07676
• Portfolio II— “Inhibition Of AXL/GAS6 Signaling in the Treatment Of Disease” 1 Granted US Patent—1 Pending US Application US9,879,061,
US20180094034
• Portfolio III— “Modified AXL Peptides and Their Use in Inhibition of AXL Signaling in Anti- Metastatic Therapy” 4 Granted Patents**— 2
Allowed Applications (EP and JP) - 3 Pending Applications US9822347, US15/783,850, AU2013359179, CA2894539, EP2931265 (**Validated in
18 EP countries), EP17196662.5, JP2015-547567, JP2018098435, HK 181151327 (Recorded)
• Portfolio IV— “Antiviral Activity of GAS6 Inhibitor” 1 Granted US Patent 1 Pending Application US10137173, CA2909609
• Portfolio V— “Antifibrotic Activity of GAS6 Inhibitor” 2 Granted Patents*** – 1 Allowed Application (AU) – 1 Pending Applications
US10,876,176, AU2015364437, CA2971406, EP15871120.0 (*** Validated in 7 EP Countries) HK181041704 (Recorded)
15
• Portfolio VI— “Methods of Treating Metastatic Cancers Using Axl Decoy Receptors” 11Pending Applications US20200289613, AU2018359863,
CA3080732, CN2018800840462, EP18872866.1, HK 62020020701.2, HK 62020020970.3, JP2020-523776, KR10-2020-7016082,
MX/a/2020/007130, RU2020116224
• Portfolio VII— “Methods of Treating Immunoglobulin A Nephropathy (IgAN) Using Axl Decoy Receptors” 1 Pending Application
PCT/US2020/022860
• Portfolio VIII— “Methods of Treating Clear Cell Renal Cell Carcinoma (ccRCC) Using Axl Decoy Receptors” 1 Pending Application
US62/957622
• Portfolio IX— “Diagnostic Methods For Cancer Using AXL Decoy Receptors” 1 Pending Application US 63/053,679
In the future, we expect to continue prosecuting broader coverage of certain composition of matter applications. Additionally, we will seek to file new
patents related to novel candidates, manufacturing, clinical formulations, dose, and indications, as well as evaluate the acquisition of other innovative IP.
The term of individual patents depends upon the legal term of the patents in the countries in which they are obtained. In most countries in which we file,
the patent term is 20 years from the date of filing the non-provisional application. In the United States, a patent’s term may be lengthened by patent term
adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in granting a patent, or may be shortened if a
patent is terminally disclaimed over an earlier-filed patent.
The term of a patent that covers an FDA-approved drug may also be eligible for patent term extension, which permits patent term restoration of a U.S.
patent as compensation for the patent term lost during the FDA regulatory review process. The Hatch-Waxman Act permits a patent term extension of up to
five years beyond the expiration of the patent. The length of the patent term extension is related to the length of time the drug is under regulatory review. A
patent term extension cannot extend the remaining term of a patent beyond a total of 14 years from the date of product approval and only one patent
applicable to an approved drug may be extended. Moreover, a patent can only be extended once, and thus, if a single patent is applicable to multiple
products, it can only be extended based on one product. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a
patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a new drug
application, or NDA, we expect to apply for patent term extensions for patents covering therapeutics candidates and their methods of use.
We may rely, in some circumstances, on trade secrets to protect our technology. However, trade secrets can be difficult to protect. We seek to protect our
proprietary technology and processes, in part, by entering into confidentiality agreements with our employees, consultants, scientific advisors and
contractors. We also seek to preserve the integrity and confidentiality of our data and trade secrets by maintaining physical security of our premises and
physical and electronic security of our information technology systems. While we have confidence in these procedures, agreements or security measures
may be breached, and we may not have adequate remedies for any breach. In addition, our trade secrets may otherwise become known or be independently
discovered by competitors. To the extent that our consultants, contractors or collaborators use intellectual property owned by others in their work for us,
disputes may arise as to the rights in related or resulting know-how and inventions.
Government Regulation
Federal, state and local government authorities in the United States and in other countries extensively regulate, among other things, the research,
development, testing, manufacturing, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, post-
approval monitoring and reporting, marketing and export and import of biological and pharmaceutical products such as those we are developing. Our
product candidates must be approved by the FDA before they may be legally marketed in the United States and by the appropriate foreign regulatory
agency before they may be legally marketed in foreign countries. The process for obtaining regulatory marketing approvals and the subsequent compliance
with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources.
U.S. Drug Approval Process
In the United States, the FDA regulates pharmaceutical and biological products under the Federal Food, Drug and Cosmetic Act, Public Health Service
Act, or PHSA, and implementing regulations. Products are also subject to other federal, state and local statutes and regulations. Failure to comply with the
applicable U.S. requirements at any time during the product development process, approval process or after approval, may subject an applicant to
administrative or judicial sanctions. FDA sanctions could include, among other actions, refusal to approve pending applications, withdrawal of an approval,
a clinical hold, warning letters, product
16
recalls or withdrawals from the market, product seizures, total or partial suspension of production or distribution injunctions, fines, refusals of government
contracts, restitution, disgorgement or civil or criminal penalties. Any agency or judicial enforcement action could have a material adverse effect on us. The
process required by the FDA before a drug or biological product may be marketed in the United States generally involves the following:
•
•
•
•
•
•
completion of nonclinical laboratory tests and animal studies according to good laboratory practices, or GLPs, and applicable requirements for the
humane use of laboratory animals or other applicable regulations;
submission to the FDA of an IND or Investigational New Drug which must become effective before human clinical trials may begin;
performance of adequate and well-controlled human clinical trials according to the FDA’s regulations commonly referred to as good clinical
practices, or GCPs, and any additional requirements for the protection of human research subjects and their health information, to establish the safety
and efficacy of the proposed product for its intended use;
submission to the FDA of a BLA, for marketing approval that meets applicable requirements to ensure the continued safety, purity, and potency of
the product that is the subject of the BLA based on results of nonclinical testing and clinical trials;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced, to assess
compliance with cGMP, to assure that the facilities, methods and controls are adequate to preserve the product’s identity, strength, quality and purity;
potential FDA audit of the nonclinical trial and clinical study sites that generated the data in support of the BLA; and
• FDA review and approval, or licensure, of the BLA.
Before testing any biological development candidate in humans, the candidate enters the preclinical testing stage. Preclinical tests, also referred to as
nonclinical studies, include laboratory evaluations of product chemistry, toxicity and formulation, as well as animal studies to assess the potential safety
and activity of the candidate. The conduct of the preclinical tests must comply with federal regulations and requirements including GLPs. The clinical trial
sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and
a proposed clinical protocol, to the FDA as part of the IND. Some preclinical testing may continue even after the IND is submitted. The IND automatically
becomes effective 30 days after receipt by the FDA, unless the FDA raises concerns or questions regarding the proposed clinical trials and places the trial
on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical
trial can begin. The FDA may also impose clinical holds on a biological product candidate at any time before or during clinical trials due to safety concerns
or non-compliance. If the FDA imposes a clinical hold, trials may not recommence without FDA authorization and then only under terms authorized by the
FDA. Accordingly, we cannot be sure that submission of an IND will result in the FDA allowing clinical trials to begin, or that, once begun, issues will not
arise that suspend or terminate such trials.
Clinical trials involve the administration of the biological product candidate to healthy volunteers or patients under the supervision of qualified
investigators, generally physicians not employed by or under the trial sponsor’s control. Clinical trials are conducted under protocols detailing, among other
things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor subject
safety, including stopping rules that assure a clinical trial will be stopped if certain adverse events should occur. Each protocol and any amendments to the
protocol must be submitted to the FDA as part of the IND. Clinical trials must be conducted and monitored in accordance with the FDA’s regulations
composing the GCP requirements, including the requirement that all research subjects provide informed consent. Further, each clinical trial must be
reviewed and approved by an independent institutional review board, or IRB, at or servicing each institution at which the clinical trial will be conducted.
An IRB is charged with protecting the welfare and rights of trial participants and considers such items as whether the risks to individuals participating in
the clinical trials are minimized and are reasonable in relation to anticipated benefits. The IRB also approves the form and content of the informed consent
that must be signed by each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed. Human clinical trials
are typically conducted in three sequential phases; these phases may overlap or be combined:
• Phase 1. The biological product is initially introduced into healthy human volunteers and tested for safety. In the case of some products for severe or
life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human
testing is often conducted in patients with the targeted disease.
17
• Phase 2. The biological product is evaluated in a limited patient population to identify possible adverse effects and safety risks, to preliminarily
evaluate the efficacy of the product for specific targeted diseases and to determine dosage tolerance, optimal dosage and dosing schedule.
• Phase 3. Clinical trials are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at
geographically dispersed clinical trial sites. These clinical trials are intended to establish the overall risk to benefit ratio of the product and provide
an adequate basis for product labeling.
Post-approval clinical trials, sometimes referred to as Phase 4 clinical trials, may be conducted after initial marketing approval. These clinical trials are
used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-up.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and
clinical trial investigators. Annual progress reports detailing the results of the clinical trials must be submitted to the FDA. Written IND safety reports must
be promptly submitted to the FDA and the investigators for serious and unexpected adverse events, any findings from other studies, tests in laboratory
animals or in vitro testing that suggest a significant risk for human subjects, or any clinically important increase in the rate of a serious suspected adverse
reaction over that listed in the protocol or investigator brochure. The sponsor must submit an IND safety report within 15 calendar days after the sponsor
determines that the information qualifies for reporting. The sponsor also must notify the FDA of any unexpected fatal or life-threatening suspected adverse
reaction within seven calendar days after the sponsor’s initial receipt of the information. Phase 1, Phase 2 and Phase 3 clinical trials may not be completed
successfully within any specified period, if at all. The FDA or the sponsor or its data safety monitoring board may suspend or terminate a clinical trial at
any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend
or terminate approval of a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the
biological product has been associated with unexpected serious harm to subjects.
Concurrently with clinical trials, companies usually complete additional studies and must also develop additional information about the physical
characteristics of the biological product as well as finalize a process for manufacturing the product in commercial quantities in accordance with cGMP
requirements. To help reduce the risk of the introduction of adventitious agents with use of biological products, the PHSA emphasizes the importance of
manufacturing control for products whose attributes cannot be precisely defined. The manufacturing process must be capable of consistently producing
quality batches of the product candidate and, among other criteria, the sponsor must develop methods for testing the identity, strength, quality, potency and
purity of the final biological product. Additionally, appropriate packaging must be selected and tested, and stability studies must be conducted to
demonstrate that the biological product candidate does not undergo unacceptable deterioration over its shelf life.
U.S. Review and Approval Processes
After the completion of clinical trials of a biological product, FDA approval of a BLA must be obtained before commercial marketing of the biological
product. The BLA must include results of product development, laboratory and animal studies, human trials, information on the manufacture and
composition of the product, proposed labeling and other relevant information. The FDA may grant deferrals for submission of data, or full or partial
waivers. The testing and approval processes require substantial time and effort and there can be no assurance that the FDA will accept the BLA for filing
and, even if filed, that any approval will be granted on a timely basis, if at all.
Under the Prescription Drug User Fee Act, or PDUFA, as amended, each BLA must be accompanied by a significant user fee. The FDA adjusts the
PDUFA user fees on an annual basis. PDUFA also imposes an annual program fee on approved biological products. Fee waivers or reductions are available
in certain circumstances, including a waiver of the application fee for the first application filed by a small business. No user fees are assessed on BLAs for
products designated as orphan drugs, unless the product also includes a non-orphan indication.
The FDA has a Fast Track program that is intended to expedite or facilitate the process for reviewing new drugs and biological products that meet
certain criteria. Specifically, new biological products are eligible for Fast Track designation if they are intended to treat a serious or life-threatening
condition and demonstrate the potential to address unmet medical needs for the condition. Fast Track designation applies to the combination of the product
and the specific indication for which it is being studied. For a Fast Track biological product, the FDA may consider review of completed sections of a BLA
on a rolling basis provided the sponsor provides, and the FDA accepts, a schedule for the submission of the completed sections of the BLA. Under these
circumstances, the sponsor pays any required user fees upon submission of the first section of the BLA. A Fast Track designated drug candidate may also
qualify for priority review, under which the FDA reviews the BLA in a total of six months rather than ten months after it is accepted for filing.
18
Within 60 days following submission of the application, the FDA reviews a BLA submitted to determine if it is substantially complete before the
agency accepts it for filing. The FDA may refuse to file any BLA that it deems incomplete or not properly reviewable at the time of submission, and may
request additional information. In this event, the BLA must be resubmitted with the additional information. The resubmitted application also is subject to
review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review of the BLA. The
FDA reviews the BLA to determine, among other things, whether the proposed product is safe, potent, and/or effective for its intended use, and has an
acceptable purity profile, and whether the product is being manufactured in accordance with cGMP to assure and preserve the product’s identity, safety,
strength, quality, potency and purity. The FDA may refer applications for novel biological products or biological products that present difficult questions of
safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as to
whether the application should be approved and under what conditions. The FDA is not bound by the recommendations of an advisory committee, but it
considers such recommendations carefully when making decisions. During the biological product approval process, the FDA also will determine whether a
Risk Evaluation and Mitigation Strategy, or REMS, is necessary to assure the safe use of the biological product. If the FDA concludes a REMS is needed,
the sponsor of the BLA must submit a proposed REMS. The FDA will not approve a BLA without a REMS, if required.
Before approving a BLA, the FDA will inspect the facilities at which the product is manufactured. The FDA will not approve the product unless it
determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the
product within required specifications. Additionally, before approving a BLA, the FDA will typically inspect one or more clinical sites to assure that the
clinical trials were conducted in compliance with IND trial requirements and GCP requirements. To assure cGMP and GCP compliance, an applicant must
incur significant expenditure of time, money and effort in the areas of training, record keeping, production, and quality control.
Notwithstanding the submission of relevant data and information, the FDA may ultimately decide that the BLA does not satisfy its regulatory criteria
for approval and deny approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret
the same data. If the agency decides not to approve the BLA in its present form, the FDA will issue a complete response letter that describes all of the
specific deficiencies in the BLA identified by the FDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for
example, requiring additional clinical trials. Additionally, the complete response letter may include recommended actions that the applicant might take to
place the application in a condition for approval. If a complete response letter is issued, the applicant may either resubmit the BLA, addressing all of the
deficiencies identified in the letter, or withdraw the application.
If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages or the indications for use may
otherwise be limited, which could restrict the commercial value of the product.
Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling. The FDA may impose
restrictions and conditions on product distribution, prescribing, or dispensing in the form of a risk management plan, or otherwise limit the scope of any
approval. In addition, the FDA may require post marketing clinical trials, sometimes referred to as Phase 4 clinical trials, designed to further assess a
biological product’s safety and effectiveness, and testing and surveillance programs to monitor the safety of approved products that have been
commercialized.
In addition, under the Pediatric Research Equity Act, a BLA or supplement to a BLA must contain data to assess the safety and effectiveness of the
product for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for
which the product is safe and effective. The FDA may grant deferrals for submission of data or full or partial waivers.
Post-Approval Requirements
Any products for which we receive FDA approvals are subject to continuing regulation by the FDA, including, among other things, record-keeping
requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and
distribution requirements, and complying with FDA promotion and advertising requirements, which include, among others, standards for direct-to-
consumer advertising, restrictions on promoting products for uses or in patient populations that are not described in the product’s approved uses, known
as ‘off-label’ use, limitations on industry-sponsored scientific and educational activities, and requirements for promotional activities involving the internet.
Although physicians may prescribe legally available products for off-label uses, if the physicians deem to be appropriate in their professional medical
judgment, manufacturers may not market or promote such off-label uses.
In addition, quality control and manufacturing procedures must continue to conform to applicable manufacturing requirements after approval to ensure
the long-term stability of the product. cGMP regulations require among other things, quality control and quality assurance as well as the corresponding
maintenance of records and documentation and the obligation to investigate and correct any deviations from cGMP. Manufacturers and other entities
involved in the manufacture and distribution of approved products are
19
required to register their establishments with the FDA and certain state agencies, and are subject to periodic unannounced inspections by the FDA and
certain state agencies for compliance with cGMP and other laws. Accordingly, manufacturers must continue to expend time, money, and effort in the area
of production and quality control to maintain cGMP compliance. Discovery of problems with a product after approval may result in restrictions on a
product, manufacturer, or holder of an approved BLA, including, among other things, recall or withdrawal of the product from the market. In addition,
changes to the manufacturing process are strictly regulated, and depending on the significance of the change, may require prior FDA approval before being
implemented. Other types of changes to the approved product, such as adding new indications and claims, are also subject to further FDA review and
approval.
The FDA also may require post-marketing testing, known as Phase 4 testing, and surveillance to monitor the effects of an approved product. Discovery
of previously unknown problems with a product or the failure to comply with applicable FDA requirements can have negative consequences, including
adverse publicity, judicial or administrative enforcement, warning letters from the FDA, mandated corrective advertising or communications with doctors,
and civil or criminal penalties, among others. Newly discovered or developed safety or effectiveness data may require changes to a product’s approved
labeling, including the addition of new warnings and contraindications, and also may require the implementation of other risk management measures. Also,
new government requirements, including those resulting from new legislation, may be established, or the FDA’s policies may change, which could delay or
prevent regulatory approval of our product candidates under development.
Other U.S. Healthcare Laws and Compliance Requirements
In the United States, our activities are potentially subject to regulation by various federal, state and local authorities in addition to the FDA, including
but not limited to, the Centers for Medicare and Medicaid Services, or CMS, other divisions of the U.S. Department of Health and Human Services, for
instance the Office of Inspector General, the U.S. Department of Justice, or DOJ, and individual U.S. Attorney offices within the DOJ, and state and local
governments. For example, sales, marketing and scientific/educational grant programs must comply with the anti-fraud and abuse provisions of the Social
Security Act, the false claims laws, the physician payment transparency laws, the privacy and security provisions of HIPAA, as amended by HITECH, and
similar state laws, each as amended.
The federal anti-kickback statute prohibits, among other things, any person or entity, from knowingly and willfully offering, paying, soliciting or
receiving any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or in return for purchasing, leasing, ordering or arranging
for the purchase, lease or order of any item or service reimbursable under Medicare, Medicaid or other federal healthcare programs. The term remuneration
has been interpreted broadly to include anything of value. The anti-kickback statute has been interpreted to apply to arrangements between pharmaceutical
manufacturers on one hand and prescribers, purchasers, and formulary managers on the other. There are a number of statutory exceptions and regulatory
safe harbors protecting some common activities from prosecution. The exceptions and safe harbors are drawn narrowly and practices that involve
remuneration that may be alleged to be intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an
exception or safe harbor. Our practices may not in all cases meet all of the criteria for protection under a statutory exception or regulatory safe harbor.
Failure to meet all of the requirements of a particular applicable statutory exception or regulatory safe harbor, however, does not make the conduct per se
illegal under the anti-kickback statute. Instead, the legality of the arrangement will be evaluated on a case-by-case basis based on a cumulative review of all
of its facts and circumstances. Violations of this law are punishable by imprisonment, criminal fines, administrative civil money penalties and exclusion
from participation in federal healthcare programs.
Additionally, the intent standard under the anti-kickback statute was amended by the Affordable Care Act to a stricter standard such that a person or
entity no longer needs to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation. In addition, the Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or collectively the ACA, provides that the
government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal civil False Claims Act., as discussed below.
The civil monetary penalties statute imposes penalties against any person or entity that, among other things, is determined to have presented or caused
to be presented a claim to a federal health program that the person knows or should know is for an item or service that was not provided as claimed or is
false or fraudulent.
20
Although we would not submit claims directly to payors, drug manufacturers can be held liable under the federal civil False Claims Act, which imposes
civil penalties, including through civil whistleblower or qui tam actions, against individuals or entities (including manufacturers) for, among other things,
knowingly presenting, or causing to be presented to federal programs (including Medicare and Medicaid) claims for items or services, including drugs, that
are false or fraudulent, claims for items or services not provided as claimed, or claims for medically unnecessary items or services; making a false
statement or record material to payment of a false claim; or avoiding, decreasing or concealing an obligation to pay money to the federal government.
Penalties for a False Claims Act violation include three times the actual damages sustained by the government, plus mandatory civil penalties for each
separate false claim, the potential for exclusion from participation in federal healthcare programs and, although the federal False Claims Act is a civil
statute, conduct that results in a False Claims Act violation may also implicate various federal criminal statutes. The government may deem manufacturers
to have “caused” the submission of false or fraudulent claims by, for example, providing inaccurate billing or coding information to customers or
promoting a product off-label. Claims which include items or services resulting from a violation of the federal Anti-Kickback Statute are false or fraudulent
claims for purposes of the False Claims Act. Our future marketing and activities relating to the reporting of wholesaler or estimated retail prices for our
products, if approved, the reporting of prices used to calculate Medicaid rebate information and other information affecting federal, state and third-party
reimbursement for our products, and the sale and marketing of our product and any future product candidates, are subject to scrutiny under this law.
Pharmaceutical and other healthcare companies have been prosecuted under these laws for allegedly providing free product to customers with the
expectation that the customers would bill federal programs for the product. Other companies have been prosecuted for causing false claims to be submitted
because of the companies’ marketing of the product for unapproved, and thus non-reimbursable, uses.
HIPAA created new federal criminal statutes that prohibit knowingly and willfully executing, or attempting to execute, a scheme to defraud or to obtain,
by means of false or fraudulent pretenses, representations or promises, any money or property owned by, or under the control or custody of, any healthcare
benefit program, including private third party payors and knowingly and willfully falsifying, concealing or covering up by trick, scheme or device, a
material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items
or services. Similar to the federal anti-kickback statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate
it in order to have committed a violation.
We may be subject to data privacy and security regulations by both the federal government and the states in which we conduct business. HIPAA, as
amended by the HITECH Act, and their respective implementing regulations, impose requirements relating to the privacy, security and transmission of
individually identifiable health information. Among other things, HITECH makes HIPAA’s privacy and security standards directly applicable to business
associates, defined as independent contractors or agents of covered entities, which include health care providers, health plans, and healthcare clearinghouse,
that create, receive, or obtain protected health information in connection with providing a service on behalf of a covered entity. HITECH also increased the
civil and criminal penalties that may be imposed against covered entities and business associates, and gave state attorneys general new authority to file civil
actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney’s fees and costs associated with pursuing federal
civil actions. In addition, certain state laws govern the privacy and security of health information in specified circumstances, some of which are more
stringent and many of which differ from each other in significant ways, thus complicating compliance efforts. Failure to comply with these laws, where
applicable, can result in the imposition of significant civil and criminal penalties.
Additionally, the Federal Physician Payments Sunshine Act under the ACA, and its implementing regulations, require that certain manufacturers of
drugs, devices, biological and medical supplies for which payment is available under Medicare, Medicaid or the Children’s Health Insurance Program,
(with certain exceptions), to annually report to the Centers for Medicare and Medicaid, or CMS, information related to certain payments or other transfers
of value made or distributed to physicians and teaching hospitals, or to entities or individuals at the request of, or designated on behalf of, the physicians
and teaching hospitals and to report annually certain ownership and investment interests held by physicians and their immediate family members. Failure to
submit timely, accurately, and completely the required information may result in civil monetary penalties. Certain states also mandate implementation of
compliance programs, impose restrictions on pharmaceutical manufacturer marketing practices and/or require the tracking and reporting of gifts,
compensation and other remuneration to healthcare providers and entities.
In order to distribute products commercially, we must also comply with state laws that require the registration of manufacturers and wholesale
distributors of drug and biological products in a state, including, in certain states, manufacturers and distributors who ship products into the state even if
such manufacturers or distributors have no place of business within the state. Some states also impose requirements on manufacturers and distributors to
establish the pedigree of product in the chain of distribution, including some states that require manufacturers and others to adopt new technology capable
of tracking and tracing product as it moves through the distribution chain. Several states have enacted legislation requiring pharmaceutical and
biotechnology companies to establish marketing compliance programs, file periodic reports with the state, make periodic public disclosures on sales,
marketing, pricing, clinical trials and other activities, and/or register their sales representatives, as well as to prohibit pharmacies and other healthcare
entities from providing certain physician prescribing data to pharmaceutical and biotechnology companies for use in sales and marketing, and to prohibit
certain other sales and marketing practices. All of our activities are potentially subject to federal and state consumer protection and unfair competition laws.
21
If our operations are found to be in violation of any of the federal and state healthcare laws described above or any other governmental regulations that
apply to it, we may be subject to penalties, including without limitation, significant civil, criminal and/or administrative penalties, damages, fines,
disgorgement, imprisonment, exclusion from participation in government programs, such as Medicare and Medicaid, injunctions, private “qui tam” actions
brought by individual whistleblowers in the name of the government, or refusal to enter into government contracts, contractual damages, reputational harm,
administrative burdens, diminished profits and future earnings, and the curtailment or restructuring of operations, any of which could adversely affect our
ability to operate our business and our results of operations. If any of the physicians or other healthcare providers or entities with whom we expect to do
business is found to be not in compliance with applicable laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from
government funded healthcare programs. Ensuring business arrangements comply with applicable healthcare laws, as well as responding to possible
investigations by government authorities, can be time- and resource-consuming and can divert a company’s attention from the business.
Coverage, Pricing and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any product candidates for which we obtain regulatory approval. In the
United States and markets in other countries, sales of any products for which we receive regulatory approval for commercial sale will depend, in part, on
the extent to that third-party payors provide coverage, and establish adequate reimbursement levels for such products. In the United States, third-party
payors include federal and state healthcare programs, private managed care providers, health insurers and other organizations. The process for determining
whether a third-party payor will provide coverage for a product may be separate from the process for setting the price of a product or for establishing the
reimbursement rate that such a payor will pay for the product. Third-party payors may limit coverage to specific products on an approved list, also known
as a formulary, which might not include all of the FDA-approved products for a particular indication. Third-party payors are increasingly challenging the
price, examining the medical necessity and reviewing the cost- effectiveness of medical products, therapies and services, in addition to questioning their
safety and efficacy. We may need to conduct expensive pharmaco-economic studies in order to demonstrate the medical necessity and cost-effectiveness of
our product candidates, in addition to the costs required to obtain the FDA approvals. Our product candidates may not be considered medically necessary or
cost-effective. A payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will be approved. Further, one
payor’s determination to provide coverage for a product does not assure that other payors will also provide coverage for the product. Adequate third-party
reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product development.
Different pricing and reimbursement schemes exist in other countries. Some jurisdictions operate positive and negative list systems under which
products may only be marketed once a reimbursement price has been agreed. To obtain reimbursement or pricing approval, some of these countries may
require the completion of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Other
countries allow companies to fix their own prices for medicines, but monitor and control company profits. The downward pressure on health care costs has
become very intense. As a result, increasingly high barriers are being erected to the entry of new products. In addition, in some countries, cross-border
imports from low-priced markets exert a commercial pressure on pricing within a country.
The marketability of any product candidate for which we receive regulatory approval for commercial sale may suffer if the government and third-party
payors fail to provide adequate coverage and reimbursement. In addition, emphasis on managed care in the United States has increased and we expect the
pressure on healthcare pricing will continue to increase. Coverage policies and third-party reimbursement rates may change at any time. Even if favorable
coverage and reimbursement status is attained for one or more products for which we receive regulatory approval, less favorable coverage policies and
reimbursement rates may be implemented in the future.
U.S. Healthcare Reform
In the United States and some foreign jurisdictions, there have been, and likely will continue to be, a number of legislative and regulatory changes and
proposed changes regarding the healthcare system directed at broadening the availability of healthcare, improving the quality of healthcare, and containing
or lowering the cost of healthcare.
Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional
challenges. It is unclear how these challenges and other efforts to repeal and replace the Affordable Care Act will impact our business in the future.
Other legislative changes have been proposed and adopted in the United States since the ACA was enacted. Additionally, there have been several recent
U.S. Congressional inquiries and proposed bills designed to, among other things, bring more transparency to drug pricing, review the relationship between
pricing and manufacturer patient programs and reform government program reimbursement methodologies for drugs.
22
We cannot predict what healthcare reform initiatives may be adopted in the future. Further federal, state and foreign legislative and regulatory
developments are likely, and we expect ongoing initiatives to increase pressure on drug pricing. Such reforms could have an adverse effect on anticipated
revenues from product candidates and may affect our overall financial condition and ability to develop product candidates.
We anticipate that current and future U.S. legislative healthcare reforms may result in additional downward pressure on the price that we receive for any
approved product, if covered, and could seriously harm our business. Any reduction in reimbursement from Medicare and other government programs may
result in a similar reduction in payments from private payors.
Foreign Regulation
In order to market any product outside of the United States, we would need to comply with numerous and varying regulatory requirements of other
countries and jurisdictions regarding quality, safety and efficacy and governing, among other things, clinical trials, marketing authorization, commercial
sales and distribution of our products. Whether or not we obtain FDA approval for a product, it would need to obtain the necessary approvals by the
comparable foreign regulatory authorities before it can commence clinical trials or marketing of the product in foreign countries and jurisdictions. Although
many of the issues discussed above with respect to the United States apply similarly in the context of the European Union, the approval process varies
between countries and jurisdictions and can involve additional product testing and additional administrative review periods. The time required to obtain
approval in other countries and jurisdictions might differ from and be longer than that required to obtain FDA approval. Regulatory approval in one country
or jurisdiction does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country or jurisdiction may
negatively impact the regulatory process in others.
European Data Collection
The collection and use of personal health data in the European Economic Area (EEA) is governed by the General Data Protection Regulation 2016/679
(or GDPR), which became effective May 25, 2018. The GDPR applies to any company established in the EEA and to companies established outside the
EEA that process personal data in connection with the offering of goods or services to data subjects in the EU or the monitoring of the behavior of data
subjects in the EU. The GDPR enhances data protection obligations for data controllers of personal data (including stringent requirements relating to the
consent of data subjects, expanded disclosures about how personal data is used, requirements to conduct privacy impact assessments for “high risk”
processing, limitations on retention of personal data, mandatory data breach notification and “privacy by design” requirements) and creates direct
obligations on service providers acting as data processors. The GDPR also imposes strict rules on the transfer of personal data outside of the EEA to
countries that do not ensure an adequate level of protection, like the U.S. Failure to comply with the requirements of the GDPR and the related national
data protection laws of the EEA Member States may result in fines up to 20 million Euros or 4% of a company’s global annual revenues for the preceding
financial year, whichever is higher. Moreover, the GDPR grants data subjects the right to claim material and non-material damages resulting from
infringement of the GDPR. Given the breadth and depth of changes in data protection obligations, maintaining compliance with the GDPR, will require
significant time, resources and expense, and we may be required to put in place additional mechanisms ensuring compliance with the new data protection
rules. This may be onerous and adversely affect our business, financial condition, results of operations and prospects.
Human Capital
We believe that our success depends upon our ability to attract, develop and retain key personnel. Our management and scientific teams possess
considerable experience in drug discovery, research, manufacturing, clinical development and regulatory matters and we believe that we benefit from this
experience and industry knowledge. Our research team includes M.D., M.S., and Ph.D.-level scientists with expertise in cancer biology. As of December
31, 2020, we had 17 full-time employees, of which 10 were part of our research team and 7 were part of our general and administrative team. Of the
management team, 80% are women and other minorities. We have no collective bargaining agreements with our employees and have not experienced any
work stoppages. We consider our relations with our employees to be good. Although, management continually seeks to add additional talent to its work
force, management believes that it has sufficient human capital to operate its business successfully.
Competitive Pay and Benefits. Our compensation programs are designed to align the compensation of our employees with our performance and to
provide the proper incentives to attract, retain and motivate employees to achieve superior results. The structure of our compensation programs balances
incentive earnings for both short-term and long-term performance. Specifically:
• We provide employee wages that are competitive and consistent with employee positions, skill levels, experience, knowledge and geographic
location.
• We engage nationally recognized outside compensation and benefits consulting firms to independently evaluate the effectiveness of our executive
compensation and benefit programs and to provide benchmarking against our peers within the industry.
23
• We align our executives’ long-term equity compensation with our shareholders’ interests by linking realizable pay with stock performance.
• Annual increases and incentive compensation are based on merit, which is communicated to employees at the time of hiring and documented
through our talent management process as part of our annual review procedures and upon internal transfer and/or promotion.
• All employees are eligible for health insurance, paid and unpaid leaves, a 401K retirement plan with employer matching contributions (maximum of
2% match) and life and disability/accident coverage. We also offer a variety of voluntary benefits that allow employees to select the options that
meet their needs, including flexible time-off, telemedicine, and paid parental leave.
Health and Safety
The health and safety of our employees is our highest priority, and this is consistent with our operating philosophy. Accordingly, with the global spread
of the ongoing novel coronavirus pandemic, we have implemented plans designed to address and mitigate the impact of the COVID-19 pandemic on the
safety of our employees and our business, which include:
• Adding work from home flexibility;
• Adjusting attendance policies to encourage those who are sick to stay home;
•
•
Increasing cleaning protocols across all locations;
Initiating regular communication regarding impacts of the COVID-19 pandemic, including health and safety protocols and procedures;
Core Values and Culture
Fostering and maintaining a strong, healthy culture is a key strategic focus. Our core values reflect who we are and the way our employees interact with
one another, our customers, partners and shareholders. Our core values include: treating one another with respect, considering the needs of others and
providing solutions to meet their needs, being constantly working to improve and willing to try new approaches, making decisions with the long-term view
in mind, and acting as a team by listening to one another and working across teams toward a common goal. We collaborate to achieve results and focus on
success for our patients and shareholders.
Corporate Information
We were incorporated under the laws of the State of Delaware in December 2008 under the name Versartis, Inc. and completed our initial public
offering in March 2014. Aravive Biologics, Inc. or Aravive Biologics was incorporated under the laws of the State of Delaware in April 2007, originally
under the name of Hypoximed, Inc, which name was changed to Ruga Corporation in July 2009 and changed to Aravive Biologics, Inc. in October 2016.
On October 12, 2018, we, then known as Versartis, Inc. and Aravive Biologics, completed a merger and reorganization, or the Merger, pursuant to which
Aravive Biologics survived as our wholly owned subsidiary. In connection with the completion of the Merger, on October 15, 2018, we changed our name
from Versartis, Inc. to “Aravive, Inc.” and on October 16, 2018, we effected a reverse split of our common stock at a ratio of 1-for-6, or the Reverse Split.
Available Information
Our website address is www.aravive.com. We file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K,
proxy statements and other materials with the Securities and Exchange Commission, or SEC. We are subject to the informational requirements of the
Exchange Act and file or furnish reports, proxy statements and other information with the SEC. Such reports and other information filed by the Company
with the SEC are available free of charge on our website at http://ir.aravive.com/investors/financial-information. Information contained on, or that can be
accessed through, our website is not incorporated by reference into this Annual Report on Form 10-K, and you should not consider information on our
website to be part of this Annual Report on Form 10-K
The SEC also maintains a website that contains reports, proxy and information statements and other information regarding issuers that file
electronically with the SEC at www.sec.gov.
24
Item 1A. Risk Factors.
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 Annual Report on Form 10-K, including the section titled “Cautionary Note Regarding Forward-Looking Statements,” and Part II, Item
7.“Management’s Discussion and Analysis of Financial Condition and Results of Operation” and our consolidated financial statements and the
accompanying notes included elsewhere in this Annual Report on Form 10-K. The risks described below are not the only ones we face. Any of the following
risks could materially and adversely affect our business. 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. Our business, financial condition and results of operations could also be harmed by risks and uncertainties not currently known to us or that
we currently do not believe are material.
Risks related to our financial position and capital requirements.
We have a limited operating history and have incurred significant losses since our inception, and we anticipate that we will continue to incur
substantial and increasing losses for the foreseeable future. We have only one product candidate, AVB-500, and no commercial sales, which, together
with our limited operating history, makes it difficult to evaluate our business and assess our future viability.
We are a clinical-stage biopharmaceutical company with a limited operating history. We have never generated any product revenue and do not have any
products approved for sale. From our inception (under our former corporate name, Versartis, Inc.) in 2008 through September 2017, we were focused on
developing a single product candidate, somavaratan, a long-acting form of recombinant human growth hormone. The Phase 3 clinical trial of somavaratan
failed to meet its primary endpoint, and we subsequently discontinued our somavaratan development effort. In October 2018, we acquired Aravive
Biologics in the Merger whereby Aravive Biologics became our wholly owned subsidiary. All of our clinical development activities are now carried out
through Aravive Biologics.
Aravive Biologics was founded in 2007, and its operations to date have been primarily limited to organizing and staffing its company and developing its
only product candidate, AVB-500. Aravive Biologics has not yet successfully obtained marketing approval, manufactured AVB-500 product at commercial
scale, or conducted sales and marketing activities that will be necessary to successfully commercialize AVB-500. Consequently, predictions about our
future success or viability may not be as accurate as they could be if we had a longer operating history or a history of successfully developing and
commercializing product candidates.
Even if we receive regulatory approval for the sale of any of our product candidates, we do not know when we will begin to generate revenue, if at all.
Our ability to generate revenue depends on a number of factors, including our ability to:
•
•
•
•
•
•
•
set an acceptable price for our products and obtain coverage and adequate reimbursement from third-party payors;
establish sales, marketing, manufacturing and distribution systems;
add operational, financial and management information systems and personnel, including personnel to support our clinical, manufacturing and
planned future clinical development and commercialization efforts and operations as a public company;
develop manufacturing capabilities for bulk materials and manufacture commercial quantities of product candidates at acceptable cost levels;
achieve broad market acceptance of our product candidates in the medical community and with third-party payors and consumers;
attract and retain an experienced management and advisory team;
launch commercial sales of our products, whether alone or in collaboration with others; and
• maintain, expand and protect our intellectual property portfolio.
Because of the numerous risks and uncertainties associated with development and manufacturing, we are unable to predict if we will generate revenue.
If we cannot successfully execute on any of the factors listed above, our business may not succeed, we may never generate revenue and your investment
will be adversely affected.
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 December 31, 2020, we had an accumulated deficit of approximately $500.7 million.
25
To date, we have financed our operations primarily through private placements of our equity securities, debt financing, CPRIT grant proceeds, at-the-
market offerings of our common stock, public offerings of our common stock as well as upfront payments received from license agreements. We have
devoted substantially all of our efforts to research and development, including clinical studies, but have not completed development of any product
candidate. 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, especially later stage trials that involve a larger number of patients;
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.
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, AVB-500, is approved for commercial sale, we anticipate incurring
significant costs associated with the commercial launch of and the related commercial-scale manufacturing requirements for AVB-500. 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 December 31, 2020, we had approximately $60.5 million in cash and cash equivalents, which does not include
additional funds raised subsequent to December 31, 2020. 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 number of patients in our clinical trials;
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;
26
•
•
•
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. Although we have entered into an at-the-
market facility with Piper Sandler & Co., and Cantor Fitzgerald & Co., as sales agents, there can be no assurance that we will meet all of the conditions
necessary to continue to use such facility or that we can generate sufficient proceeds from the sale of securities pursuant to such facility to support our
operations. 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 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.
Raising additional funds by issuing securities may cause dilution to existing stockholders, and raising funds through lending and licensing
arrangements may restrict our operations or require it to relinquish proprietary rights.
We expect that significant additional capital will be needed in the future to continue our planned operations and commercialize AVB-500. Until such
time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity offerings, debt
financings, strategic alliances and license and development agreements in connection with any collaborations. We do not currently have any committed
external source of funds. To the extent that we raise additional capital by issuing equity securities, existing stockholders’ ownership may experience
substantial dilution, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of a common stockholder.
Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific
actions, such as incurring additional debt, making capital expenditures, declaring dividends, creating liens, redeeming its stock or making investments.
If we raise additional funds through collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may
have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may
not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, or through collaborations, strategic
alliances or marketing, distribution or licensing arrangements with third parties on acceptable terms, we may be required to delay, limit, reduce or terminate
our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise develop and
market.
Our operating results may fluctuate significantly, which makes our future operating results difficult to predict and could cause our operating results to
fall below expectations or our guidance.
Our quarterly and annual operating results may fluctuate significantly in the future, which makes it difficult for us to predict our future operating results.
From time to time, we may enter into collaboration agreements with other companies that include development funding and significant upfront and
milestone payments and/or royalties, which may become an important source of our revenue. Accordingly, our revenue may depend on development
funding and the achievement of development and clinical milestones under any potential future collaboration and license agreements and sales of our
products, if approved. These upfront and milestone payments may vary significantly from period to period and any such variance could cause a significant
fluctuation in our operating results from one period to the next. In addition, our manufacturing and clinical trial expenses, which are anticipated to be
significant, may fluctuate significantly quarter to quarter based upon whether or not we are engaged in clinical trials or manufacturing our product
candidate, AVB-500, and timing of our process development work. Furthermore, we measure compensation cost for stock-based awards made to
employees at the grant date of the award, based on the fair value of the award as determined by our board of directors, and recognize the cost as an expense
over the employee’s requisite service period. As the variables that we use as a basis for valuing these awards change over time, our underlying stock price
and stock price volatility, the magnitude of the expense that we must recognize may vary significantly. Furthermore, our operating results may fluctuate due
to a variety of other factors, many of which are outside of our control and may be difficult to predict, including the following:
•
•
•
•
the timing and cost of, and level of investment in, research and development activities relating to AVB-500 and any future product candidates, which
will change from time to time;
our ability to enroll patients in clinical trials and the timing of enrollment;
the cost of manufacturing AVB-500 and any future product candidates, which may vary depending on FDA guidelines and requirements, the
quantity of production and the terms of our agreements with manufacturers;
expenditures that we will or may incur to acquire or develop additional product candidates and technologies;
27
•
•
•
•
•
•
•
•
•
•
•
•
the timing and outcomes of clinical studies for AVB-500 and any future product candidates or competing product candidates;
changes in the competitive landscape of our industry, including consolidation among our competitors or partners;
any delays in regulatory review or approval of AVB-500 or any of our future product candidates;
the level of demand for AVB-500 and any future product candidates, should they receive approval, which may fluctuate significantly and be difficult
to predict;
the risk/benefit profile, cost and reimbursement policies with respect to our products candidates, if approved, and existing and potential future drugs
that compete with our product candidates;
competition from existing and potential future drugs that compete with AVB-500 or any of our future product candidates;
our ability to commercialize AVB-500 or any future product candidate inside and outside of the United States, either independently or working with
third parties;
our ability to establish and maintain collaborations, licensing or other arrangements;
our ability to adequately support future growth;
potential unforeseen business disruptions that increase our costs or expenses;
future accounting pronouncements or changes in our accounting policies; and
the changing and volatile global economic environment.
The cumulative effects of these factors could result in large fluctuations and unpredictability in our quarterly and annual operating results. As a result,
comparing our operating results on a period-to-period basis may not be meaningful. Investors should not rely on our past results as an indication of our
future performance. This variability and unpredictability could also result in our failing to meet the expectations of industry or financial analysts or
investors for any period. If our revenue or operating results fall below the expectations of analysts or investors or below any forecasts we may provide to
the market, or if the forecasts we provide to the market are below the expectations of analysts or investors, the price of our common stock could decline
substantially. Such a stock price decline could occur even when we have met any previously publicly stated revenue and/or earnings guidance we may
provide.
The failure of EVA to fulfill its payment obligations with respect to the office space that we subleased to it in Menlo Park, California or our inability to
find a new subtenant for the space in a timely manner will reduce or potentially eliminate our sublease income which would adversely affect our cash
position.
Since April 2020, EVA has defaulted on its obligation to pay rent and common area maintenance charges under the sublease for our 1020 Marsh
property which has resulted in a decrease in sublease income available to offset our lease payments owed to the landlord. As of December 31, 2020, the
aggregate base rent due to us under the sublease is approximately $9.8 million. Upon the execution of the sublease, EVA was obligated to provide to us a
cash security deposit of $760,727, which we have fully drawn down on for the missed April, May, June and a portion of July rent payments and therefore
future rent payments, including those made by us for a portion in July and the full August and September payment have been paid by us without our receipt
of subtenant income or funds derived from the security deposit. EVA has since advised us that they will be unable to continue to make future sublease
payments. Although the landlord has agreed to allow us to defer a portion of rent payments owed for six months, we will be obligated to commence making
full rent payments again in April 2021. We will not receive sublease income to offset our lease payments to the landlord of the property until such time as
we are able to secure a new sub-tenant and enter into a new sublease agreement. There can be no assurance given that we will be able to resublet the space
for the same rent as EVA is obligated to pay us or at all. At this time, it is difficult for us to ascertain the impact of this default and the extent to which it
could reduce or potentially eliminate our sublease income, which would have a material adverse impact on our cash position.
Risks Related To Our Business
Global health crises may adversely affect our planned operations.
Our business and the business of the supplier of our clinical product candidate, AVB-500 and the suppliers of the standard of care drugs that are
administered in combination with AVB-500 could be materially and adversely affected by the risks, or the public perception of the risks, related to a
pandemic or other health crisis, such as the recent outbreak of COVID-19. A significant outbreak of contagious diseases in the human population could
result in a widespread health crisis that could adversely affect our planned operations. Such events could result in the complete or partial closure of one or
more manufacturing facilities which could impact our supply of AVB-500 or the standard of care drugs that are administered in combination with AVB-
500. In addition, an outbreak near where our clinical trial sites are located, has in the past, and may in the future impact our ability to recruit patients, and
would likely delay our clinical trials, and could affect our ability to complete our clinical trials within the planned time periods. In addition, it could impact
economies and financial markets, resulting in an economic downturn that could impact our ability to raise capital or slow down potential partnering
relationships.
28
Coronavirus could adversely impact our business, including our clinical trials.
In December 2019, a novel strain of coronavirus, COVID-19, was reported to have surfaced in Wuhan, China. Since then, the COVID-19 coronavirus
has spread to multiple countries, including the United States and European and Asia-Pacific countries, including countries in which we have planned or
active clinical trial sites. As the COVID-19 coronavirus continues to spread around the globe, we have experienced disruptions that could severely impact
our business and clinical trials, including:
•
•
•
•
•
•
•
•
•
•
•
delays or difficulties in enrolling patients in our clinical trials;
delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff;
diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and
hospital staff supporting the conduct of our clinical trials;
interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or
state governments, employers and others;
limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees
or their families or the desire of employees to avoid contact with large groups of people;
delays in receiving approval from local regulatory authorities to initiate our planned clinical trials;
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;
changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which our
clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee
resources or forced furlough of government employees; and
delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to
approval of other therapeutics or other activities related to COVID-19.
In addition, the outbreak of the coronavirus (“COVID-19”) could disrupt our operations due to absenteeism by infected or ill members of management
or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in
our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism
from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its
committees needed to conduct meetings for the management of our affairs.
The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our
business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate
geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business
closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease.
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 Aravive Biologics 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. Although our contract with CPRIT
terminated November 30, 2019, our royalty and other obligations, including our obligation to repay the disbursed grant proceeds under certain
circumstances, to maintain certain records and documentation, to notify CPRIT of certain unexpected adverse events and our obligation to use reasonable
efforts to ensure that any new or expanded preclinical testing, clinical trials, commercialization or manufacturing related to any aspect to our CPRIT
project take place in Texas, survive the termination of the agreement. In addition, if we relocate our principal place of business outside of Texas within the
three-year period after the date of final payment of grant funds (which final payment occurred in March 2020), we are required to repay to CPRIT all grant
funds received. We have received the full $20.0 million of the grant proceeds and have expended all of the grant award proceeds by the agreement
termination date.
29
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.
In order to meet the requirements that any new or expanded preclinical testing, clinical trials, commercialization or manufacturing related to any aspect
of our CPRIT project take place in Texas, we will need to hire additional qualified personnel and vendors 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, vendors, clinical trial sites, manufacturers 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.
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 and to
termination of our contracts, including potentially the CPRIT Grant, which could result in significant expense to us.
We rely on licenses to use various technologies that are material to our business and if the agreements underlying the licenses were to be terminated or
if other rights that may be necessary for commercializing our intended products cannot be obtained, it would halt our ability to market our products
and technology, as well as have an immediate material adverse effect on our business, operating results and financial condition.
Our prospects are significantly dependent upon our license with Stanford University, or the Stanford License. The Stanford License grants us exclusive,
worldwide rights to certain existing patents and related intellectual property that cover AVB-500, the lead development candidate selected from the AVB-
S6 family of proteins. If we breach the terms of the Stanford License, including any failure to make minimum royalty payments required thereunder or
failure to reach certain developmental milestones and by certain deadlines or other factors, including but not limited to, the failure to comply with material
terms of the Stanford License, the licensor has the right to terminate the license. If we were to lose or otherwise be unable to maintain the license on
acceptable terms, or find that it is necessary or appropriate to secure new licenses from other third parties, we would not be able to market our products and
technology, which would likely require us to cease our current operations which would have an immediate material adverse effect on our business,
operating results and financial condition.
If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our
business.
In addition to the Stanford License, we are a party to intellectual property license agreements with third parties, and we expect to enter into additional
license agreements in the future. Our existing license agreements impose, and we expect that our future license agreements will impose, various diligence,
milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate
these agreements, in which event we may not be able to develop and market any product that is covered by these agreements. The occurrence of such
events could materially harm our business and financial condition.
The risks described elsewhere pertaining to our intellectual property rights also apply to the intellectual property rights that we license, and any failure
by us or our licensors to obtain, maintain, defend and enforce these rights could have a material adverse effect on our business. In some cases, we do not
have control over the prosecution, maintenance or enforcement of the patents that we license, and may not have sufficient ability to provide input into the
patent prosecution, maintenance and defense process with respect to such patents, and our licensors may fail to take the steps that we believe are necessary
or desirable in order to obtain, maintain, defend and enforce the licensed patents. We are responsible for preparing, filing, and prosecuting broad patent
claims (including any interference or reexamination actions) for Stanford University’s benefit and for maintaining all licensed patents.
We expect to depend on collaborations with third parties for the development and commercialization of some of our products and product candidates
outside of the United States. Our prospects with respect to those products and product candidates will depend in part on the success of those
collaborations.
Although we are commercializing AVB-500 ourselves in the United States, we intend to seek to commercialize AVB-500 outside the United States
through collaboration arrangements. For instance, we entered into the 3D Medicines Agreement with 3D Medicines under which we granted 3D Medicines
an exclusive sublicense to develop and commercialize AVB-500, in the Territory.
30
We may not be able to derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative
arrangement into which we enter. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully
perform the functions assigned to them in these arrangements, including obtaining regulatory approval in the sublicensed territory, which may not be
obtainable even if we obtain regulatory approval to market products in the United States. In addition, our collaborators may have the right to abandon
research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon
terms. As a result, we can expect to relinquish some or all of the control over the future success of a product or product candidate that we license to a third
party.
Collaborations involving our products and product candidates, such as our license arrangement with 3D Medicines, may pose a number of risks,
including the following:
•
•
•
•
•
•
•
•
•
•
collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations;
collaborators may not perform their obligations as expected or in compliance with applicable regulatory requirements;
collaborators may not pursue development and commercialization of our products and product candidates or may elect not to continue or renew
development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or
external factors, such as an acquisition, that divert resources or create competing priorities;
collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate,
use different doses that us, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing;
product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or
products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates;
collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of
such product or products;
disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development,
might cause delays or termination of the research, development or commercialization of products and product candidates, might lead to additional
responsibilities for us with respect to products and product candidates, or might result in litigation or arbitration, any of which would be time-
consuming and expensive;
collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite
litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation;
collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and
collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization
of the applicable product candidates in the applicable territories.
Collaboration agreements may not lead to development or commercialization of products or product candidates in the most efficient manner or at all.
In addition, any negative results from clinical trials conducted by any third-party collaborator, including 3D Medicines, will negatively impact our
commercialization efforts despite the fact that we will not have conducted those trials.
We rely extensively on our information technology systems and are vulnerable to damage and interruption.
We rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business, including
maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. Our
information technology systems, as well as the systems of our suppliers and other partners, whose systems we do not control, are vulnerable to outages and
an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive information. Likewise, data security incidents and
breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons
or to the public. A cyber-attack or other significant disruption involving our information technology systems, or those of our vendors, suppliers and other
partners, could also result in disruptions in critical systems, corruption or loss of data and theft of data, funds or intellectual property. We may be unable to
prevent outages or security breaches in our systems. Loss of preclinical or clinical trial data could result in delays in regulatory approval efforts and
increase costs to recover or reproduce data. We remain potentially vulnerable to additional known or yet unknown threats as, in some instances, we, our
suppliers and our other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our vendors or partners to
cybersecurity attacks. Any or all of the foregoing could adversely affect our results of operations and our business reputation.
31
Any failure to maintain the security of information relating to our customers, employees and suppliers, whether as a result of cybersecurity attacks or
otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and harm our
reputation.
In connection with the sales and marketing of our products and services, we may from time to time transmit confidential information. We also have
access to, collect or maintain private or confidential information regarding our clinical trials and the patients enrolled therein, employees, and suppliers, as
well as our business. Cyberattacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might
compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information
of patients in our clinical trials, vendors, employees and suppliers or our business information. A security breach of any kind, including physical or
electronic break-ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government
enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could
significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations.
We currently have only one product candidate, AVB-500, in clinical development and are dependent on the success of AVB-500, which requires
significant additional clinical testing before seeking regulatory approval. If AVB-500 does not receive regulatory approval or is not successfully
commercialized, our business may be harmed.
We are currently developing one clinical product candidate, AVB-500, as a potential treatment for several types of cancer and fibrosis. AVB-500 is
currently being tested in clinical trials, and, to date, we have not had any product candidate approved for commercial sale. It is possible that we may never
be able to develop a marketable product candidate. Our main focus is the development of AVB-500, for the treatment of platinum-resistant recurrent
ovarian cancer.
We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to AVB-500. Accordingly, our business
currently depends heavily on the successful development, regulatory approval and commercialization of AVB-500, which may not receive regulatory
approval or be successfully commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale,
marketing and distribution of product candidates are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the
United States and other countries that each have differing regulations. We are not permitted to market any product in the United States unless and until we
receive approval of a BLA, from the FDA, or in any foreign countries unless and until we receive the requisite approval from regulatory authorities in such
countries. We have never submitted a BLA to the FDA or comparable applications to other regulatory authorities and do not expect to be in a position to do
so for the foreseeable future. Obtaining approval of a BLA is an extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay,
limit or deny approval of a product for many reasons.
Our success depends largely upon our ability to advance our clinical product candidate, AVB-500, which is in early stages of development, through the
various stages of drug development. If we are unable to successfully advance or develop AVB-500, our business will be materially harmed.
Our clinical product candidate, AVB-500, is in early stages of clinical development, and its commercial viability remains subject to the successful
outcome of future preclinical studies, clinical trials, manufacturing processes, regulatory approvals and the risks generally inherent in the development of
pharmaceutical product candidates. Failure to advance the development of AVB-500 may have a material adverse effect on our business. The long-term
success of our business ultimately depends upon our ability to advance the development of AVB-500 through clinical trials, appropriately formulate and
consistently manufacture it in accordance with strict specifications and regulations, obtain approval for sale by the FDA or similar regulatory authorities in
other countries, and ultimately successfully commercialize it directly or with a strategic partner or licensee. We cannot assure investors that the results of
our ongoing or future research, preclinical studies or clinical trials will support or justify the continued development of AVB-500 or that we will ultimately
receive approval from the FDA, or similar regulatory authorities in other countries, to advance the development of AVB-500.
AVB-500 must satisfy rigorous regulatory standards of safety, efficacy and manufacturing before we can advance or complete its development and
before it can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, we must engage in expensive
and lengthy studies and clinical trials, develop acceptable and cost-effective manufacturing processes, and obtain regulatory approval of AVB-500. Despite
these efforts, AVB-500 may not:
•
•
•
•
demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs or
other product candidates in development to treat the same patient population;
be shown to be safe and effective in future preclinical studies or clinical trials;
have the desired therapeutic or medical effects;
be tolerable or free from undesirable or unexpected side effects;
• meet applicable regulatory standards;
32
•
•
be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or
be successfully commercialized by us or our licensees or collaborators.
Even if we demonstrate favorable results in preclinical studies and early-stage clinical trials, we cannot assure you that the results of late-stage clinical
trials will be sufficient to support the continued development of AVB-500. Many, if not most, companies in the pharmaceutical and biopharmaceutical
industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achieving
promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials of
our AVB-500 may not be predictive of the results we may obtain in future late-stage trials. Furthermore, even if the data collected from preclinical studies
and clinical trials involving any of our clinical product candidates demonstrate a satisfactory safety, tolerability and efficacy profile, such results may not be
sufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other jurisdictions, which is required to
market and sell the product.
Clinical trials are risky, lengthy and expensive. We incur substantial expense for, and devote significant time and resources to, preclinical testing and
clinical trials, yet cannot be certain that these tests and trials will demonstrate that a product candidate is effective and well-tolerated, or will ever support
its approval and commercial sale. For example, clinical trials require adequate supplies of clinical trial material and sufficient patient enrollment to power
the trial. Delays in patient enrollment can result in increased costs and longer development times. Even if we, or a licensee or collaborator, if applicable,
successfully complete clinical trials for AVB-500, we or they might not file the required regulatory submissions in a timely manner and may not receive
marketing approval for AVB-500. We cannot assure you that AVB-500 will successfully progress further through the drug development process, or
ultimately will result in an approved and commercially viable product.
We have limited experience conducting clinical trials.
We are an early-stage clinical stage company, and our success is dependent upon our ability to obtain regulatory approval for and commercialization of
AVB-500, and we have not demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product
candidate. The successful commercialization of any product candidate may require us to perform a variety of functions, including:
•
•
•
•
continuing to undertake preclinical development and successfully enroll subjects in clinical trials;
participating in regulatory approval processes;
formulating and manufacturing products; and
conducting sales and marketing activities.
We have limited experience conducting and enrolling subjects in clinical trials. While certain members of our management and staff have significant
experience in conducting clinical trials, to date, we have only limited experience conducting clinical trials r. In part because of this lack of experience, we
cannot guarantee that planned clinical trials will be completed on time, if at all. Large-scale trials require significant additional financial and management
resources, monitoring and oversight, and reliance on third-party clinical investigators, consultants or contract research organizations, or CROs. Relying on
third-party clinical investigators, CROs and manufacturers, which are all also subject to governmental oversight and regulations, may also cause us to
encounter delays that are outside of our control.
If the actual or perceived therapeutic benefits, or the safety or tolerability profile of our clinical product candidate, AVB-500, is not equal to or superior
to other competing treatments approved for sale or in clinical development, we may terminate the development of AVB-500 at any time, and our
business prospects and potential profitability could be harmed.
We are aware of a number of companies marketing or developing product candidates for the treatment of patients with cancer and fibrosis that are either
approved for sale or further advanced in clinical development than ours, such that their time to approval and commercialization may be shorter than that for
AVB-500.
There are currently FDA approved biological drugs that target the GAS6/AXL pathway. However, if ever approved as a treatment for cancer, AVB-500
would indirectly compete with drugs approved to treat various types of cancer, such as those that regulate T-cell proliferation, including nivolumab,
pembrolizumab, atezolizumab and other small molecule chemically manufactured drugs that target this pathway or other classes of drugs that are used for
the clinical indications that ours is currently pursuing in clinic.
33
If at any time we believe that AVB-500 may not provide meaningful or differentiated therapeutic benefits, perceived or real, equal to or better than its
competitor’s products or product candidates, or we believe that it may not have as favorable a safety or tolerability profile as potentially competitive
compounds, we may delay or terminate its development. We cannot provide any assurance that the future development of AVB-500 will demonstrate any
meaningful therapeutic benefits over potentially competitive compounds currently approved for sale or in development, or an acceptable safety or
tolerability profile sufficient to justify its continued development.
For the Phase 3 clinical trial in patients with platinum-resistant recurrent ovarian cancer and for the Phase 1b clinical trial testing in patients with
clear cell renal cell carcinoma, we are administering, or plan to administer, our clinical product candidate, AVB-500, in combination with other
approved standard of care drugs. Any problems obtaining the standard of care drugs could result in a delay or interruption in our clinical trials.
For the Phase 3 clinical trial of AVB-500 for the treatment of patients with platinum-resistant recurrent ovarian cancer, we are administering AVB-500in
combination with already approved standard of care drugs. For the Phase 1b portion of our Phase 1b/2 clinical trial of AVB-500 for the treatment of
patients with clear cell renal carcinoma, we intend to administer AVB-500 in combination with an already approved standard of care drug, cabozantinib.
Therefore, our success will be dependent upon the continued use of cabozantinib. We expect that in any other clinical trials we conduct for additional
indications, our clinical product candidate will also be administered in combination with drugs owned by third parties. If any of the standard of care drugs
that are used in our clinical trials are unavailable while the trials are continuing, the timeliness and commercialization costs could be impacted. In addition,
if any of these other drugs are determined to have safety or efficacy problems, our clinical trials and commercialization efforts would be adversely affected.
If our product candidate, AVB-500, would require or would commercially benefit from a companion diagnostic, and if we are unable to successfully
validate, develop and obtain regulatory clearance or approval for such a companion diagnostic test, or experience significant delays in doing so, we
may not realize the full commercial potential of our product candidates.
In connection with the clinical development of AVB-500 or other product candidates for certain indications, we may work with collaborators to develop
or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful
benefit from our drug candidates. Such companion diagnostics may be used during our clinical trials as well as in connection with the commercialization of
our product candidates. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges.
The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework,
will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we may develop, which we expect will
require separate regulatory clearance or approval prior to commercialization. We may be unable to successfully validate, develop and obtain regulatory
clearance or approval for any such companion diagnostic tests or may experience delays in doing so, which could materially harm or limit the commercial
potential of our product candidates.
Our clinical product candidate, AVB-500, may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical
products, which may delay or preclude its development or regulatory approval, or limit its use if ever approved.
Throughout the drug development process, we must continually demonstrate the activity, safety and tolerability of AVB-500, in order to obtain
regulatory approval to further advance our clinical development, or to eventually market it. Even if our clinical product candidate demonstrates adequate
biologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of other
pharmaceutical products, may outweigh these potential benefits. We may observe adverse or serious adverse events or drug-drug interactions in preclinical
studies or clinical trials of AVB-500, which could result in the delay or termination of its development, prevent regulatory approval, or limit its market
acceptance if it is ultimately approved.
For our clinical product candidate, AVB-500, we rely upon one third party to manufacture its drug substance. Any problems experienced by either our
third-party manufacturer or our vendors could result in a delay or interruption in the supply of AVB-500 to us until the third-party manufacturer or its
vendor cures the problem or until we locate and qualify an alternative source of manufacturing and supply.
For our clinical product candidate, ABB-500, we currently rely on one third-party manufacturer located in China to manufacture AVB-500 for our
clinical studies and that manufacturer purchases materials from our third-party vendors and transports the materials necessary to produce AVB-500, such as
the required reagents and containers. The recent outbreak of the novel strain of coronavirus caused a widespread health crisis in several districts in China
which resulted in temporary work stoppages in many affected districts. If the virus or any other virus should spread to the districts in which our
manufacturer’s facilities are located, we could experience delays in manufacturing and shipments of our clinical product, which could result in clinical trial
delays. If the third-party manufacturer were to experience any prolonged disruption for our manufacturing, we could be forced to seek additional third-
party
34
manufacturing contracts, thereby increasing our development costs and negatively impacting our timelines and any commercialization costs. If we change
manufacturers at any point during the development process or after approval of a product candidate, we will be required to demonstrate comparability
between the product manufactured by the old manufacturer and the product manufactured by the new manufacturer. If we are unable to do so we may need
to conduct additional clinical trials with product manufactured by the new manufacturer.
If our manufacturer is not able to manufacture sufficient quantities of AVB-500, our development activities would be impaired. In addition, the
manufacturing facility where our clinical product candidate, AVB-500, is manufactured is subject to ongoing, periodic inspection by the FDA or other
comparable regulatory agencies to ensure compliance with current Good Manufacturing Practice, or cGMP. Any failure to follow and document the
manufacturer’s adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of clinical bulk drug
substance and finished product for clinical trials, which may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or
approval of marketing applications for AVB-500. We also may encounter problems with the following:
•
achieving adequate or clinical-grade materials that meet FDA or other comparable regulatory agency standards or specifications with consistent and
acceptable production yield and costs;
• Our contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercialization of, our
clinical product candidate, AVB-500;
• Our contract manufacturer being unable to increase the scale of or the capacity for, or reformulate the form of our clinical product candidate, AVB-
500, which may cause us to experience a shortage in supply, or cause the cost to manufacture AVB-500 to increase. We cannot assure you that our
contract manufacturers will be able to manufacture AVB-500 at a suitable commercial scale, or that we will be able to find alternative manufacturers
acceptable to us that can do so;
• Our contract manufacturer placing a priority on the manufacture of other customers’ or its own products, rather than our products;
• Our contract manufacturer or our vendors failing to perform as agreed, including failing to properly package, transport or store AVB-500 or its
reagents, or exiting from the contract manufacturing business;
• Our contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster or pandemic;
• Shortages of qualified personnel, raw materials or key contractors;
• Our contract manufacturers failing to obtain FDA approval for commercial scale manufacturing; and
• Ongoing compliance with cGMP regulations and other requirements of the FDA or other comparable regulatory agencies.
If we encounter any of these problems or are otherwise delayed, or if the cost of manufacturing in the China facility is not economically feasible or we
cannot find another third-party manufacturer, we may not be able to produce our clinical product candidate, AVB-500, in a sufficient quantity to meet
future demand.
In addition, since we rely on a third-party manufacturer located in China, our business is subject to risks associated with doing business in China,
including:
•
•
•
•
•
•
•
•
•
adverse political and economic conditions, particularly those potentially negatively affecting the trade relationship between the United States and
China;
trade protection measures, such as tariff increases, and import and export licensing and control requirements;
potentially negative consequences from changes in tax laws;
difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in
China;
historically lower protection of intellectual property rights;
changes and volatility in currency exchange rates;
unexpected or unfavorable changes in regulatory requirements;
possible patient or physician preferences for more established pharmaceutical products and medical devices manufactured in the United States; and
difficulties in managing foreign relationships and operations generally.
35
These risks are likely to be exacerbated by our limited experience with our current products and manufacturing processes. If demand for our products
materializes, we may have to invest additional resources to purchase materials, hire and train employees, and enhance our manufacturing processes. It may
not be possible for us to manufacture our clinical product candidate, AVB-500, at a cost or in quantities sufficient to make its clinical product candidate
commercially viable. Any of these factors may affect our ability to manufacture our products and could reduce gross margins and profitability.
Reliance on third-party manufacturers and suppliers entails risks to which we would not be subject if we manufactured AVB-500, itself, including:
•
•
•
reliance on the third parties for regulatory compliance and quality assurance;
the possible breach of the manufacturing agreements by the third parties because of factors beyond our control or the insolvency of any of these third
parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and
possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of our breach
of the manufacturing agreement or based on their own business priorities.
If our contract manufacturer or its suppliers fail to deliver the required commercial quantities of our clinical product candidate, AVB-500, required for
our clinical trials and, if approved, for commercial sale, on a timely basis and at commercially reasonable prices, and we are unable to find one or more
replacement manufacturers or suppliers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a
timely basis, we would likely be unable to meet demand for our products and would have to delay or terminate our pre-clinical or clinical trials, and we
would lose potential revenue. It may also take a significant period of time to establish an alternative source of supply for AVB-500 and to have any such
new source approved by the FDA or any applicable foreign regulatory authorities. Furthermore, any of the above factors could cause the delay or
suspension of initiation or completion of clinical trials, regulatory submissions or required approvals of AVB-500, cause it to incur higher costs and could
prevent us from commercializing AVB-500 successfully.
We may not be able to manufacture AVB-500 in sufficient quantities for commercialization.
In order to receive FDA approval of our clinical product candidate, AVB-500, we will need to manufacture such clinical product candidate in larger
quantities. Our third-party manufacturer may not be willing or able to increase successfully the manufacturing capacity for AVB-500 in a timely or
economic manner, or at all. In the event FDA approval is received, we will need to increase production of AVB-500. Significant scale-up of manufacturing
may require additional validation studies, which the FDA must review and approve. If we are unable to successfully increase the manufacturing capacity
for AVB-500, the clinical trials as well as the regulatory approval or commercial launch of AVB-500 may be delayed or there may be a shortage in supply.
AVB-500 requires precise, high quality manufacturing. Failure to achieve and maintain high quality manufacturing, including the incidence of
manufacturing errors, could result in patient injury or death, delays or failures in testing or delivery, cost overruns or other problems that could harm our
business, financial condition and results of operations.
In the event that we need to change our third-party contract manufacturer, our preclinical studies or our clinical trials, the commercialization of our
clinical product candidate, AVB-500, could be delayed, adversely affected or terminated, or such a change may result in the need for us to incur
significantly higher costs, which could materially harm our business.
Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that
occur from time-to-time in our industry, various materials in the manufacturing of AVB-500 are solely-sourced from certain contract manufacturers. In
accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further
preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing our current or future
contract manufacturers may be difficult, if not impossible for us, and could be extremely costly if we do make such a change, which could result in our
inability to manufacture AVB-500 for an extended period of time and a delay in the development of AVB-500. Further, in order to maintain our
development timelines in the event of a change in a third-party contract manufacturer, we may incur significantly higher costs to manufacture AVB-500.
36
If third-party vendors, upon whom we rely to conduct our preclinical studies or clinical trials, do not perform or fail to comply with strict regulations,
these studies or trials may be delayed, terminated, or fail, or we could incur significant additional expenses, which could materially harm our business.
We have limited resources dedicated to designing, conducting and managing our preclinical studies and clinical trials. We have historically relied on,
and intend to continue to rely on, third parties, including clinical research organizations, or CROs, consultants and principal investigators, to assist us in
designing, managing, conducting, monitoring and analyzing the data from our preclinical studies and clinical trials. In addition, institution sponsored
clinical trials, such as the one being conducted by M.D. Anderson Cancer that uses AVB-500 in combination AstraZeneca Pharmaceuticals LP’s medicinal
product Durvalumab, will be conducted by the institution. We rely on these vendors and individuals to perform many facets of the clinical development
process on our behalf, including conducting preclinical studies, the recruitment of sites and subjects for participation in our clinical trials, maintenance of
good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliance with the trial protocol and applicable regulations.
If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of our agreements with them, we may not be
able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of our
clinical product candidate, AVB-500, may be delayed or prove unsuccessful.
Further, the FDA, the EMA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in our clinical trials
or our third-party vendors’ sites to determine if our clinical trials are being conducted according to good clinical practices, or GCPs, or similar regulations.
If we or a regulatory authority determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according to
applicable regulations, we may be forced to exclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials.
We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may
harm our business.
We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and we expect to have limited influence over their
actual performance.
We also rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical studies. We expect to
control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance
with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities.
We and our CROs will be required to comply with the Good Laboratory Practices and GCPs, which are regulations and guidelines enforced by the FDA
and are also required by the Competent Authorities of the Member States of the European Economic Area and comparable foreign regulatory authorities in
the form of International Council for Harmonization of Technical Requirements for Pharmaceuticals for Human Use guidelines for any of our product
candidates that are in preclinical and clinical development. The Regulatory authorities enforce GCPs through periodic inspections of trial sponsors,
principal investigators and clinical trial sites. If we or our CROs fail to comply with GCPs, the clinical data generated in our clinical trials may be deemed
unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing
applications. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of subjects, we may be required to repeat
clinical trials, which would delay the regulatory approval process.
Our CROs will not be our employees, and we will not control whether or not they devote sufficient time and resources to our future clinical and
nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be
conducting clinical trials, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized
disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to
access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected
deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory
requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for,
or successfully commercialize any product candidate that we develop. As a result, our financial results and the commercial prospects for any product
candidate that it develops would be harmed, its costs could increase, and our ability to generate revenues could be delayed.
If our relationship with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially
reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural
transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical
development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that it will not encounter
challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects.
37
Our future success depends on our ability to retain executive officers and attract, retain and motivate qualified personnel.
We are highly dependent on our executive officers and the other principal members of our management and scientific teams. The employment of our
executive officers is at-will and our executive officers may terminate their employment at any time. The loss of the services of any of our senior executive
officers could impede the achievement of our research, development and commercialization objectives. We do not maintain “key person” insurance for any
executive officer or employee.
Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is also critical to our success. We may not be
able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for
similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our industry
has experienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, we rely on consultants and advisors,
including scientific and clinical advisors, to assist it in devising our research and development and commercialization strategy. Our consultants and advisors
may be employed by third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to
advance our strategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to the company, our business
may be harmed.
Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources,
different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career
advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what it has to offer. If we are unable to
continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop our clinical product candidate,
AVB-500, and our business will be limited.
Risks Related to Clinical Development, Regulatory Approval and Commercialization
If the results from preclinical studies or clinical trials of AVB-500 are unfavorable, we could be delayed or precluded from its further development or
commercialization, which could materially harm our business.
In order to further advance the development of, and ultimately receive marketing approval to sell AVB-500, we must conduct extensive preclinical
studies and clinical trials to demonstrate our safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries, as the
case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes. Delays,
setbacks, or failures can and do occur at any time, and in any phase of preclinical or clinical testing, and can result from concerns about safety, tolerability,
toxicity, a lack of demonstrated biologic activity or improved efficacy over similar products that have been approved for sale or are in more advanced
stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the trials.
The results of prior preclinical studies or early-stage clinical trials are not predictive of the results we may observe in late-stage clinical trials, especially
since the number of subjects in our completed clinical trials was small. In many cases, product candidates in clinical development may fail to show the
desired tolerability, safety and efficacy characteristics, despite having favorably demonstrated such characteristics in preclinical studies or early-stage
clinical trials.
In addition, we may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay
or impede our ability to advance the development of, receive marketing approval for, or commercialize our clinical product candidate, AVB-500, including,
but not limited to:
•
•
•
•
•
•
•
communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing the
development of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved,
including performing additional studies to answer their queries;
regulatory authorities or institutional review boards, or IRBs, not authorizing us to commence or conduct a clinical trial at a prospective trial site or
delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites;
enrollment in our clinical trials being delayed, or proceeding at a slower pace than we expected, because we have difficulty recruiting participants or
participants drop out of our clinical trials at a higher rate than we anticipated;
our third-party contractors, upon whom we rely to conduct preclinical studies, clinical trials and the manufacturing of our clinical trial materials,
failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks;
regulatory authorities or IRBs requiring that we hold, suspend or terminate our preclinical studies and clinical trials for various reasons,
including non-compliance with regulatory requirements; and
the supply or quality of material necessary to conduct our preclinical studies or clinical trials being insufficient, inadequate or unavailable.
38
Even if the data collected from preclinical studies or clinical trials involving AVB-500, demonstrate a satisfactory tolerability, safety and efficacy
profile, such results may not be sufficient to support the submission of a BLA to obtain regulatory approval from the FDA in the United States, or other
similar regulatory authorities in other foreign jurisdictions, which is required for us to market and sell AVB-500.
Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to demonstrate
safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, we will be unable to commercialize our clinical product candidate,
AVB-500.
AVB-500 is still in early-stage clinical development and will require extensive additional clinical testing before we are prepared to submit a BLA for
regulatory approval for any indication or for any treatment regime. We cannot predict with any certainty if or when we might submit a BLA for regulatory
approval for AVB-500, or whether any such future BLA would be approved by the FDA. Human clinical trials are very expensive and difficult to design
and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with endpoints for any clinical
trial we propose, which may delay the commencement of our clinical trials. The clinical trial process is also time-consuming. Furthermore, failure can
occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. A product candidate in later stages of
clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, and the
results of our Phase 1 clinical trial of the clinical product candidate as well as the pre-clinical results may not be predictive of the results of our Phase 2 or
Phase 3 trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of
efficacy or adverse safety profiles.
Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their product
candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success
in preclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and the results of later clinical trials
may not replicate the results of prior clinical trials and preclinical testing.
If we are required to conduct additional clinical trials or other testing of AVB-500 beyond those that we currently contemplate, if we are unable to
successfully complete clinical trials of AVB-500 or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there
are safety concerns, we may:
•
•
•
•
•
•
be delayed in obtaining marketing approval for AVB-500 require additional funding not budgeted for;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings;
be subject to additional post-marketing testing requirements; or
have the product removed from the market after obtaining marketing approval.
Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not know whether any
clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could
shorten any periods during which we may have the exclusive right to commercialize our clinical product candidate, AVB-500, could allow our competitors
to bring products to market before we do, and could impair our ability to successfully commercialize AVB-500, any of which may harm our business and
results of operations.
Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered
impossible by multiple factors outside our control.
We may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of our clinical trials especially in light
of the COVID-19 pandemic. Once enrolled, we may be unable to retain a sufficient number of participants to complete any of our trials. Late-stage clinical
trials of AVB-500 may require the enrollment and retention of large numbers of subjects. Subject enrollment and retention in clinical trials depends on
many factors, including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the
trial drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects
to clinical sites and the eligibility criteria for the trial.
39
Furthermore, any negative results we may report in clinical trials of AVB-500, negative results reported from clinical trials conducted by our
collaborators or negative results of similar product candidates may make it difficult or impossible to recruit and retain participants in other clinical trials of
that same clinical product candidate. Delays or failures in planned subject enrollment or retention may result in increased costs, program delays or both,
which could have a harmful effect on its ability to develop its clinical product candidate, or could render further development impossible. In addition, we
expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements
governing our services, we will be limited in our ability to compel our actual performance in compliance with applicable regulations. Enforcement actions
brought against these third parties may cause further delays and expenses related to our clinical development programs.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete
effectively.
Development of cancer treatments is highly competitive and subject to rapid and significant technological advancements. In particular, we face
competition from various sources, including larger and better funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as
academic institutions, governmental agencies and public and private research institutions. These competitors are focused on delivering therapeutics for the
treatment of various cancers with products that are available and have gained market acceptance as the standard treatment protocol. Further, it is likely that
additional drugs or other treatments will become available in the future for the treatment of certain cancers.
Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater
experience in the discovery and development of products for the treatment of cancer, as well as in obtaining regulatory approvals of those products in the
United States and in foreign countries. Our current and potential future competitors also have significantly more experience commercializing drugs that
have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being
concentrated among a small number of our competitors.
Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for
investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or
less costly than any product candidate that we may develop.
We will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other infectious diseases we
are currently targeting. Therefore, our ability to compete successfully will depend largely on our ability to:
•
•
•
•
•
•
•
develop and commercialize product candidates that are superior to other products in the market;
demonstrate through our clinical trials that our clinical product candidate, AVB-500, is differentiated from existing and future therapies;
attract qualified scientific and commercial personnel;
obtain patent or other proprietary protection for AVB-500;
obtain required regulatory approvals;
obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and
successfully develop and commercialize, independently or with collaborators, new product candidates.
The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate we develop. The
inability to compete with existing or subsequently introduced therapies would have an adverse impact on our business, financial condition and prospects.
Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel
compounds that could make our product candidate less competitive. In addition, any new products that competes with an approved product must
demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially
successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for or
commercializing medicines before we do, which would have an adverse impact on our business and results of operations.
40
Our clinical product candidate, AVB-500, may cause adverse effects or have other properties that could delay or prevent our regulatory approval or
limit the scope of any approved label or market acceptance.
Adverse events caused by AVB-500 could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials
and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in our clinical trials for AVB-
500, our ability to obtain regulatory approval for such clinical product candidate may be negatively impacted. In addition, adverse events caused by any
clinical product candidate administered in combination with our product candidate could cause similar interruptions and delays, even though not caused by
AVB-500.
Furthermore, if any of our products are approved and then cause serious or unexpected side effects, a number of potentially significant negative
consequences could result, including:
•
•
regulatory authorities may withdraw their approval of the product candidate or impose restrictions on its distribution or other risk management
measures;
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
• we may be required to conduct additional clinical trials;
• we could be sued and held liable for injuries sustained by patients;
• we could elect to discontinue the sale of our product candidate; and
•
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially
increase the costs of commercialization.
Our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may
engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse
effect on our results of operations.
We are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators, service
providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or
negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws
that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud
and abuse and health regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of
financial information or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of
clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third party
misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in
protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If
any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant
impact on our business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines,
possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future
earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed in
commercializing, our clinical product candidate, AVB-500, and our ability to generate revenue will be impaired.
AVB-500 and the activities associated with our development and commercialization, including our design, testing, manufacture, safety, efficacy,
recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other
regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a clinical product
candidate will prevent us from commercializing the clinical product candidate. We have not received approval to market AVB-500 from regulatory
authorities in any jurisdiction. We only have limited experience in filing and supporting the applications necessary to gain marketing approvals and expect
to rely on CROs to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting
information to the various regulatory authorities for each therapeutic indication to establish the clinical product candidate’s safety and efficacy. Securing
regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by,
the relevant regulatory authority. AVB-500 may not be effective, may be only moderately effective or may prove to have undesirable or unintended side
effects, toxicities or other characteristics that may prevent it from obtaining marketing approval or prevent or limit commercial use.
41
The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially
based upon a variety of factors, including the type, complexity and novelty of the product candidate involved. We cannot assure you that our product
candidate will ever obtain any marketing approvals in any jurisdiction. The fact that the FDA has designated the investigation of our lead development
candidate for platinum-resistant recurrent ovarian cancer as a Fast Track development program, while potentially favorable, provides no assurance as to the
timing or outcome of any FDA regulatory process. Fast Track status may be withdrawn if the conditions for such designation are no longer met. Changes in
marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory
review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other
countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for
approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of the data obtained from preclinical
testing and clinical trials could delay, limit or prevent marketing approval of a product candidate. Additionally, any marketing approval we ultimately
obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable.
Even if we obtain FDA approval in the United States, we may never obtain approval for or commercialize our clinical product candidate, AVB-500, in
any other jurisdiction, which would limit our ability to realize each product’s full market potential.
In order to market AVB-500 in a particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on
a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in
other countries or jurisdictions and approval by regulatory authorities in other countries or jurisdictions does not ensure approval by the FDA. In addition,
clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not
guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and
validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require
additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country
and could delay or prevent the introduction of AVB-500 in those countries. We do not have any product candidates approved for sale in any jurisdiction,
including in international markets, and we do not have experience in obtaining regulatory approval in international markets. If we or our collaborators fail
to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international
markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product candidate we develop will be
unrealized.
Even if we obtain regulatory approval, we will still face extensive ongoing regulatory requirements and our clinical product candidate, AVB-500, may
face future development and regulatory difficulties.
Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling,
packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such product candidate,
among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements
include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing requirements,
continued compliance with current Good Manufacturing Practice, or cGMP, requirements relating to manufacturing, quality control, quality assurance and
corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and current GCP
requirements for any clinical trials that we conduct post-approval. Even if marketing approval of a product candidate is granted, the approval may be
subject to limitations on the indicated uses for which the product candidate may be marketed or to the conditions of approval. If AVB-500 receives
marketing approval, the accompanying label may limit the approved use of our product, which could limit sales.
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or efficacy of
AVB-500. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications
and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-
label use and if we do not market AVB-500 for its approved indications, we may be subject to enforcement action for off-label marketing. Violations of the
Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging
violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws.
In addition, later discovery of previously unknown adverse events or other problems with AVB-500, manufacturers or manufacturing processes, or
failure to comply with regulatory requirements, may yield various results, including:
•
•
•
restrictions on manufacturing such clinical product candidate;
restrictions on the labeling or marketing of such clinical product candidate;
restrictions on product distribution or use;
42
•
requirements to conduct post-marketing studies or clinical trials;
• warning letters;
• withdrawal of the clinical product candidate from the market;
•
•
•
•
•
•
•
refusal to approve pending applications or supplements to approved applications that we submit;
recall of such clinical product candidate;
fines, restitution or disgorgement of profits or revenues;
suspension or withdrawal of marketing approvals;
refusal to permit the import or export of such clinical product candidate;
clinical product candidate seizure; or
injunctions or the imposition of civil or criminal penalties.
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of AVB-
500. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain
regulatory compliance, we may lose any marketing approval that we may have obtained.
Even if our clinical product candidate, AVB-500, receives marketing approval, we may fail to achieve market acceptance by physicians, patients, third-
party payors or others in the medical community necessary for commercial success.
If AVB-500 receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and
others in the medical community. If we do not achieve an adequate level of acceptance, we may not generate significant revenues and become profitable.
The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to:
•
•
•
•
•
•
•
•
•
•
•
the efficacy and potential advantages compared to alternative treatments;
effectiveness of sales and marketing efforts;
the cost of treatment in relation to alternative treatments;
our ability to offer AVB-500for sale at competitive prices;
the convenience and ease of administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the willingness of the medical community to offer customers our product candidate option in addition to or in the place of AVB-500;
the strength of marketing and distribution support;
the availability of third-party coverage and adequate reimbursement;
the prevalence and severity of any side effects; and
any restrictions on the use of our product together with other medications.
Because we expect sales of all of AVB-500 to be based on the same mechanism of action, the failure of our first product candidate to achieve market
acceptance would harm our business and could require us to seek additional financing sooner than we otherwise planned.
The insurance coverage and reimbursement status of newly-approved products is uncertain. Our product candidates may become subject to unfavorable
pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business. Failure to obtain or
maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to
generate revenue.
The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs vary widely from country to country. In the
United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays
in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period
begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing
governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then
be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are
able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more
product candidates, even if any product candidates we may develop obtain marketing approval.
43
Our ability to successfully commercialize our product candidates also will depend in part on the extent to which coverage and adequate reimbursement
for these products and treatments will be available from government health administration authorities, private health insurers, and other organizations.
Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will
pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for
most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend
substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care,
pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage
insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to
successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us
to establish or maintain pricing sufficient to realize a sufficient return on our investment.
The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments.
Sales of AVB-500 that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs
of AVB-500will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by
government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is
available only on a limited basis, we may not be able to successfully commercialize AVB-500. Even if coverage is provided, the approved reimbursement
amount may not be high enough to allow us to establish or maintain adequate pricing that will allow it to realize a sufficient return on our investment.
Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we
believe the increasing emphasis on cost-containment initiatives in Europe, Canada, China and other countries may cause us to price AVB-500 on less
favorable terms that we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject
to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take
considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required
to conduct a clinical trial that compares the cost-effectiveness of AVB-500 to other available therapies. In general, the prices of products under such
systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products, but monitor and control
company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that is able to be charged for clinical
product candidates. Accordingly, in markets outside the United States, the reimbursement for products may be reduced compared with the United States
and may be insufficient to generate commercially reasonable revenues and profits.
Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may
cause such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide
adequate payment for clinical product candidates. We expect to experience pricing pressures in connection with the sale of AVB-500 due to the trend
toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on
healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly
high barriers are being erected for new products entering the marketplace.
If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion
from participation in governmental healthcare programs, and the curtailment of operations, any of which could harm our business.
Although we do not provide healthcare services or submit claims for third party reimbursement, we are subject to healthcare fraud and abuse regulation
and enforcement by federal and state governments which could significantly impact our business. The laws that may affect our ability to operate include,
but are not limited to:
•
•
the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving,
offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the
purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal
healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to
violate it;
the civil False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be
presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing
to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using,
or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
44
•
the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government
knowing such claim to be false, fictitious or fraudulent;
• HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements
relating to healthcare matters;
•
•
•
the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid
beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services
reimbursable by a Federal or state governmental program;
the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and
medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of
value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other
healthcare providers and their immediate family members; and
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services
reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device
industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict
payments that may be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report
information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
Further, the Affordable Care Act, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutes
governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to
violate it. In addition, the Affordable Care Act provided that the government may assert that a claim including items or services resulting from a violation
of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. If a government authority were to conclude that we
provide improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government
authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a
material adverse effect on our reputation, business, results of operations and financial condition.
We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of
these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because
of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured,
or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial
relationships with providers who influence the ordering of and use our products to be in violation of applicable laws.
The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in
light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between
healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare
industry.
Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of
these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent
decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on our business.
Product liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any product candidates we
may develop.
We face an inherent risk of product liability exposure related to the testing of AVB-500in human clinical trials and will face an even greater risk if we
commercially sell any products that we may develop after approval. Any adverse reactions in our clinical trials could be deemed to be related to AVB-500
and could result in claims from these injuries and we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result
in:
•
•
decreased demand for any product candidates that we may develop;
injury to our reputation and significant negative media attention;
• withdrawal of clinical trial participants;
•
•
significant costs to defend any related litigation;
substantial monetary awards to trial subjects or patients;
45
•
•
loss of revenue; and
the inability to commercialize any products we may develop.
Although we maintain product liability insurance coverage in the amount of up to $10 million per claim and in the aggregate, we may not be adequate
to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials and if we
successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable
cost or in an amount adequate to satisfy any liability that may arise.
If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be
successful in commercializing our clinical product candidate, AVB-500, if approved.
We do not have any infrastructure for the sales, marketing or distribution of AVB-500, and the cost of establishing and maintaining such an organization
may exceed the cost-effectiveness of doing so. In order to market any product candidate that may be approved, we must build our sales, distribution,
marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. To achieve commercial
success for any product candidate for which we have obtained marketing approval, we will need a sales and marketing organization. We expect to build a
focused sales, distribution and marketing infrastructure to market any other product candidates in the United States, if approved. There are significant
expenses and risks involved with establishing our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately
incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a
geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities
could delay any product candidate launch, which would adversely impact commercialization.
Factors that may inhibit our efforts to commercialize AVB-500 on our own include:
• Our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
•
•
the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to administer our products; and
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
We intend to pursue collaborative arrangements regarding the sale and marketing of AVB-500, if approved, for certain international markets; however,
we may not be able to establish or maintain such collaborative arrangements, if able to do so, that our collaborators may not have effective sales. To the
extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there
can be no assurance that such efforts will be successful.
If we are unable to build our own sales force in the United States or negotiate a collaborative relationship for the commercialization of AVB-500outside
the United States we may be forced to delay the potential commercialization or reduce the scope of our sales or marketing activities. We may have to enter
into arrangements with third parties or otherwise at an earlier stage than we would otherwise choose and we may be required to relinquish rights to our
intellectual property or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and
prospects.
We may be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or
the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies.
If we obtain approval to commercialize our clinical product candidate, AVB-500 outside of the United States, a variety of risks associated with
international operations could harm our business.
If our clinical product candidate is approved for commercialization, we intend to enter into agreements with third parties to market them in certain
jurisdictions outside the United States such as we have with 3D Medicine. We expect that we will be subject to additional risks related to international
operations or entering into international business relationships, including:
•
•
•
•
•
•
•
different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
foreign reimbursement, pricing and insurance regimes;
foreign taxes;
46
•
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing
business in another country;
• workforce uncertainty in countries where labor unrest is more common than in the United States;
•
•
•
potential noncompliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010 and similar anti-bribery and
anticorruption laws in other jurisdictions;
product shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods
and fires.
We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the
European Union and many of the individual countries in Europe as well as China with which we will need to comply.
Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our clinical
product candidate, AVB-500, and affect the prices we may obtain.
In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the
healthcare system that could, among other things, prevent or delay marketing approval of our clinical product candidate, restrict or regulate post-approval
activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval. Changes in regulations, statutes or the
interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, (ii)
additions or modifications to product labeling, (iii) the recall or discontinuation of our products or (iv) additional record-keeping requirements. If any such
changes were to be imposed, they could adversely affect our business, financial condition and results of operations.
Among policy makers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals
of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of
these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Affordable Care Act, or ACA, was passed, which
substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical
industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by
which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or
injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to
individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and
creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of
applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under
Medicare Part D.
Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional
challenges. Congress has considered legislation that would repeal or repeal and replace all or part of the ACA, and it is unclear how such challenges and
other efforts to repeal and replace the Affordable Care Act will impact the Affordable Care Act and our business.
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the
availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms
may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on
anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall
financial condition and ability to develop product candidates.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal
and state governments will pay for healthcare products, which could result in reduced demand for AVB-500 or additional pricing pressures. Any reduction
in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors.
47
Risks Related to Our Intellectual Property
If we are unable to obtain and maintain patent protection for our clinical product candidate, AVB-500, or if the scope of the patent protection obtained
is not sufficiently broad, we may not be able to compete effectively in our markets.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our drug
development programs and clinical product candidate. Our success depends in large part on our ability to obtain and maintain patent protection in the
United States and other countries. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our
development programs and clinical product candidate. The patent prosecution process is expensive and time-consuming, and we may not be able to file and
prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner.
It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection.
The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in
other countries. There is no assurance that all potentially relevant prior art that could invalidate our patents or that could prevent our pending patent
applications from issuing as patents have been found. Even if patents do successfully issue, third parties may challenge their validity, enforceability or
scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to these patents or any other patents
owned by or licensed to us could deprive us of rights necessary for the successful commercialization of our product candidates or companion diagnostic
that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate and
companion diagnostic under patent protection could be reduced.
If the patent applications we hold with respect to our platform technology and clinical product candidate fail to issue, if their breadth or strength of
protection is threatened, or if they fail to provide meaningful exclusivity for AVB-500, it could dissuade companies from collaborating with us to develop
future product candidates and threaten our ability to commercialize future drugs. Any such outcome could harm our business.
The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has
in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the
United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does.
Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions
are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to
make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such
inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future
patent applications may not result in patents being issued that protect our technology or product candidates, in whole or in part, or which effectively prevent
others from commercializing competitive technologies. Changes in either the patent laws or interpretation of the patent laws in the United States and other
countries may diminish the value of our patents or narrow the scope of our patent protection.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement
or defense of ours issued patents. In 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act
includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and
may also affect patent litigation. The U.S. Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith
Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became
effective in 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-
Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents, all of which could have an adverse effect on our business and financial condition.
Moreover, we may be subject to a third party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become
involved in derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of
others. In other countries, we may be subject to or become involved in opposition proceedings challenging our patent rights or the patent rights of others.
An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to
commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or
commercialize product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents
and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product
candidates.
48
The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and its owned and licensed patents may be challenged
in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held
unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products,
or limit the duration of the patent protection of our technology and product candidates. Moreover, patents have a limited lifespan. In the United States and
other countries, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent,
and the protection it affords, is limited. Without patent protection for our current or future product candidates, we may be open to competition from generic
versions of such product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates,
patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, we owned and licensed patent
portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours.
We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be
expensive, time consuming and unsuccessful.
Competitors and other third parties may infringe or otherwise violate our patents, the patents of our licensors or our other intellectual property rights. To
counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an
infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from
using the technology at issue on the grounds that such patents do not cover the technology in question. An adverse result in any litigation or defense
proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not
issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our
patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are
commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty,
obviousness, nonenablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected
with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution.
Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as inter partes review, or post-grant review, or
oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following
legal assertions of invalidity and unenforceability is unpredictable. We cannot be certain that there is no invalidating prior art, of which we and the patent
examiner were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited or no right to participate in
the defense of any licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we
would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates. Such a loss of patent protection could
harm our business.
We may not be able to prevent, alone or with our licensors, misappropriation of our intellectual property rights, particularly in countries where the laws
may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on
commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in
substantial costs and distract our management and other employees.
Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our
confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of
hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an
adverse effect on the price of our common stock.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our clinical product candidate, AVB-
500.
The United States has recently enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled on several
patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in
certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created
uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO, the laws
and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we
have licensed or that we might obtain in the future.
49
If a third party claims we are infringing on their intellectual property rights, we could incur significant expenses, or be prevented from further
developing or commercializing our clinical product candidate, AVB-500, which could materially harm our business.
Our success will also depend on our ability to operate without infringing the patents and other proprietary intellectual property rights of third parties.
This is generally referred to as having “freedom to operate.” We have not conducted an in-depth freedom to operate search which would be time consuming
and costly. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property
rights. The defense and prosecution of intellectual property claims, interference proceedings and related legal and administrative proceedings, both in the
United States and internationally, involve complex legal and factual questions. As a result, such proceedings are lengthy, costly and time-consuming, and
their outcome is highly uncertain. We may become involved in protracted and expensive litigation in order to determine the enforceability, scope and
validity of the proprietary rights of others, or to determine whether we have freedom to operate with respect to the intellectual property rights of others. For
example, we are aware of U.S. Patent Nos. 8,168,415 and 8,920,799, which claim AXL fusion proteins and their use in treating cancer. In the event that
one of these patents or another patent is successfully asserted against our GAS6-AXL program in the future, we may be unable to market the product,
absent a license from the patentee, which may not be available on commercially reasonable terms, if at all.
Patent applications in the United States are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The
publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were
made. Therefore, patent applications relating to product candidates similar to ours may have already been filed by others without our knowledge. In the
event that a third party has also filed a patent application covering AVB-500, we may have to participate in an adversarial proceeding, such as an
interference proceeding, in the U.S. Patent and Trademark Office, or USPTO, or similar proceedings in other countries, to determine the priority of
invention. In the event an infringement claim is brought against us, we may be required to pay substantial legal fees and other expenses to defend such a
claim and, if we are unsuccessful in defending the claim, we may be prevented from pursuing the development and commercialization of a product
candidate and may be subject to injunctions and/or damage awards.
In the future, the USPTO or a foreign patent office may grant patent rights covering AVB-500 to third parties. Subject to the issuance of these future
patents, the claims of which will be unknown until issued, we may need to obtain a license or sublicense to these rights in order to have the appropriate
freedom to further develop or commercialize them. Any required licenses may not be available to us on acceptable terms, if at all. If we need to obtain such
licenses or sublicenses, but is unable to do so, we could encounter delays in the development of AVB-500, or be prevented from developing, manufacturing
and commercializing AVB-500at all. If it is determined that we have infringed an issued patent and do not have freedom to operate, we could be subject to
injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where we have in-licensed intellectual property, our failure
to comply with the terms and conditions of such agreements could harm our business.
It is becoming common for third parties to challenge patent claims on any successfully developed product candidate or approved drug. If we or our
licensees or collaborators become involved in any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the
efforts and attention of our technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may
expose us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties on
commercially acceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and selling AVB-500 in the event of an adverse
determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses.
We may not be able to protect our intellectual property rights throughout the world, which could impair our business.
Filing, prosecuting and defending patents covering AVB-500 throughout the world would be prohibitively expensive. Competitors may use our
technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing
products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These other
products may compete with AVB-500 in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual
property rights may not be effective or sufficient to prevent them from so competing.
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade
secrets will be misappropriated or disclosed.
We seek to protect our proprietary technology in part by entering into confidentiality agreements with third parties and, if applicable, material transfer
agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning
research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential
information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and
other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the
technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and
trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an
adverse effect on our business and results of operations.
50
In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially
relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of
information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an
adverse impact on our business.
Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other
requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated for non-compliance with these
requirements.
Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the
patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary fee payments and
other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other
means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent
application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or
lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees
and failure to properly legalize and submit formal documents. If us and our licensors fail to maintain the patents and patent applications covering AVB-500,
our competitive position would be adversely affected.
Intellectual property rights do not necessarily address all potential threats to our competitive advantage.
The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may
not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative:
• Others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we license;
• Our licensors or collaborators might not have been the first to make the inventions covered by an issued patent or pending patent application;
• Our licensors or collaborators might not have been the first to file patent applications covering an invention;
• Others may independently develop similar or alternative technologies or duplicate any of our or our licensors’ technologies without infringing our
intellectual property rights;
• Pending patent applications may not lead to issued patents;
•
Issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our
competitors;
• Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information
learned from such activities to develop competitive products for sale in our major commercial markets;
• We may not develop or in-license additional proprietary technologies that are patentable; and
• The patents of others may have an adverse effect on our business.
Should any of these events occur, they could significantly harm our business, results of operations and prospects.
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers.
Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies. These
employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employers. Although we
try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or
these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former
employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against
such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or
personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management.
51
Risks Related to the ownership of our common stock
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock
could incur substantial losses.
Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. From January 1, 2020 through December 31,
2020 the reported sale price of our common stock has fluctuated between $3.50 and $14.81 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. In addition, the ongoing COVID-19 pandemic
has caused broad stock market and industry fluctuations. 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 business strategy;
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;
the success of our efforts to acquire or in-license additional products or product candidates;
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;
•
•
•
•
•
•
declines in the market prices of stocks generally;
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;
other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international
conflicts, public health issues including health epidemics or pandemics, such as the ongoing COVID-19 pandemic, and natural disasters such as fire,
hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could
disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability; and
•
the other risks described in this “Risk factors” section.
52
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Since the
stock price of our common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common stock
could incur substantial losses. 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.
Our executive officers, directors, and entities under our control, and principal stockholders will continue to maintain the ability to control or
significantly influence all matters submitted to stockholders for approval.
As of March 10, 2021, our executive officers, directors and entities under their control, and principal stockholders, in the aggregate, owned shares
representing approximately 34.6% of our common stock. As a result, if these stockholders were to choose to act together, they would be able to control or
significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, if
they choose to act together, will control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or
substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders
may desire.
We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives.
As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private
company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities
and Exchange Commission, or SEC, and the rules and regulations of The Nasdaq Global Select Market, or Nasdaq. Compliance with the various reporting
and other requirements applicable to public companies requires considerable time and attention of management. For example, the Sarbanes-Oxley Act and
the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and
maintenance of effective disclosure and financial controls. Our management and other personnel are devoting and will continue to need to devote a
substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs
and will make some activities more time-consuming and costly. The impact of these events could also make it more difficult for us to attract and retain
qualified personnel to serve on our board of directors, our board committees, or as executive officers.
The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and
procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management
to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be
required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with
our annual report on Form 10-K following the date on which we are once again an accelerated filer and are no longer an emerging growth company. Our
compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management
efforts. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm
identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline
and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and
management resources.
Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate consolidated
financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and
controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or
controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an
unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse
impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets.
For the year ended December 31, 2019, we were an “emerging growth company,” and availed ourselves of certain the reduced disclosure requirements
applicable to emerging growth companies. In addition, we are currently a “smaller reporting company,” as defined in the Exchange Act and have
elected to take advantage of certain of the scaled disclosures available to smaller reporting companies.
As of December 31, 2019, we are no longer an emerging growth company under the Jumpstart Our Business Startups Act enacted in April 2012 (“JOBS
ACT”). However, for the years ended December 31, 2019 and prior thereto we were an emerging growth company. As an emerging growth company and
for so long as we continued to be an emerging growth company, we were permitted to and did rely on exemptions from certain disclosure requirements that
are applicable to other public companies that are not emerging growth companies. These exemptions include:
53
•
•
•
•
not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory
audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
reduced disclosure obligations regarding executive compensation; and
exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden
parachute payments not previously approved.
While we were an emerging growth company we chose to take advantage of some, but not all, of the available exemptions. As a result of these scaled
regulatory requirements, our disclosure may be more limited than that of other public companies and investors may not have the same protections afforded
to shareholders of such companies. In addition, investors may find our common stock less attractive since we relied on these exemptions. If some investors
find our common stock less attractive as a result, there may be a less active trading market for our common stock and the price of our common stock price
may be more volatile.
In addition, we are currently a “smaller reporting company,” as defined in the Exchange Act and have elected to take advantage of certain of the
scaled disclosures available to smaller reporting companies. To the extent that we continue to qualify as a “smaller reporting company” as such term
is defined in Rule 12b-2 under the Exchange Act, even after we ceased to qualify as an emerging growth company, certain of the exemptions
available to us as an “emerging growth company” continue to be available to us as a “smaller reporting company,” including exemption from
compliance with the auditor attestation requirements pursuant to SOX and reduced disclosure about our executive compensation arrangements.
As a result, the information we provide stockholders will be different than the information that is available with respect to other public
companies. In this prospectus, we have not included all of the executive compensation related information that would be required if we were not an
emerging growth company, nor have we included all of the quantitative and qualitative disclosures about market risk that would be required if we
were not a smaller reporting company. We cannot predict whether investors will find our common stock less attractive if we rely on these
exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and
our stock price may be more volatile.
An active trading market for our common stock may not be maintained, or we may fail to satisfy applicable Nasdaq listing requirements.
Our common stock is currently traded on Nasdaq, but we can provide no assurance that we will be able to maintain an active trading market for our
shares on Nasdaq or any other exchange in the future. The fact that a significant portion of our outstanding shares of common stock is closely held by a few
individuals, results in it being more difficult for us to maintain an active trading market. If there is no active market for our common stock, it may be
difficult for our stockholders to sell shares without depressing the market price for the shares or at all, our stock price could decline, and we may be unable
to maintain compliance with applicable Nasdaq listing requirements.
If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and
trading volume could decline.
The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our
business. The analysts that cover us may cease to publish research on our company at any time in their discretion. If one or more of these analysts cease
coverage of our company, or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and
trading volume to decline. In addition, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about
our business, our stock price would likely decline. If our operating results fail to meet the forecast of analysts, our stock price would likely decline.
54
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by
our stockholders to replace or remove our current management.
Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that
stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions
could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our
common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by
making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the
members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management
team. Among others, these provisions include the following:
•
•
•
•
•
•
our board of directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a
change in control;
our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or
removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
our stockholders are not able to act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority
of our capital stock are not able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the
board of directors, the chairman of the board, the chief executive officer or the president;
our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect
director candidates;
our stockholders are required to provide advance notice and additional disclosures in order to nominate individuals for election to the board of
directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from
conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and
our board of directors are able to issue, without stockholder approval, shares of undesignated preferred stock, which makes it possible for our board
of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after
the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a
prescribed manner.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain
disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our
directors, officers or employees.
Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive
forum for any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a fiduciary duty owed by any
director, officer or other employee of the Company to the Company or the Company’s stockholders, any action asserting a claim arising pursuant to any
provision of the Delaware General Corporation Law or any action asserting a claim governed by the internal affairs doctrine. This forum selection
provision does not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act or any claim for which the federal
courts have exclusive jurisdiction.
This forum selection provision may limit a stockholder’s ability to bring certain claims in a judicial forum that it finds favorable for disputes with us or
any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will
not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. If a court were to find this forum
selection provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other
jurisdictions, which could adversely affect our business and financial condition.
55
Our employment arrangements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in
connection with a change in control of us, which could harm our financial condition or results.
Certain of our executive officers are parties to employment or other agreements or participants under plans that contain change in control and severance
provisions providing for aggregate cash payments for severance and other benefits and acceleration of vesting of stock options in the event of a termination
of employment in connection with a change in control of us. The accelerated vesting of options could result in dilution to our existing stockholders and
harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these
potential severance payments may discourage or prevent third parties from seeking a business combination with us.
Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our
stockholders’ sole source of gain.
We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the
growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a
result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future.
56
Item 1B. Unresolved Staff Comments.
None
Item 2. Properties.
We do not own any real property and lease facilities in Morrisville, North Carolina, Menlo Park, California and Houston, Texas. Our principal
executive offices are located in Houston, Texas where we occupy office space pursuant to the terms of a lease agreement that expires on July 31, 2021,
which will automatically renew each year for a one-year term, unless a three-month notice is given to cancel. Our rent under the lease is approximately
$3,000 per month.
In March 2017, we entered into an operating facility lease agreement with Bohannon Associates, a California partnership, dated March 17, 2017 (the
“Master Lease”) for approximately 34,500 rentable square feet of office space located at 1020 Marsh Road, Menlo Park, California and for approximately
17,400 rentable square feet located at 1060 Marsh Road. In September 2017, we opted out of our intent to occupy 1060 Marsh Road. The lease for 1020
Marsh Road commenced in August 2017 for a period of 86 months with one renewal option for a five-year term. Future base rent we owe over the lease
term as of December 31, 2020 is $10.8 million.
On September 14, 2018, the Sublease dated August 21, 2018 (the “Sublease Agreement”) by and between us and EVA Automation, Inc. (“Subtenant”)
became effective, whereby we agreed to sublease to Subtenant all of the approximately 34,500 rentable square feet of office space at 1020 Marsh Road,
Menlo Park, California currently leased pursuant to the Master Lease. The sublease commenced on October 1, 2018 and the term of the sublease is through
October 31, 2024, unless the Master Lease is terminated earlier due to a breach by Subtenant. Base rent Subtenant is obligated to pay us as of December 31,
2020 is $9.8 million. Since April 2020, Subtenant has defaulted on its obligation to pay rent and common area maintenance charges under the Sublease
Agreement which has resulted in a decrease in sublease income available to offset our lease payments owed to the landlord. See Item 1A. Risk Factors
“The failure of EVA to fulfill its payment obligations with respect to the office space that we subleased to it in Menlo Park, California or our inability to
find a new subtenant for the space in a timely manner will reduce or potentially eliminate our sublease income which would adversely affect our cash
position.” As of December 31, 2020, the Subtenant has vacated the property.
In October 2018, we executed a lease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the
lease commenced on October 30, 2018 and expired August 31, 2020.
In August 2020, we entered into an operating facility lease agreement with Perimeter Center 7 Pack, LLC dated August 14, 2020 for approximately
4,128 square feet of office space at 1800 Perimeter Park Suite 130, Morrisville, North Carolina. Future base rent we owe over the lease term as of
December 31, 2020 is $0.6 million.
We believe that our existing facilities are adequate for our current needs.
Item 3. Legal Proceedings.
We are not currently subject to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise
in the ordinary course of its business activities. Litigation, regardless of the outcome, could have an adverse impact on us because of defense and settlement
costs, diversion of management resources and other factors.
Item 4. Mine Safety Disclosures.
Not Applicable
57
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market for Registrant’s Common Equity
Since October 16, 2018, our common stock has been listed on The Nasdaq Global Select Market under the symbol “ARAV”. Prior to that, from March
21, 2014 until October 16, 2018, our common stock traded on The Nasdaq Global Select Market under the symbol “VSAR”. In connection with the
completion of the Merger, on October 15, 2018, our amended and restated certificate of incorporation was amended to effect, on October 16, 2018, a
reverse split of our common stock at a ratio of 1-for-6.
Holders
On March 10, 2021, there were 29 stockholders of record of our common stock, one of which was Cede & Co., a nominee for Depository Trust
Company, or DTC. All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners
are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholder.
Dividend Policy
We have not paid dividends on our common stock. We currently intend to retain any earnings for use in the development and expansion of our business.
We, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future.
Sales of Unregistered Equity Securities
There were no unregistered sales of equity securities by us during the year ended December 31, 2020 that were not previously disclosed in our filings
with the Securities and Exchange Commission.
Performance Graph
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this
item.
Item 6. Selected Financial Data.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this
item.
58
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial
statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Form 10-K contain forward-
looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could
differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not
limited to, those discussed in the section of this Form 10-K entitled “Risk Factors.”
Overview
We are a clinical-stage oncology company developing transformative treatments designed to halt the progression of life-threatening diseases.
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.
Our current development program benefits from the availability of a proprietary serum-based biomarker that has accelerated AVB-500 drug
development by allowing us to select a pharmacologically active dose and may potentially identify the cancer patients that have the best chance of
responding to AVB-500.
In our completed Phase 1 clinical trial in healthy volunteers with our 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 trial and Phase
1b clinical trial in cancer patients.
In December 2018, we initiated our Phase 1b clinical trial of AVB-500 combined with standard of care therapies in patients with platinum-resistant
ovarian cancer or PROC, for which we reported results in July 2020. In August 2018, the U.S. Food and Drug Administration or FDA designated as a Fast
Track development program the investigation of our lead development candidate, AVB-500, for platinum-resistant recurrent ovarian cancer. We initiated a
pivotal Phase 3 trial of AVB-500 in PROC during the first quarter 2021.
In January 2020, we announced that the FDA has cleared our Investigational New Drug or IND application for investigation of AVB-500, in the
treatment of our second oncology indication, Clear Cell Renal Cell Carcinoma or ccRCC. During the fourth quarter of 2020, we initiated our Phase 1b/2
trial of AVB-500 in ccRCC and we dosed our first patient in the trial during the first quarter of 2021.
In April 2020, we entered into a license and collaboration agreement with WuXi Biologics (Hong Kong) Limited, the objective of which is to identify
and develop novel high-affinity bispecific antibodies against CCN2, also known as connective tissue growth factor (CTGF), implicated in cancer and
fibrosis and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to generate a
best-in-class therapeutic targeting desmoplasia and tumor growth in the clinic in 2023.
On November 6, 2020, we entered into a collaboration and license agreement with 3D Medicines Inc. or 3D Medicines, whereby we granted 3D
Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance, for the diagnosis, treatment or
prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau.
With the global spread of the ongoing novel coronavirus or COVID-19 pandemic, we have implemented business continuity plans designed to address
and mitigate the impact of the COVID-19 pandemic on our employees and our business. While we are experiencing limited financial impacts at this time,
given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the
pandemic, our business, financial condition, results of operations and growth prospects could be materially adversely affected. As we advance our clinical
programs, we are in close contact with our clinical research organizations and clinical sites and are assessing the impact of COVID-19 on our planned
studies and current timelines and costs. While we currently do not anticipate any interruptions in our operations due to COVID-19 if the COVID-19
pandemic continues and persists for an extended period of time, we could experience significant disruptions to our clinical development timeline, which
would adversely affect our business, financial condition, results of operations and growth prospects.
59
Important Note
This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our operations for the years
ended December 31, 2020 and December 31, 2019.
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.
Recent Developments
In November 2020, we entered into a collaboration and license agreement with 3D Medicines, whereby we granted 3D Medicines an exclusive license
to develop and commercialize products that contain AVB-500 as the sole drug substance, for the diagnosis, treatment or prevention of human oncological
diseases, in mainland China, Taiwan, Hong Kong and Macau.
On February 12, 2021, we entered into a Securities Purchase Agreement (the “Purchase Agreement”), with Eshelman Ventures relating to the issuance
and sale (the “Offering”) of 2,875,000 shares of our common stock at a price per share of $7.29. The Offering closed on February 18, 2021 and we received
aggregate gross proceeds from the Offering of approximately $21.0 million.
Financial overview
Revenue
To date, we have not generated any revenue from commercial sales of any of our product candidates. However, for the year ended December 31, 2020,
we generated $5.7 million from our collaboration agreement with 3D Medicines collaboration agreement and we generated grant revenue of $4.8 million
for the year ended December 31, 2019 from our CPRIT Grant.
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.
Research and development expenses
We recognize both internal and external research and development expenses as incurred. Our external research and development expenses consist
primarily of:
•
•
•
the cost of acquiring and manufacturing clinical trial and other materials, including expenses incurred under agreements with contract manufacturing
organizations;
expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials;
other costs associated with development activities, including additional studies;
Internal research and development costs consist primarily of salaries and related fringe benefit costs for our employees (such as workers’ compensation
and health insurance premiums), stock-based compensation charges and travel costs.
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 and gains and losses on foreign currency
transactions related to third party contracts with foreign-based contract manufacturing organizations.
60
Results of operations
Comparison of the years ended December 31, 2020 and 2019
The following table summarizes our net loss during the periods indicated (in thousands, except percentages):
Revenue:
Grant revenue
Collaboration revenue
Total revenue
Operating expenses:
Research and development
General and administrative
Loss on impairment of long-lived assets
Total operating expenses
Loss from operations
Interest income
Other income (expense), net
Net loss
(1)
Not meaningful.
Grant revenue
Year Ended December 31,
2019
2020
$
—
5,685
5,685
$
4,753
—
4,753
17,620
13,065
5,784
36,469
(30,784)
255
(14)
(30,543)
$
12,836
13,691
—
26,527
(21,774)
1,022
2,534
(18,218)
$
$
$
Increase/
(Decrease)
(4,753)
5,685
932
4,785
(626)
5,784
9,942
9,010
(767)
(2,548)
12,325
NM
NM
(1)
(1)
20%
37%
-5%
NM
(1)
37%
41%
-75%
-101%
68%
Aravive Biologics had a grant with CPRIT. Grant revenue was $4.8 million in 2019 and was derived solely from the CPRIT Grant for the research and
development of AVB-500. Recognition of Grant revenue was completed as of the end of the second quarter of 2019 as we have recognized the full amount
related to the contract.
In November 2020, we entered into a collaboration and license agreement with 3D Medicines. Collaboration revenue was $5.7 million in 2020 and $6.3
million of deferred revenue as of December 31, 2020, to be recognized in a future period.
Research and development expense
Research and development expense increased by $4.8 million, or 37%, to $17.6 million in 2020 from $12.8 million for the same period in 2019. The
increase was primarily due to the timing of our clinical trial expenses and an increase in our compensation expense as we further built out research and
development team for our upcoming clinical trials. The initiation of our Phase 3 trial of AVB-500 in PROC is a significant driver to the increase in expense
in 2020 when compared to the same period in 2019. There were also increased manufacturing activities during 2020 due to the initiation of the Phase 3
PROC trial.
General and administrative expense
General and administrative expense decreased by $0.6 million, or 5%, to $13.1 million in 2020 from $13.7 million for the same period in 2019. The
decrease was primarily driven by a lower stock-based compensation expense along with reduced accounting and consulting fees.
Loss on impairment of long-lived assets
We incurred non-cash charges for impairment of our long-lived assets of $5.8 million for 2020. We measured the impairment of the asset group using a
discounted cash flow analysis of the estimated future sublease payments to be received from an expected sublessee as we currently plan to market the 1020
Marsh Road location for subletting.
Other income (expense), net
Other income, decreased by $2.5 million, or 101%, to $14 thousand other expense net in 2020 from $2.5 million of other income for the same period in
2019. The decrease relates to full calendar year of sublease income recorded in 2019 as compared to seven months of sublease income recorded in 2020.
61
Liquidity and Capital Resources
Since our inception and through December 31, 2020, we have financed our operations through private placements of our equity securities, public
offerings of our common stock, debt financing, CPRIT grant proceeds, sales of common stock through our at-the-market facility as well as upfront
payments received from license agreements. At December 31, 2020, we had an accumulated deficit of approximately $500.7 million and working capital of
$52.2 million, primarily as a result of research and development and general and administrative expenses. At December 31, 2020, we had cash and cash
equivalents of approximately $60.5 million, a majority of which is invested in money market funds at several highly rated financial institutions. In March
2020, we received approximately $1.6 million of additional funding from our CPRIT Grant. In November 2020, we received $12 million in upfront
payments from 3D Medicines pursuant to our collaboration and license agreement with them. On February 18, 2021, we received approximately $21
million from the purchase by Eshelman Ventures of 2,875,000 shares of our common stock.
In September 2020, we filed a shelf registration statement on Form S-3 with the SEC which was declared effective by the SEC on November 20, 2020,
or the Form S-3. On September 4, 2020, and pursuant to the Form S-3, we entered into an equity distribution agreement or the Equity Distribution
Agreement, with Piper Sandler & Co., or Piper Sandler, and Cantor Fitzgerald & Co., or Cantor Fitzgerald, to sell shares of our common stock, par value
$0.0001 per share, from time to time, through an “at the market offering” program having an aggregate offering price of up to $60,000,000 through which
Piper Sandler and Cantor Fitzgerald will act as sales agents, or the Sales Agents. During the three-month period ended December 31, 2020, we sold
377,400 shares for proceeds net of discounts and offering costs of $2.4 million under the Equity Distribution Agreement. In January and February 2021, we
sold 197,949 shares for proceeds net of discounts and offering costs of $1.6 million under the Equity Distribution Agreement.
As of December 31, 2020, we had cash and cash equivalents of approximately $60.5 million, which does not include approximately $21 million
received subsequent to year end from the investment made by Eshelman Ventures. 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 as we continue the development of AVB-500. We will
need to obtain additional financing to advance our clinical development program to later stages of development 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.
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 our 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 our 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.
62
Cash flows
The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below:
Net cash (used in) provided by:
Operating activities
Investing activities
Financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash used in operating activities
Year Ended December 31,
2020
2019
(In thousands)
$
$
(12,169) $
—
7,583
(4,586) $
(17,081)
—
25,250
8,169
Net cash used in operating activities was $12.2 million and $17.1 million during the years ended December 31, 2020 and 2019, respectively, which was
primarily due to the use of funds in our operations related to the development of AVB-500, our product candidate. Cash used in operating activities in 2020
decreased compared to the year ended December 31, 2019 due to primarily the receipt of $12 million from 3D Medicines in November 2020. Cash used in
operating activities during the year ended December 31, 2019 was mostly related to operational expenses slightly offset by receipt of $1.6 million from the
CPRIT Grant.
Cash provided by investing activities
Net cash from investing activities during the years ended December 31, 2020 and 2019 was zero.
Cash provided by financing activities
Net cash provided by financing activities was $7.6 million and $25.3 million during the years ended December 31, 2020 and 2019, respectively.
Financing activities related to the year ended December 31, 2020 includes a private placement offering with proceeds of $5.0 million in April 2020 along
with at the market offering proceeds of $2.3 million. Financing activities during the year ended December 31, 2019 related to proceeds received from
issuance of our common stock in a public offering which was completed in December of 2019.
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.
JOBS Act accounting election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” to take advantage of an extended transition
period to comply with new or revised accounting standards applicable to public companies. For the year ended December 31, 2019, we chose to “opt out”
of this provision and, as a result, we complied with new or revised accounting standards as required when they were adopted. As of December 31, 2019, we
are no longer an emerging growth company.
Critical Accounting Policies, Significant Judgments and Use of Estimates
The Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”). The preparation
of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, 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. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies
relate to the more significant areas involving management’s judgments and estimates.
63
Grant Revenue
Revenues from the CPRIT Grant are 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. As of December 31, 2019, we had an unbilled receivable from CPRIT of
$1.6 million, which is reflected in prepaid expenses and other current assets on the accompanying consolidated balance sheet. This receivable was collected
in March 2020.
Collaboration Revenue
Collaboration revenue for 2020 has been generated through our collaboration and license agreement which is within the scope of ASC 606. Under ASC
606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity
expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of
ASC 606, we perform the following five steps:
(i) identify the contract(s) with a customer;
(ii) identify the performance obligations in the contract;
(iii) determine the transaction price;
(iv) allocate the transaction price to the performance obligations in the contract; and
(v) recognize revenue when (or as) the entity satisfies a performance obligation.
We only apply the five-step model to contracts when it is probable that the entity will collect the consideration we are entitled to in exchange for the
goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the
goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is
distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the
performance obligation is satisfied.
Our collaboration and license agreement contain multiple elements including (i) intellectual property licenses and (ii) research and development
services. Consideration received under these arrangements may include upfront payments, research and development funding, cost reimbursements,
milestone payments, payments for product sales and royalty payments. In determining the appropriate amount of revenue to be recognized as we fulfill our
obligations under the agreement, we implement the five-step model noted above. As part of the accounting for the arrangement, we must develop
assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a
combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. A deliverable
represents a separate performance obligation if both of the following criteria are met: (i) the customer can benefit from the good or service either on its own
or together with other resources that are readily available to the customer, and (ii) the entity’s promise to transfer the good or service to the customer is
separately identifiable from other promises in the contract. We use key assumptions to determine the stand-alone selling price, which may include
forecasted revenues, development timelines, estimated costs to be incurred, discount rates, and probabilities of technical and regulatory success.
Research and Development Expense
Research and development costs are expensed as incurred. Research and development expense includes payroll and personnel expenses; consulting
costs; external contract research and development expenses; and allocated overhead, including rent 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;
64
•
•
•
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.
Right-of-Use Lease Accounting
The most significant estimates used by management in accounting for right-of-use leases and the impact of these estimates are as follows:
• Lease term - We estimate our lease term and lease obligation based upon our signed commitment to make the lease payments arising from our
leases. We consider any lease extensions and if we determine those extensions are reasonably certain that we will exercise that option those
extensions, if any, are included in the lease term.
•
Incremental borrowing rate - Our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on the information
available at the lease inception in determining the present value of lease payments.
Stock-based Compensation Expense
For the years ended December 31, 2020 and 2019, stock-based compensation expense was $2.0 million and $3.4 million, respectively. As of
December 31, 2020, we had approximately $2.9 million of total unrecognized compensation expense, which we expect to recognize over a weighted-
average period of approximately 2.7 years. The intrinsic value of all outstanding stock options as of December 31, 2020 was approximately $5.9 million, of
which all related to vested options. We expect to continue to grant equity incentive awards in the future as we seek to retain our existing employees.
Stock-based compensation costs related to stock options granted to employees are measured at the date of grant and to the options assumed in
connection with the Merger are measured at the date of the Merger based on the estimated fair value of the award, net of estimated forfeitures. We estimate
the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of
stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the award. Stock options
we grant to employees generally vest over four years.
The Black-Scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. If we had
made different assumptions, our stock-based compensation expense, net loss and net loss per share of common stock could have been significantly
different. These assumptions include:
• Expected volatility: The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with
the estimated expected term of our stock options.
• Expected term: We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for
estimating the expected term for use in estimating the fair value-based measurement of our options. Therefore, we have opted to use the “simplified
method” for estimating the expected term of options.
• Risk-free rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity.
• Expected dividend yield: We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable
future. Consequently, we used an expected dividend yield of zero.
65
See Note 9 to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for information concerning certain
of the specific assumptions used in applying the Black-Scholes option-pricing model to determine the estimated fair value of employee stock options. In
addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based
compensation expense for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized
for our stock-based compensation expense calculations on a prospective basis.
Income Taxes
We file U.S. federal income tax returns, Texas, California and other various state tax returns. To date, we have not been audited by the Internal Revenue
Service or any state income tax authority; however, all tax years remain open for examination by federal and state tax authorities. We use the asset and
liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the
financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when
it is deemed more likely than not that some portion or all of a deferred tax asset will not be realized.
As of December 31, 2020, our total gross deferred tax assets were $15.7 million. Due to our lack of earnings history and uncertainties surrounding our
ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily
comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be
limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar
rules may apply under state tax laws. We have performed an analysis to determine whether an “ownership change” occurred from inception up to the
Aravive Biologics acquisition date. Based on this analysis during 2018, management determined that both Versartis, Inc. and Aravive Biologics did
experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. During the years ended
December 31, 2020 and 2019, no additional ownership changes were noted.
Recent Accounting Pronouncements
Recently issued accounting pronouncements that we have adopted or are currently evaluating are described in detail within “Note 2—Summary of
Significant Accounting Policies” and “Note 6-Leases” to the accompanying consolidated financial statements included elsewhere in the Annual Report on
Form 10K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information required under this
item.
66
Item 8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the registrant, related notes and reports of independent registered public accounting firms are set
forth beginning on page F-1 of this report.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to the Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
An evaluation as of December 31, 2020 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,” which are defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the Exchange Act), 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 Securities and Exchange Commission's rules and forms, and that such information is accumulated and
communicated to our management, including our 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 concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of December 31, 2020.
(b) Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-
15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of
financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well
designed, have inherent limitations and can provide only reasonable assurance that the objectives of the internal control system are met.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted
an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on our evaluation, we concluded that our
internal control over financial reporting was effective as of December 31, 2020.
As of December 31, 2020, we are a non-accelerated filer, our independent registered accounting firm is not required to issue an attestation report on our
internal control over financial reporting.
(c) 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 December 31, 2020, and has concluded that there was no change during such period that has materially
affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None
67
Item 10. Directors, Executive Officers and Corporate Governance.
PART III
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth information concerning our directors and executive officers, including their ages as of March 10, 2021. There are no
family relationships among any of our directors or executive officers.
Name
Gail McIntyre, Ph.D.(1)
Vinay Shah (2)
Reshma Rangwala, M.D. (3)
Fredric N. Eshelman, Pharm. D.
Amato Giaccia, Ph.D.
Michael W. Rogers
Eric Zhang
Age
58
58
43
72
62
61
39
Position(s)
President, Chief Executive Officer and Director
Chief Financial Officer
Chief Medical Officer
Chairman of the Board of Directors
Director
Director
Director
(1)
Dr. McIntyre was appointed President and Chief Executive Officer and director effective April 8, 2020. Dr. McIntyre served as our Chief Scientific
Officer from February 12, 2019 until her appointment as Chief Executive Officer.
(2) Mr. Shah has served as our Chief Financial Officer since October 12, 2018.
(3)
Dr. Rangwala has served as our Chief Medical Officer since September 28, 2020.
Gail Mclntyre, Ph.D., Chief Executive Officer and Director
Dr. McIntyre has served as a member of the Board of Directors and as our President and Chief Executive Officer since April 8, 2020 and from February
2019 until her appointment as our Chief Executive Officer, as our Chief Scientific Officer. Dr. McIntyre also served as our Senior Vice President of
Research and Development from the Merger until February 2019 and served as Aravive Biologics’ Senior Vice President of Research and Development
from January 2017 to October 2018 and a consultant to Aravive Biologics from August 2016 until January 2017. Having brought multiple drugs to market,
Dr. McIntyre has more than 20 years of experience in drug development, strategic business development, licensing and M&A activities. Dr. McIntyre has
served as a principal at IntelliDev Consulting, LLC providing consulting services to several biotechnology companies for three years, while also serving as
VP of Development for Meryx, Inc. from January 2014 until January 2016. Prior to that, Dr. McIntyre held the position of senior vice president of research
at Furiex Pharmaceuticals, Inc. and previously served as head of Pharmaceutical Product Development LLC’s (PPD) compound partnering business. At
both Furiex and PPD, she strategized and managed all preclinical and clinical activities for drug development programs and was responsible for
identification of new partnering opportunities and technical due diligence for both in-licensing opportunities and new business acquisitions. At PPD, she
led the partnering and the in-licensing of Alogliptin from Syrrx, Inc. at preIND stage and the licensing to Takeda at Phase 2. She was instrumental to the
licensing of Dapoxetine to what is currently Johnson & Johnson and then The Menarini Group. She played a pivotal role in the $1.1 billion acquisition of
Allergan in 2014 and successfully negotiated with CSS on scheduling for Viberzi, in addition to driving all aspects of development. Dr. McIntyre has
authored more than 30 regulatory submissions and is a board-certified toxicologist. Her experience covers multiple therapeutic areas including oncology
(including immune-oncology), infectious diseases, central nervous system, gastrointestinal, and metabolic/endocrine as well as various therapies including
small drugs, treatment vaccines, antibodies, immunoconjugates and peptide mimetics. Dr. McIntyre is also board certified in Clinical Pathology
(hematology and clinical chemistry) by the American Society of Clinical Pathology. Dr. McIntyre received her B.A. in Biology from Merrimack College.
She earned M.S. and Ph.D. degrees in Biochemistry and Biophysics from the University of North Carolina at Chapel Hill.
We believe that Dr. McIntyre is able to make valuable contributions to the Board of Directors due to her clinical and leadership experience in the
healthcare and pharmaceutical industries.
Vinay Shah, Chief Financial Officer
Mr. Shah has served as our Chief Financial Officer since the Merger was completed on October 12, 2018. Mr. Shah also served as the Chief Financial
Officer of Aravive Biologics since 2010, initially as a consultant and from 2017 as an employee. Mr. Shah brings more than 18 years of financial
management experience in the medical device and biopharmaceutical industries to our company. From 2008 until 2016, he served in various positions at
Pacira Pharmaceuticals Inc., a specialty pharmaceutical company, including Executive Director of Finance and Executive Director of Strategy Analytics,
initially as a consultant and since 2010 as an employee.
68
Before Pacira Pharmaceuticals Inc., Mr. Shah worked for Cardinal Health’s medical device group in various finance management positions. The group was
subsequently consolidated and spun off as CareFusion and then sold to Becton, Dickinson and Company. His prior work experience includes positions at
Pricewaterhouse Coopers LLP and KPMG in India and the Middle East. Mr. Shah received a Bachelor of Commerce degree from Ranchi University in
India. He is a Chartered Accountant from the Institute of Chartered Accountants in India and has an MBA from W.P. Carey School of Business at Arizona
State University.
Reshma Rangwala, M.D., Ph.D., Chief Medical Officer
Dr. Rangwala has served as our Chief Medical Officer since September 28, 2020. Previously, from May 2017 until July 2020, she served as Vice
President, Medical, at Genmab Inc. where she led the clinical development program for a first-in-class antibody drug conjugate and managed clinical
strategy, protocol development, data monitoring, data analysis, study report authoring, and biologic licensing application preparations. From June 2012
until May 2017, Dr. Rangwala served as Executive Clinical Director at Merck & Co, where she was involved in the clinical development of KEYTRUDA
in non-small cell lung cancer and gynecologic malignancies. She received her B.S. in Biology from Duke University and her M.D./Ph.D. from the
University of Cincinnati College of Medicine. She completed her internal medicine residency at Barnes Jewish Hospital in St. Louis, MO and her medical
oncology fellowship at the Hospital of the University of Pennsylvania.
Fredric N. Eshelman, Pharm. D, Chairman of the Board of Directors
Dr. Eshelman has served as the Chairman of the Board of Directors since April 8, 2020. Dr. Eshelman is the Founder of Eshelman Ventures, LLC, an
investment company primarily interested in healthcare companies. Previously, he founded and served as Chairman and Chief Executive Officer of
Pharmaceutical Product Development, Inc. (PPDI) prior to the sale of the company to private equity interests. After PPD, he served as founding chairman
and was the largest shareholder of Furiex Pharmaceuticals, Inc. (FURX), a company which in-licensed and rapidly developed new medicines. Furiex was
sold to Forest Laboratories Inc. (which was later acquired by Actavis) in 2014. His career has also included positions as SVP development and board
member of the former Glaxo, Inc., as well as management positions with Beecham Laboratories and Boehringer Mannheim Pharmaceuticals. He is
currently chairman of several biotech companies and previously was chairman of The Medicines Company (MDCO) and was on the board of Bausch
Health (BHC). Dr. Eshelman is also a member of the Board of Directors of G1 Therapeutics, Inc. (Nasdaq: GTHX), Amplitude Healthcare Acquisition
Corp. (Nasdaq: AMHC) and Eyenovia Inc. (Nasdaq:EYEN). Dr. Eshelman has served on the executive committee of the Medical Foundation of North
Carolina and was appointed by the North Carolina General Assembly to serve on the Board of Governors for the state's multi-campus university system
(chair of audit committee), as well as the North Carolina Biotechnology Center. In addition, he chairs the board of visitors for the School of Pharmacy at
University of North Carolina at Charlotte (UNC-CH). The school was named the UNC Eshelman School of Pharmacy in recognition of his many
contributions to the school and the profession.
He has received many awards including the Davie and Distinguished Service Awards from UNC, outstanding alumnus from both the UNC and
University of Cincinnati schools of pharmacy, Life Science Leadership Award (CED) and the North Carolina Biotech Hall of Fame. Dr. Eshelman received
the doctor of pharmacy from the University of Cincinnati, completed a residency at Cincinnati General Hospital, and received a BS Pharm from UNC-CH.
He completed the OPM program at Harvard Business School. Dr. Eshelman also received an honorary doctor of science from UNC-CH.
We believe Dr. Eshelman is qualified to serve as a member of our Board of Directors based on his experience in the life sciences, biotechnology and
pharmaceutical industries and for his knowledge of corporate development matters.
Amato Giaccia, Ph.D., Director
Dr. Giaccia has served as a member of the board of directors since the Merger was completed on October 12, 2018. Prior to the closing date of the
Merger, he also served as a member of the board of directors of Private Aravive from August 2010 to October 2018 and as Acting Chief Scientific Officer
of Private Aravive from January 2017 until the Merger was completed on October 12, 2018. Dr. Giaccia also served as Professor of Radiation Oncology,
Associate Chair for Research & Director of the Division of Radiation & Cancer Biology in the Department of Radiation Oncology at Stanford University
School of Medicine, a position he has held since 2011 and has been a Director of Oxford Institute of Radiation Oncology since January 2019. He is also
the Associate Director for Basic Science and leader of the Radiation Biology Program in Stanford Cancer Institute. He has also served as the Director of the
Cancer Biology Interdisciplinary Graduate Program and is currently the “Jack, Lulu and Sam Willson Professor in Cancer Biology” in the Stanford
University School of Medicine. He received his Ph.D. from the University of Pennsylvania.
We believe that Dr. Giaccia is able to make valuable contributions to the board of directors due to his extensive scientific and medical knowledge and
experience and his familiarity with Aravive’s technology as the leader of the laboratory in which it originated.
69
Michael Rogers, Director
Mr. Rogers has served as a member of the board of directors since September 15, 2020. Mr. Rogers most recently served as Chief Financial Officer at
Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO) from November 2017 to October 15, 2019. Prior to Aerpio Pharmaceuticals, Inc., he served as Chief
Financial Officer at Acorda Therapeutics, Inc. (Nasdaq: ACOR) from 2013 to 2016 and held executive and leadership positions at BG Medicine, Indevus
Pharmaceuticals (acquired by Endo Pharmaceuticals), Advanced Health Corporation and Autoimmune. Mr. Rogers currently serves as a member of the
Board of Directors for Akebia Therapeutics (Nasdaq Global Market: AKBA), with previous advisory experience at Keryx Biopharmaceuticals, Eyepoint
Pharmaceuticals and Coronado Biosciences. Earlier in his career, Mr. Rogers was an investment banker at Lehman Brothers and PaineWebber, where he
focused on life sciences companies. He earned his M.B.A. from the Darden School of Business at the University of Virginia and received his bachelor’s
degree from Union College.
We believe that Mr. Rogers is able to make valuable contributions to the board of directors due to his extensive public company experience as an officer
and director of biotechnology companies.
Eric Zhang, Director
Mr. Zhang has served as a member of the board of directors since the Merger was completed on October 12, 2018. Prior to the closing date of the
Merger, he also served as a member of the board of directors of Aravive Biologics from June 2016 to October 2018. Mr. Zhang is the Managing Partner of
New Era Technologies Management Ltd., a company he founded in 2016, which is a multi-strategy investor in biotechnology and applied physical sciences
companies. From 2013 until 2016, when he founded New Era Technologies Management Ltd, Mr. Zhang was the manager of his family office investments.
Mr. Zhang joined J.P. Morgan’s China Investment Banking team in Hong Kong in 2006. In the subsequent seven years, Mr. Zhang worked for Macquarie
Capital and Barclays Capital in Hong Kong, responsible for covering clients in the healthcare and technology sectors in the Greater China region. Mr.
Zhang received a Bachelor of Commerce and BA in Economics from Queen’s University in Kingston, Canada.
We believe that Mr. Zhang is able to make valuable contributions to the board of directors due to his extensive experience as an investor in and director
of our company and other biotechnology companies.
TERM AND NUMBER OF DIRECTORS
The board of directors currently consists of five (5) directors and is divided into three classes. Each class serves for a term of three years, with the terms
of office of the respective classes expiring in successive years. Directors in Class I (Dr. Eshelman) will stand for election at the 2021 meeting of
stockholders, directors in Class II (Dr. Giaccia and Mr. Rogers) will stand for election at the 2022 Annual Meeting and directors in Class III (Dr. McIntyre
and Mr. Zhang) will stand for election at the 2023 annual meeting of stockholders.
Vacancies on the board of directors may be filled only by persons elected by a majority of the remaining directors. A director elected by the board of
directors to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of
that class and until the director’s successor is duly elected and qualified.
Information Regarding the Board of Directors and Corporate Governance
Independence of the Board of Directors
Our common stock is listed on the Nasdaq Global Select Market or the Nasdaq. Under the Nasdaq listing standards, independent directors must
comprise a majority of a listed company’s board of directors and all members of the Audit Committee, Compensation Committee and Nominating and
Corporate Governance Committee must be independent. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3
under the Exchange Act and Compensation Committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange
Act. Under the Nasdaq listing standards, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors,
that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
In order to be considered to be independent for purposes of Rule 10A-3, a member of an Audit Committee of a listed company may not, other than in
his or her capacity as a member of the Audit Committee, the board of directors, or any other board committee: (i) accept, directly or indirectly, any
consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries, or (ii) be an affiliated person of the listed company or
any of its subsidiaries.
70
The board of directors undertook a review of the independence of the members of the board of directors and considered whether any director has a
material relationship with our company that could compromise his or her ability to exercise independent judgment in carrying out his or her
responsibilities. Based upon information requested from and provided by each director concerning their background, employment and affiliations,
including family relationships, the board of directors has determined that all of our current directors, except Dr. McIntyre, due to her current position as
President and Chief Executive Officer of our company, is “independent” as that term is defined under the rules of Nasdaq. As a result, Mr. Eshelman, Dr.
Giaccia, Mr. Rogers, and Mr. Zhang are deemed to be “independent” as that term is defined under the rules of Nasdaq.
In making these determinations, the board of directors considered the current and prior relationships that each non-employee director has with our
company and all other facts and circumstances the board of directors deemed relevant in determining their independence, including the beneficial
ownership of capital stock by each non-employee director, and the transactions involving them described in Item 13 of this Amendment “Certain
Relationships and Related-Party Transactions, Director Independence.”
INFORMATION REGARDING COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors has the authority to appoint committees to perform certain management and administration functions. As disclosed above, the
board of directors has established an Audit Committee, a Compensation Committee and Nominating and Corporate Governance Committee. The board of
directors may establish other committees to facilitate the management of our company’s business. The composition and functions of each committee are
described below. Members serve on these committees until their resignation or until otherwise determined by the board of directors.
All of the committees comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq, and SEC, rules and regulations as further
described below. The charters for each of these committees are available on our website at www.aravive.com. Information contained on or accessible
through our website is not a part of this Annual Report on Form 10-K and the inclusion of such website address in this Annual Report on Form 10-K is an
inactive textual reference only.
Committees of the Board of Directors
The table set forth below shows the directors who are currently members or Chairman of each of the Audit Committee, Compensation Committee and
Nominating and Corporate Governance Committee. From time to time, the board of directors may also establish ad hoc committees to address particular
matters.
Name
Gail McIntyre*
Fredric N. Eshelman, Pharm. D.***
Amato Giaccia, Ph.D.
Michael W. Rogers
Eric Zhang
Audit
X
X**
X
Compensation
Nominating and Corporate
Governance
X
X**
X
X**
*
Dr. McIntyre joined the board of directors effective April 8, 2020 as a Class III member. She is not a member of any of the committees of the board
of directors.
**
Committee Chairman
*** Dr. Eshelman serves as the Chairman of the board of directors.
Below is a description of each committee of the board of directors.
Audit Committee
Messrs. Rogers and Zhang and Dr. Giaccia currently serve as members of the Audit Committee. The board of directors has determined that Messrs.
Rogers and Zhang and Dr. Giaccia are each “independent” in accordance with the Nasdaq definition of independence. The board of directors has
determined that each of Messrs. Rogers and Zhang and Dr. Giaccia has the related financial management expertise within the meaning of the Nasdaq rules,
and that each of Messrs. Rogers and Zhang are “financially literate” under the applicable rules and regulations of the SEC and Nasdaq.
71
The primary purpose of the Audit Committee is to act on behalf of the board of directors in fulfilling the board of directors’ oversight responsibilities
with respect to our corporate accounting and financial reporting processes, systems of internal control over financial reporting and audits of financial
statements, as well as the quality and integrity of our financial statements and reports and the qualifications, independence and performance of the
registered public accounting firm or firms engaged as our independent outside auditors for the purpose of preparing or issuing an audit report or performing
audit services. Specific responsibilities of the Audit Committee include:
•
•
•
•
evaluating the performance of and assessing the qualifications of the independent auditors;
determining and approving the engagement of the independent auditors;
determining whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors;
reviewing and approving the retention of the independent auditors to perform any proposed permissible non-audit services;
• monitoring the rotation of partners of the independent auditors on our audit engagement team as required by law;
•
•
•
reviewing and approving or rejecting transactions between us and any related persons;
conferring with management and the independent auditors regarding the effectiveness of internal controls over financial reporting;
establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting,
internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable
accounting or auditing matters; and
• meeting to review our annual audited financial statements and quarterly financial statements with management and the independent auditor.
The Audit Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at www.aravive.com.
The charter describes in more detail the nature and scope of responsibilities of the Audit Committee.
Compensation Committee
Dr. Giaccia and Mr. Rogers currently serve as members of the Compensation Committee, each of whom the board of directors has determined is
independent in accordance Rule 10C-1 under the Exchange Act and the Nasdaq definition of independence and that each is a “non-employee director” as
defined in Rule 16b-3 promulgated under the Exchange Act.
The primary purpose of the Compensation Committee is to discharge the responsibilities of the board of directors to oversee compensation policies,
plans and programs and to review and determine the compensation to be paid to the executive officers, directors and other senior management, as
appropriate. Specific responsibilities of the Compensation Committee include:
•
•
•
•
•
•
•
•
•
reviewing and approving, or recommending that the independent members of the board of directors approve, goals and objectives relevant to the
compensation of executive officers, and evaluating performance in light of such goals and objectives, including reviewing and approving
employment, severance, change in control provisions and other compensatory arrangements;
reviewing and approving the compensation of the directors;
overseeing the administration of equity incentive plans and approve grants and awards;
reviewing and making recommendations to the board of directors regarding the adoption, amendment and termination of our equity incentive plans;
assessing the independence of independent compensation consultants, legal counsel or other advisors to the committee, before retaining them;
reviewing and discussing with management our disclosures regarding compensation for use in any annual reports on Form 10-K, registration
statements or proxy statements, to the extent required by law or Nasdaq listing requirements;
preparing and reviewing the Compensation Committee report on executive compensation included in our annual proxy statement, to the extent
required by law and Nasdaq listing requirements;
investigating any matter brought to the attention of the Compensation Committee within the scope of its duties, if in the judgment of the
Compensation Committee, such investigation is appropriate; and
reviewing and evaluating the performance of the Compensation Committee and the adequacy of its charter.
72
The Compensation Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at
www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Compensation Committee.
Nominating and Corporate Governance Committee
Dr. Giaccia and Dr. Eshelman currently serve as members of the Nominating and Corporate Governance Committee, each of whom, the board of
directors has determined is independent in accordance with the Nasdaq definition of independence. Specific responsibilities of the Nominating and
Corporate Governance Committee include:
•
•
•
•
•
identifying, evaluating and recommending to the board of directors, candidates for election to the board, and making recommendations regarding re-
election of incumbent directors;
considering recommendations and proposals submitted by stockholders in respect of board nominees, establishing policies in respect of such
recommendations and proposals (including stockholder communications with the board of directors), and recommending any action to the board in
respect of such stockholder recommendations and proposals;
identifying, evaluating and recommending to the board of directors, candidates to serve on committees of the board of directors,
assessing the performance of the board of directors; and
developing, recommending to the board of directors and reviewing corporate governance principles, and periodically reviewing such principles, our
code of business conduct and other governance principles and making recommendations to the board of directors in respect thereof.
The Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by the board of directors, which is available on
our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Nominating and Corporate Governance
Committee.
Ad Hoc Committees
During the year ended December 31, 2020, we also had a Research & Development Committee which was terminated in January 2021 and a Business
Strategy Committee which was terminated in November 2020.
Changes to Procedures for Recommending Nominees to the Board of Directors.
None.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our
equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities.
Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required,
during the fiscal year ended December 31, 2020, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent
beneficial owners were complied.
Code of Business Conduct and Ethics
We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The
full text of the code of conduct is posted on our website at www.aravive.com. If we make any substantive amendments to the code of conduct or grant any
waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our
website.
73
Item 11. Executive Compensation.
EXECUTIVE COMPENSATION
We are a “smaller reporting company” under Item 10 of Regulation S-K promulgated under the Exchange Act and the following compensation
disclosure is intended to comply with the requirements applicable to smaller reporting companies. Although the rules allow us to provide less detail about
our executive compensation program, the Compensation Committee is committed to providing the information necessary to help stockholders understand
its executive compensation-related decisions. Accordingly, this section includes supplemental narratives that describe the 2020 executive compensation
program for our named executive officers.
Named Executive Officers. The following individuals are our “named executive officers” for the year ended December 31, 2020:
• Gail McIntyre, our Chief Executive Officer and former Chief Scientific Officer
• Vinay Shah, our Chief Financial Officer
• Reshma Rangwala, our Chief Medical Officer
• Rekha Hemrajani, our former President and Chief Executive Officer
•
Jay Shepard, our former President and Chief Executive Officer
Oversight of Executive Compensation
The compensation of our named executive officers is determined and approved by our Compensation Committee, in discussion with the Chief Executive
Officer with respect to the other named executive officers. The Chief Executive Officer does not participate in discussions or decisions regarding her own
compensation.
We believe that in order to create value for our stockholders, it is critical to attract, motivate and retain key executive talent by providing competitive
compensation packages. Accordingly, we design our executive compensation programs to:
•
•
•
•
attract, motivate and retain executives with the skills and expertise to execute our business plans;
reward those executives fairly over time for actions consistent with creating long-term stockholder value;
align the interests of our executive officers with those of our stockholders;
provide compensation packages that are competitive, reasonable and fair within the highly competitive life sciences market for talented individuals.
The Compensation Committee uses the services of an independent compensation consultant who is retained by, and reports directly to, the
Compensation Committee to provide the Compensation Committee with an additional external perspective with respect to its evaluation of relevant market
and industry practices. At the end of 2019, the Compensation Committee retained Korn Ferry, as a third-party compensation consultant to assist the
Compensation Committee in establishing overall compensation levels for 2020. Korn Ferry conducted analyses and provided advice on, among other
things, the appropriate peer group, executive compensation for our executive officers and compensation trends in the life sciences industry. The peer group
was recommended by Korn Ferry and chosen by the Compensation Committee in late 2019 based on the following parameters: biopharmaceutical
companies that were developing oncology products, with a lead product in a similar phase of development (Phase 1 or 2 clinical trials) as well as other
appropriate financial and organizational metrics.
74
SUMMARY COMPENSATION TABLE
The following table shows compensation awarded to or earned by our named executive officers, for the fiscal years ended December 31, 2020 and
2019.
Name and Principal Position
Year
Salary ($)
Bonus
($)(1)
Stock
Award
($)(2)
Option
Awards
($)(2)
Non-Equity
Incentive
Plan
Compensation
($)(3)
All Other
Compensation
($)(4)
Total
($)
Gail McIntyre(5)
Chief Executive Officer
Vinay Shah(6)
Chief Financial Officer
Reshma Rangwala(7)
Chief Medical Officer
Jay P. Shepard(8)
Former President and Chief Executive
Officer
Rekha Hemrajani(9)
Former President and Chief Executive
Officer
2020 $ 404,188
2019 $ 325,000
2020 $ 360,064
2019 $ 335,000
2020 $ 108,582
—
2019
—
—
—
—
—
—
— $ 848,641 $
— $ 260,156 $
149,400 $
120,250 $
8,882 $ 1,411,111
713,495
8,089 $
— $ 314,691 $
— $ 186,527 $
115,200 $
123,950 $
6,726 $
4,561 $
796,681
650,038
— $ 311,678 $
—
—
33,200 $
—
2,286 $
—
455,745
—
2020
$ 67,770
$ 73,840
$ 151,688
—
$
29,996
$
323,294
2019 $ 506,763
—
— $ 569,398 $
231,250 $
7,824 $ 1,315,235
2020
$ 131,538
—
$ 872,670
$ 1,690,637
—
$
263,338
$ 2,958,183
2019
—
—
—
—
—
—
—
(1)
(2)
(3)
(4)
(5)
There were no bonuses granted or paid in 2019 and 2020.
In accordance with SEC rules, this column reflects the aggregate fair value of the stock and option awards granted during the respective fiscal year
computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718
for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note 2 and
Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Amounts reported in the non-equity incentive compensation plan column represent awards earned based on the achievement of company goals for
the fiscal year presented as determined by the Compensation Committee of the board of directors and was paid in the first quarter of 2020 and 2019.
All other compensation is primarily comprised of life insurance payments made by us and severance benefits provided to Mrs. Hemrajani and Mr.
Shepard. In the case of Mrs. Hemrajani, this includes severance payments that totaled $237,500 and the cost of her monthly insurance premiums for
group health insurance. In the case of Mr. Shepard, this includes his monthly insurance premiums for group health insurance.
Dr. McIntyre became our Chief Scientific Officer on February 12, 2019 and served in such role until she became our Chief Executive Officer on
April 8, 2020.
(6) Mr. Shah became our Chief Financial Officer on October 12, 2018, when the Merger was completed.
(7)
Dr. Rangwala became our Chief Medical Officer on September 28, 2020.
(8) Mr. Shepard stepped down as our President and Chief Executive Officer effective January 9, 2020 and became our chairman of the board until April
8, 2020 when he resigned. In connection with Mr. Shepard’s resignation, 208,705 unvested and outstanding equity awards were accelerated and the
value realized for said shares equals $168,185.
(9) Mrs. Hemrajani stepped down as our President and Chief Executive Officer effective April 8, 2020. In connection with Mrs. Hemrajani’s
resignation, 50,000 unvested and outstanding equity awards were accelerated and the value realized for said shares equals $119,288.
75
NARRATIVE TO SUMMARY COMPENSATION TABLE
The three principal components of our executive compensation program for our named executive officers in 2020 were base salary, annual
performance-based bonus and long-term equity compensation. Base salary provides financial stability and security through a fixed amount of cash for
performing job responsibilities. Annual performance-based bonus and long-term equity incentive compensation are designed to reward achievement of the
specific strategic goals that we believe will advance our business strategy and create long-term value for our stockholders.
Consistent with our goal of attracting, motivating and retaining a high-caliber executive team, our executive compensation program is designed to pay
for performance. We utilize compensation elements that meaningfully align our named executive officer’s interests with those of our stockholders to create
long-term value. As such, a significant portion of our Chief Executive Officer’s and other executive officers’ compensation is “at risk”, performance-based
compensation, in the form of long-term equity awards and annual cash incentives that are only earned if we achieve measurable corporate metrics, as set
forth in the table below.
Name
Gail McIntyre
Vinay Shah
Reshma Rangwala
Fixed
"At Risk"
31%
44%
46%
Annual
Performance
Bonus
Equity
Incentives
69%
56%
54%
16%
18%
19%
53%
38%
35%
We do not have any formal policies for allocating compensation among salary, performance bonus awards and equity grants, short-term and long-term
compensation or among cash and non-cash compensation. Instead, the Compensation Committee uses its judgment in determining a total compensation
program for each named executive officer to recommend to the Board for its approval that is a mix of current, short-term and long-term incentive
compensation, and cash and non-cash compensation, that it believes appropriate to achieve the goals of our executive compensation program and our
corporate objectives.
Annual Base Salary
In January 2020, the Compensation Committee reviewed the base salaries for our named executive officers, the market data from Korn Ferry, the scope
of each executive’s responsibilities, each executive’s prior experience and internal pay equity. After such review, Mr. Shah’s base salary was increased from
$335,000 to $360,000 and Dr. McIntyre’s base salary for services as our Chief Scientific Officer was increased from $325,000 to $360,000 and again
increased to $415,000 upon her appointment in April 2020 as our Chief Executive Officer. The named executive officers’ 2020 annual base salaries
approved by the Compensation Committee were as follows:
Name
Gail McIntyre
Vinay Shah
Reshma Rangwala
2020 Base
Salary ($)
415,000
360,000
415,000
Annual Performance-Based Bonus Opportunity
In addition to base salaries, our named executive officers are eligible to earn an annual performance-based cash bonus, which is designed to provide an
appropriate incentive to our named executives to achieve defined annual corporate performance goals and to reward our executives for individual
achievement towards these goals. The annual performance-based bonus each executive officer is eligible to receive is based on the individual’s target
bonus, as a percentage of base salary. The amount of the performance-based bonus, if any, an executive earns may vary from year to year based on the
achievement of certain corporate performance goals recommended by the Compensation Committee and communicated to our named executive officers
each year, prior to or shortly following the beginning of the year to which they relate.
The corporate goals typically relate to our annual company goals and various business accomplishments which vary from time to time depending on our
overall strategic objectives. The Compensation Committee may, but need not, establish a specific weighting amongst various corporate goals. The
proportional emphasis on each goal may vary from time to time depending on our overall strategic objectives and the Compensation Committee’s and
Board’s subjective determination of which goals have more impact on our performance.
76
After the end of the year, the Compensation Committee approves the extent to which the corporate goals have been achieved, based on management’s
review and recommendation, however, our executives do not make recommendations with respect to their own achievement. Accordingly, whether or not
any bonus is awarded is determined in the Compensation Committee’s discretion. Bonuses are not earned or vested until they are awarded and paid. The
Compensation Committee also considers any significant corporate events or other significant accomplishments that were not contemplated at the beginning
of the performance period in determining the extent to which the strategic goals were satisfied, such as the circumstances surrounding the feasibility of a
goal being achieved.
Pursuant to their employment agreements or offer letters, each named executive officer was eligible to earn a 2020 target bonus represented as a
percentage of base salary as set forth below.
Name
Gail McIntyre
Vinay Shah
Reshma Rangwala
Target Bonus
Percent
45%
40%
40%
For 2020, the corporate goals primarily included clinical milestones, obtaining analyst coverage, financing milestones and hiring of an executive
management team. In January 2021, after careful review, our Compensation Committee, concluded that we had achieved 80% of our corporate performance
goals and therefore performance bonuses were paid based upon 80% of target bonuses.
2020 Performance-Based Awards
On January 25, 2021, the Compensation Committee approved 2020 bonus awards related to 2020 performance based on the level of attainment of the
2020 specified goals. Dr. McIntyre was paid a 2020 performance bonus of $149,400 (which represented 80% of her target bonus based on annualized base
compensation of $415,000), Mr. Shah was paid a 2020 performance bonus of $115,200 (which represented 80% of his target bonus based on annualized
base compensation of $360,000) and Dr. Rangwala was paid a 2020 performance bonus of $33,200 (which represented 80% of her target bonus based on
annualized base compensation of $415,000 pro rated based on the portion of the year she was employed by us).
Long-Term Incentive Compensation
Equity incentives are a key component of our executive compensation program that the Compensation Committee believes motivate executive officers
to achieve our business objectives by tying incentives to the appreciation of our common stock. During 2020, we granted equity awards in the form of stock
options that vest over a four-year period. Our long-term, equity-based incentive awards are designed to align the interests of our named executive officers
and our other employees, non-employee directors and consultants with the interests of our shareholders. Because vesting is based on continued service, our
equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards.
We use stock options as the primary incentive vehicle for long-term compensation to our named executive officers because they are able to profit from
stock options only if our stock price increases relative to the stock option’s exercise price. We generally provide initial grants in connection with the
commencement of employment of our named executive officers as our Compensation Committee, determines appropriate. We also provide annual grants
shortly following the end of each year.
On January 22, 2020, the Compensation Committee approved additional stock option grants to each of Mr. Shah and Dr. McIntyre to purchase 34,826
shares and 48,583 shares of our common stock, respectively, at an exercise price of $10.84 per share.
In January 2021, the Compensation Committee awarded stock option grants to our named executive officers in conjunction with the Board’s review of
the 2020 corporate goals. Dr. McIntyre was granted stock options to purchase 165,000 shares at an exercise price of $5.95 per share. Mr. Shah was granted
stock options to purchase 60,000 shares at an exercise price of $5.95 per share and Dr. Rangwala was granted stock options to purchase 10,000 shares at an
exercise price of $5.95 per share.
Other Compensation
Health and Welfare Benefits
Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and
disability insurance plans, in each case on the same basis as other employees.
77
Employee Benefit Plans
Our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, group life and accidental
death and dismemberment insurance plans, in each case, on the same basis as all of our other employees. We maintain a 401(k) plan for the benefit of our
eligible employees, including our named executive officers, as discussed in the section below entitled “401(k) plan.”
401(k) Plan
All of our employees, including our named executive officers, are eligible to participate in our 401(k) Plan, which is a retirement savings defined
contribution plan established in accordance with Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"). Pursuant to our 401(k) Plan,
employees may elect to defer their eligible compensation into the plan on a pre-tax basis, up to the statutorily prescribed annual limit of $19,500 in 2020
(additional salary deferrals not to exceed $6,000 are available to those employees 50 years of age or older) and to have the amount of this reduction
contributed to our 401(k) Plan. In general, eligible compensation for purposes of the 401(k) plan includes an employee’s wages, salaries, fees for
professional services and other amounts received for personal services actually rendered in the course of employment with us, to the extent the amounts are
included in gross income, and subject to certain adjustments and exclusions required under the Code. The 401(k) Plan currently does not offer the ability to
invest in our securities.
None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans, non-qualified defined
contribution plans or pension plans sponsored by us.
Pension Benefits
We do not maintain any pension benefit plans.
Nonqualified Deferred Compensation
We do not maintain any nonqualified deferred compensation plans.
Employment Offer Letters, Severance and Change in Control Arrangements
We have entered into employment offer letters with each of our named executive officers. The offer letters provide for “at will” employment and set
forth the terms and conditions of employment, including the initial annual base salary, target bonus opportunity, equity compensation, severance benefits
and eligibility to participate in our employee benefit plans and programs. There are no ongoing guarantees of increases to future compensation such as base
salary increases. Our named executive officers were each required to execute our standard proprietary information and inventions agreement. The material
terms of these employment offer letters are summarized below. These summaries are qualified in their entirety by reference to the actual text of the offer
letters, which are filed as exhibits attached.
Gail McIntyre
During the years ended December 31, 2020 and 2019, Dr. McIntyre’s employment was at-will per the terms of an offer letter with Private Aravive,
dated January 1, 2017, as amended February 6, 2019. Dr. McIntyre began work as a full-time employee of Private Aravive in January 2017 and was
originally eligible to receive an annual salary of $264,000 and a bonus target of $39,600 and three months’ salary as severance in the event of certain
terminations. On February 6, 2019, the Compensation Committee approved an increase in Dr. McIntyre’s annual base salary to $325,000 and her target
bonus was increased to 40% of her annual base salary. In connection with Dr. McIntyre’s employment by Aravive Biologics, Dr. McIntyre was granted
options to purchase shares of Aravive Biologics common stock, each of which were fully vested and were converted into options to purchase 59,281 shares
of our common stock at the effective time of the Merger.
On March 26, 2020, we entered into an employment offer letter with Dr. McIntyre or the McIntyre Offer Letter that superseded the offer letter with
Aravive Biologics that provided that provided, among other things, (i) for Dr. McIntyre to serve as our Chief Scientific Officer, (ii) an annual base salary of
$360,000 for such service; (iii) a target bonus equal to 40% of Dr. McIntyre’s annual base salary. In addition, Dr. McIntyre’s Offer Letter provides for
severance payments upon certain conditions if we terminate her employment for any reason other than cause or permanent disability, and not in connection
with a change in control and that upon a qualifying termination of employment in connection with a change of control, she would be entitled to certain
severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.
78
Effective as of April 8, 2020, upon her appointment as our Chief Executive Officer, we entered into an amendment or the 2020 Amendment to the
McIntyre Offer Letter that we had entered into with Dr. McIntyre on March 26, 2020. The Amendment provides, among other things, (i) that Dr. McIntyre
will serve as our President and Chief Executive Officer,(ii) an annual base salary of $415,000 for such service; (iii) a target bonus equal to 45% of Dr.
McIntyre’s annual base salary; (iv) up to 12 months of salary continuation and reimbursement of COBRA coverage and a pro-rated portion of her year-end
target bonus contingent upon corporate goals being met, if terminated for any reason other than Cause or Permanent Disability and not in connection with
a Change in Control (as such terms are defined in the Offer Letter). Dr. McIntyre was also granted an option to purchase 80,000 shares of common stock
vesting pro rata on a monthly basis over a four-year period.
On January 25, 2021, the Company entered into an amendment to the 2021 Amendment, to the McIntyre Offer Letter, as amended by the 2020
Amendment. The 2021 Amendment provides that Dr. McIntyre will receive: (i) effective as of January 1, 2021, an annual base salary of $500,000, less
required deductions and withholdings, payable in accordance with our standard payroll schedule, for service as our Chief Executive Officer; and (ii) a target
bonus equal to 50% of Dr. McIntyre’s annual base salary. All other terms of the McIntyre Offer Letter as amended by the 2020 Amendment remain in full
force and effect. Dr. McIntyre was also granted an option to purchase 165,000 shares of the Company’s common stock with an exercise price of $5.95 per
share and vesting pro rata on a monthly basis over a four- year period.
Vinay Shah
During the years ended December 31, 2018 and 2019, Mr. Shah’s employment was at-will per the terms of an offer letter with Aravive Biologics dated
February 1, 2017 as later amended on May 30, 2018 and February 6, 2019 pursuant to which he was entitled to receive an annual base salary of $335,000
for 2019, an annual target bonus of 40% of his base salary and six months’ salary as severance in the event of certain terminations. Mr. Shah was granted
options to purchase shares of Aravive Biologics common stock, each of which were fully vested and were converted into options to purchase 95,381 shares
of our common stock at the effective time of the Merger.
On March 26, 2020, we entered into an employment offer letter with Mr. Shah or the Shah Offer Letter that superseded the offer letter with Aravive
Biologics and provides that Mr. Shah will serve as our Chief Financial Officer on an “at will” basis with compensation that included a base salary of
$360,000, which was increased to $370,800 in January 2021 and a target bonus equal to 40% of Mr. Shah’s annual base salary. In addition, the Shah Offer
Letter provides for severance payments upon certain conditions if we terminate his employment for any reason other than cause or permanent disability,
and not in connection with a change in control and that upon a qualifying termination of employment in connection with a change of control, he would be
entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.”
Reshma Rangwala
Effective September 28, 2020, we appointed Dr. Reshma Rangwala as our Chief Medical Officer. Pursuant to the terms of our employment offer letter
effective September 28, 2020 with Dr. Rangwala or the Rangwala Offer Letter, her employment with us is on an “at will” basis. Dr. Rangwala’s
compensation for services provided as our Chief Medical Officer includes: (i) an annual base salary of $415,000; (ii) an annual cash bonus targeted at 40%
of her base salary, dependent on performance with respect to both corporate and individual goals, as determined by our Board of Directors; (iii) a $50,000
retention bonus to be paid on the 18-month anniversary of the effective date of the offer letter, provided Dr. Rangwala is still employed with us; (iv) an
option to purchase 75,000 shares of our common stock pursuant to our 2019 Equity Incentive Plan, with 25% to vest upon the 12-month anniversary of the
effective date of the offer letter and the remainder to vest equally in monthly installments over a 36 month period at an exercise price to be determined by
the Company’s Board when such option is granted. The. Rangwala Offer Letter also provides for severance payments upon certain conditions if we
terminate her employment for any reason other than cause or permanent disability, and not in connection with a change in control and that upon a
qualifying termination of employment in connection with a change of control, she would be entitled to certain severance payments and benefits, which are
described below under “—Potential payments upon termination or change in control.
79
Jay P. Shepard
On January 9, 2020, Mr. Shepard transitioned to the role of Chairman of the Board of Directors and resigned as our President and Chief Executive
Officer. On January 9, 2020, we entered into a separation agreement with Mr. Shepard and a consulting agreement with Mr. Shepard. The consulting
agreement provided that, subject to execution of a release which is not revoked, in consideration for Mr. Shepard providing transition services to us, we
agreed to pay Mr. Shepard (i) $150,000 over a six-month period, and (ii) reimbursement of six months of COBRA premiums during such period. As a
member of our Board of Directors and a consultant, his equity awards continued to vest. The separation agreement contained a non-disparagement
obligation on both parties and a standard release of claims on the part of Mr. Shepard. On January 9, 2020 the Compensation Committee issued to Mr.
Shepard an option to purchase 5,075 shares of our common stock in accordance with our director compensation policy for his transition to Chairman of the
Board of Directors. On April 8, 2020, Mr. Shepard terminated his consulting agreement, resigned as a director and we entered into an agreement with Mr.
Shepard that provides that he has the right to exercise vested options from three months to one year from the date of resignation and for acceleration of
vesting of the options and restricted stock units granted to him that would have otherwise vested on or before the twelve-month anniversary of the
resignation date.
Mr. Shepard served as our Chief Executive Officer from May 12, 2015 until his resignation as President and Chief Executive Officer in January 2020
pursuant to the terms of an employment offer letter that entered into on May 12, 2015 that was amended on February 28, 2019 and as amended provided for
an annual salary at a rate of $500,000 with a target bonus equal to 50% of his annual base salary.
Rekha Hemrajani
On January 8, 2020, Rekha Hemrajani became our Chief Executive Officer and President, positions she held until her resignation on April 8, 2020.
Pursuant to the terms of our employment offer letter dated January 8, 2020 with Ms. Hemrajani, Ms. Hemrajani’s compensation for services provided as
our President and Chief Executive Officer included: (i) an annual base salary of $475,000; (ii) an annual cash bonus targeted at 50% of her base salary,
dependent on performance with respect to both corporate and individual goals, as determined by our Board of Directors; (iii) an option to purchase 143,000
shares of our common stock and (iv) restricted stock units (“RSUs”) for 57,000 shares with each RSU representing the contingent right to receive, upon
vesting of the RSU, one share of common stock.. The Offer Letter also contained various severance benefits upon certain events of termination.
Ms. Hemrajani’s offer letter provided that if we terminated her employment for any reason other than cause or permanent disability and not in
connection with a change in control if Ms. Hemrajani (i) executed and did not revoke a release of claims within 60 days following the date she terminated
employment with us, (ii) returned all of our property in her possession and (iii) resigned as a member of the board of directors, she would be entitled to (a)
twelve months of salary continuation payments, (b) if she timely elected to continue her health insurance coverage under COBRA, we would pay a portion
of her monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date she terminates
employment with us (c) 12 months accelerated vesting of the stock options and RSUs awarded to Ms. Hemrajani and (e) up to 9 months post-termination to
exercise any vested shares subject to such stock option.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Severance benefits other than in connection with a change in control
The McIntyre Offer Letter, Shah Offer Letter and Rangwala Offer Letter provide that if we terminate any of their employment for any reason other than
Cause or Permanent Disability (as defined in the Offer Letters), and not in connection with a change in control, if they (i) execute and do not revoke a
release of claims within 60 days following the date of termination of employment with us and (ii) returns all of our property in his or her possession he or
she will be entitled to (a) twelve months for Dr. McIntyre and nine months for Mr. Shah and Dr. Rangwala of salary continuation payments (b) if he or she
timely elects to continue her health insurance coverage under COBRA, we will pay a portion of him or her monthly COBRA premiums (at the same rate
that we pay for active employees) for up to twelve months following the date he or she terminates employment with us (c) 12 months accelerated vesting of
stock options and RSUs awarded to him or her and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if
terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Change in
Control Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company set forth below. In
addition, if during the twelve-month period commencing on the closing date of a Change in Control we terminate his or her employment for any reason
other than Cause or death or disability or he or she resigns for Good Reason, all unvested equity awards will immediately vest, subject to certain restriction.
In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in
control, Dr. McIntyre would be eligible for full accelerated vesting of her outstanding stock options and RSUs.
80
Change in Control Severance Benefit Plan
We have adopted a change in control severance benefit plan, or the severance plan. The severance plan provides certain of our employees, including our
currently employed Named Executive Officers, with severance payments and benefits upon certain qualifying terminations of employment within a one-
year period following the closing of a change in control, as defined in the severance plan. The summary below is qualified by reference to the actual text of
the severance plan, which is filed as an exhibit to the Form S-1, as amended, filed with the SEC on March 10, 2014.
Under the severance plan, in the event of a participant’s involuntary termination without cause (and not due to death or disability) or if a participant
resigns for good reason, if the participant in the severance plan (i) executes and does not revoke a release of claims within 60 days following the date he
terminates employment with us and (ii) returns all of our property in his possession, he will be entitled to cash severance equal to the sum of his or her
monthly base salary and monthly annual bonus target, multiplied by a severance multiplier, which is 15 in the case of the Chief Executive Officer and 12 in
the case of the Chief Financial Officer and Chief Scientific Officer. In addition, following a qualifying termination, if a participant timely elects to continue
his health insurance coverage under COBRA, we will pay a portion of his monthly COBRA premiums for a period of specified months following the date
of termination.
All stock awards which are vested and exercisable as of the date of a qualifying termination under the severance plan (including by virtue of the
provisions of the applicable equity plan) will remain outstanding and exercisable until the earliest to occur of (i) the last day of the applicable severance
period, which is 15 months in the case of the Chief Executive Officer and 12 months in the case of the Chief Financial Officer and Chief Scientific Officer
(ii) the expiration of the original term of such stock awards.
If one of our named executive officers is entitled to severance benefits under the severance plan by virtue of a qualifying termination of employment
within 12 months following a change in control, he would not be entitled to severance benefits under the terms of his offer letter.
In addition, the severance plan provides that, except as otherwise expressly provided in an agreement between us and a participant, if any payment or
benefit a participant would receive in connection with a change in control would constitute a “parachute payment” within the meaning of Section 280G of
the Internal Revenue Code and such payment or benefit would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then
such payment or benefit will be equal to either (i) the largest portion of the change in control payment that would result in no portion of the payment or
benefit being subject to the excise tax, or (ii) the largest portion, up to and including the total payment or benefit, whichever amount, after taking into
account all applicable taxes, including the excise tax (all computed at the highest applicable marginal rate), would result in the participant’s receipt, on an
after-tax basis, of the greatest economic benefit to the participant, notwithstanding that all or some portion of the payment or benefit may be subject to the
excise tax. If a reduction is so required, the reduction will occur in the order specified in the severance plan.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows for the fiscal year ended December 31, 2020, certain information regarding outstanding equity awards at fiscal year-end for
the Named Executive Officers. Each award issued to Dr. McIntyre, Mr. Shah, and Dr. Rangwala set forth below is subject to accelerated vesting upon a
qualifying termination of his employment, as described under “—Potential Payments Upon Termination or Change in Control.”
81
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2020
Name
Grant Date
Gail McIntyre
Vinay Shah
Reshma Rangwala
Jay Shepard (Former CEO)
Rekha Hemrajani (Former CEO)
6/15/2017(5)
12/14/2017(5)
3/20/2018(5)
2/28/2019(2)
1/22/2020(6)
4/8/2020(6)
10/01/2014(5)
6/15/2017(5)
12/14/2017(5)
3/20/2018(5)
2/28/2019(2)
1/22/2020(6)
9/28/2020(2)
12/28/2013(2)
2/19/2014(2)
5/11/2015(2)
1/28/2016(3)
1/27/2017(4)
02/28/2019(2)
1/09/2020(6)
1/9/2020(6)
Option
Awards(1)(2)
Number of
Securities
Underlying
Unexercised
options (#)
exercisable
Number of
Securities
Underlying
Unexercised
options (#)
unexercisable
Option
Exercise
Price ($)
29,641
14,820
14,820
24,291
11,133
13,333
19,380
38,001
19,000
19,000
17,416
7,980
—
13,148
7,563
51,500
34,866
24,150
42,747
5,075
35,750
—
—
—
28,709
37,450
66,667
—
—
—
—
20,584
26,846
75,000
—
—
—
—
—
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
0.66
0.90
0.90
5.83
10.84
6.16
0.24
0.66
0.90
0.90
5.83
10.84
4.95
15.18
48.99
91.14
64.08
85.80
5.83
13.77
13.77
Option
Expiration
Date
6/14/2027
12/13/2027
3/19/2028
2/27/2029
1/21/2030
4/7/2030
9/30/2024
6/14/2027
12/13/2027
3/19/2028
2/27/2029
1/21/2030
9/27/2030
4/8/2021
4/8/2021
4/8/2021
4/8/2021
4/8/2021
4/8/2021
4/8/2021
4/8/2021
(1)
(2)
(3)
(4)
(5)
(6)
Except as otherwise indicated, vesting of all options and RSU’s is subject to continued service on the applicable vesting date.
The shares subject to the stock options vest over a four-year period as follows: 25% of the shares underlying the options vest on the one-year
anniversary of the vesting start date, and thereafter 1/48th of the shares vest each month.
4/48th of the shares subject to the option became exercisable on May 28, 2016, and the balance of the shares vest and become exercisable monthly
thereafter.
1/48th of the shares subject to the option become exercisable monthly measured from the date of the grant.
The shares subject to these options vested in full upon the closing of the Merger and were assumed by us in the Merger.
These options became fully vested on April 8, 2020 upon the departure of the officer or director.
Treatment of stock awards under the 2019 Plan
The 2019 Plan, provides that in the event of certain corporate transactions, as defined in the 2019 Plan, the following provisions will apply to
outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless
otherwise expressly provided by the board of directors at the time of grant of a stock award:
The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the
2019 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent);
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock
awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to
a date prior to the effective time of such corporate transaction (contingent upon the effectiveness of the corporate transaction), and such stock awards will
terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by
us will lapse, contingent upon the effectiveness of such corporate transaction;
82
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock
awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all
unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but
any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or
To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that
the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of
directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any
exercise price payable by such holder in connection with such exercise. In addition, any escrow, holdback, earn out or similar provisions in the definitive
agreement for the corporate transaction may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of
common stock.
A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2019 Plan, as
may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of
such a provision, no such acceleration will occur.
For purposes of the 2019 Plan, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or
disposition of more than 50% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction, or (4) a merger or
consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or
exchanged into other property by virtue of the transaction.
Treatment of stock awards under the 2014 Plan
The 2014 Plan, provides that in the event of certain corporate transactions, as defined in the 2014 Plan, the following provisions will apply to
outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless
otherwise expressly provided by the board of directors at the time of grant of a stock award:
The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the
2014 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent); provided, that if
any such stock awards are so assumed, continued or substituted, if a participant incurs an involuntary termination on or within 12 months following the
date of such corporate transaction, any unvested shares subject to such assumed, continued or substituted stock awards will vest in full as of the date of
such termination;
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock
awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to
a date prior to the effective time of such corporate transaction, and such stock awards will terminate if not exercised (if applicable) at or prior to the
effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such
corporate transaction;
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock
awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all
unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but
any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or
To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that
the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of
directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any
exercise price payable by such holder in connection with such exercise.
A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2014 Plan, as
may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of
such a provision, no such acceleration will occur.
83
For purposes of the 2014 Plan, an involuntary termination generally means, during the 12 months following the closing of a corporate transaction or
change in control, either (i) a termination of service other than for cause (as defined in the 2014 Plan) or (ii) a voluntary resignation following: a material
diminution in the participant’s base salary; a material diminution in the participant’s authority, duties, position or responsibilities; a material diminution in
the authority, duties, position or responsibilities of the participant’s supervisor (including a requirement that a participant report to a corporate officer or
employee instead of directly to the board of directors); a material diminution in the budget over which the participant retains authority; a relocation of the
participant’s principal place of work to a location more than 50 miles away from the principal place of work prior to the consummation of a corporate
transaction or a change in control; or any other act or omission that constitutes a material breach by us of the 2014 Plan.
Treatment of stock options under the Aravive Biologics, Inc 2010 and 2017 Equity Incentive Plans
In connection with the Merger, we assumed the Aravive Biologics, Inc. 2010 and 2017 Equity Incentive Plans. The Aravive Biologics, Inc. 2010 and
2017 Equity Incentive Plans provide that in the event of certain corporate transactions, as defined in the plans, the board of directors may take one or more
of the following actions with respect to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement
between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award: each outstanding stock
award may be assumed or continued or an equivalent stock award may be substituted by a successor corporation and any reacquisition or repurchase rights
held by us in respect of common stock issued pursuant to prior stock awards may be assigned to the successor corporation. The plans also provide that in
the event of a specified corporate transaction the board of directors may determine to accelerate the vesting, in whole or in part of a stock award, with such
stock award becoming fully vested and exercisable prior to the corporate transaction arrange for the lapse of any reacquisition or repurchase rights held by
us with respect to the stock award or cancel or arrange for the cancellation of a stock award in exchange for cash consideration. Any awards that have not
been assumed, continued, substituted, or exercised prior to the corporate transaction will terminate at the closing of the transaction. All options issued
under the Aravive Biologics, Inc 2010 and 2017 Equity Plans that were outstanding on the closing of the Merger vested upon the closing of the Merger.
DIRECTOR COMPENSATION
The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such
compensation reflects the practices of the competitive market. In January 2020, the board of directors evaluated a competitive market analysis prepared by
the Compensation Committee’s compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. This analysis
examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group,
which was the same peer group that the Compensation Committee used as a reference when setting executive compensation. Based on this analysis, as well
as its consideration of our financial performance, general market conditions, and the interests of our stockholders, the board of directors determined at that
time to maintain our non-employee director compensation policy at its then-current cash and equity compensation levels. These compensation levels were
maintained until September 2020 when the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s
compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. In September 2020, the committee annual fees
remained the same, the non-executive annual cash compensation was increased from $40,000 to $65,000, the cap for total compensation to be received by
the chairperson was increased from $70,000 to $95,000, and the annual equity awards and new director awards were revised from a grant of an option to
purchase 7,500 shares of common stock to a grant of an option to purchase shares of common stock having a grant date fair market value of $75,000.
The following table shows for the fiscal year ended December 31, 2020 certain information with respect to the compensation of all of our current and
former non-employee directors:
84
Name
Fredric N. Eshelman, Pharm. D.(2)
Amato Giaccia, Ph.D.
Michael W. Rogers(3)
Raymond Tabibiazar, M.D.(4)
Eric Zhang
Jay Shepard (5)
Srinivas Akkaraju, M.D., Ph.D.(5)
Robert E. Hoffman (5)
DIRECTOR COMPENSATION FOR FISCAL 2020
Fees Earned or
Paid in Cash ($)
Option
Awards ($) (1)
Restricted Stock
Awards ($)
Total ($)
$
$
$
$
$
$
$
$
69,813 $
64,014 $
23,987 $
75,204 $
55,313 $
17,500 $
12,750
15,875
188,271
75,016
149,904
75,016
75,016
57,348
—
—
— $
— $
— $
— $
— $
— $
— $
— $
258,084
139,030
173,891
150,220
130,328
74,848
12,750
15,875
(1)
(5)
In accordance with SEC rules, this column reflects the aggregate fair value of the option awards granted during the respective fiscal year
computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic
718 for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note
2 and Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Dr. Eshelman was appointed Chairman of the Board on April 8, 2020.
(2)
(3) Mr. Rogers was appointed as a director on September 15, 2020.
(4)
The compensation earned is for our former director who resigned effective December 31, 2020. On December 31, 2020, we entered into a
consulting agreement with Dr. Tabibiazar. See “Transactions With Related Persons-Certain Related Person Transactions” for additional
information regarding the terms of the consulting agreement.
The compensation earned is for our former director who resigned effective April 8, 2020. Upon their resignation from the Board of Directors,
we entered into an agreement with each of Srini Akkaraju, Jay Shepard and Robert Hoffman to extend the period for which each of them
has the right to exercise vested options from three months to one year from the date of resignation. In addition, the agreements with Mr.
Hoffman and Dr Akkaraju provide for full accelerated vesting of all options granted to each of them and the agreement with Mr. Shepard
provides for acceleration of vesting of the options and restricted stock units granted to him that would have otherwise vested on or before the
twelve- month anniversary of the resignation date.
The table below shows the aggregate number of option awards outstanding at fiscal year-end for each of our current and former non-employee directors.
Name
Fredric Eshelman, Pharm. D.(1)
Amato Giaccia, Ph.D.(2)
Michael Rogers(3)
Raymond Tabibiazar, M.D.(2)(4)
Eric Zhang
Jay Shepard(5)
Srinivas Akkaraju, M.D., Ph.D.(5)
Robert Hoffman(5)
Number of Shares
Subject to Outstanding
Options as of
December 31, 2020
26,755
256,445
30,011
670,551
35,717
179,049
23,457
—
(1)
(2)
Dr. Eshelman was appointed Chairman of the Board on April 8, 2020.
Amounts in the director compensation table above for Dr. Giaccia and Dr. Tabibiazar include options assumed by us in the Merger that were
issued to such individuals by Aravive Biologics prior to the Merger.
(3) Mr. Rogers was appointed as a director on September 15, 2020.
(4)
(5)
The number of outstanding options is for our former director who resigned effective December 31, 2020.
The number of outstanding options is for our former director who resigned effective April 8, 2020.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Under our non-employee director compensation policy in effect during the year ended December 31, 2020, we paid each of our non-employee directors
a cash retainer for service on the board of directors and for service on each committee on which the director is a member. The chairman of each committee
receives an additional retainer for such service. These retainers are payable in arrears in
85
four equal quarterly installments on the last day of each quarter, provided that the amount of such payment will be prorated for any portion of such quarter
that the director is not serving on the board of directors.
The retainers paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors on which
the director was a member for the year ended December 31, 2020 are as follows:
Board
Audit Committee
Compensation Committee
Nominating and Corporate Governance Committee
Research & Development Committee
Business Strategy Committee
$
$
$
$
$
$
Member Annual
Service Retainer
Chairman Annual
Service Retainer
65,000 $
7,500 $
5,000 $
3,500 $
3,500 $
3,500 $
30,000 *
15,000
12,500
10,000
10,000
10,000
*
In September 2020, the policy was amended to increase the non-executive annual cash compensation from $40,000 to $65,000, increase the cap for
total compensation to be received by the chairperson from $70,000 to $95,000, and the annual equity awards and new director awards were revised
from a grant of an option to purchase 7,500 shares of common stock to a grant of an option to purchase shares of common stock having a grant date
fair market value of $75,000
The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such
compensation reflects the practices of the competitive market. In September 2020, the board of directors evaluated a competitive market analysis prepared
by the Compensation Committee’s compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. This analysis
examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group,
which is the same peer group that we use as a reference when setting executive compensation. Based on this analysis, as well as its consideration of our
financial performance, general market conditions, and the interests of our stockholders, the board of directors determined to amend our non-employee
director compensation policy, effective September 8, 2020, to provide the cash compensation set forth above and the equity compensation described below.
On the date of each annual meeting of stockholders held, each non-employee director that continues to serve as a non-employee member on the board of
directors will receive options to acquire shares of common stock having a fair value on the grant date of $75,000, vesting 1/12th per month with full
vesting, if not fully vested at such time, on the date of our next annual meeting of stockholder. The exercise price of such options will equal the fair market
value of our common stock on the date of grant. For any new non-employee director who joins the board of director at a time other than at the annual
stockholder meeting, then, in addition to the new non-employee director grants, such directors will receive an option to purchase shares of common stock,
such number of shares of common stock equity equal to the product of the (i) number of shares of common stock having a grant date fair value of $75,000
and (ii) a fraction with (x) a numerator equal to the number of days between the date of the director’s initial election or appointment to the board of
directors and the date which is the first anniversary of the date of the most recent annual stockholder meeting occurring before the director is elected or
appointed to the board of directors, and (y) a denominator equal to 365. In each case, vesting of the award is subject to the director’s continuous service on
each vesting date. This policy is intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals
to serve as directors and to align our directors’ interests with those of our stockholders in accordance with the terms of the policy. On September 14, 2020
we issued an option to each of Dr. Eshelman, Dr. Giaccia, Dr. Tabibiazar, and Mr. Zhang to purchase 16,029 shares of our common stock. On September
15, 2020, upon his appointment to the Board, Mr. Rogers was issued an annual option to purchase 15,024 shares of common stock and a new director
option to purchase 14,987 shares of common stock. On June 1, 2020, we issued Dr. Eshelman a new director option to purchase 7,500 shares of common
stock and an annual option to purchase 3,226 shares of common stock. On January 9, 2020 the Compensation Committee issued to Mr. Shepard an option
to purchase 5,075 shares of our common stock in accordance with our director compensation policy for his transition to Chairman of the Board of
Directors.
Directors have been and will continue to be reimbursed for expenses directly related to their activities as directors, including attendance at board and
committee meetings. Directors are also entitled to the protection provided by their indemnification agreements and the indemnification provisions in our
certificate of incorporation and bylaws.
86
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 10, 2021 by: (i) each director;
(ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv)
all those known by us to be beneficial owners of more than five percent of its common stock.
Beneficial Owner
Greater than 5% stockholders other than executive officers and directors:
Invus Public Equities, L.P and its affiliated entities(2)
Raymond Tabibiazar, M.D.(3)
Named Executive officers and directors:
Fredric N. Eshelman, Pharm. D.(4)
Amato Giaccia, Ph.D.(5)
Michael W. Rogers(6)
Eric Zhang(7)
Vinay Shah(8)
Gail McIntyre(9)
Reshma Rangwala(10)
Jay Shepard(11)
Rekha Hemrajani(12)
All current executive officers and directors as a group (7 persons)(13)
Beneficial Ownership(1)
Number of Shares
Percent of Total
1,311,291
1,663,372
3,821,382
1,190,395
11,678
887,553
320,439
145,286
625
208,384
50,000
6,377,358
6.7%
8.2%
19.4%
6.0%
*
4.5%
1.6%
*
*
1.1%
*
31.5%
*
Represents beneficial ownership of less than one percent (1%) of the outstanding common stock.
(1)
(2)
This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC.
Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the
stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 19,659,860 shares outstanding on March 10, 2021, adjusted as required by rules promulgated by the SEC. Beneficial
ownership of shares is determined in accordance with the rules of the SEC and includes voting and investment power with respect to the shares.
Shares of common stock subject to outstanding options that are exercisable within 60 days of March 10, 2021 are deemed outstanding for
computing the percentage of ownership of the person holding such options. Unless otherwise indicated, the address of each beneficial owner
listed in the table below is c/o Aravive, Inc., River Oaks Tower, 3730 Kirby Drive, Suite 1200, Houston, Texas 77098.
Information is based upon a Schedule 13G/A filed with the SEC on February 16, 2021 by Invus Public Equities, L.P (“Invus Public Equities”).,
Invus Public Equities Advisors, LLC (“Invus PE Advisors”), Artal Treasury Limited (“Artal Treasury”),Artal International S.C.A (“Artal
International”), Artal International Management S.A. (“Artal Management”), Artal Group S.A. (“Artal Group”), Wetsend S.A.(“Westend”),
Stichting Administratiekabntoor Westland (“Stichting”)and Mr. Amaury Wittouck (“Wittock”). Invus Public Equities directly holds the
1,311,291 shares of common stock. Invus PE Advisors, as the general partner of Invus Public Equities, controls Invus Public Equities and
accordingly may be deemed to beneficially own the shares held by Invus Public Equities. Artal International Management, as the managing
partner of Artal International, controls Artal International and, accordingly, may be deemed to beneficially own the Shares that Artal
International may be deemed to beneficially own. Artal Group, as the parent company of Artal International Management, controls Artal
International Management and, accordingly, may be deemed to beneficially own the Shares that Artal International Management may be
deemed to beneficially own. Westend, as the parent company of Artal Group, controls Artal Group and, accordingly, may be deemed to
beneficially own the Shares that Artal Group may be deemed to beneficially own. The Stichting, as majority shareholder of Westend, controls
Westend and, accordingly, may be deemed to beneficially own the Shares that Westend may be deemed to beneficially own. As of January 11,
2021, Mr. Wittouck, as the sole member of the board of the Stichting, controls the Stichting and, accordingly, may be deemed to beneficially
own the Shares that the Stichting may be deemed to beneficially Artal International, as its Geneva branch is the sole stockholder of Artal
Treasury, may be deemed to beneficially own the shares that Artal Treasury may be deemed to beneficially own. Artal International
Management, as the managing partner of Artal International, controls Artal International and, accordingly, may be deemed to beneficially own
the shares that Artal International may be deemed to beneficially own. Artal Group, as the parent company of Artal International Management,
controls Artal International Management and, accordingly, may be deemed to beneficially own the shares that Artal International Management
may be deemed to beneficially own. Westend, as the parent company of Artal Group, controls Artal Group and, accordingly, may be deemed to
beneficially own the shares that Artal Group may be deemed to beneficially own. The Stichting, as the majority shareholder of Westend,
controls Westend and, accordingly, may be deemed to beneficially own the shares that Westend may be deemed to beneficially own. As of
January 11, 2021, Mr. Wittouck, as the sole member of the board of the Stichting, controls the Stichting and,
87
accordingly, may be deemed to beneficially own the shares that the Stichting may be deemed to beneficially own. The address for Invus Public
Equities and Invus PE Advisors is 750 Lexington Avenue, 30th Floor, New York, New York 10022. The address for Artal Treasury is Suite 4,
Borough House, Rue du Pree, St. Peter Port, Guernsey GYI 3JJ. The address for Artal International, Artal International Management and Artal
Group, Westend is Valley Park, 44, Rue de la Vallée, L-2661, Luxembourg. The address for Stichting is Claude Debussylaan, 46, 1082 MD
Amsterdam, The Netherlands. The address for Wittouck is Valley Park, 44, Rue de la Vallée, L-2661, Luxembourg.
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Includes an aggregate of 662,621 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes an aggregate of 15,284 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes 248,515 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes 11,678 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes an aggregate of 27,787 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes an aggregate of 130,597 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
Includes an aggregate of 135,149 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
(10)
Includes an aggregate of 625 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
(11)
Includes an aggregate of 147,183 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
(12)
Includes an aggregate of 35,750 shares issuable pursuant to stock options exercisable within 60 days of March 10, 2021.
(13) Consists of 5,807,723 shares held by the directors and current executive officers and an aggregate of 569,635 shares issuable pursuant to stock
options exercisable within 60 days of March 10, 2021.
The following table presents information as of December 31, 2020 with respect to shares of our common stock that may be issued under our existing
equity compensation plans, including the 2009 Stock Plan, 2014 Plan, the 2019 Plan and the 2014 Employee Stock Purchase Plan. We do not maintain any
equity incentive plans that have not been approved by shareholders.
Equity Compensation Plan Information
Number of securities
to be issued upon
exercise of
outstanding
options (a)
Weighted-average
exercise price
of outstanding
options (b)
Number of securities
remaining available
for future issuance
under equity
compensation plans
(excluding securities
reflected in
column (a))
(c)
—
216,384 $
—
862,015 $
1,078,399 $
—
7.66
—
21.74
9.59
—
—
305,440
1,600,703
1,906,143
Plan Category
Equity Compensation Plan approved by security holders (1)
2009 Stock Plan
2014 Equity Incentive Plan
2014 Employee Stock Purchase Plan
2019 Equity Incentive Plan
Total
(1)
This table does not present information regarding equity awards under the Aravive Biologics, Inc. 2010 Equity Incentive Plan and the Aravive
Biologics, Inc. 2017 Equity Incentive Plan that were assumed by us in connection with the Merger. As of December 31, 2020, an additional
1,095,377 shares of our common stock were subject to options outstanding that were assumed in the Merger.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
TRANSACTIONS WITH RELATED PERSONS
RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES
In 2014, we adopted a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review,
consideration and approval or ratification of “related-persons transactions.” For purposes of our policy only, a
88
“related-person transaction” is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in which we
and any “related person” are participants involving an amount that exceeds $100,000. Transactions involving compensation for services provided to us as
an employee, director, consultant, or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director,
or more than 5% stockholder of our company, including any of their immediate family members, and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed
related-person transaction to the Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the board
of directors) for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the
interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether any alternative transactions were available. To identify
related-person transactions in advance, we rely on information supplied by its executive officers, directors, and certain significant stockholders. In
considering related-person transactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to
(i) the risks, costs and benefits to us, (ii) the impact on a director’s independence in the event the related person is a director, immediate family member of a
director or an entity with which a director is affiliated, (iii) the terms of the transaction, (iv) the availability of other sources for comparable services or
products and (v) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an
interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining
whether to approve, ratify or reject a related-person transaction, the Audit Committee consider, in light of known circumstances, whether the transaction is
in, or is not inconsistent with, the best interests of us and our stockholders, as the Audit Committee determines in the good faith exercise of its discretion.
CERTAIN RELATED-PERSON TRANSACTIONS
The following is a summary of transactions since January 1, 2019 and all currently proposed transactions, to which we have been a participant, in
which:
•
•
the amounts exceeded or will exceed $120,000; and
any of the directors, executive officers or holders of more than 5% of the respective capital stock, or any member of the immediate family of the
foregoing persons, had or will have a direct or indirect material interest other than as set forth under “Executive Compensation” and “Director
Compensation”.
On December 2, 2019, Samsara BioCapital LP, invested approximately $1,000,000 in our public offering and acquired 133,333 shares in the offering.
Dr. Akkaraju has been a managing member of Samsara BioCapital GP, LLC, the general partner of Samsara BioCapital LP. an affiliate of Srini Akkaraju.
On April 8, 2020, pursuant to the terms of an Investment Agreement that we entered into with, Eshelman Ventures, LLC, a North Carolina limited
liability company (the “Investor”), and, solely for purposes of certain provisions of the Investment Agreement, Fredric N. Eshelman, Eshelman Ventures,
LLC purchased 931,098 shares of our common stock, (the “Purchased Shares”), for an aggregate purchase price of approximately $5,000,000. We agreed to
use commercially reasonable efforts to file and cause to be declared effective prior to the six-month anniversary of the acquisition date a shelf registration
statement on Form S-3 with respect to those Purchased Shares that are not otherwise registered under the U.S. Securities Act of 1933, as amended (the
“Securities Act”), which registration statement was declared effective on July 13, 2020.
On December 31, 2020, we entered into a consulting agreement (the “Consulting Agreement”) with Mr. Tabibiazar pursuant to which he has agreed to
provide consulting services to us from time to time. The Consulting Agreement has a one-year term and automatically renews for successive one-year
periods unless sooner terminated (the “Term”). The Consulting Agreement may be terminated by either party at any time without cause upon fifteen (15)
days’ written notice. As compensation, we agreed to amend the terms of Mr. Tabibiazar’s option grants issued under our equity compensation plan(s) to
extend the exercisability date of each option until the earlier of (1) one year following the termination by either Mr. Tabibiazar or us of the Consulting
Agreement and (2) the latest date on which the options expire as set forth in the applicable award agreements. In addition, Mr. Tabibiazar has agreed not to
(A) offer for sale, sell, pledge or otherwise transfer or dispose of any our securities, or securities convertible into or exercisable or exchangeable for shares
of our common stock, (B) to enter into any swap or other derivate transaction that transfers any of the economic benefits or risks of ownership of shares of
our common stock or (C) to publicly disclose his intention to do any of the foregoing until April 5, 2021.
On February 12, 2021, we entered into the Purchase Agreement, with Eshelman Ventures relating to the issuance and sale of 2,875,000 shares of the
Company’s common stock at a price per share of $7.29. The Offering closed on February 18, 2021 and we received aggregate gross proceeds from the
Offering of approximately $21.0 million.
89
Since January 1, 2019, there have been no transactions other than the transactions described above, the compensation arrangements which are described
under “Executive Compensation” and “Director Compensation” and the entry into our standard form of indemnification agreements described below with
directors and executive officers, and there are no proposed transactions, in which the amount involved exceeds $120,000 to which we or any of any of our
subsidiaries was (or is to be) a party and in which any director, director nominee, executive officer, holder of more than 5% of our capital stock, or any
immediate family member of or person sharing the household with any of these individuals, had (or will have) a direct or indirect material interest.
Indemnification Agreements
Our amended and restated certificate of incorporation contains provisions limiting the liability of directors and our amended and restated bylaws
provide that we will indemnify each of our directors to the fullest extent permitted under Delaware law. Our amended and restated certificate of
incorporation and amended and restated bylaws also provide the board of directors with discretion to indemnify our officers and employees when
determined appropriate by the board. In addition, we have entered and expect to continue to enter into agreements to indemnify our directors and executive
officers.
Independence of the Board of Directors
The board of directors undertook a review of the independence of the members of the board of directors and considered whether any director has a
material relationship with our company that could compromise his or her ability to exercise independent judgment in carrying out his or her
responsibilities. Based upon information requested from and provided by each director concerning their background, employment and affiliations,
including family relationships, the board of directors has determined that all of our current directors, except Dr. McIntyre, due to her position as Chief
Executive Officer of our company, is “independent” as that term is defined under the rules of Nasdaq. As a result, Dr. Eshelman, Dr. Giaccia, Mr. Rogers,
and Mr. Zhang are deemed to be “independent” as that term is defined under the rules of Nasdaq. See the section of this Annual Report on Form 10-K
entitled “Item 10. Directors, Executive Officers and Corporate Governance— Independence of the Board of Directors.”
Item 14. Principal Accounting Fees and Services.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees incurred by us for audit and other services rendered by BDO USA, LLP during the year ended
December 31, 2020 and December 31, 2019:
Audit Fees(1)
Audit-Related Fees(2)
Tax Fees(3)
All Other Fees(4)
Total Fees
Fiscal Year Ended
2020
2019
(in thousands)
247 $
—
50
—
297 $
254
—
54
—
308
$
$
(1)
(2)
Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements, review of the interim
consolidated financial statements, the issuance of consent and comfort letters in connection with registration statement filings with the SEC and all
services that are normally provided by the accounting firm in connection with statutory and regulatory filings or engagements.
None.
90
(3)
(4)
Tax fees include fees billed in the fiscal periods shown for professional services for tax compliance.
None.
All fees described above were pre-approved by the Audit Committee.
Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered
public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax
services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the
independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of
services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next
scheduled meeting.
The Audit Committee has determined that the rendering of non-audit services by BDO USA, LLP in 2020 and 2019 is compatible with maintaining the
principal accountant’s independence.
91
PART IV
Item 15. Exhibits, Financial Statement Schedule.
Consolidated Financial Statements:
See Index to Consolidated Financial Statements at page F-1.
Financial Statement Schedule:
All schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.
Exhibits:
The exhibits listed in the accompanying index to exhibits are filed as part of, or incorporated by reference into, the 2020 Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
92
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-2
F-4
F-5
F-6
F-7
F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Aravive, Inc.
Houston, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aravive, Inc. (the “Company”) as of December 31, 2020 and 2019, the related
consolidated statements of operations, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2020, and the
related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all
material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the
two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an
understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal
control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or
fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis
for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were
communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated
financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below,
providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Right of Use Asset and Leasehold Improvements Impairment
Operating lease right-of-use asset and property and equipment totaled approximately $3.0 million and $0.5 million as of December 31, 2020, respectively.
As described in Note 2 to the Company’s consolidated financial statements, the Company reviews long-lived assets, including the right-of-use asset and
leasehold improvements, for impairment whenever events or changes in circumstances indicate that the carrying amount of the long-lived assets may not be
recoverable. 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 as estimated based on projected discounted net cash flow. During the year ended December 31, 2020, as a result of uncertainty
surrounding a sublease tenant’s ability to repay the remaining sublease rental payments and the continued uncertainties due to the COVID-19 pandemic on
the real estate market, the Company recorded an impairment charge against the operating lease right-of-use asset and leasehold improvements of $5.8
million.
F-2
We identified management’s assessment of the fair value of the right-of-use asset and leasehold improvements as a critical audit matter. The estimation of
fair value requires management to make certain subjective assumptions related to expected real estate market rates, the time needed to sub-lease the
property, the appropriate discount rate, and the impacts of the COVID-19 pandemic on these assumptions. Auditing these elements involved especially
challenging auditor judgment due to the nature and extent of audit effort required to address these matters, including the involvement of professionals with
specialized skills in valuation.
The primary procedures we performed to address this critical audit matter included:
• Assessing management’s estimation of future net undiscounted cash flows expected to be generated from future sub-lease income by evaluating
management’s assumptions regarding changes in general economic conditions caused by the COVID-19 pandemic, including changes to market
rent, the estimated period of time to sub-lease the property and discount rate.
• Utilizing professionals with specialized skills in valuation to assist in evaluating the reasonableness of estimated future market rents, the discount
rate estimated by management, and the valuation methodology used to determine the fair value of the subleased property.
Revenue Recognition - Collaboration and License Agreement
As described in Notes 2 and 5 to the Company’s consolidated financial statements, on November 6, 2020 the Company entered into a collaboration and
license agreement which resulted in revenue of $5.7 million for the year ended December 31, 2020 and $6.3 million of deferred revenue as of December
31, 2020. The Company identified two performance obligations within the arrangement; (i) a license to intellectual property, and (ii) research and
development services. The transaction price was allocated between the performance obligations based on their relative standalone selling prices, which
were estimated using a discounted cash flow approach and an expected cost plus a margin approach. The Company recognizes revenue upon transfer of
control of the license and research and development services to its collaboration and licensing partner.
We identified the determination of distinct performance obligations and the estimation of their standalone selling prices as a critical audit
matter. Accounting for the collaboration and license agreement required management to apply significant judgment in (i) evaluating whether each
promised good or service is distinct individually or distinct when combined with other promised goods or services in the arrangement, and (ii) determining
the methodology and assumptions used in valuation, including, but not limited to discount rates, probabilities of future milestone and royalties, and
estimated costs of research and development services. Auditing these elements involved a high degree of auditor judgment and significant audit effort to
address these matters, including the involvement of professionals with specialized technical skills.
The primary procedures we performed to address this critical audit matter included:
• Evaluating the identified performance obligations by (i) involving professionals with specialized skills in technical accounting to evaluate
appropriateness of management’s interpretation of key contract terms and application of authoritative accounting guidance, and (ii) assessing the
reasonableness of management’s assumption regarding the collaboration and licensing partner’s ability to benefit from the license and research and
development services either on its own or together with other resources that are readily available.
• Assessing management’s estimation of the standalone selling price for each performance obligation by (i) utilizing professionals with specialized
skills in valuation to assess the appropriateness of the valuation model used and certain assumptions applied by management, and (ii) testing the
accuracy and completeness of data used in valuation.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Raleigh, North Carolina
March 16, 2021
F-3
ARAVIVE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Current assets
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Restricted cash
Property and equipment, net
Operating lease right-of-use assets
Intangible asset, net
Other assets
Total assets
Liabilities and stockholders' equity
Current liabilities
Accounts payable
Accrued liabilities
Operating lease obligation, current portion
Current portion of deferred revenue
Total current liabilities
Deferred revenue, net of current portion
Contingent payable
Operating lease obligation, net of current portion
Total liabilities
Commitments and contingencies
Stockholders' equity
Preferred stock, $0.0001 par value, 5,000,000 shares
authorized at December 31, 2020 and December 31, 2019; zero
shares issued and outstanding at December 31, 2020 and
December 31, 2019
Common stock, $0.0001 par value, 100,000,000 shares
authorized at December 31, 2020 and December 31, 2019;
16,481,099 and 15,001,795 shares issued and outstanding at December 31,
2020 and December 31, 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders' equity
Total liabilities and stockholders’ equity
$
$
$
December 31,
2020
2019
$
60,541
1,148
61,689
2,430
526
2,958
97
10
67,710
$
$
2,500
2,323
2,086
2,552
9,461
3,763
—
6,431
19,655
65,134
3,079
68,213
2,423
1,808
8,697
219
761
82,121
1,078
1,497
2,393
—
4,968
—
264
7,840
13,072
—
—
2
548,707
(500,654)
48,055
67,710
$
2
539,158
(470,111)
69,049
82,121
$
The accompanying notes are an integral part of these consolidated financial statements.
F-4
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Revenue
Grant revenue
Collaboration revenue
Total revenue
Operating expenses
Research and development
General and administrative
Loss on impairment of long-lived assets
Total operating expenses
Loss from operations
Interest income
Other income (expense), net
Net loss
Net loss per share- basic and diluted
Weighted-average common shares used to compute net loss per share- basic and diluted
Year Ended December 31,
2020
2019
— $
5,685
5,685
17,620
13,065
5,784
36,469
(30,784)
255
(14)
(30,543)
(1.93)
15,790
$
$
4,753
—
4,753
12,836
13,691
—
26,527
(21,774)
1,022
2,534
(18,218)
(1.57)
11,589
$
$
$
The accompanying notes are an integral part of these consolidated financial statement
F-5
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
Balances at January 1, 2019
Issuance of common stock in public offering, net of
issuance costs of $351
Cumulative-effect adjustment to equity due to adoption of
ASU 2016-02
Issuance of common stock upon exercise of options
Issuance of common stock under employee benefit plans
Stock-based compensation
Net loss
Balances at December 31, 2019
Issuance of common stock upon exercise of options
Issuance of common stock under employee benefit plans
Issuance of common stock in private placement, net of issuance costs
of $78
Issuance of common stock, net of issuance costs of $94
Stock-based compensation
Net loss
Balances at December 31, 2020
Common Stock
Shares
11,266,151
Amount
1 $
Additional
Paid-In
Capital
510,509 $
Accumulated
Deficit
(450,565) $
Total
Stockholders'
Equity
59,945
3,633,334
1
25,127
—
25,128
—
39,686
62,624
—
—
15,001,795
114,515
56,291
931,098
377,400
—
—
16,481,099
—
—
—
—
—
2
—
—
—
—
—
—
2 $
—
95
28
3,399
—
539,158
315
80
(1,328)
—
—
—
(18,218)
(470,111)
—
—
4,922
2,266
1,966
—
548,707 $
—
—
—
(30,543)
(500,654) $
(1,328)
95
28
3,399
(18,218)
69,049
315
80
4,922
2,266
1,966
(30,543)
48,055
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities
Net loss
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization
Impairment of long-lived assets
Stock-based compensation expense
Write-off lease receivable/prepaid commission assets
Changes in assets and liabilities, net of acquisition
Prepaid expenses and other assets
Accounts payable
Deferred revenue
Accrued and other liabilities
Net cash used in operating activities
Cash flows from investing activities
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs
Proceeds from issuance of common stock in connection with exercise of options
Proceeds from issuance of common stock in connection with employee benefit plans
Proceeds from issuance of common stock in private placement, net of issuance costs
Proceeds from issuance of common stock, net of issuance costs
Net cash provided by financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of period
Cash, cash equivalents and restricted cash at end of period
Supplemental disclosure of noncash items
Right-of-use asset acquired through operating lease
Property and equipment recorded upon adoption of ASU 2016-02
Year Ended December 31,
2020
2019
$
(30,543)
$
(18,218)
1,829
5,784
1,966
1,383
1,299
1,422
6,315
(1,624)
(12,169)
—
—
315
80
4,922
2,266
7,583
(4,586)
67,557
62,971
470
—
$
$
$
498
—
3,399
—
(2,782)
652
(146)
(484)
(17,081)
—
25,127
95
28
—
—
25,250
8,169
59,388
67,557
—
2,151
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-7
ARAVIVE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Biologics, Inc. (“Aravive
Biologics”) our wholly owned subsidiary was incorporated in 2007. Aravive is a clinical-stage biopharmaceutical company developing treatments designed
to halt the progression of life-threatening diseases, including cancer and fibrosis.
The Company’s lead product candidate, AVB-500, is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway by binding
GAS6. 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 Company’s current development program benefits from the availability of a proprietary serum-based biomarker that it expects will help accelerate
drug development by allowing the Company to select a pharmacologically active dose and may potentially identify the cancer patients that have the best
chance of responding to AVB-500.
In the Company’s completed Phase 1 clinical trial in healthy volunteers with our clinical lead product candidate, AVB-500, the Company 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 trial
and Phase 1b clinical trial in cancer patients. In December 2018, the Company initiated a Phase 1b clinical trial of AVB-500 combined with standard of
care therapies in patients with platinum-resistant ovarian cancer, or PROC, for which we reported results in July 2020.
In August 2018, the U.S. Food and Drug Administration (“FDA”) designated as a Fast Track development program the investigation of the Company’s
lead development candidate, AVB-500, for platinum-resistant recurrent ovarian cancer. The Company initiated a pivotal Phase 3 trial of AVB-500 in PROC
during the first quarter of 2021.
In January 2020, the Company announced that the FDA has cleared its Investigational New Drug (“IND”) application for investigation of AVB-500, in
the treatment of its second oncology indication, clear cell renal cell carcinoma (“ccRCC”). During the fourth quarter of 2020, the Company initiated our
Phase 1b/2 trial of AVB-500 in ccRCC and dosed its first patient in the trial during the first quarter of 2021.
In April 2020, the Company entered into a license and collaboration agreement with WuXi Biologics (Hong Kong) Limited, the objective of which is to
identify and develop novel high-affinity bispecific antibodies against CCN2, also known as connective tissue growth factor (CTGF), implicated in cancer
and fibrosis and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to
generate a best-in-class therapeutic targeting desmoplasia and tumor growth in the clinic in 2023.
On November 6, 2020, the Company entered into a collaboration and license agreement with 3D Medicines Inc., or 3D Medicines, whereby the
Company granted 3D Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance for the
diagnosis, treatment or prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau.
With the global spread of the ongoing novel coronavirus, or COVID-19 pandemic, the Company has implemented business continuity plans designed to
address and mitigate the impact of the COVID-19 pandemic on our employees and our business. While the Company is experiencing limited financial
impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties
associated with the pandemic, the Company’s business, financial condition, results of operations and growth prospects could be materially adversely
affected. As the Company advances its clinical programs, the Company is in close contact with its clinical research organizations and clinical sites and is
assessing the impact of COVID-19 on its planned studies and current timelines and costs. While the Company currently does not anticipate any
interruptions in its operations due to COVID-19 if the COVID-19 pandemic continues and persists for an extended period of time, the Company could
experience significant disruptions to its clinical development timeline, which would adversely affect the Company’s business, financial condition, results of
operations and growth prospects.
F-8
In July 2016, Aravive Biologics was approved for a $20 million Product Development Award from the Cancer Prevention and Research Institute of
Texas (“CPRIT Grant”). The CPRIT Grant was expected to allow Aravive Biologics to develop the product candidate referenced above through clinical
trials. The CPRIT Grant was effective as of June 1, 2016 and terminated on November 30, 2019. Aravive Biologics’ 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 Aravive Biologics matched 50% of funding from the
CPRIT Grant. Consequently, Aravive Biologics was required to raise $10.0 million in matching funds over the three-year project. Aravive Biologics has
raised all its required $10.0 million in matching funds.
Aravive Biologics’ 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 Aravive Biologics 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 Aravive Biologics’ principal place of business outside Texas.
As consideration for the rights granted as part of a license agreement with Stanford University, Aravive Biologics 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, Aravive Biologics 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, Aravive Biologics is obligated to pay royalties to Stanford University equal to a percentage of
what Aravive Biologics 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, Aravive Biologics will be obligated to pay all
amounts that accrued prior to such termination.
2. Summary of Significant Accounting Policies
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”). The preparation of the accompanying 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
consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
The accompanying financial statements are consolidated for the year ended December 31, 2020 and includes the accounts of Aravive, Inc. and its
wholly-owned subsidiary Aravive Biologics. The accompanying financial statements are consolidated for the year ended December 31, 2019 and include
the accounts of Aravive, Inc. and its then wholly-owned subsidiaries, Versartis Cayman Holdings Company, incorporated in 2014, Versartis GmbH,
incorporated in 2015 and Aravive Biologics, incorporated in 2007. After 2015, the Cayman and GmbH subsidiaries became dormant. In 2019, the Cayman
and GmbH subsidiaries were liquidated in their respective countries and no longer exist as of December 31, 2019. All intercompany accounts and
transactions have been eliminated. The U.S. dollar is the functional currency for all of the Company's subsidiaries and consolidated operations.
Liquidity and Capital Resources
Since inception, the Company has incurred net losses and negative cash flows from operations. At December 31, 2020, the Company had an
accumulated deficit of $500.7 million and working capital of $52.2 million. Since inception, the Company has incurred net losses and negative cash flows
from operations. The Company expects to continue to incur losses from costs related to the development of AVB-500 and related administrative activities
for the foreseeable future. As of December 31, 2020, the Company had a cash and cash equivalents balance of $60.5 million consisting of cash and
investments in highly liquid U.S. money market funds. While 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 will need to
obtain additional financing to advance its clinical development program to later stages of development and commercialize its clinical product candidate.
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 profitability and does not segregate its business for internal reporting.
All long-lived assets are maintained in the United States of America.
F-9
Concentration of Credit Risk
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 and dependence on key individuals
and sole source suppliers.
Products developed by the Company require clearances from the U.S. Food and Drug Administration (“FDA”), the Pharmaceuticals Medicines and
Devices Agency (“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 is denied clearance, clearance is delayed or the Company is unable to maintain clearance, it could have a material
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 launch and
commercialize any product candidates for which it receives regulatory approval.
Cash and Cash Equivalents, Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At
December 31, 2020 and 2019 the Company’s cash and cash equivalents were held in multiple institutions within the United States and included deposits in
money market funds which were unrestricted as to withdrawal or use. Restricted cash consists of a letter of credit to secure the Company’s obligations
under the right-of-use 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 consolidated balance sheets and any resulting gain or loss is reflected in operations in the period realized.
Leases
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.
The Company records an operating lease ROU asset and an operating lease obligation on the consolidated balance sheet when entering into a lease.
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. Lease 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 lease inception date in determining the present value
of lease payments. The lease term may include options to extend or terminate the lease and the Company includes renewal options in its calculation of the
estimated lease term 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. Variable lease costs and short-term lease payments not included in the lease liability are classified within operating
activities in the consolidated statements of cash flows. 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 consolidated balance sheet. These expenses are recognized within operating expenses in the
consolidated statements of operations.
F-10
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 were no such impairments of long-lived assets as of December 31, 2019.
The Company accounts for the sublease with EVA Automation, Inc. (“EVA”) as an operating lease and reviews the ROU asset recorded associated with
the sublease for impairment whenever events or changes in circumstances indicate that the carrying amount of the ROU asset may not be recoverable in
accordance with ASC 360-10. Recoverability is measured if the lease cost for the term of the sublease exceeds the anticipated sublease income for the same
period on an undiscounted basis and the Company shall treat this circumstance as an indicator that the carrying amount of the ROU asset may not be
recoverable.
At the end of the first quarter ended March 31, 2020, the Company was informed by EVA, its sublease tenant, that EVA will not be in a position to pay
future sublease rental payments and intends to exit the sublease. Given the uncertainty of the sublease tenant’s ability to pay the remaining sublease rental
payments, the Company determined the carrying amounts of the ROU asset and leasehold improvements associated with the 1020 Marsh Road facility may
not be recoverable. Accordingly, the Company performed a recoverability test, using an undiscounted cash flow analysis as of March 31, 2020. Based on
the undiscounted cash flow analysis, the Company determined that the ROU and leasehold improvement assets had net carrying values that exceeded their
estimated undiscounted future cash flows. The Company then measured the impairment of the asset group using a discounted cash flow analysis of the
estimated future sublease payments to be received from an expected sublessee as the Company is currently marketing the 1020 Marsh Road location for
subletting. In determining the fair value of the asset group, the Company utilized current real estate market rates, time needed to sublet the building and
estimated a discount rate of 9.5%. As a result of the impairment analysis, the Company recognized an impairment charge against its ROU asset of and
leasehold improvement assets of $2.4 million and $0.5 million, respectively, for the quarter ended March 31, 2020.
At the end of the third quarter ended September 30, 2020, the Company continued to evaluate the estimates used in the valuation used in the first
quarter of 2020. Given the continued uncertainty due to the COVID-19 shut down and the significant negative impact to the real estate market as of the end
of the third quarter, the Company determined the carrying amounts of the ROU asset and leasehold improvements associated with the 1020 Marsh Road
facility may not be recoverable. Accordingly, the Company performed a recoverability test, using an undiscounted cash flow analysis as of September 30,
2020. Based on the undiscounted cash flow analysis, the Company determined that the ROU and leasehold improvement assets had net carrying values that
exceeded their estimated undiscounted future cash flows. The Company then measured the impairment of the asset group using a discounted cash flow
analysis of the estimated future sublease payments to be received from an expected sublessee as the Company is currently marketing the 1020 Marsh Road
location for subletting. In determining the fair value of the asset group, the Company utilized current real estate market estimated rates, time needed to
sublet the building and estimated a discount rate of 9.5%. As a result of the impairment analysis, the Company recognized an impairment charge against its
ROU asset and leasehold improvement assets of $2.4 million and $0.5 million, respectively, for the quarter ended September 30, 2020. A total of $5.8
million was reported as an impairment loss on the Company’s long-lived asset balances within the statement of operations for the year ended December 31,
2020.
Fair Value of Financial Instruments
The carrying value of the Company’s cash and cash equivalents, restricted cash, 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 1 Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2
Inputs 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 3 Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.
F-11
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 December 31, 2020 and 2019. Level 1 securities are comprised of highly liquid
money market funds.
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 (“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.
Comprehensive Loss
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.
F-12
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 and restricted stock units are considered to be potentially dilutive securities.
Because the Company has reported a net loss for the years ended December 31, 2020 and 2019, 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 with Versartis, Inc. 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.
Collaborative Arrangements
The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with ASC Topic
808, Collaborative Arrangements (ASC 808). Accordingly, the elements of the collaboration agreements that represent activities in which both parties are
active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities
are recorded as collaborative arrangements. The Company considers the guidance in ASC 606-10-15, Revenue from Contracts with Customers – Scope and
Scope Exceptions, in determining the appropriate treatment for the transactions between the Company and its collaborative partner and the transactions
between the Company and third parties. Generally, the classification of transactions under the collaborative arrangements is determined based on the nature
and contractual terms of the arrangement along with the nature of the operations of the participants. Currently, we have one collaboration agreement with
3D Medicines, see Note 5 for further discussion.
Revenue Recognition
The Company’s sole source of revenue for 2019 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.
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 December 31, 2019, the Company had an unbilled receivable from CPRIT of $1.6 million, which is reflected in prepaid expenses and other current
assets on the accompanying consolidated balance sheet. The receivable was collected in March 2020.
The Company’s sole source of revenue for 2020 have been generated through our collaboration and license agreement. The Company’s collaboration
and license agreements frequently contain multiple elements including (i) intellectual property licenses, and (ii) research and development services.
Consideration received under these arrangements may include upfront payments, research and development funding, cost reimbursements, milestone
payments, payments for product sales and royalty payments. The Company’s customer includes 3D Medicines Inc. (“3D Medicines”).
The Company follows ASC 606, Revenue from Contracts with Customers (ASC 606) for recognition of its collaboration and license agreements. Under
ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the
consideration that the Company expects to be entitled to receive in exchange for goods or services and excludes sales incentives and amounts collected on
behalf of third parties. The Company analyzes the nature of these performance obligations in the context of individual agreements in order to assess the
distinct performance obligations.
The Company applies the following five-step model to recognize revenue: (i) identification of the promised goods or services in the contract; (ii)
determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii)
measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance
obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation.
F-13
i) Identify the contract with a customer. The Company considers the terms and conditions of its agreements to identify contracts within the scope of
ASC 606. The Company concludes it has a contract with a customer when the contract is approved, each party's rights regarding the goods and services to
be transferred can be identified, the payment terms for the goods and services can be identified, it has been determined that the customer has the ability and
intent to pay and the contract has commercial substance. The Company uses judgment in determining the customer's ability and intent to pay, which is
based upon factors including the customer's historical payment experience or, for new customers, credit and financial information pertaining to the
customers.
ii) Identify the performance obligations in the contract. Performance obligations in the agreements are identified based on the goods and services that
will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together
with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of
the services is separately identifiable from other promises in the contract. The Company’s performance obligations generally consist of intellectual property
licenses and research and development services with respect to license and service agreements, and the manufacture and supply of product for product sales
agreements.
iii) Determine the transaction price. The Company determines the transaction price based on the consideration to which the Company expects to be
entitled in exchange for transferring goods and services to the customer. In determining the transaction price, any variable consideration would be
considered, to the extent applicable, if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract
will not occur. In accordance with the royalty exception under ASC 606 for licenses of intellectual property, the transaction price excludes future royalty
payments to be received from the Company’s customers. None of the Company’s revenue generating contracts contain consideration payable to its
customer or a significant financing component.
iv) Allocate the transaction price to performance obligations in the contract. If the contract contains a single performance obligation, the entire
transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction
price to each performance obligation based on a relative standalone selling price.
v) Recognize revenue when or as we satisfy a performance obligation. Revenue is recognized at the time the related performance obligation is satisfied
by transferring the promised goods or services to a customer. The Company recognizes revenue when control of the goods or services is transferred to the
customers for an amount that reflects the consideration that the Company expect to receive in exchange for those goods or services.
Performance Obligations.
The following is a general description of principal goods and services from which the Company generates revenue.
License to intellectual property
The Company generates revenue from licensing its intellectual property including know-how and development and commercialization rights. The
license provides a customer with the right to further research, develop and commercialize internally-discovered or collaborated drug candidates, or the right
to use AVB-500 to further research, develop and commercialize customer drug candidates. The consideration the Company receives is in the form of
nonrefundable upfront consideration related to the functional intellectual property licenses and is recognized when the Company transfers such license to
the customer unless the license is combined with other goods or services into one performance obligation, in which case the revenue is recognized over a
period of time based on the estimated pattern in which the Company satisfies the combined performance obligation. The Company’s licensing agreements
are generally cancelable.
Research and development services
The Company generates revenue from research and development services it provides to its customers and primarily includes clinical trials, and
assistance during regulatory approval application process. Revenue associated with these services is recognized based on the Company’s estimate of total
consideration to be received for such services and the pattern in which the Company perform the services. The pattern of performance is generally
determined to be the amount of incurred costs related to the service portion of the contract with the customer as a percentage of total expected costs
associated with the service portion of the contract.
Contracts with Multiple Performance Obligations.
Most of the Company’s collaboration and license agreements with customers contain multiple promised goods or services. Based on the characteristics
of the promised goods and services the Company analyzes whether they are separate or combined performance obligations. The transaction price is
allocated to the separate performance obligations on a relative standalone selling price basis. The estimated standalone selling price is based on the adjusted
market assessment approach including estimated present value of future cash flows and cost-plus margin approach, taking into consideration the type of
services, estimates of hourly market rates, and stage of the development.
F-14
Variable Consideration.
The Company’s contracts with customers primarily include two types of variable consideration: (i) development and regulatory milestone payments,
which are due to the Company upon achievement of specific development and regulatory milestones and (ii) one-time sales-based payments and sales-
based royalties associated with licensed intellectual property.
Due to uncertainty associated with achievement of the development and regulatory milestones, the related milestone payments are excluded from the
contract consideration and the corresponding revenue is not recognized until we conclude it is probable that reversal of such milestone revenue will not
occur. As part of the Company’s evaluation of the constraint, the Company considers numerous factors, including whether the achievement of the
milestone is outside of the Company’s control, contingent upon regulatory approval or dependent on licensee efforts.
Product sales-based royalties under licensed intellectual property and one-time payments are accounted for under the royalty exception. The Company
recognizes revenue for sales-based royalties under licensed intellectual property and one-time payments at the later of when the sales occur or the
performance obligation is satisfied or partially satisfied.
The transaction price is reevaluated each reporting period and as uncertain events are resolved or other changes in circumstances occur.
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.
On November 5, 2018, the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and
Topic 606, which provides guidance on whether certain transactions between collaborative arrangement participants should be accounted for as revenue
under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. Accordingly, this amendment added unit
of account guidance in Topic 606 when an entity is assessing whether the collaborative arrangement, or a part of the arrangement, is within the scope of
Topic 606. In addition, the amendment provides certain guidance on presenting the collaborative arrangement transaction together with Topic 606. ASU
2018-18 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years and early adoption is permitted. This
ASU is to be applied retrospectively to the date of initial application of Topic 606. The Company adopted this guidance as of January 1, 2020 and accounts
for the 3D Medicines collaboration agreement under Topic 808 and Topic 606, see Note 5.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance is
intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principles in
Topic 740 and clarifies and amends existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020, including
interim reporting periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of adoption
of this ASU and does not expect the adoption of this new standard to have a material impact on its consolidated financial statements.
In August 2020, the FASB issued ASU No. 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-
Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The ASU simplifies
accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt
instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain
settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify
for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods
beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those
fiscal years. The Company does not expect that the adoption of this new standard will have a material impact on the Company’s consolidated financial
statements and related disclosures.
F-15
3. Balance Sheet Components
Prepaid expenses and other current assets (in thousands)
Preclinical and clinical
Clinical research organization receivable
Lease receivable
Unbilled receivable from CPRIT
Other
Total
Property and equipment, net (in thousands)
Equipment and furniture
Buildings, leasehold and building improvements
Less: Accumulated depreciation and amortization
Impairment loss
Property and equipment, net
December 31,
2020
2019
870 $
262
—
—
16
1,148 $
December 31,
2020
2019
1,416 $
2,673
4,089
(2,559)
(1,004)
526 $
531
—
900
1,604
44
3,079
1,442
2,674
4,116
(2,308)
—
1,808
$
$
$
$
During the year ended December 31, 2020, the Company determined leasehold improvements were impaired as described in Note 2. Depreciation
expense was approximately $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively.
Intangible asset, net (in thousands)
Assembled workforce
Less: Accumulated amortization
Intangible asset, net
December 31,
2020
2019
$
$
366 $
366
(269)
97 $
Amortization expense is expected to be approximately $0.1 million in each year over the next 0.8 years.
Accrued liabilities (in thousands)
Payroll and related
Preclinical and clinical
Professional services
Other
Total
December 31,
2020
2019
$
$
1,052 $
707
169
395
2,323 $
F-16
366
366
(147)
219
1,248
5
32
212
1,497
4. Fair Value Measurements
The Company’s financial instruments consist principally of cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities. The
remaining financial instruments are reported on the Company’s consolidated balance sheets at amounts that approximate current fair value. 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):
Assets
Money market funds
Assets
Money market funds
Fair Value Measurements at
December 31, 2020
Total
Level 1
$
49,207
$
49,207
Fair Value Measurements at
December 31, 2019
Total
Level 1
$
63,691
$
63,691
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the
hierarchy during the years ended December 31, 2020 or 2019.
Nonrecurring fair value measurements
As disclosed in Note 2, the Company recorded an impairment charge of approximately $5.8 million related to right-of-use and leasehold improvement
assets. This impairment charge was derived using Level 3 inputs and the fair value of the long-lived assets was derived by using a discounted cash flow
analysis of the 1020 Space.
5. Collaboration and License Agreement
On November 6, 2020, Aravive, Inc. (the “Company”) entered into a collaboration and license agreement (the “Agreement”) with 3D Medicines,
whereby the Company granted 3D Medicines an exclusive license to develop and commercialize products that contain AVB-500 as the sole drug substance,
for the diagnosis, treatment or prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau (the “Territory”).
Under the terms of the Agreement, the Company is eligible to receive from 3D Medicines cash payments of $12 million to be paid within 15 business
days of the effective date of the Agreement, and up to an aggregate of $207 million in clinical development, regulatory and commercial milestone
payments. There can be no guarantee that any such milestones will in fact be met. The Company is obligated to make certain payments to The Board of
Trustees of the Leland Stanford Junior University (“Stanford”) based on certain amounts received from 3D Medicines under the Agreement pursuant to the
existing license agreement by and between the Company and Stanford, dated January 25, 2012, and as amended to date. As of December 31, 2020, the
Company estimated $132 thousand due to Stanford. For the year ended December 31, 2020, the Company received payments of $12 million from 3D
Medicines.
The Company will also be entitled to receive tiered royalties ranging from low double digits to mid-teens on sales in the Territory, if any, of products
containing AVB-500. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (i) the last-to-expire of specified
patent rights in such jurisdiction in the Territory; (ii) expiration of marketing or regulatory exclusivity in such jurisdiction in the Territory; or (iii) ten (10)
years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Agreement will be subject to
reduction on account of generic competition under certain specified conditions, with any such reductions capped at certain percentages of the amounts
otherwise payable during the applicable royalty payment period.
Under the terms and conditions of the Agreement, 3D Medicines will be solely responsible for the development and commercialization of licensed
products in the Territory.
If either the Company or 3D Medicines materially breaches the Agreement and does not cure such breach, the non-breaching party may terminate the
Agreement in its entirety. Either party may also terminate the Agreement, upon written notice, if the other party files for bankruptcy, is dissolved or has a
receiver appointed for substantially all of its property. The Company may terminate the Agreement if 3D Medicines, its affiliates or its sublicensees
challenges the validity or enforceability of any of the Company’s patents covering any of the licensed compounds or products or ceases substantially all
development and commercialization of licensed products in the Territory for a specified period, subject to certain exceptions. 3D Medicines may also
terminate the Agreement for convenience provided certain notice is provided to the Company.
F-17
The Agreement contemplates that the Company will enter into ancillary arrangements with 3D Medicines, including a clinical supply agreement and a
manufacturing technology transfer agreement.
The Company assessed this arrangement in accordance with ASC 606 and identified the following performance obligations: 1) license to intellectual
property, AVB-500, and 2) research and development services, including conducting clinical trials. The Company concluded that each of these
performance obligations were distinct because 3D Medicines can benefit from the good or service either on its own or together with other resources that are
readily available, and each performance obligation is separately identifiable from other promises within the contract.
The estimated total transaction price was allocated between performance obligations based on their relative standalone selling prices. The Company
uses a discounted cash flow approach and an expected cost plus a margin approach to estimate the standalone selling price for the performance obligations.
The Company allocated the $12.0 million transaction price of the upfront payments as such: $6.4 million to the research and development services
performance obligation and $5.6 million to the license to intellectual property. Accordingly, the Company will recognize revenue related to the allocable
research and development services obligation on a proportional performance basis as the underlying services are performed pursuant to the current
development plan which is commensurate with the period and consistent with the pattern over which the Company’s research and development services
obligation is satisfied. The Company will recognize the revenue related to the license to intellectual property at a point in time. This is due to the fact the
license was determined to be a functional license due to current stage in development of AVB-500. AVB-500 has been developed, dosing levels have
already been determined and the drug is currently in a phase III clinical trial related to our PROC Ovarian study. As of December 31, 2020, no clinical or
regulatory milestones have been assessed as probable of being reached and thus have been fully constrained.
The Company recognized in revenue $5.6 million related to the license to intellectual property and $0.1 million related to the research and development
services for the year ended December 31, 2020. As of December 31, 2020, the Company had a contract liability balance of $6.3 million of which $2.6
million is classified as current and $3.7 million is classified as long-term, consisting of deferred revenue related to a portion of the payment received from
3D Medicines. The service period for the future research and development services is expected to occur over the next 2.5 years.
6. Leases
The Company adopted ASC 842 as of January 1, 2019, using the modified retrospective approach and therefore prior year financial statements were not
recast under the new standard. As a result of the adoption, the Company derecognized $8.6 million of build-to-suit lease asset; $7.3 million of build-to-suit
lease obligation and recorded the $1.3 million impact to accumulated deficit. Additionally, the Company recognized operating lease ROU assets of
approximately $10.4 million, $2.2 million of leasehold improvements, an operating lease obligation of $12.6 million and derecognized deferred rent of $0.1
million as of January 1, 2019.
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 expired August 31, 2020.
In August 2020, the Company entered into a lease agreement in North Carolina for approximately 4,128 square feet for office space. The monthly lease
payments will be approximately $9 thousand per month for a period of 63 months with a three-month rent abatement period. The lease has commenced in
the fourth quarter of 2020.
The Company’s rent expense including both short-term and variable lease components of $0.5 million and $0.5 million associated with the facility
leases was $2.1 million and $2.5 million for the years ended December 31, 2020 and 2019, respectively. Cash paid for amounts included in the
measurement of lease obligations for operating cash flows from operating leases for 2020 and 2019 was $2.3 million and $2.7 million, respectively. As of
December 31, 2020, the Company’s operating leases had a weighted average remaining lease term of 3.9 years and a weighted average discount rate of
7.62%, which approximates the Company’s incremental borrowing rate.
F-18
As of December 31, 2020, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):
Year Ending December 31,
2021
2022
2023
2024
2025
Thereafter
Total future minimum lease payments
Less: discount
Total lease liabilities
1020 Marsh Sublease
$
$
2,506
2,983
3,067
2,643
116
30
11,345
(2,828)
8,517
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 was 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 statements of operations. At the end of the first quarter ended March 31, 2020, the Company was informed by EVA that it will not be in a
position to pay future sublease rental payments and intends to exit the sublease. For the year ended December 31, 2020, the Company recorded an
impairment charge to long-lived assets as previously discussed in Note 2. In addition, associated with this impairment charge the Company recorded a write
down totaling $1.4 million related to a straight-line sublease rent receivable balance and previously capitalized commission charges, which has been
recorded in other expense within the condensed consolidated statement of operations for the year ended December 31, 2020. Overall, for the year ended
December 31, 2020, the Company recorded sublease loss associated with this sublease of $13 thousand. For the year ended December 31, 2019, the
Company recorded sublease income associated with this sublease of $2.5 million. Cash received from EVA was $1.2 million and $2.3 million for 2020 and
2019, respectively, which amount was included in the change in prepaid expenses and other assets for operating cash flows.
7. Commitments and Contingencies
Purchase Commitments
The Company conducts research and development programs through a combination of internal and collaborative programs that include, among others,
arrangements with contract manufacturing organizations and contract research organizations. The Company had contractual arrangements with these
organizations including license agreements with milestone obligations and service agreements with obligations largely based on services performed.
In the normal course of business, the Company enters into various firm purchase commitments related to certain preclinical and clinical studies.
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 but have not yet been made. 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.
Indemnification
In accordance with the Company’s amended and restated Certificate of Incorporation and amended and restated bylaws, the Company has
indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s
request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a
portion of any amounts paid for future claims.
F-19
Litigation
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened
legal proceedings as of December 31, 2020.
Contingent payable
As part of the Merger, the Company acquired a settlement that Aravive Biologics entered into with former creditors in 2014 pursuant to which Aravive
Biologics had agreed to make an initial 7.5% cash payment to the creditors with the remainder contingent on future milestone payments, or Contingent
Payments, until full repayment of the payables is made. The Contingent Payments are to be made from the proceeds received by Aravive Biologics from
any future licensing transactions. As a result of the 3D Medicines partnership agreement in November 2020, the Contingent Payments became due. It was
stipulated that the Contingent Payments will be distributed on a pro rata basis with other secured creditors and will be made from at least 10% of any
proceeds from any future licensing transactions. The proceeds from any future licensing transactions will be held in an escrow account which will be
administered by an independent third party. The creditors agreed that the Initial payment and any Contingent Payments represents settlement in full of all
outstanding obligations owed to the creditors by Aravive Biologics and released Aravive Biologics from all claims. As a result of and in connection with
the Merger, the Company determined the fair value of the contingent payable to be approximately $0.3 million, based upon an appraisal (or valuation) of
the assets and liabilities assumed to determine fair values.
Due to the 3D Medicines Licensing agreement, the contingent payable became due and payable. Accordingly, for the year ended December 31, 2020,
the Company accreted the balance to the gross amount of $0.7 million and paid $0.4 million. The remaining payable balance of $0.3 million was paid
subsequently in February of 2021. As of December 31, 2020, the unpaid portion of the liability was classified in accrued liabilities in the accompanying
consolidated balance sheet.
8. Common Stock
The Amended and Restated Certificate of Incorporation, authorizes the Company to issue 100,000,000 shares of common stock as of December 31,
2020. Common stockholders are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock
outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to
one vote.
The Company had reserved shares of common stock for future issuances as follows:
Issuance of equity-based awards under stock plan
Issuance upon exercise of options under stock plan
Issuance of restricted stock units under stock plan
Total
December 31,
2020
2019
1,600,703
2,173,776
233
3,774,712
1,391,697
1,820,160
42,112
3,253,969
In December 2019, the Company closed a public offering of its common stock pursuant to which the Company issued 3,633,334 shares of common
stock, which included shares issued pursuant to the underwriters’ partial exercise of their over-allotment option and received net proceeds of approximately
$25.1 million, after underwriting discounts, commissions and offering expenses.
Related party transactions
Board of Director Investment
On December 2, 2019, an entity affiliated with an individual who at the time was a member of our board of directors, invested approximately
$1,000,000 in our public offering and acquired 133,333 shares of common stock in the offering.
Private Placement
On April 6, 2020, the Company, entered into an investment agreement (the “Investment Agreement”), by and among the Company, Eshelman Ventures,
LLC, a North Carolina limited liability company (the “Eshelman Ventures”), and, solely for purposes of Article IV and Article V of the Investment
Agreement, Fredric N. Eshelman, Pharm.D., who immediately became the Company’s chairman of the board.
On April 8, 2020, pursuant to the Investment Agreement, Eshelman Ventures purchased 931,098 shares of the Company’s unregistered common stock
for an aggregate purchase price of approximately $5.0 million. The Company recorded the amount received net of expenses of approximately $78
thousand.
F-20
At the Market Offering Program
In September 2020, the Company filed a shelf registration statement on Form S-3 with the SEC which was declared effective by the SEC on November
20, 2020 (the “Form S-3”). On September 4, 2020, and pursuant to the Form S-3, the Company entered into an equity distribution agreement (the “Equity
Distribution Agreement”) with Piper Sandler & Co. (“Piper Sandler”) and Cantor Fitzgerald & Co. (“Cantor Fitzgerald”) to sell shares of the Company’s
common stock, par value $0.0001 per share, from time to time, through an “at the market offering” program having an aggregate offering price of up to
$60,000,000 through which Piper Sandler and Cantor Fitzgerald will act as sales agents (the “Sales Agents”). During the three-month period ended
December 31, 2020, the Company sold 377,400 shares for proceeds net of discounts and offering costs of $2.3 million under the Equity Distribution
Agreement.
9. Stock Based Awards
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 Aravive
Biologics 2017 Equity Incentive Plan and the 2010 Equity Incentive Plan, as amended (Prior Plans). As of December 31, 2020, the total number of shares
of common stock available for issuance under the 2019 Plan was 1,600,703. 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 plans is set forth below:
Number of
Shares
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
(in years)
Aggregate
Intrinsic
Value
(in thousands)
Balances, January 1, 2019
Options granted
Options exercised
Options cancelled
Balances, December 31, 2019
Options granted
Options exercised
Options cancelled
Balances, December 31, 2020
Vested and expected to vest as of December 31, 2020
Exercisable as of December 31, 2020
1,515,923
483,328
(39,686)
(139,405)
1,820,160
799,460
(114,515)
(331,329)
2,173,776
2,074,651
1,593,995
$
$
$
$
18.65
5.55
2.40
81.33
10.70
9.19
2.76
17.07
9.59
9.68
10.32
5.8
5.6
4.6
$
$
$
5,905
5,891
5,816
The intrinsic values of outstanding, vested and exercisable options were determined by multiplying the number of shares by the difference in exercise
price of the options and the fair value of the common stock. The intrinsic value of stock options exercised during the years ended December 31, 2020 and
2019, was $0.6 million and $0.4 million, respectively.
F-21
Stock Options Granted to Employees
During the year ended December 31, 2020 and 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 $7.69 and $4.69 per share, respectively. 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.
During the year ended December 31, 2020, the Company modified certain stock options and restricted stock units that were outstanding to our two
former CEO’s and former directors. The modification of the terms or conditions of an equity award was treated as an exchange of the original award for a
new award. The Company then recognized additional compensation for any incremental value. Incremental compensation cost was measured as the excess,
if any, of the fair value of the modified award over the fair value of the original aware immediately before its terms were modified. As a result of these
modifications during the year ended December 31, 2020, the Company recognized incremental compensation costs of $0.4 million.
As of December 31, 2020, total unrecognized employee stock-based compensation related to stock options granted was $2.9 million, which is expected
to be recognized over the weighted-average remaining vesting period of 2.7 years.
The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions:
Expected volatility
Risk-free interest rate
Dividend yield
Expected life (in years)
Determining Fair Value of Stock Options
Year Ended December 31,
2020
2019
112.0%
1.0%
0.0%
6.0
111.0%
2.4%
0.0%
6.0
The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Each of these inputs
is subjective and generally requires significant judgment to determine.
Expected Volatility – The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with
the estimated expected term of our stock options.
Risk-Free Interest Rate – The risk-free rate assumption was based on the U.S. Treasury instruments with terms that were consistent with the expected
term of the Company’s stock options.
Expected Dividend – The expected dividend assumption was based on the Company’s history and expectation of dividend payouts.
Expected Term – The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. For option
grants that are considered to be “plain vanilla”, the Company has opted to use the simplified method for estimating the expected term as provided by the
Securities and Exchange Commission. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the
options.
Forfeiture Rate – Forfeitures were estimated based on historical experience.
Fair Value of Common Stock – The fair value of the underlying common stock is based upon quoted prices on the Nasdaq Global Select Market.
Stock-based compensation expense, net of estimated forfeitures, is reflected in the statements of operations as follows (in thousands):
Operating Expenses
Research and development
General and administrative
Total
Year Ended December 31,
2020
2019
$
$
536 $
1,430
1,966 $
347
3,052
3,399
F-22
2014 Employee Stock Purchase Plan
The board of directors adopted, and the Company’s stockholders approved, the 2014 Employee Stock Purchase Plan, or the ESPP, in March 2014. The
ESPP became effective on March 20, 2014.
The maximum aggregate number of shares of common stock that may be issued under the ESPP per purchase period is 2,500 shares (which was
adjusted for the reverse stock split that occurred in October 2018). Additionally, the number of shares of common stock reserved for issuance under the
ESPP will increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of
the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; and (ii) 50,000 shares of common stock
(which was adjusted for the reverse stock split that occurred in October 2018). The board of directors may act prior to the first day of any calendar year to
provide that there will be no January 1 increase or that the increase will be for a lesser number of shares than would otherwise occur. Shares subject to
purchase rights granted under the ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance
under the ESPP.
An employee may not be granted rights to purchase stock under the ESPP if such employee (i) immediately after the grant would own stock possessing
5% or more of the total combined voting power or value of the Company’s common stock, or (ii) holds rights to purchase stock under the ESPP that would
accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding.
The administrator may approve offerings with a duration of not more than 27 months and may specify one or more shorter purchase periods within each
offering. Each offering will have one or more purchase dates on which shares of common stock will be purchased for the employees who are participating
in the offering. The administrator, in its discretion, will determine the terms of offerings under the ESPP.
The ESPP permits participants to purchase shares of our common stock through payroll deductions with up to 15% of their earnings. The purchase price
of the shares will be not less than 85% of the lower of the fair market value of our common stock on the first day of an offering or on the date of purchase.
The fair value of the ESPP grants were immaterial for the years ended December 31, 2020 and 2019, respectively.
10. Income Taxes
The provision (benefit) for federal income taxes in 2020 and 2019 is as follows (in thousands):
Current
Federal
State
Deferred
Federal
State
Total deferred tax expense
Total income tax expense
December 31,
2020
2019
$
$
$
— $
—
—
— $
—
—
— $
—
—
—
—
—
—
—
Income tax expense (benefit) in 2020 and 2019 differed from the amount expected by applying the statutory federal tax rate to the income or loss before
taxes as summarized below:
Federal tax benefit at statutory rate
Change in valuation allowance
Section 382 limitation
Other non-deductible expenses
Stock based compensation
ASC 842 lease accounting
Total
December 31,
2020
2019
21%
(12)%
—
(1)%
(8)%
—
0%
21%
(23)%
—
(1)%
(7)%
10%
0%
F-23
Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s
net deferred tax assets at December 31, 2020 and 2019 are as follows (in thousands):
Net operating loss carry forwards
Research and development tax credits
Stock based compensation and other
Operating lease obligation
Total deferred tax assets
Less: Valuation allowance
Deferred tax liabilities
Operating lease right-of-use assets
Net deferred tax assets
December 31,
2020
2019
$
$
10,988 $
90
2,860
1,789
15,727
(15,106)
—
(621)
— $
5,869
90
5,099
2,149
13,207
(11,326)
(55)
(1,826)
—
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets.
The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing,
likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At
present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has
been established and no deferred tax asset is shown in the accompanying consolidated balance sheets.
The valuation allowance increased by approximately $3.8 million in 2020 and increased $4.3 million in 2019.
At December 31, 2020, the Company has net operating loss carryforwards for federal income tax purposes of approximately $52.3 million, of which
$47.5 million was generated post December 31, 2017 (after section 382 limitation) and will have no expiration date. The remaining $4.8 million of net
operating loss carryforwards begin to expire in 2037. The Company also has federal research and development tax credits of approximately $90 thousand,
which begin to expire in 2037.
As of December 31, 2020, the Company’s total gross deferred tax assets were $15.7 million. Due to the Company’s lack of earnings history and
uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The
deferred tax assets were primarily comprised of federal tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax
credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a
“Section 382 limitation”). Similar rules may apply under state tax laws. The Company has performed an analysis to determine whether an “ownership
change” occurred from inception up to the Aravive Biologics' acquisition date. Based on this analysis during 2018, management determined that both
Versartis, Inc. and Aravive Biologics did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit
carryforwards. During the years ended December 31, 2020 and 2019, no additional ownership changes were noted.
The Company follows the provisions of FASB Accounting Standards Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes.
ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of
uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the
consolidated financial statements. At December 31, 2020 and 2019, the Company’s reserve for unrecognized tax benefits is approximately $39
thousand. Due to the full valuation allowance at December 31, 2020, current adjustments to the unrecognized tax benefit will have no impact on the
Company’s effective income tax rate. The Company does not anticipate any significant change in its unrecognized tax benefits within 12 months of this
reporting date. The Company includes penalties and interest expense related to income taxes as a component of other expense and interest expense,
respectively, as necessary.
F-24
Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statute is effectively
open for all tax years. However, due to the above-mentioned ownership change and impairment of net operating loss and credit carryforwards, only net
operating loss and credit carryforwards post-January 14, 2017 are carried forward to future years for federal and state tax purposes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
Balance at January 1, 2019
Gross increase/ (decrease) related to prior year tax positions
Gross increase related to current year positions
Reductions to unrecognized tax benefits related to lapsing statute of limitations
Balance at December 31, 2019
Gross increase/ (decrease) related to prior year tax positions
Gross increase related to current year positions
Reductions to unrecognized tax benefits related to lapsing statute of limitations
Balance at December 31, 2020
All tax years remain open for examination by federal and state tax authorities.
11. Employee Benefit Plans
Defined Contribution Plan
Amount
72
(72)
39
—
39
—
—
—
39
$
$
The Company sponsors a 401(k) Plan, which stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations
of eligible compensation. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. Employer
contributions were $15 thousand for 2020 and none for 2019.
12. Net loss per share of Common Stock
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in
thousands, except per share data):
Net loss attributable to common stockholders- basic and diluted
Net loss per share- basic and diluted
Weighted-average common shares used to compute net loss per share- basic
and diluted
$
$
December 31,
2020
2019
(30,543)
$
(1.93) $
15,790
(18,218)
(1.57)
11,589
Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-
average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by dividing the
net loss attributable to common stockholders 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 the years ended December 31, 2020 and 2019, the Company did not have dilutive common stock equivalents and
therefore diluted net loss per common share is the same as basic net loss per common share for those years.
The following potentially dilutive securities outstanding at the end of the years presented have been excluded from the computation of diluted shares
outstanding:
Options to purchase common stock
Restricted stock units
13. Subsequent Events
At the Market Offering Program
December 31,
2020
2019
2,173,776
233
1,820,160
42,112
In January and February 2021, the Company sold 197,949 shares for proceeds net of discounts and offering costs of $1.6 million under the Equity
Distribution Agreement.
F-25
Related party transaction
On February 12, 2021, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”), with Eshelman Ventures relating to the
issuance and sale (the “Offering”) of 2,875,000 shares of the Company’s common stock at a price per share of $7.29. The Offering closed on February 18,
2021 and the Company received aggregate gross proceeds from the Offering of approximately $21.0 million. Eshelman Ventures is an entity wholly owned
by the Company’s chairman of the board.
F-26
Exhibit Index
Exhibit
Number
1.1
1.2
3.1
3.2
3.3
3.4
3.5
3.6
3.7
4.1
Description
Equity Distribution Agreement, dated as of March 26, 2019 between Aravive, Inc. and Piper Jaffray & Co (Incorporated herein by reference to
exhibit number 1.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on March 26, 2019).
Equity Distribution Agreement, dated as of September 4, 2020 between Aravive, Inc., Piper Sandler & Co. and Cantor Fitzgerald & Co.
(Incorporated herein by reference to exhibit number 1.1 of the Registration Statement on Form S-3 (File No. 333-248612) as filed with the
SEC on September 4, 2020).
Amended and Restated Certificate of Incorporation (Incorporated herein by reference to the same numbered exhibit of our current report on
Form 8-K (File No. 001-36361), as filed with the SEC on March 26, 2014).
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit
number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on June 1, 2017).
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit
number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on September 12, 2017).
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit
number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on October 16, 2018).
Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit
number 3.2 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on October 16, 2018).
Certificate of Correction to Certificate of Amendment of Amended and Restated Certificate of Incorporation of Aravive, Inc. (Incorporated
herein by reference to exhibit number 3.6 on our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019).
Amended and Restated Bylaws. (Incorporated herein by reference to Exhibit 3.4 of our registration statement on Form S-1, as amended (File
No. 333-193997), as filed with the SEC on March 6, 2014).
Form of Stock Certificate. (Incorporated herein by reference to the same numbered exhibit of our quarterly report on Form 10-Q (File No.
001-36361), for the quarterly period ended March 31, 2014, as filed with the SEC on May 14, 2014).
4.2#
Description of Capital Securities.
4.3*
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
The Aravive, Inc. 2019 Equity Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A
filed with the Securities and Exchange Commission on August 9, 2019).
2009 Stock Plan, as amended. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File
No. 333-193997), as filed with the SEC on February 18, 2014).
Form of Notice of Stock Option Grant and Incentive Stock Option Agreement under 2009 Stock Plan. (Incorporated herein by reference to the
same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
Form of Notice of Stock Option Grant and Non-Statutory Stock Option Agreement under 2009 Stock Plan. (Incorporated herein by reference
to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
2014 Equity Incentive Plan. (Incorporated herein by reference to Exhibit 3.4 of our registration statement on Form S-1, as amended (File No.
333-193997), as filed with the SEC on March 6, 2014).
Form of 2014 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement. (Incorporated herein by reference to Exhibit
99.5 of our registration statement on Form S-8 (File No. 333-194949), as filed with the SEC on April 1, 2014).
Form of 2014 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement. (Incorporated herein by
reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on April 17, 2014).
94
Exhibit
Number
10.7*
10.8*
10.9*
Description
Change in Control Severance Plan. (Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-1, as amended
(File No. 333-193997), as filed with the SEC on March 10, 2014).
2014 Employee Stock Purchase Plan. (Incorporated herein by reference to Exhibit 10.9 of our registration statement on Form S-1, as amended
(File No. 333-193997), as filed with the SEC on March 6, 2014).
Form of Indemnification Agreement by and between the Company and each of its directors and officers. (Incorporated herein by reference to
Exhibit 10.10 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014).
10.10*
Offer letter between the Company and Jay Shepard dated as of May 12, 2015. (Incorporated herein by reference to Exhibit 10.7 of our
quarterly report on Form 10-Q (File No. 001-36361), as filed with the SEC on August 8, 2015).
10.11
10.12
10.13†
10.14†
10.15†
10.16†
10.17†
10.18†
10.19†
10.20*
10.21
10.22*
10.23*
10.24*
Operating Lease Agreement by and between Versartis, Inc. and Bohannon Associates dated March 17, 2017 (Incorporated herein by reference
to Exhibit 10.1 of our quarterly report on Form 10-Q (File No. 001-36361), as filed with the SEC on May 10, 2017).
Agreement and Plan of Merger and Organization among Versartis, Inc., Velo Merger Sub, Inc. and Aravive Biologics, Inc. dated as of June 3,
2018 (Incorporated herein by reference to Exhibit 2.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 4,
2018).
Cancer Research Grant Contract, dated December 1, 2015, by and between the Cancer Prevention and Research Institute of Texas and Ruga
Corporation (Incorporated herein by reference to Exhibit 10.1 of our registration statement on Form S-4/A (File No. 333-226594 as filed with
the SEC on August 24, 2018).
Exclusive License Agreement, dated January 25, 2012, by and between The Board of Trustees of the Leland Stanford Junior University and
Ruga Corporation (Incorporated herein by reference to Exhibit 10.2 of our registration statement on Form S-4/A (File No. 333-226594 as filed
with the SEC on August 24, 2018).
Amendment to the Exclusive License Agreement, dated July 26, 2012, by and between the Board of Trustees of Leland Stanford Junior
University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.3 of our registration statement on Form S-4 (File No. 333-
226594 as filed with the SEC on August 3, 2018).
Amendment No. 2 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland
Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.4 of our registration statement on Form S-4
(File No. 333-226594 as filed with the SEC on August 3, 2018).
Amendment No. 3 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland
Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.5 of our registration statement on Form S-4
(File No. 333-226594 as filed with the SEC on August 3, 2018).
Master Manufacturing Services Agreement, dated July 11, 2016, by and between WuXi Biologics (Hong Kong) Limited and Aravive
Biologics, Inc. (Incorporated herein by reference to Exhibit 10.6 of our registration statement on Form S-4/A (File No. 333-226594 as filed
with the SEC on August 24, 2018).
License Agreement dated December 1, 2017, by and between WuXi Biologics (Hong Kong) Limited and Aravive Biologics, Inc.
(Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on
August 3, 2018).
Indemnification Agreement dated October 17, 2016, by and between Ruga Corporation and Vinay Shah (Incorporated herein by reference to
Exhibit 10.8 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
Sublease dated August 21, 2018, by and among Versartis, Inc. and Eva Automation, Inc. (Incorporated herein by reference to Exhibit 10.1 of
our current report on Form 8-K (File No. 001-36361 as filed with the SEC on September 20, 2018).
Aravive, Inc. 2017 Equity Incentive Plan (Incorporated herein by reference to Exhibit 4.9 of our registration statement on Form S-8 (File No.
333-227865), as filed with the SEC on October 17, 2018).
Aravive, Inc. 2010 Equity Incentive Plan, as amended (Incorporated herein by reference to Exhibit 4.10 of our registration statement on Form
S-8 (File No. 333-227865), as filed with the SEC on October 17, 2018).
Separation Agreement with Paul Westberg effective November 15, 2018 (Incorporated herein by reference to Exhibit 10.1 of our current
report on Form 8-K (File No. 001-36361 as filed with the SEC on November 20, 2018).
95
Exhibit
Number
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34
10.35*
10.36*
10.37*
10.38*
10.39*
10.40
10.41*
10.42*
10.43*
10.44*
Description
Amendment to Jay Shepard Offer Letter dated as of February 6, 2019 (Incorporated herein by reference to Exhibit 10.1 of our current report
on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
Offer Letter dated February 1, 2017 and the amendment thereto dated May 30, 2018 by and between Aravive Biologics, Inc. and Vinay Shah
(Incorporated herein by reference to Exhibit 10.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February
12, 2019).
Severance Agreement dated May 31, 2018 and amendment thereto dated September 24, 2018 between Aravive Biologics, Inc. and Vinay Shah
(Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February
12, 2019).
Offer Letter dated January 1, 2017 by and between Aravive Biologics, Inc. and Gail McIntyre (Incorporated herein by reference to Exhibit
10.4 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
Non-Employee Director Compensation Policy, as amended January 3, 2019 (Incorporated herein by reference to exhibit number 10.60 on our
annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019).
Amendment to Jay Shepard Offer Letter effective as of February 28, 2019 (Incorporated herein by reference to Exhibit 10.1 of our current
report on Form 8-K (File No. 001-36361 as filed with the SEC on March 6, 2019).
First Amendment to Aravive, Inc. 2014 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.2 of our current report on Form
8-K (File No. 001-36361 as filed with the SEC on March 6, 2019).
Offer Letter, dated January 8, 2020, between Rekha Hemrajani and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.1 of our
current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
Separation Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.3 of our
current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
Consulting Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.4 of our
current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
Aravive, Inc. 2019 Equity Incentive Plan (Incorporated herein by reference to Exhibit 99.1 of our registration statement on Form S-8 (File No.
333-233866), as filed with the SEC on September 20, 2019).
Form of Stock Option Grant Notice and Stock Option Agreement (Incorporated herein by reference to Exhibit 99.2 of our registration
statement on Form S-8 (File No. 333-233866), as filed with the SEC on September 20, 2019).
Offer Letter, dated March 26, 2020, between Vinay Shah and Aravive, Inc. (Incorporated by reference to Exhibit 10.48 of our Annual Report
on Form 10-K (File No. 001-36361) as filed on March 27, 2020).
Offer Letter, dated March 26, 2020 between Gail McIntyre and Aravive, Inc. (Incorporated by reference to Exhibit 10.49 of our Annual
Report on Form 10-K (File No. 001-36361) as filed on March 27, 2020).
Form of 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement. (Incorporated by
reference to Exhibit 10.50 of our Annual Report on Form 10-K (File No. 001-36361) as filed on March 27, 2020).
Investment Agreement, dated as of April 6, 2020, by and among the Company, Eshelman Ventures, LLC, and, solely for purposes of Article
IV and Article V of the Investment Agreement, Fredric N. Eshelman, Pharm.D. (Incorporated herein by reference to Exhibit 10.1 of our
current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020)
Separation Agreement dated April 8, 2020 between the Company and Rekha Hemrajani (Incorporated herein by reference to Exhibit 10.3 of
our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020).
Option Agreement dated April 8, 2020 by and between the Company and Srini Akkaraju (Incorporated herein by reference to Exhibit 10.4 of
our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020)
Option Agreement dated April 8, 2020 by and between the Company and Jay Shepard. (Incorporated herein by reference to Exhibit 10.5 of
our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020)
Option Agreement dated April 8, 2020 by and between the Company and Robert Hoffman. (Incorporated herein by reference to Exhibit 10.6
of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020)
96
Exhibit
Number
10.45*
10.46†
10.47*
Description
Amendment to Offer Letter dated as of April 8, 2020 by and between the Company and Gail McIntyre. (Incorporated herein by reference to
Exhibit 10.7 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020)
Collaboration and License Agreement between Aravive, Inc. and 3D Medicines Inc. dated November 6, 2020 (Incorporated herein by
reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on November 10, 2020)
Consulting Agreement, dated December 31, 2020, between the Company and Ray Tabibiazar (Incorporated herein by reference to Exhibit
10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 1, 2021)
10.48*# Offer Letter, dated September 8, 2020 between Reshma Rangwala and the Company
21.1#
List of Subsidiaries.
23.1#
Consent of BDO USA, LLP.
24.1#
Power of Attorney (included in the signature page hereto).
31.1#
31.2#
32.1#
32.2#
Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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
Registrant has been granted confidential treatment for certain portions of this agreement. The omitted portions have been filed separately with the
SEC.
Indicates management contract or compensatory plan.
97
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: March 16, 2021
Aravive, Inc.
By:
/s/ Gail McIntyre
Gail McIntyre
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf
of the Registrant in the capacities and on the dates indicated.
98
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gail McIntyre and Vinay
Shah, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or
substitute, may lawfully do or cause to be done by virtue hereof.
Signature
/s/ Gail McIntyre
Gail McIntyre
/s/ Vinay Shah
Vinay Shah
/s/ Fredric N. Eshelman, Pharm.D.
Fredric N. Eshelman, Pharm.D.
/s/ Amato Giaccia, Ph. D.
Amato Giaccia, Ph. D.
/s/ Michael W. Rogers
Michael W. Rogers
/s/ Eric Zhang
Eric Zhang
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)
Director
(Chairman of the Board)
Director
Director
Director
99
Date
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
March 16, 2021
DESCRIPTION OF SECURITIES
REGISTERED PURSUANT TO SECTION 12 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED
Exhibit 4.2
Aravive, Inc. (“we,” “us,” and “our”) has one class of securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), which is our common stock, par value $0.0001 per share (the “common stock”).
General
The following is a description of the material terms of our common stock. This is a summary only and does not purport to be complete. It is subject to and
qualified in its entirety by reference to our Amended and Restated Certificate of Incorporation, as amended (the “Certificate of Incorporation”), and our
Amended and Restated Bylaws, each of which are incorporated by reference as an exhibit to our most recent Annual Report on Form 10-K. We encourage
you to read our Certificate of Incorporation, our Bylaws and the applicable provisions of the Delaware General Corporation Law, for additional
information.
Description of Common Stock
Authorized Shares of Common Stock. We currently have authorized 100,000,000 shares of common stock.
Voting Rights. Each holder of our common stock is entitled to one vote for each share of common stock held on all matters submitted to a vote of
stockholders, except as otherwise required by statute. Except as otherwise provided by statute or by applicable stock exchange rules, in all matters other
than the election of directors, stockholders may take action with the affirmative vote of the majority of shares present in person, by remote communication,
if applicable, or represented by proxy at a stockholder meeting and entitled to vote generally on the subject matter. Cumulative voting for the election of
directors is not provided for in our amended and restated certificate of incorporation. Except as otherwise provided by statute, stockholders may elect
directors by a plurality of the votes of the shares present in person, by remote communication, if applicable.
Dividends. Subject to preferences that may apply to any shares of preferred stock outstanding at the time, the holders of outstanding shares of our common
stock are entitled to receive dividends out of funds legally available at the times and in the amounts that our board of directors may determine.
Liquidation Rights. Upon our liquidation, dissolution or winding-up, the assets legally available for distribution to our stockholders would be distributable
ratably among the holders of our common stock and any participating convertible preferred stock outstanding at that time after payment of liquidation
preferences, on any outstanding shares of convertible preferred stock and payment of other claims of creditors.
Rights and Preferences. The rights, preferences, and privileges of holders of our common stock are subject to, and may be adversely affected by, the rights
of holders of shares of any series of preferred stock that we may designate and issue in the future.
Preemptive or Similar Rights. Our common stock is not entitled to preemptive rights and is not subject to conversion or redemption.
Fully Paid and Nonassessable. All of our issued and outstanding shares of common stock are fully paid and nonassessable.
Anti-Takeover Effects of Our Charter Documents and Some Provisions of Delaware Law
Delaware Law
We are incorporated in the State of Delaware. As a result, we are subject to Section 203 of the Delaware General Corporation Law, which prohibits a
Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such
stockholder became an interested stockholder, with the following exceptions:
•
•
•
before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
upon completion of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting
stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned (1) by persons who are
directors and also officers and (2) employee stock plans in which employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or exchange offer; or
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the
stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines a “business combination” to include the following:
•
•
•
•
•
any merger or consolidation involving the corporation and the interested stockholder;
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the
interested stockholder;
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the
corporation beneficially owned by the interested stockholder; or
the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits by or through the
corporation.
In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially
owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the
corporation. A Delaware corporation may “opt out” of these provisions with an express provision in its certificate of incorporation. We have not opted out
of these provisions, which may as a result, discourage or prevent mergers or other takeover or change of control attempts of us.
Certificate of Incorporation and Bylaws
Our Certificate of Incorporation provides for our board of directors to be divided into three classes with staggered three-year terms. Only one class of
directors is elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms.
Because our stockholders do not have cumulative voting rights, stockholders holding a majority of the shares of common stock outstanding are able to elect
all of our directors. Our Certificate of Incorporation and our Bylaws also provide that directors may be removed by the stockholders only for cause upon
the vote of 66 2/3% of our outstanding common stock. Furthermore, the authorized number of directors may be changed only by resolution of the board of
directors, and vacancies and newly created directorships on the board of directors may, except as otherwise required by law or determined by the board,
only be filled by a majority vote of the directors then serving on the board, even though less than a quorum.
2
Our Certificate of Incorporation and Bylaws also provide that all stockholder actions must be effected at a duly called meeting of stockholders and
eliminates the right of stockholders to act by written consent without a meeting. Our Bylaws also provide that only our chairman of the board, chief
executive officer or the board of directors pursuant to a resolution adopted by a majority of the total number of authorized directors may call a special
meeting of stockholders.
Our Bylaws also provide that stockholders seeking to present proposals before a meeting of stockholders to nominate candidates for election as directors at
a meeting of stockholders must provide timely advance notice in writing, and specify requirements as to the form and content of a stockholder’s notice.
Our Certificate of Incorporation and Bylaws provide that the stockholders cannot amend many of the provisions described above except by a vote of
66 2/3% or more of our outstanding common stock.
The combination of these provisions makes it more difficult for our existing stockholders to replace our board of directors as well as for another party to
obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions
could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated
preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success
of any attempt to change our control.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage
coercive takeover practices and inadequate takeover bids. These provisions are also designed to reduce our vulnerability to hostile takeovers and to
discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender
offers for our shares and may have the effect of delaying changes in our control or management. As a consequence, these provisions may also inhibit
fluctuations in the market price of our stock that could result from actual or rumored takeover attempts. We believe that the benefits of these provisions,
including increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure our
company, outweigh the disadvantages of discouraging takeover proposals, because negotiation of takeover proposals could result in an improvement of
their terms.
Choice of Forum
Our Certificate of Incorporation provides that the Court of Chancery of the State of Delaware will be the exclusive forum for:
•
•
•
any derivative action or proceeding brought on our behalf;
any action asserting a breach of fiduciary duty; any action asserting a claim against us arising pursuant to the Delaware General Corporation
Law, our certificate of incorporation or our bylaws; or
any action asserting a claim against us that is governed by the internal affairs doctrine.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class
actions, derivative suits and other intra-corporate disputes.
This exclusive forum provision does not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act or other
federal securities laws for which there is exclusive federal or concurrent federal and state jurisdiction.
Our management believes limiting state law based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying
Delaware law is avoided, Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation
and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when
compared to other forums.
3
While management believes limiting the forum for state law based claims is a benefit, shareholders could be inconvenienced by not being able to bring a
state law based action in another forum they find favorable.
Several lawsuits involving other companies have been brought challenging the validity of choice of forum provisions in certificates of incorporation, and it
is possible that a court could note such provision is inapplicable or unenforceable.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, LLC. The transfer agent’s address is 6201 15th
Avenue, Brooklyn, New York 11219.
Listing on the Nasdaq Global Select Market
Our common stock is listed on the Nasdaq Global Select Market under the symbol “ARAV.”
4
River Oaks Tower
3730 Kirby Drive, Suite 1200
Houston, Texas 77098
Exhibit 10.48
September 8, 2020
Dear Reshma Rangwala:
Aravive, Inc. (the “Company”) is pleased to continue your employment as Chief Medical Officer of the Company and its subsidiaries on the
following terms:
1.
Position.
You will be employed as Chief Medical Officer (“CMO”) of the Company and you will report to the Company’s Chief
Executive Officer (the “CEO”). This is a full-time position. By signing this letter agreement, you confirm to the Company that you have no contractual
commitments or other legal obligations that would prohibit you from performing your duties for the Company.
(a)
(b)
You agree to the best of your ability and experience that you will at all times loyally and conscientiously perform all of
the duties and obligations required of and from you pursuant to the express and implicit terms hereof, and to the reasonable satisfaction of the
Company. During your employment, you further agree that you will devote all of your business time and attention to the business of the Company, the
Company will be entitled to all of the benefits and profits arising from or incident to all such work services and advice, you will not render commercial or
professional services of any nature to any person or organization, whether or not for compensation, without the prior written consent of the Company, and
you will not directly or indirectly engage or participate in any business that is competitive in any manner with the business of the Company. Nothing in this
letter agreement will prevent you from accepting speaking or presentation engagements in exchange for honoraria or from serving on boards of charitable
organizations or public or private corporations that are not competitive in any manner with the business of the Company, or from owning no more than one
percent (1%) of the outstanding equity securities of a corporation whose stock is listed on a national stock exchange.
2.
Start Date. Subject to fulfillment of any conditions imposed by this letter agreement, you will commence this new position with the
Company effective September 28, 2020 (the “Start Date”).
3.
Background Check/Proof of Right to Work. This offer is contingent upon a successful background and reference check. In
addition, for purposes of federal immigration law, you will be required to provide to the Company satisfactory documentary proof of your identity and
eligibility for employment in the United States, and this offer is contingent upon such satisfactory proof. Such documentation must be provided to the
Company within three business days of your date of hire.
4.
Cash Compensation. The Company will pay you a starting salary at the rate of $415,000 per year, less required deductions and
withholdings, payable in accordance with the Company’s standard payroll schedule. This salary will be subject to adjustment pursuant to the Company’s
employee compensation policies in effect from time to time. As an exempt salaried employee, you will be expected to work hours as required by the nature
of your work assignments, including hours beyond the Company’s normal business hours, and you will not be eligible for, nor entitled to receive, overtime
compensation.
In addition, you will be eligible to be considered for a discretionary incentive bonus for each fiscal year of the Company. Whether you are
awarded any bonus for a given fiscal year, and the amount of the bonus (if any), will be determined by the Company in its sole discretion based upon
achievement of Company and personal objectives established and approved by the Company’s Board of Directors. Your target bonus, which will be
determined by the Company in its sole discretion, will be equal to up to forty percent (40%) of your annual base salary. Any bonus for a fiscal year will
be paid within 2½ months after the close of that fiscal year, and you must remain actively employed by the Company at the time
of payment in order to earn a bonus for that fiscal year. The determinations of the Company’s Board of Directors with respect to your bonus will be final
and binding. In addition, you will be paid a $50,000 retention bonus on the 18 month anniversary of the Start Date provided that you are still employed as
the Company’s CMO on such date.
The Company may change your compensation and benefits from time to time at its discretion.
5.
Employee Benefits. As a regular employee of the Company, you will be eligible to participate in a number of Company-sponsored
benefits, including its medical, dental and 401(k) plans, under the terms and conditions of the benefit plans that may be in effect from time to time. In
addition, you will be entitled to accrue and use paid vacation benefits, in accordance with the Company’s vacation policy, as in effect from time to time.
6.
Equity Awards.
In connection with the commencement of your employment and subject to the approval of the Company’s Board of Directors or its
Compensation Committee, you will be granted an option to purchase 75,000 shares of the Company’s Common Stock (the “Option”) , all pursuant to the
Company’s 2019 Equity Incentive Plan (the “Plan”) and the Company’s standard form of Stock Option Agreement. If granted, the vesting schedule for the
Option shall be as follows: 25% of the shares subject to the option will vest after twelve (12) months of your continuous service, and the remaining 75% of
the shares subject to the Option will vest in equal monthly installments over the next 36 months of your continuous service, until either your Option is fully
vested or your employment as CMO ends, whichever occurs first, as described in the applicable Stock Option Agreement. The exercise price per share of
the Option will be determined by the Board of Directors or the Compensation Committee when the Option is granted. The Option will be subject to the
terms and conditions applicable to options granted under the Plan and the applicable Stock Option Agreement.
7.
Severance Benefits.
(a)
Termination For Any Reason Other Than Cause Or Permanent Disability Not In Connection With A Change of
Control. If the Company terminates your employment for any reason other than Cause or Permanent Disability (both as defined herein) and a Separation
occurs after the one year anniversary of the Start Date, and the Separation is not in connection with a Change of Control, then you will be entitled to the
benefits described in Sections 7 (i)-(iv) below; any severance payments contemplated by Section 7(a)(i) and 7(a)(ii) below are conditioned upon you also
(i) returning all Company property and confidential information in your possession on or within seven (7) days of the Separation; and (ii) on or within sixty
(60) days after the Separation (“Release Deadline”) executing a general release (the “Release”) of all known and unknown claims that you may have
against the Company or persons affiliated with the Company in the form prescribed by the Company, without alterations , and you allow such release to
become fully effective. If the Release does not become effective by the Release Deadline, you will forfeit any rights to severance or benefits under this
Section 7 or elsewhere in this Agreement.
(i)
Salary Continuation. The Company will continue to pay your base salary for a period of nine months after
your Separation, less required deductions and withholdings (the “salary continuation”). The Salary Continuation will be paid at the base salary rate in effect
at the time of your Separation and in accordance with the Company’s standard payroll procedures. The Salary Continuation payments will commence
within thirty (30) days after the Release Deadline and, once they commence, will be retroactive to the date of your Separation. The Salary Continuation
payments will end when you commence new employment or substantial self-employment and you agree to inform the Company immediately in such event.
(ii)
COBRA. If you elect to continue your health insurance coverage under the Consolidated Omnibus Budget
Reconciliation Act (“COBRA”) following your Separation, then the Company will reimburse you the company contribution portion of your monthly
premium under COBRA as it pays for active employees until the earliest of: (i) the close of the nine-month period following your Separation; (ii) the
expiration of your continuation coverage under COBRA; or (iii) the date when you commence new employment or substantial self-employment and you
agree to inform the Company immediately in such event; provided you timely elect and pay for COBRA coverage. COBRA reimbursements shall be made
by the Company consistent with the Company’s normal expense reimbursement policy, provided that you submit documentation to the Company
substantiating your payments for COBRA coverage. The first COBRA reimbursement payment will be made within thirty (30) days after the Release
Deadline.
(b)
Termination in Connection with a Change in Control. You will be eligible for severance benefits for a termination in
connection with a Change in Control, under the Aravive, Inc. Change in Control Severance Plan (the “Change in Control Severance Plan”), which provides
specified severance benefits to certain eligible officers and employees of the Company. All rights and obligations with respect to your Severance Benefits
in connection with a Change in Control will be as set forth in the Change in Control Severance Plan. If you are provided with any benefits pursuant to the
Change in Control Severance Plan, you will not receive any severance benefits as specified in Section 7(a) herein.
8.
Confidential Information and Inventions Assignment/Company Policies. You will be required, as a condition of your
employment with the Company, to sign the Company’s standard Employee Confidential Information and Inventions Assignment Agreement, a copy of
which is attached hereto as Exhibit A. In addition, you will be expected to abide by Company rules and policies, and acknowledge in writing that you
have read the Company’s Employee Handbook.
9.
Employment Relationship. Employment with the Company is for no specific period of time. Your employment with the Company
will be “at will,” meaning that either you or the Company may terminate your employment at any time and for any reason, with or without cause or
advance notice. Any contrary representations that may have been made to you are superseded by this letter agreement. This is the full and complete
agreement between you and the Company on this term. Although your job duties, title, compensation and benefits, as well as the Company’s personnel
policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement
signed by you and a duly authorized officer of the Company (other than you).
10.
Tax Matters.
withholding and payroll taxes and other deductions required by law.
(a)
Withholding. All forms of compensation referred to in this letter agreement are subject to reduction to reflect applicable
(b)
Section 409A. For purposes of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), each
salary continuation payment under Section 7(a)(i) is hereby designated as a separate payment. If the Company determines that you are a “specified
employee” under Section 409A(a)(2)(B)(i) of the Code at the time of your Separation, then the salary continuation payments under Section 5(b), to the
extent that they are subject to Section 409A of the Code, will commence during the seventh month after your Separation and the installments that otherwise
would have been paid during the first six months after your Separation will be paid in a lump sum when the salary continuation payments commence.
(c)
Tax Advice. You are encouraged to obtain your own tax advice regarding your compensation from the Company. You
agree that the Company does not have a duty to design its compensation policies in a manner that minimizes your tax liabilities, and you will not make any
claim against the Company or the Board related to tax liabilities arising from your compensation.
11.
No Conflicting Obligations. You understand and agree that by accepting this offer of employment, you represent to the Company
that your performance will not breach any other agreement to which you are a party and that you have not, and will not during the term of your
employment with the Company, enter into any oral or written agreement in conflict with any of the provisions of this letter or the Company’s policies. You
are not to bring with you to the Company, or use or disclose to any person associated with the Company, any confidential or proprietary information
belonging to any former employer or other person or entity with respect to which you owe an obligation of confidentiality under any agreement or
otherwise. The Company does not want or need and will not use such information, will assist you to preserve and protect the confidentiality of proprietary
information belonging to third parties, and expects you to use in performing your duties for the Company only information which is generally known and
used by persons with training and experience comparable to your own, which is common knowledge in the industry or otherwise legally in the public
domain, or which is otherwise provided or developed by the Company. Also, we expect you to abide by any obligations to refrain from soliciting any
person employed by or otherwise associated with any former employer and suggest that you refrain from having any contact with such persons until such
time as any non-solicitation obligation expires.
12.
Definitions. The following terms have the meaning set forth below wherever they are used in this letter agreement:
(a)
“Cause” means any one or more of the following events: (i) your conviction (including a guilty plea or a no contest plea)
of a felony, or of any other crime involving fraud, dishonesty or moral turpitude; (ii) your conviction of or participation in a fraud or act of material
dishonesty against the Company; (iii) your intentional material breach of any contract or agreement between you and the Company (including but not
limited to your Proprietary Information and Invention Agreement or any other restrictive covenant agreements) or material breach or material neglect of
any statutory or fiduciary duty you owe to the Company as reasonably determined by the Board, in each case, after having provided you with not less than
thirty (30) days written notice of same and with the opportunity to cure of the same duration to the extent curable; (iv) your unauthorized use or disclosure
of the Company’s confidential information or trade secrets; or (v) your conduct that constitutes gross misconduct, conduct that constitutes gross
insubordination, incompetence or habitual neglect of your duties that results in (or might have reasonably resulted in) material harm to the business of the
Company, each as reasonably determined by the Board, in each case, after having provided you with not less than thirty (30) days written notice of same
and with the opportunity to cure of the same duration to the extent curable.
amended from time to time.
(b)
“Change in Control” means a “Change in Control” as defined in the Company’s 2019 Equity Incentive Plan, as may be
reasonable accommodation, for a period of at least one hundred twenty (120) consecutive days because of a physical or mental impairment.
(c)
“Permanent Disability” means that you are unable to perform the essential functions of your position, with or without
(d)
“Separation” means a “separation from service,” as defined in the regulations under Section 409A of the Code.
13.
Dispute Resolution. To ensure rapid and economical resolution of any disputes which may arise under this Agreement, you and the
Company agree that any and all claims, disputes or controversies of any nature whatsoever arising from or regarding the interpretation, performance,
negotiation, execution, enforcement or breach of this Agreement, your employment with the Company, or the termination of your employment from the
Company, including but not limited to statutory claims, shall be resolved pursuant to the Federal Arbitration Act, 9 U.S.C. Section 1.16, to the fullest extent
permitted by law by confidential, final and binding arbitration conducted before a single arbitrator with JAMS, Inc. (“JAMS”) in Houston, Texas, in
accordance with JAMS’ then-applicable arbitration rules, which can be found at http://www.jamsadr.com/rules-clauses/, and which will be provided to you
upon request. The parties acknowledge that by agreeing to this arbitration procedure, they waive the right to resolve any such dispute through a
trial by jury, judge or administrative proceeding. You will have the right to be represented by legal counsel at any arbitration proceeding. The arbitrator
shall: (a) have the authority to compel adequate discovery for the resolution of the dispute and to award such relief as would otherwise be available under
applicable law in a court proceeding; and (b) issue a written statement signed by the arbitrator regarding the disposition of each claim and the relief, if any,
awarded as to each claim, the reasons for the award, and the arbitrator’s essential findings and conclusions on which the award is based. The arbitrator
shall be authorized to award all relief that you or the Company would be entitled to seek in a court of law. The Company shall pay all JAMS arbitration fees
in excess of the administrative fees that you would be required to pay if the dispute were decided in a court of law. Nothing in this Agreement shall prevent
either you or the Company from obtaining injunctive relief in court to prevent irreparable harm pending the conclusion of any such arbitration. The
Company shall pay all filing fees in excess of those which would be required if the dispute were decided in a court of law, and shall pay the arbitrator’s fees
and any other fees or costs unique to arbitration. Any awards or orders in such arbitrations may be entered and enforced as judgments in the federal and
state courts of any competent jurisdiction.
14.
Interpretation, Amendment and Enforcement. This letter agreement, together with the Employee Confidential Information and
Inventions Assignment Agreement, any Change in Control Severance Plan documentation previously executed by you, and any Option Agreements that
you entered into with the Company or any subsidiary thereof constitutes the complete agreement between you and the Company, contains all of the terms
of your employment with the Company and supersedes any prior agreements, representations or understandings (whether written, oral or implied) between
you and the Company. It is entered into without reliance on any promise or representation, written or oral, other than those expressly contained herein, and
it supersedes any other agreements, promises, warranties or representations concerning its subject matter. Changes in your employment terms, other than
those changes expressly reserved to the Company’s discretion
in this letter, require an express written modification signed by both you and a duly authorized officer of the Company. If any provision of this offer letter
agreement is determined to be invalid or unenforceable, in whole or in part, this determination shall not affect any other provision of this offer letter
agreement and the provision in question shall be modified so as to be rendered enforceable in a manner consistent with the intent of the parties insofar as
possible under applicable law. This letter may be delivered and executed via facsimile, electronic mail (including pdf or any electronic signature
complying with the U.S. federal ESIGN Act of 2000, Uniform Electronic Transactions Act or other applicable law) or other transmission method and shall
be deemed to have been duly and validly delivered and executed and be valid and effective for all purposes. * * * * *
You may indicate your agreement with these terms by signing and dating both the enclosed duplicate original of this letter agreement and the
enclosed Confidential Information and Inventions Agreement and returning them to me.
If you have any questions, please do not hesitate to contact me.
Very truly yours,
ARAVIVE, INC.
By:
/s/ Gail McIntyre
Gail McIntyre, PhD, DABT Chief Executive Officer
I have read and accept the terms of this employment letter:
/s/ Reshma Rangwala
Printed Name: Reshma Rangwala
Dated:
September 10, 2020
Signature
EXHIBIT A
Employee Confidential Information And Inventions Assignment Agreement
EMPLOYEE CONFIDENTIAL INFORMATION AND INVENTIONS ASSIGNMENT AGREEMENT
In consideration of my employment or continued employment by Aravive, Inc. (“Company”), and the compensation paid to me now and during
my employment with the Company, I agree to the terms of this Agreement as follows:
1. CONFIDENTIAL INFORMATION PROTECTIONS.
1.1
Nondisclosure; Recognition of Company’s Rights. At all times during and after my employment, I will hold in confidence
and will not disclose, use, lecture upon, or publish any of Company’s Confidential Information (defined below), except as may be required in
connection with my work for Company, or as expressly authorized by the Chief Executive Officer (the “CEO”) of Company. I will obtain the
CEO’s written approval before publishing or submitting for publication any material (written, oral, or otherwise) that relates to my work at
Company and/or incorporates any Confidential Information. I hereby assign to Company any rights I may have or acquire in any and all
Confidential Information and recognize that all Confidential Information shall be the sole and exclusive property of Company and its assigns.
1.2
Confidential Information. The term “Confidential Information” shall mean any and all confidential knowledge, data or
information related to Company’s business or its actual or demonstrably anticipated research or development, including without limitation (a)
trade secrets, inventions, ideas, processes, computer source and object code, data, formulae, programs, other works of authorship, know-how,
improvements, discoveries, developments, designs, and techniques; (b) information regarding products, services, plans for research and
development, marketing and business plans, budgets, financial statements, contracts, prices, suppliers, and customers; (c) information regarding
the skills and compensation of Company’s employees, contractors, and any other service providers of Company; and (d) the existence of any
business discussions, negotiations, or agreements between Company and any third party.
1.3
Third Party Information. I understand that Company has received and in the future will receive from third parties
confidential or proprietary information (“Third Party Information”) subject to a duty on Company’s part to maintain the confidentiality of
such information and to use it only for certain limited purposes. During and after the term of my employment, I will hold Third Party
Information in strict confidence and will not disclose to anyone (other than Company personnel who need to know such information in
connection with their work for Company) or use, Third Party Information, except in connection with my work for Company or unless expressly
authorized by an officer of Company in writing.
1.4
No Improper Use of Information of Prior Employers and Others. I represent that my employment by Company does not
and will not breach any agreement with any former employer, including any non-compete or non-solicitation agreement or any agreement to
keep in confidence or refrain from using information acquired by me prior to my employment by Company. I further represent that I have not
entered into, and will not enter into, any agreement, either written or oral, in conflict with my obligations under this Agreement. During my
employment by Company, I will not improperly make use of, or disclose, any information or trade secrets of any former employer or other third
party, nor will I bring onto the premises of Company or use any unpublished documents or any property belonging to any former employer or
other third party, in violation of any lawful agreements with that former employer or third party. I will use in the performance of my duties only
information that is generally known and used by persons with training and experience comparable to my own, is common knowledge in the
industry or otherwise legally in the public domain, or is otherwise provided or developed by Company.
2.
INVENTIONS.
2.1
Definitions. As used in this Agreement, the term “Invention” means any ideas, concepts, information, materials, processes,
data, programs, know-how, improvements, discoveries, developments, designs, artwork, formulae, other copyrightable works, and techniques
and all Intellectual Property Rights in any of the items listed above. The term “Intellectual Property Rights” means all trade secrets,
copyrights, trademarks, mask work rights, patents and other intellectual property rights recognized by the laws of any jurisdiction or
country. The term
“Moral Rights” means all paternity, integrity, disclosure, withdrawal, special and any other similar rights recognized by the laws of any
jurisdiction or country.
2.2
Prior Inventions. I have disclosed on Exhibit A a complete list of all Inventions that (a) I have, or I have caused to be, alone
or jointly with others, conceived, developed, or reduced to practice prior to the commencement of my employment by Company; (b) in which I
have an ownership interest or which I have a license to use; (c) and that I wish to have excluded from the scope of this Agreement (collectively
referred to as “ Prior Inventions ”). If no Prior Inventions are listed in Exhibit A, I warrant that there are no Prior Inventions. I agree that I
will not incorporate, or permit to be incorporated, Prior Inventions in any Company Inventions (defined below) without Company’s prior written
consent. If, in the course of my employment with Company, I incorporate a Prior Invention into a Company process, machine or other work, I
hereby grant Company a non-exclusive, perpetual, fully-paid and royalty-free, irrevocable and worldwide license, with rights to sublicense
through multiple levels of sublicensees, to reproduce, make derivative works of, distribute, publicly perform, and publicly display in any form
or medium, whether now known or later developed, make, have made, use, sell, import, offer for sale, and exercise any and all present or future
rights in, such Prior Invention.
2.3
Assignment of Company Inventions. Inventions assigned to the Company or to a third party as directed by the Company
pursuant to the subsection titled Government or Third Party are referred to in this Agreement as “Company Inventions.” Subject to the
subsection titled Government or Third Party and except for Inventions that I can prove qualify fully under the provisions of California Labor
Code section 2870 and I have set forth in Exhibit A, I hereby assign and agree to assign in the future (when any such Inventions or Intellectual
Property Rights are first reduced to practice or first fixed in a tangible medium, as applicable) to Company all my right, title, and interest in and
to any and all Inventions (and all Intellectual Property Rights with respect thereto) made, conceived, reduced to practice, or learned by me,
either alone or with others, during the period of my employment by Company. Any assignment of Inventions (and all Intellectual Property
Rights with respect thereto) hereunder includes an assignment of all Moral Rights. To the extent such Moral Rights cannot be assigned to
Company and to the extent the following is allowed by the laws in any country where Moral Rights exist, I hereby unconditionally and
irrevocably waive the enforcement of such Moral Rights, and all claims and causes of action of any kind against Company or related to
Company’s customers, with respect to such rights. I further acknowledge and agree that neither my successors-in-interest nor legal heirs retain
any Moral Rights in any Inventions (and any Intellectual Property Rights with respect thereto).
2.4
Obligation to Keep Company Informed. During the period of my employment and for one (1) year after my employment
ends, I will promptly and fully disclose to Company in writing (a) all Inventions authored, conceived, or reduced to practice by me, either alone
or with others, including any that might be covered under California Labor Code section 2870, and (b) all patent applications filed by me or in
which I am named as an inventor or co-inventor.
2.5
Government or Third Party. I agree that, as directed by the Company, I will assign to a third party, including without
limitation the United States, all my right, title, and interest in and to any particular Company Invention.
2.6
Enforcement of Intellectual Property Rights and Assistance. During and after the period of my employment and at
Company’s request and expense, I will assist Company in every proper way, including consenting to and joining in any action, to obtain and
enforce United States and foreign Intellectual Property Rights and Moral Rights relating to Company Inventions in all countries. If the
Company is unable to secure my signature on any document needed in connection with such purposes, I hereby irrevocably designate and
appoint Company and its duly authorized officers and agents as my agent and attorney in fact, which appointment is coupled with an interest, to
act on my behalf to execute and file any such documents and to do all other lawfully permitted acts to further such purposes with the same legal
force and effect as if executed by me.
2.7
Incorporation of Software Code. I agree that I will not incorporate into any Company software or otherwise deliver to
Company any software code licensed under the GNU General Public License or Lesser General Public License or any other license that, by its
terms, requires or conditions the use or distribution of such code on the disclosure, licensing, or distribution of any source code owned or
licensed by Company.
2
3. RECORDS. I agree to keep and maintain adequate and current records (in the form of notes, sketches, drawings and in any other form that is
required by the Company) of all Inventions made by me during the period of my employment by the Company, which records shall be available to,
and remain the sole property of, the Company at all times.
4. ADDITIONAL ACTIVITIES. I agree that during the term of my employment by Company, I will not (a) without Company’s express written
consent, engage in any employment or business activity that is competitive with, or would otherwise conflict with my employment by, Company; and
(b) for the period of my employment by Company and for one (1) year thereafter, I will not either directly or indirectly, solicit or attempt to solicit any
employee, independent contractor, or consultant of Company to terminate his, her or its relationship with Company in order to become an employee,
consultant, or independent contractor to or for any other person or entity.
5. RETURN OF COMPANY PROPERTY. Upon termination of my employment or upon Company’s request at any other time, I will deliver to
Company all of Company’s property, equipment, and documents, together with all copies thereof, and any other material containing or disclosing any
Inventions, Third Party Information or Confidential Information and certify in writing that I have fully complied with the foregoing obligation. I
agree that I will not copy, delete, or alter any information contained upon my Company computer or Company equipment before I return it to
Company. In addition, if I have used any personal computer, server, or e-mail system to receive, store, review, prepare or transmit any Company
information, including but not limited to, Confidential Information, I agree to provide the Company with a computer-useable copy of all such
Confidential Information and then permanently delete and expunge such Confidential Information from those systems; and I agree to provide the
Company access to my system as reasonably requested to verify that the necessary copying and/or deletion is completed. I further agree that any
property situated on Company’s premises and owned by Company is subject to inspection by Company’s personnel at any time with or without
notice. Prior to the termination of my employment or promptly after termination of my employment, I will cooperate with Company in attending an
exit interview and certify in writing that I have complied with the requirements of this section.
6. NOTIFICATION OF NEW EMPLOYER . If I leave the employ of Company, I consent to the notification of my new employer of my rights and
obligations under this Agreement, by Company providing a copy of this Agreement or otherwise.
7. GENERAL PROVISIONS.
7.1
Governing Law and Venue. This Agreement and any action related thereto will be governed and interpreted by and under the
laws of the State of Delaware, without giving effect to any conflicts of laws principles that require the application of the law of a different state.
I expressly consent to personal jurisdiction and venue in the state and federal courts for the county in which Company’s principal place of
business is located for any lawsuit filed there against me by Company arising from or related to this Agreement.
7.2
Severability. If any provision of this Agreement is, for any reason, held to be invalid or unenforceable, the other provisions of
this Agreement will remain enforceable and the invalid or unenforceable provision will be deemed modified so that it is valid and enforceable to
the maximum extent permitted by law.
7.3
Survival. This Agreement shall survive the termination of my employment and the assignment of this Agreement by Company
to any successor or other assignee and shall be binding upon my heirs and legal representatives.
7.4
Employment. I agree and understand that nothing in this Agreement shall give me any right to continued employment by
Company, and it will not interfere in any way with my right or Company’s right to terminate my employment at any time, with or without cause
and with or without advance notice.
7.5
Notices. Each party must deliver all notices or other communications required or permitted under this Agreement in writing to
the other party at the address listed on the signature page, by courier, by certified or registered mail (postage prepaid and return receipt
requested), or by a nationally-recognized express mail service. Notice will be effective upon receipt or refusal of delivery. If delivered by
certified or registered mail, notice will be considered to have been given five (5) business days after it was mailed, as evidenced by the
postmark. If
3
delivered by courier or express mail service, notice will be considered to have been given on the delivery date reflected by the courier or express
mail service receipt. Each party may change its address for receipt of notice by giving notice of the change to the other party.
7.6
Injunctive Relief. I acknowledge that, because my services are personal and unique and because I will have access to the
Confidential Information of Company, any breach of this Agreement by me would cause irreparable injury to Company for which monetary
damages would not be an adequate remedy and, therefore, will entitle Company to injunctive relief (including specific performance) without an
obligation of posting a bond or proving actual damages. The rights and remedies provided to each party in this Agreement are cumulative and
in addition to any other rights and remedies available to such party at law or in equity.
7.7
Waiver. Any waiver or failure to enforce any provision of this Agreement on one occasion will not be deemed a waiver of that
provision or any other provision on any other occasion.
7.8
Export. I agree not to export, reexport, or transfer, directly or indirectly, any U.S. technical data acquired from Company or
any products utilizing such data, in violation of the United States export laws or regulations.
7.9
Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and
all of which shall be taken together and deemed to be one instrument.
7.10
Entire Agreement. If no other agreement governs nondisclosure and assignment of inventions during any period in which I
was previously employed or am in the future employed by Company as an independent contractor, the obligations pursuant to sections of this
Agreement titled Confidential Information Protections and Inventions shall apply. This Agreement is the final, complete and exclusive
agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior communications between us with respect
to such matters. No modification of or amendment to this Agreement, or any waiver of any rights under this Agreement, will be effective unless
in writing and signed by me and the CEO of Company. Any subsequent change or changes in my duties, salary or compensation will not affect
the validity or scope of this Agreement.
4
This Agreement shall be effective as of the last date of execution below.
EMPLOYEE:
COMPANY:
I HAVE READ, UNDERSTAND, AND ACCEPT THIS
AGREEMENT AND HAVE BEEN GIVEN THE OPPORTUNITY
TO REVIEW IT WITH INDEPENDENT LEGAL COUNSEL
ACCEPTED AND AGREED:
By:
Name:
Title:
/s/ Reshma Rangwala
Reshma Rangwala
Chief Medical Officer
Date:
September 10, 2020
Address: XXXX
By:
Name:
Title:
/s/ Gail McIntyre
Gail McIntyre
Chief Executive Officer
Date:
September 10, 2020
Address: XXXX
5
EXHIBIT A
INVENTIONS
1.
Prior Inventions Disclosure. The following is a complete list of all Prior Inventions (as provided in Subsection 2.2 of the attached Employee
Confidential Information and Inventions Assignment Agreement, defined herein as the “Agreement”):
x
None
o See immediately below:
2.
Limited Exclusion Notification.
THIS IS TO NOTIFY you in accordance with Section 2872 of the California Labor Code that the foregoing Agreement between you and
Company does not require you to assign or offer to assign to Company any Invention that you develop entirely on your own time without using Company’s
equipment, supplies, facilities or trade secret information, except for those Inventions that either:
a.
Relate at the time of conception or reduction to practice to Company’s business, or actual or demonstrably anticipated research or
development; or
b.
Result from any work performed by you for Company.
To the extent a provision in the foregoing Agreement purports to require you to assign an Invention otherwise excluded from the preceding
paragraph, the provision is against the public policy of this state and is unenforceable.
This limited exclusion does not apply to any patent or Invention covered by a contract between Company and the United States or any of its
agencies requiring full title to such patent or Invention to be in the United States.
Aravive Biologics, Inc. (Delaware)
SUBSIDIARIES
Exhibit 21.1
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
Aravive, Inc.
Houston, Texas
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-239512 and No. 333-248612) and Form S-8
(No. 333-227865, No. 333-216586, No. 333-210013, No. 333-204178, No. 333-194949, No. 333-230348, No. 333-233866 and No. 333-237425) of
Aravive, Inc. of our report dated March 16, 2021, relating to the consolidated financial statements, which appears in this Form 10-K.
/s/ BDO USA, LLP
Raleigh, North Carolina
March 16, 2021
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.1
I, Gail McIntyre, certify that:
1.
I have reviewed this Annual Report on Form 10-K 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.
Date: March 16, 2021
By: /s/ Gail McIntyre
Name: Gail McIntyre
Title: Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
RULES 13a-14 AND 15d-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 31.2
I, Vinay Shah, certify that:
1.
I have reviewed this Annual Report on Form 10-K 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.
Date: March 16, 2021
By: /s/ Vinay Shah
Name: Vinay Shah
Title: Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, I, Gail McIntyre, the Chief Executive Officer of Aravive, Inc.
(the “Registrant”) hereby certifies, to my knowledge, that:
(1)
The accompanying Annual Report on Form 10-K of the Registrant for the year ended December 31, 2020 (the “Report”) fully
complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant for the periods presented therein.
Date: March 16, 2021
By:
Name:
Title:
/s/ Gail McIntyre
Gail McIntyre
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.2
Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, I, Vinay Shah, the Chief Financial Officer of Aravive, Inc. (the
“Registrant”) hereby certifies, to my knowledge, that:
(1)
The accompanying Annual Report on Form 10-K of the Registrant for the year ended December 31, 2020 (the “Report”) fully
complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as
amended; and
(2)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of
operations of the Registrant for the periods presented therein.
Date: March 16, 2021
By:
Name:
Title:
/s/ Vinay Shah
Vinay Shah
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)