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
☐
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 001-38537
AVROBIO, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
One Kendall Square
Building 300, Suite 201
Cambridge, Massachusetts
(Address of principal executive offices)
81-0710585
(I.R.S. Employer
Identification No.)
02139
(Zip Code)
(617) 914-8420
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.0001 par value per share
Trading Symbol
AVRO
Name of each exchange on which registered
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
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 Section 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, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
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 registrant’s common stock held by non-affiliates of the registrant was approximately $533,953,963 as of June 30, 2020 (based on a closing price of $17.45 share
as quoted by the Nasdaq Global Select Market as of such date). In determining the market value of non-affiliate common stock, shares of the registrant’s common stock beneficially owned by
officers, directors and affiliates have been excluded. This determination of affiliate status is not necessarily a conclusive determination for other purposes.
The registrant had 41,622,060 shares of Common Stock, $0.0001 par value per share, outstanding as of March 9, 2021.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain information from the registrant’s definitive Proxy Statement for its 2021 annual meeting of shareholders, which the
registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2020. Except with
respect to information specifically incorporated by reference in this Form 10-K, the Proxy Statement is not deemed to be filed as part of this Form 10-K.
AVROBIO, Inc.
Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2020
Table of Contents
Item No.
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Item 15.
Item 16.
PART I
Business
Risk Factors
Unresolved Staff Comments
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures about Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
PART III
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
PART IV
Exhibits and Financial Statement Schedules
Form 10-K Summary
Signatures
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Summary of the Material Risks Associated with Our Business
Our business is subject to numerous risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not
limited to, the following:
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We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain
profitability.
We will need additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when
needed may force us to delay, limit or terminate our product development efforts or other operations.
Business interruptions resulting from the coronavirus disease (COVID-19) pandemic or similar public health crises have caused and may
continue to cause a disruption of the development of our product candidates and adversely impact our business.
Our lentiviral-based gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of
product candidate development and of subsequently obtaining regulatory approval.
Our product candidates and the process for administering our product candidates may cause undesirable side effects or have other properties
that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following
any potential marketing approval.
Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our
product candidates.
We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable
regulatory authorities.
Even if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to
commercialize a product candidate and the approval may be for a narrower indication than we seek.
Only certain of our clinical trials, including the Phase 2 clinical trial of AVR-RD-01 for Fabry disease and the Phase 1/2 clinical trial of AVR-
RD-02 for Gaucher disease type 1, utilize our commercial-scale plato® platform.
We face significant competition in our industry and there can be no assurance that our product candidates, if approved, will achieve
acceptance in the market over existing established therapies. In addition, our competitors may develop therapies that are more advanced or
effective than ours, which may adversely affect our ability to successfully market or commercialize any of our product candidates.
Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our
development or commercialization programs or otherwise adversely affect our business.
We expect to rely on third parties to conduct some or all aspects of our vector production, product manufacturing, protocol development,
research and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We are dependent on a limited number of suppliers for some of our components and materials used in our product candidates.
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by
others. In particular, we have in-licensed certain intellectual property rights and know-how relevant to AVR-RD-01 for our Fabry program,
AVR-RD-02 for our Gaucher type 1 program and AVR-RD-05 for our Hunter program, but do not own any patents or patent applications
covering these product candidates.
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We and our independent registered public accounting firm previously identified a material weakness in our internal control over financial
reporting, which has now been remediated. Nevertheless, if we experience additional material weaknesses or deficiencies in the future or
otherwise fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and
we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and
our stock price.
The summary risk factors described above should be read together with the text of the full risk factors below, in the section Item1A entitled “Risk
Factors” and the other information set forth in this Annual Report on Form 10-K, including our consolidated financial statements and the related notes, as
well as in other documents that we file with the Securities and Exchange Commission (the “SEC”). The risks summarized above or described in full below
are not the only risks that we face. Additional risks and uncertainties not precisely known to us, or that we currently deem to be immaterial may also
materially adversely affect our business, financial condition, results of operations and future growth prospects.
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Forward-looking Information
This Annual Report on Form 10-K contains forward-looking statements which are made pursuant to the safe harbor provisions 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.
These statements may be identified by such forward-looking terminology as “aims,” “anticipates,” “believes,” “continue,” “could,” “designed to,”
“estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “strives,” “should,” or the negative of these terms or other comparable
terminology. Our forward-looking statements are based on a series of expectations, assumptions, estimates and projections about our company, are not
guarantees of future results or performance and involve substantial risks and uncertainty. We may not actually achieve the plans, intentions or expectations
disclosed in our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in these
forward-looking statements. Our business and our forward-looking statements involve substantial known and unknown risks and uncertainties, including
the risks and uncertainties inherent in our statements regarding:
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the impact of the COVID-19 pandemic on our clinical trial programs, clinical supply and business generally, as well as our plans and
expectations with respect to the timing and resumption of any development activities that were or may be temporarily paused as a result of the
COVID-19 pandemic;
the timing, progress and results of preclinical studies and clinical trials for our programs and product candidates, including statements
regarding the timing of initiation and completion of studies or trials and related preparatory work, the period during which the results of the
trials will become available and our research and development programs;
the existence or absence of side effects or other properties relating to our product candidates which could delay or prevent their regulatory
approval, limit their commercial potential, or result in significant negative consequences following any potential marketing approval;
the durability of effects from our product candidates;
the timing, scope or likelihood of regulatory filings and approvals;
our ability to develop and advance product candidates into, and successfully complete, clinical studies;
our expectations regarding the size of the patient populations for our product candidates, if approved for commercial use;
the implementation of our business model and our strategic plans for our business, product candidates, technology and plato platform;
our commercialization, marketing and manufacturing capabilities and strategy;
the pricing and reimbursement of our product candidates, if approved;
the scalability and commercial viability of our manufacturing methods and processes, including our move to a closed, automated system;
the rate and degree of market acceptance and clinical utility of our product candidates, in particular, and gene therapy, in general;
our ability to establish or maintain collaborations or strategic relationships or obtain additional funding;
our competitive position;
the scope of protection we and/or our licensors are able to establish and maintain for intellectual property rights covering our current and
future product candidates, as well as any statements as to whether we do or do not infringe, misappropriate or otherwise violate any third-party
intellectual property rights;
our financial performance;
our ability to retain the continued service of our key professionals and to identify, hire and retain additional qualified professionals;
developments and projections relating to our competitors and our industry, including other lentiviral-based gene therapy companies;
our expectations related to the use of our cash reserves;
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our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;
our ability to avoid any findings of material weaknesses or significant deficiencies in the future;
the impact of laws and regulations, including without limitation recently enacted tax reform legislation;
our expectations regarding the time during which we are an emerging growth company under the Jumpstart Our Business Startups Act of
2012, or JOBS Act; and
other risks and uncertainties, including those listed under the caption “Risk Factors.”
All of our forward-looking statements are as of the date of this Annual Report on Form 10-K only. In each case, actual results may differ materially
from such forward-looking information. We can give no assurance that such expectations or forward-looking statements will prove to be correct. An
occurrence of or any material adverse change in one or more of the risk factors or risks and uncertainties referred to in this Annual Report on Form 10-K or
included in our other public disclosures or our other periodic reports or other documents or filings filed with or furnished to the Securities and Exchange
Commission, or the SEC, could materially and adversely affect our business, prospects, financial condition and results of operations. Except as required by
law, we do not undertake or plan to update or revise any such forward-looking statements to reflect actual results, changes in plans, assumptions, estimates
or projections or other circumstances affecting such forward-looking statements occurring after the date of this Annual Report on Form 10-K, even if such
results, changes or circumstances make it clear that any forward-looking information will not be realized. Any public statements or disclosures by us
following this Annual Report on Form 10-K that modify or impact any of the forward-looking statements contained in this Annual Report on Form 10-K
will be deemed to modify or supersede such statements in this Annual Report on Form 10-K.
Note Regarding Trademarks
All brand names or trademarks appearing in this report are the property of their respective holders.
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PART I
Unless the context requires otherwise, references in this Annual Report on Form 10-K to the “Company,” “AVROBIO,” “we,” “us,” and “our” refer to
AVROBIO, Inc. Our “board of directors” refers to the board of directors of AVROBIO, Inc.
Item 1. Business
Overview
We are a leading clinical-stage gene therapy company with a mission to free people from a lifetime of genetic disease. Our company is focused on
developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen. Our
gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a
functional copy of the gene that is defective in the target disease. We believe that our approach, which is designed to transform stem cells from patients into
therapeutic products, has the potential to provide curative benefit for a range of diseases. Our initial focus is on a group of rare genetic diseases referred to
as lysosomal disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs. These lysosomal disorders have well-
understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market
opportunities with approximately $4.8 billion in worldwide net sales in 2020.
Our initial pipeline is comprised of six lentiviral-based gene therapy programs: AVR-RD-01 for the treatment of Fabry disease; AVR-RD-04 for the
treatment of cystinosis; AVR-RD-02 for the treatment of Gaucher disease type 1; AVR-RD-05 for the treatment of Hunter syndrome; AVR-RD-06 for the
treatment of Gaucher disease type 3; and AVR-RD-03 for the treatment of Pompe disease. AVR-RD-01 is currently being evaluated for the treatment of
Fabry disease in an investigator-sponsored Phase 1 clinical trial and a Company-sponsored Phase 2 clinical trial. Five patients have been dosed in the
investigator-sponsored Phase 1 clinical trial of AVR-RD-01, and enrollment is complete. Five patients have been dosed in our Company-sponsored Phase 2
clinical trial of AVR-RD-01, which we refer to as the FAB-GT clinical trial, and we are actively recruiting additional potential patients for our currently
active sites in Australia, Canada and the United States. AVR-RD-04 is currently being studied for the treatment of cystinosis by our collaborators at the
University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and three patients have been dosed. One patient has been
dosed in our Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for the treatment of Gaucher disease, which we refer to as the Guard1 clinical trial,
and we are actively recruiting in Australia and Canada, with additional sites planned in the United States, Israel and Europe. AVR-RD-05 is being studied
for the treatment of Hunter syndrome by our collaborators at The University of Manchester, and a Phase 1/2 investigator-sponsored clinical trial is expected
to commence in the first half of 2022. In November 2020, we announced a new preclinical program, AVR-RD-06 for the treatment of Gaucher disease type
3, and we expect to request a meeting with the Food and Drug Administration, or FDA, this year to discuss a potential path to the clinic. Our AVR-RD-03
program for Pompe disease is currently in preclinical development, and in 2020 we completed IND-enabling proof-of-concept preclinical studies, with
toxicology studies expected to be completed in 2021.
Since its first clinical use in 2003, lentiviral-based gene therapy has been studied in several third parties’ clinical trials for rare diseases such as
transfusion-dependent beta thalassemia, cerebral adrenoleukodystrophy, or CALD, metachromatic leukodystrophy, or MLD, and adenosine deaminase
severe combined immunodeficiency, or ADA-SCID. Initially, the use of ex vivo lentiviral-based gene therapies was restricted primarily to the most severe
diseases where the risks of the typical requirement for ablating the patients’ bone marrow had a clinically justifiable risk/benefit profile. To date, over 350
patients have been treated with lentiviral-based gene therapies in third parties’ and our rare disease clinical trials, and we believe the technology can be
developed for other serious conditions based on a rigorous risk/benefit assessment. The ablation procedure, also known as the conditioning regimen, is
typically an essential step in the ex vivo gene therapy treatment procedure and is administered prior to the gene therapy. The higher the level of
conditioning, the greater the potential risk of more serious complications, such as veno-occlusive disease. However, we believe the risk of more serious
complications can be managed through utilization of a precision busulfan dosing program, which we refer to as Target Concentration Intervention, or TCI.
TCI is designed to enable careful titrating of exposure to the conditioning drug to a specific area under the curve, or AuC. The conditioning regimen
utilized as part of our plato platform includes TCI to assess how rapidly the individual patient metabolizes the conditioning agent so physicians can adjust
the dose as needed, with a goal of minimizing side effects while maximizing the potential of durable engraftment. We believe our approach, utilizing a
single myeloablative conditioning agent, busulfan, coupled with TCI designed to titrate to a specific AuC, has the potential to extend the reach of our gene
therapies to a broad range of diseases as first-line therapies. Our goal is to broaden the applicability of lentiviral-based gene therapy by initially targeting
monogenic diseases with an identified gene, recognized biology and that could potentially benefit from the sustained systemic delivery of an active protein.
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Plato is our gene therapy platform designed to provide the foundation for the potential worldwide commercialization of our gene therapies, if
approved. It is an ex vivo gene therapy platform incorporating multiple upgrades including a four-plasmid lentiviral vector designed to optimize vector copy
number, transduction efficiency and resulting enzyme activity; a closed, automated manufacturing system designed to improve consistency and
predictability of the drug product; and a personalized approach to conditioning using TCI. Two patients in our FAB-GT clinical trial of AVR-RD-01 and
one patient in our Guard1 clinical trial of AVR-RD-02 have been dosed with drug product manufactured utilizing the plato platform, and we intend to
utilize the plato platform with these process changes for all future patients enrolling in these two clinical trials. We believe our innovations in viral vector
design, cellular manufacturing, cryopreservation, conditioning and other related processes are important steps towards advancing the field of lentiviral-
based gene therapy and realizing its full potential to treat a number of diseases. We plan to continue leveraging advancements in stem cell transplantation
with the goal of improving patient tolerability of our lentiviral-based gene therapies.
We are initially targeting rare lysosomal disorders in which the current standard of care provides the mechanistic proof that the enzymes or proteins
produced endogenously following treatment with our gene therapies can offer benefit to patients. Typically, in lysosomal disorders, a gene mutation results
in the deficiency or malfunctioning of an enzyme or other protein. This results in the inability of lysosomes to properly process cellular materials such as
damaged organelles. As a result, substrates and their metabolites accumulate to toxic levels in the body’s cells and, in turn, disrupt the function of multiple
tissues and organs. Fabry disease, Gaucher disease (types 1 and 3), Hunter syndrome and Pompe disease are currently primarily managed by bi-weekly (or
weekly in the case of Hunter syndrome), multi-hour infusions with ERTs that seek to exogenously replace the missing functional enzyme. However, given
their pharmacokinetics, most ERTs typically remain in the plasma only for a short period of time and thus are not ideal because they are only dosed weekly
or every two weeks. Cystinosis is currently treated with two oral formulations of cysteamine that must be taken orally every 12 or six hours, leading to
significant pill burden and compliance challenges. Further, oral cysteamine treatment has no effect on ocular cystine crystals deposits, thus requiring
patients to be treated with topical cysteamine eye drops which must be applied each hour the patient is awake. These existing therapies manage, rather than
cure, the underlying diseases and, as a result, patients continue to have disease progression. Further, the frequent, periodic and life-long dosing schedule
required for ERTs and cysteamine results in significant costs for the healthcare system and is burdensome for the patient.
We believe our gene therapies leverage the well-understood mechanism of ERTs by transforming a patient’s own cells into a drug product that
enables the patient to express functional enzyme or other protein and mirror the biology seen in an otherwise healthy individual. We believe that a single
dose of our gene therapies may provide meaningful life-long benefit to these patients and potentially halt the progression of these diseases while also
potentially providing significant health economic advantages.
Our programs leverage years of extensive preclinical and early clinical research by leading researchers, as well as our internal research and ongoing
clinical efforts. The status of our initial lentiviral-based gene therapy programs is reflected below.
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Our lead product candidate, AVR-RD-01 for the treatment of Fabry disease, is derived from hematopoietic stem cells to which the gene encoding
plasma α-galactosidase A, or AGA, is added in an ex vivo process using a lentiviral vector. In February 2021, we reported that a kidney biopsy taken at 12
months post-treatment from the fourth patient in the Phase 2 FAB-GT trial, who was the first in the trial dosed with our plato platform, showed a 100
percent reduction from baseline in the average number of globotriaosylceramide, or Gb3, inclusions per peritubular capillary, or PTC. These data followed
our 2019 announcement that at 12 months post-treatment the first patient in the FAB-GT clinical trial exhibited an 87% reduction in the average number of
Gb3 inclusions per PTC as compared to baseline. In addition, in February 2021 we reported data from the first four patients in the FAB-GT trial measured
as of 29, 24, 18 and 12 months, respectively, indicating sustained increased leukocyte and plasma enzyme activity, suggesting that these patients are now
producing an endogenous supply of AGA, as well as decreased plasma lyso-globotriaosylsphingosine, or lyso-Gb3, levels in three of four patients, a key
biomarker for monitoring Fabry disease. We have opened two U.S. sites for our ongoing FAB-GT clinical trial of AVR-RD-01, and we are actively
recruiting potential patients for our sites in Australia, Canada and the United States. We have submitted a briefing book to the FDA outlining our proposal
for a potential accelerated approval strategy for AVR-RD-01, including a proposed randomized confirmatory clinical trial of Fabry patients who are being
treated with ERT. We expect to meet with the FDA in the first quarter of 2021 to discuss our proposal.
In February 2021, we announced initial clinical data from the first three patients dosed in the investigator-sponsored Phase 1/2 trial of AVR-RD-04,
our investigational gene therapy for cystinosis. As of January 20, 2021, all three patients had discontinued cysteamine pills and eye drops and remained
cysteamine-independent out as far as 16 months post-treatment.
We also announced in February 2021 clinical data from the first patient dosed in our Phase 1/2 Guard1 clinical trial of AVR-RD-02 for Gaucher
disease type 1. The first patient exhibited a 44% reduction in plasma glucosylsphingosine, or lyso-Gb1, levels six months post-administration of AVR-RD-
02 as compared to baseline while on ERT. Lyso-Gb1 is considered a surrogate marker for disease activity and treatment response for Gaucher disease type
1. In addition, we announced that at six months post-treatment the first patient exhibited a 49% reduction in chitotriosidase levels as compared to baseline
while on ERT. Chitotriosidase is a biomarker of macrophage activation that is found in high levels in Gaucher patients where the macrophages have
accumulated an excess lipid burden. This clinical trial is actively recruiting in Australia and Canada, with additional sites planned in the United States,
Israel and Europe.
We continue to seek opportunities to expand our approach to other rare and non-rare diseases. We plan to identify and develop future product
candidates through our own internal research efforts as well as through collaborations with leading researchers worldwide.
Our Expertise
We are led by biopharmaceutical experts with extensive experience in gene and cellular therapy, and rare diseases. Our team has broad expertise in
the clinical, regulatory and commercialization aspects of rare diseases as well as process development and manufacturing for cellular therapies. Members of
our management team have held senior positions at Amgen, AstraZeneca, AveXis, Biogen, bluebird bio, GlaxoSmithKline, Lonza, Novartis, Sanofi
Genzyme, Shire, Spark Therapeutics, and other companies pursuing development, manufacturing and commercialization of gene, cellular and other
therapies to treat rare diseases.
Our Strategy
Our goal is to develop and commercialize lentiviral-based gene therapies that free patients from a lifetime of genetic disease. Key elements of our
strategy include:
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Rapidly advance our pipeline targeting lysosomal disorders. We are initially targeting lysosomal disorders and are developing a deep pipeline
of six gene therapies to treat Fabry disease, cystinosis, Gaucher disease type 1, Hunter syndrome, Gaucher disease type 3 and Pompe disease.
We intend to continue rapidly advancing these programs in parallel and to obtain clinical data that could potentially support regulatory filings
around the world. Specifically, we intend to pursue pathways for accelerated review and approval of our product candidates by the FDA and
international regulatory authorities through programs such as the Regenerative Medicine Advanced Therapies, or RMAT, program in the
United States.
Continue implementing and enhancing our industry-leading plato platform with its personalized approach to conditioning, enhanced vector
technology and automated, closed manufacturing processes. Our end-to-end plato platform is designed to provide the foundation for
worldwide commercialization of our gene therapies, if
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approved. We believe our innovations in viral vector design, cellular manufacturing, cryopreservation, and other related processes are
important steps towards advancing the field of lentiviral-based gene therapy and realizing its full potential to treat a number of diseases. Plato
incorporates a four-plasmid lentiviral vector designed to optimize vector copy number, transduction efficiency and resulting enzyme activity.
In combination with this vector, in some indications we use a number of proprietary peptide tag technologies to enhance uptake of therapeutic
protein in key tissues. We have also developed a manufacturing process that we believe is both reproducible and scalable, and we believe this
technology could enable us to deliver our gene therapies to patients, if approved, in quantities sufficient for global commercial supply. In
addition, we believe our personalized approach to conditioning using busulfan with a precision dosing program called Target Concentration
Intervention could enable us to deliver durable, ‘head-to-toe’ treatment of symptoms and early intervention in the treatment of lysosomal
disorders. We will continue to leverage advancements in stem cell transplantation in order to improve patient tolerability of our lentiviral-
based gene therapies.
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Build global infrastructure to reach patients across the world. Lysosomal disorders afflict patients globally and we intend to continue building
global infrastructure in order to provide treatment to patients around the world. This infrastructure includes clinical sites, specialist physicians
and researchers, suppliers and contract manufacturing organizations. We are currently conducting clinical trials across multiple geographies,
including the United States, Canada and Australia, with plans to potentially expand to other geographies including Europe and Israel.
Leverage our approach beyond our initial indications. We are initially developing gene therapies for the treatment of six different lysosomal
disorders and believe that we will gain significant learnings and technical insights from these programs. We intend to leverage our technology
and insights to treat a number of rare and non-rare diseases where we believe our lentiviral approach has transformative potential.
Our Approach
We develop gene therapies utilizing our ex vivo lentiviral-based approach to transform a patient’s own stem cells into a drug product. Our
investigational gene therapies employ lentiviral vectors that are designed to result in stable integration of the desired genes in the chromosomes of stem
cells such that they are permanently maintained in the cell and can be reproduced as the cell divides. We focus on delivering our lentiviral-based gene
therapies to patient-derived hematopoietic stem cells, which are primitive stem cells that develop into all types of blood cells, including white blood cells,
red blood cells and platelets. To accomplish this, we harvest a patient’s hematopoietic stem cells and modify them ex vivo to add the equivalent of a
functional copy of the gene that is defective in the target disease. We then infuse the genetically modified cells back into the patient. Our gene therapies are
designed to be administered to the patient as a one-time therapy following a TCI conditioning regimen.
We are focused on employing our approach to treat and potentially cure lysosomal disorders. These disorders have well-understood biologies,
identified patient populations, established standards of care that leave many patients with significant unmet medical needs, and represent large markets with
approximately $4.8 billion in worldwide net sales in 2020. We believe our ex vivo lentiviral-based gene therapy approach can be industrialized into a
robust, scalable and, if approved, commercially viable process that will allow us to deliver our potentially curative therapies to patients across the world.
Advantages of Ex-Vivo Lentiviral-Based Gene Therapy Approach
We believe ex-vivo lentiviral-based gene therapy provides numerous advantages, including:
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Durable benefit. We believe lentiviral vectors have the potential to provide life-long benefits with a single dose. Lentiviral vectors can
integrate stably into the genome of hematopoietic stem cells and, when these cells replicate, they pass the integrated genes on to their progeny
cells. Across the industry, efficacy in patients treated with lentiviral gene therapies has been demonstrated for longer than 12 years.
Systemic therapeutic effect. Progeny cells circulate systemically and may migrate into tissues and therefore have the ability to provide
therapeutic benefit to affected tissues and organs throughout the body. In addition, we believe that our personalized busulfan conditioning
regimen has the potential to allow the therapeutic benefits of our gene therapies to cross the blood-brain barrier and treat symptoms arising in
the central nervous system. These often severe symptoms are typically unaddressed by the current standards-of-care for lysosomal disorders.
Broad patient applicability. Lentiviral-based gene therapies have been used to deliver treatments to patients of all ages, including children, and
to patients who may be ineligible for other types of gene therapy due to the presence
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of preexisting antibodies that detect viral vectors and trigger the immune system to destroy the vector and cells infected by the vector.
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Restoration of protein function. By contrast to the standard-of-care enzyme replacement therapy, which seeks to clear toxic substrate as a key
symptom of a non-functioning gene, restoration of gene function may deliver a wide array of additional biochemical benefits throughout the
body.
History of tolerability in clinical trials. To our knowledge, no instances of insertional oncogenesis or leukemogenesis from lentiviral vectors
have been documented in clinical trials of lentiviral gene therapies, with more than 350 total patients treated. To date, we have not seen any
unexpected safety events in 14 patients across our four clinical trials, with the longest follow-up more than 3.5 years to date.
Larger and varied payloads. In contrast to other viral vectors, lentiviral vectors have the capacity to carry larger gene sequences, which allow
them to potentially address a large variety of indications.
Strategic Selection of Our Initial Indications
There are approximately 50 identified lysosomal disorders, which are characterized by an abnormal toxic build-up of substrates and their
metabolites in the body’s cells. We are currently targeting Fabry disease, cystinosis, Gaucher disease type 1, Hunter syndrome, Gaucher disease type 3 and
Pompe disease. Each of these disorders affects a meaningful number of patients, has a suboptimal standard of care with unmet medical need and, we
believe, is appropriate for lentiviral-based gene therapy. We believe our approach has the potential to address the shortcomings of existing therapies that,
despite chronic dosing, cannot halt or reverse disease progression, restore normal lifespan or adequately address symptoms arising in both the peripheral
tissues and the central nervous system.
Expanding the Utility of Lentiviral-Based Gene Therapy with TCI-Enabled Conditioning Regimen
A core part of our approach is to expand the use of lentiviral-based gene therapy to treat numerous lysosomal disorders. We believe conditioning is
an essential step to optimize these treatments as it is designed to clear space in the patient’s bone marrow and central nervous system for cells carrying the
therapeutic gene. This maximizes the potential for their long-term engraftment which may enhance durability of therapeutic effect. We believe that we will
be able to demonstrate durable effects in our targeted diseases utilizing a single myeloablative agent, busulfan, which we have transitioned to as part of
implementing our plato platform.
We have pioneered precision dosing of busulfan in gene therapy as a single agent in a single treatment cycle, with the goal of enhancing the patient
experience. A body of research has identified an optimal exposure range for busulfan (Bu-90), which we plan to implement for the patients enrolled in our
Company-sponsored clinical trials. Our approach is to personalize conditioning to each patient using TCI, a precision dosing program. TCI is designed to
allow for continually controlled exposure by assessing via simple blood draws how rapidly the individual patient metabolizes busulfan, to inform further
administration. Use of busulfan in a conditioning regimen causes adverse side effects and can transiently compromise the patient’s immune system, known
as neutropenia, and ability to form blood clots, known as thrombocytopenia. The higher the level of conditioning, the greater the potential risk of more
serious complications, such as veno-occlusive disease. However, we believe our approach to conditioning has the potential for reduced, predictable and
manageable short- and long-term toxicities and maximized long-term engraftment. If realized, we believe these benefits may promote lentiviral-based gene
therapy as a therapeutic option for less acutely severe diseases or diseases with approved therapies in which large unmet medical needs remain.
We believe our approach has the potential to extend the reach of our gene therapies to a broad range of lysosomal disorders as first-line therapies.
plato: Our Commercial-Scale Platform
In addition to developing first-line gene therapies, an important key to our strategy is to continuously improve our technology and production
processes and to leverage these improvements across our gene therapies, if approved. Plato is designed to provide the foundation for the potential
worldwide commercialization of our gene therapies. It is an ex vivo gene therapy platform incorporating multiple upgrades including a four-plasmid
lentiviral vector designed to optimize vector copy number, transduction efficiency and resulting enzyme activity; a closed, automated manufacturing system
designed to improve consistency and predictability of the drug product; and a personalized approach to conditioning using busulfan with TCI, which is
designed to optimize safety and engraftment. We have submitted data on our upgraded lentiviral vector and
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automated manufacturing process to the applicable regulatory authorities in the United States and Canada, which allows us to incorporate such elements
into our FAB-GT and Guard1 clinical trials in those jurisdictions and Australia. Plato has been used to dose a total of three patients in our clinical trials, and
we intend to utilize the plato platform for all future patients enrolling in the FAB-GT and Guard1 clinical trials. We believe our plato platform may lead to
better patient outcomes and will represent a significant advance in our industry towards achieving the quality and scale required for global
commercialization of gene therapies.
Our plato platform is designed to feature:
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Large scale vector production: We currently have manufacturing capabilities, through contract manufacturing organizations, or CMOs, at 200-
liter bioreactor scale, with vector production capable of treating a substantial number of patients per year.
Global reach: Our automated, closed system for manufacturing is designed to allow for the flexible production of our gene therapies. The
automated, closed manufacturing system is portable with proprietary AVROBIO algorithms which allow for efficient establishment of
manufacturing capabilities in multiple geographies that can be expanded or adjusted as our global supply requirements evolve. We believe this
approach will facilitate global manufacturing and shipping of our gene therapies, and will promote access to our products by patients and
caregivers.
Quality of manufacturing: Our platform is designed to utilize current good manufacturing practices, or cGMP, and we believe our automated,
closed manufacturing system may result in less production variability and reduce the risk of operator error, while enhancing the potency of the
drug product. We believe these features will improve the quality of our gene therapies that are produced.
Patient convenience: Our gene therapies are cryopreserved, which is a feature designed to promote a longer shelf-life. We believe that a longer
shelf-life will allow patients and clinics to schedule treatment sessions with greater convenience.
Cost containment: Our platform is designed to control fixed and variable expenses associated with manufacturing our gene therapies.
We believe the plato platform will form the backbone of our future commercialization efforts and our goal to take gene therapy mainstream.
Next Generation Vector Technology
We have utilized our core expertise in the development and optimization of lentiviral vectors to improve the vectors used in our gene therapies. We
have made and expect to continue to make enhancements to our lentiviral vectors to improve safety, efficacy and efficiency. For example, clinical trials of
AVR-RD-01 have primarily utilized our original academic three-plasmid-produced lentiviral vector, which we refer to as LV1. However, we dosed the
fourth and fifth patient in our ongoing FAB-GT clinical trial of AVR-RD-01 and the first patient in our ongoing Guard1 clinical trial of AVR-RD-02 using
our proprietary four-plasmid lentiviral vector, which we refer to as LV2, and expect to dose all future patients in these trials with LV2. Our goal is to
employ vectors that are state-of-the-art and that can be produced in a cost-effective and scalable manner.
Automated, Closed Manufacturing System
Our team has significant experience in cell processing and commercial-scale cellular therapy manufacturing. We have developed and are
implementing a detailed plan for more cost efficient and scalable manufacturing of our gene therapies. In contrast to a number of other gene therapy
companies that have not developed their commercial scale plans from the outset, we have executed on our plans to move to a closed suspension bioreactor
system for vector production, as well as a closed, automated system for manufacturing our gene therapy product. Our move to a closed, automated
manufacturing system was completed in 2019 as part of implementing upgrades from our plato platform, and the fourth and fifth patients in our ongoing
FAB-GT clinical trial of AVR-RD-01 and the first patient in our ongoing Guard1 clinical trial of AVR-RD-02 were each dosed using this system. We
believe our plato platform features the first automated, closed manufacturing system in CD34+ gene therapy.
Our manufacturing approach is intended to allow for the production of drug product using relatively small, self-contained devices, which may
reduce our reliance on large traditional clean rooms that are expensive to establish and
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maintain. We believe our manufacturing approach may result in greater flexibility in the location of manufacture and help to control costs associated with
traditional manufacturing. In addition, we believe our automated manufacturing process may reduce operator error and yield greater consistency and less
variability in the manufactured drug product.
We currently have one CMO partner in the United States and two partners in Australia for the production of AVR-RD-01 and AVR-RD-02 drug
product. We also are in the process of establishing a CMO partnership in Europe.
Optimization of Conditioning Regimen
The conditioning regimen that we first employed utilized melphalan, a common chemotherapy drug, to ablate the patient’s bone marrow. As part of
the upgrades to our plato platform, we transitioned to utilizing busulfan, another chemotherapy drug, that has been in use since the 1950’s. Busulfan is
indicated for use in combination with cyclophosphamide as a conditioning regimen prior to allogeneic stem cell transplantation for chronic myeloid
leukemia. Busulfan is routinely used in conditioning regimens before allogeneic stem cell transplantations for both malignant and non-malignant
conditions. It has also been used as a single-agent, or in combination with an immunosuppressive agent, such as cyclophosphamide, in conditioning
regimens prior to ex vivo gene therapy transplants.
We believe that the transition to busulfan for our conditioning regimen may confer several advantages. For example, busulfan will permit utilization
of TCI in our conditioning regimen, thereby enabling physicians to personalize the dosing to each patient by titrating over four days to potentially enhance
patient tolerability to the conditioning procedure and promote cell engraftment. By contrast, melphalan is administered once with no TCI, and may cause
concern of conditioning-related toxicity across patients due to individual differences in metabolism of the drug. In addition, we believe that the utilization
of busulfan in our single-agent myeloablative conditioning regimen has the potential to allow our gene therapies to cross the blood-brain barrier, a feature
which may yield therapeutic benefit in diseases that have a central nervous system component, such as Fabry disease, Gaucher disease type 3, Hunter
syndrome, Pompe disease and other rare and non-rare diseases. Finally, our busulfan conditioning regimen is designed to create more space in the ablated
bone marrow compared to melphalan and may increase the average VCN of the patient bone marrow following treatment with the drug product, which are
features that we believe will promote better cell engraftment and durability of the gene therapy.
We are aware that there have been cases of therapy-related myelodysplastic syndrome, or t-MDS, a type of blood disorder that is a potential
precursor to acute myeloid leukemia, in patients with preexisting cancer where busulfan treatment was posited to be a contributing factor to this secondary
malignancy. However, we have reviewed over 700 published cases of busulfan exposure preceding bone marrow transplant, hematopoietic cell transplant,
or ex-vivo gene therapy for non-malignant indications, of which 649 were from peer-reviewed literature. Based on our review of these cases, we found only
one case of t-MDS, which involved a report from December 2018 that a patient with preexisting sickle cell disease developed t-MDS. In that case, busulfan
treatment was posited to be a contributing factor. We believe that due to the presence of other confounding factors in the patient, the cause of that patient’s
t-MDS has not been conclusively determined. In response to these potential risks, we are investigating a plan to potentially implement molecular
cytogenetic screening.
While the busulfan conditioning regimen is more intensive than the original conditioning regimen that utilizes melphalan, we believe it is still
milder than some of the more aggressive conditioning regimens associated with gene therapies for other diseases, such as when busulfan is used in
combination with cyclophosphamide, used at a higher dose, or when TCI is not applied. Furthermore, we believe our conditioning regimen may produce
the desired effect while potentially allowing for a limited hospital stay.
plato Data
In February 2021, we announced data from the fourth patient dosed in our ongoing FAB-GT clinical trial of AVR-RD-01, who was the first patient
dosed using our plato platform. At 12-months post-gene therapy, this patient exhibited plasma and leukocyte AGA enzyme levels that were 4.2x and 6.3x
higher, respectively, than the mean plasma and leukocyte AGA activity levels of the other three dosed patients in the FAB-GT clinical trial measured as of
12-months post-gene therapy. Additionally, the fourth patient’s kidney biopsy taken at 12 months post-treatment showed a 100% clearance of Gb3
substrate.
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Advantages of Our Approach over Existing Therapies
We believe our gene therapy solutions offer several potential advantages over existing therapies for lysosomal disorders, including:
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Curative impact that has the potential to halt or reverse disease progression. Existing ERTs for Fabry, Gaucher, Hunter and Pompe, and oral
therapies for cystinosis, provide some therapeutic benefit to patients. However, because of their suboptimal pharmacokinetics, these ERTs
only transiently increase plasma enzyme levels and the therapies for cystinosis require multiple doses throughout the day. In contrast, our
lentiviral-based gene therapies are designed to enable the body to constantly produce the functional enzyme or other protein. This can
potentially halt pathological damage and, depending on the targeted indication and organ system, may even reverse disease progression. Our
lentiviral-based gene therapies may provide potentially curative treatment to patients. This concept is illustrated in the graphs below.
Durable, single-dose treatment. Our gene therapies offer the potential for a single dose to replace life-long, bi-weekly infusions or daily oral
therapies that are often accompanied by numerous side effects and impact patients’ quality of life. Our gene therapies are designed to
transform the patient’s own cells into a drug product that enables the continuous delivery of functional enzyme or other protein throughout the
body after a single dose.
Reduced treatment cost over a patient’s lifetime. Existing ERTs and oral therapies can cost millions of dollars over a patient’s lifetime because
these therapies require frequent doses of expensive treatments to manage symptoms. Our single-dose gene therapies are designed to replace
the costly chronic intravenous and oral therapies that are the current standard of care for patients with lysosomal disorders.
AVR-RD-01, Our Gene Therapy for Fabry Disease
We are developing AVR-RD-01 for the treatment of Fabry disease. We manufacture AVR-RD-01 from stem cells that are first harvested from the
patient, modified to add the gene that encodes for AGA, and then infused into the patient. AVR-RD-01 is currently being evaluated in an investigator-
sponsored Phase 1 clinical trial and a Company-sponsored Phase 2 clinical trial. A total of 10 patients have been dosed across both trials as of March 1,
2021.
Disease Overview
Fabry disease is a rare lysosomal disorder associated with significant morbidity and early mortality. It is caused by a gene defect that causes a
deficiency of AGA, which breaks down a particular type of fat in the body’s cells known as globotriaosylceramide, or Gb3. As Gb3 and other related
substrates increase in patients with Fabry disease, these become toxic to the patient’s cells. Gb3 and other glycosphingolipids accumulate and result in
damage to the kidneys, heart and brain. Accumulation of Gb3 in tissues such as the heart and the vascular system can lead to life threatening vascular
blockages and thus stroke and heart attacks. In addition, high levels of Gb3 substrate accumulation in the kidney can cause kidney failure. Gb3 can also
accumulate in other tissues, such as the nervous system where it leads to debilitating pain. Due to end-stage renal disease and other life-threatening
complications associated with Fabry disease, the average life expectancy in affected males is approximately 58 years of age.
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Most patients with Fabry disease begin experiencing chronic pain in childhood but are often not diagnosed with Fabry disease until their twenties,
due to a broad variation in patient symptoms. Over 1,000 gene mutations associated with Fabry disease have been identified. It is estimated that Fabry
disease is diagnosed in approximately one in 40,000 males and one in 118,000 females in the United States, but studies have suggested that a larger number
of patients may be undiagnosed.
Fabry disease is an X-linked disorder, meaning the gene that is responsible is located on the X chromosome. Because males have only one X
chromosome, an abnormal copy of the gene that causes Fabry disease is sufficient to cause the disease. However, unlike other X-linked disorders, where
female carriers of an abnormal gene are usually unaffected, Fabry disease also often causes significant morbidity in females who inherit one abnormal copy
and one normal copy of the gene associated with the disease.
Limitations of Current Therapies
Fabry disease is primarily treated with periodic infusions of ERT consisting of AGA enzyme over the patient’s lifetime. The most commonly
prescribed ERTs for Fabry disease are Fabrazyme, marketed by Sanofi Genzyme, and Replagal, marketed by Shire, which was acquired by Takeda
Pharmaceutical Company Ltd. In 2020, Fabrazyme and Replagal generated worldwide net sales of approximately €817 million euros and ¥51.6 billion
Japanese yen, respectively. We estimate that the average five-year cost to the healthcare system per Fabry patient prescribed standard of care treatment in
the United States is approximately $1.7 million. In addition, because ERTs are not curative and only slow, but do not halt, the progression of disease,
patients deteriorate and the healthcare system incurs significant costs associated with recurring medical interventions.
Although ERT provides therapeutic benefit and can reduce Gb3 substrate levels and extend a patient’s life expectancy, ERT requires chronic
infusions throughout the patient’s life. Patients prescribed ERT generally receive an infusion every other week. However, because of their suboptimal
pharmacokinetics, ERTs only temporarily increase plasma enzyme levels. As a result, patients with Fabry disease prescribed ERT continue to have disease
progression, including ongoing decline in renal function, potentially including renal failure, cardiovascular disease and ongoing debilitating pain including
periods of severe pain crisis. Physicians report that patients have recurrence of symptoms as the therapeutic effect of ERT wanes between bi-weekly
treatments.
Alternatives to ERT for patients with Fabry disease are limited. Galafold (migalastat), an oral therapy marketed by Amicus, was approved by the
European Medicines Agency, or EMA, in May 2016, and by the FDA in August 2018. Amicus has reported that only 35% to 50% of the gene mutations
associated with Fabry disease are amenable to migalastat.
Our Solution
We are developing AVR-RD-01 to halt or reverse disease progression and potentially provide a functional cure to patients with Fabry disease with a
single dose of the patient’s own hematopoietic stem cells modified in an ex vivo procedure. AVR-RD-01 is a lentiviral-based gene therapy that contains a
codon-optimized human gene and is designed to maximize the likelihood of sustained AGA production by hematopoietic stem cells and their progeny.
We believe that AVR-RD-01 offers a promising treatment for Fabry disease for the following reasons:
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One-time delivery. Lentiviral-based gene therapy provides the potential to transform a patient’s own cells into a drug product that enables the
continuous delivery of active enzyme throughout the body after a single dose.
Proven biology. Years of observations of patients prescribed ERT indicate that even partial plasma AGA activity is associated with improved
outcomes. Increased AGA enzyme activity is able to reduce Gb3 levels in multiple cells and tissues supporting the ability of AGA in the
plasma to enter lysosomes and degrade Gb3 in a process referred to as cross correction.
Wide therapeutic window. We believe that even partial enzyme activity, if continuous, has the potential to provide long-term therapeutic
benefit. A wide range of levels of plasma AGA activity has been demonstrated to be both safe and effective in preclinical studies, reducing the
need for precise regulation of enzyme expression levels and reinforcing that overexpression of AGA is not associated with increased safety
risks.
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Mutation independent. AVR-RD-01 is designed to increase plasma and leukocyte AGA levels in a patient’s cells, regardless of which of the
more than 1,000 specific mutations underlie the patient’s disease.
Ongoing Multicenter Investigator-Sponsored Clinical Trial
In an ongoing Phase 1 clinical trial of AVR-RD-01 being conducted by the University Health Network, or UHN, and sponsored by Fabry Disease
Clinical Research and Therapeutics, or FACTs, at three centers in Canada, a total of five patients with Fabry disease who have been treated with ERT for at
least six months have been enrolled, and enrollment is complete. The protocol for this clinical trial originally provided that ERT for these patients would be
suspended one month prior to receiving AVR-RD-01 and then resumed one month after the AVR-RD-01 treatment and continued at bi-weekly intervals.
The trial protocol was subsequently amended to allow the investigator team, at their discretion, to discontinue ERT six months after treatment with AVR-
RD-01. Three of the five patients in the clinical trial have discontinued the regular bi-weekly treatments with ERT and all three remain off ERT as of
January 11, 2021.
The primary goal for this clinical trial is to assess the safety and toxicity of AVR-RD-01 as measured by the frequency or severity of clinically
notable abnormal vital signs and laboratory values and the frequency or severity of treatment-related adverse events. The safety of our initial, academic-
based conditioning regimen is also being assessed in this clinical trial.
A secondary objective for this clinical trial is to obtain preliminary efficacy signals of AVR-RD-01 therapy as assessed by AGA enzyme activity.
Plasma and leukocyte AGA enzyme activity derived from administration of ERT decreases rapidly after administration with no residual plasma or
leukocyte activity remaining approximately one day after treatment. To evaluate the ability of AVR-RD-01 to increase enzyme activity, the level of AGA
activity was assessed in a patient immediately prior to the administration of the patient’s next dose of ERT, when limited or no plasma or leukocyte AGA
activity from previously-administered ERT dose would be expected.
All five patients in this clinical trial have been dosed. To date, the treatment was generally well-tolerated with no serious adverse events, or SAEs,
related to the study drug. In addition, in all five patients, all of whom are males with classic Fabry disease, the level of plasma and leukocyte AGA enzyme
activity began to rise after infusion. In each of the patients, plasma and leukocyte AGA enzyme activity was observed to increase from nearly undetectable
levels before treatment to a peak within approximately three to six months after treatment, followed by a decline and trending to stabilize to levels above
the range for males with classical Fabry disease, defined as less than 1 nmol/hr/ml. We believe that the steep initial increase reflects AGA enzyme activity
from the early progeny of the transduced stem cells, while the subsequent decline and stabilization in AGA enzyme levels reflect a shift from short term
progenitor cells towards the gradual secretion of AGA enzyme by long-term engraftment cells that become more predominant over time.
AGA Enzyme Activity
As of 42 months after receiving AVR-RD-01, the first patient’s plasma and leukocyte AGA enzyme activity levels continued to be above the range
for males with classical Fabry disease. Based on the level of endogenously produced enzyme activity, at the 18-month follow-up visit for this patient, the
investigator team for the trial made a clinical decision to discontinue the bi-weekly ERT and the patient remains off ERT as of 42 months post-treatment
with AVR-RD-01. Additionally, the third and fourth patients in this clinical trial discontinued ERT and both remain off ERT as of 24 months post-treatment
with AVR-RD-01. The second and fifth patients have elected to continue receiving concurrent ERT. Plasma and leukocyte AGA enzyme activity levels in
all five patients remained above the range for males with classical Fabry disease, defined as less than 1 nmol/hr/ml, as of 42 months, 36 months, 24 months,
24 months and 18 months after treatment, respectively. We believe these results, particularly from the patients in the trial with longer-term AGA data points
reported, support the potential of AVR-RD-01 to drive functional enzyme production for long durations.
Lyso-Gb3 Levels
The substrate, Gb3, and its toxic metabolite, known as lyso-Gb3, are considered surrogate markers for disease activity and treatment response for
Fabry disease. In the case of ERT-naïve patients and patients who have discontinued ERT, we believe that reductions in Gb3 levels following treatment
with gene therapy are likely driven by the therapeutic effect of gene therapy. In four of the five patients in the Phase 1 clinical trial of AVR-RD-01, we have
observed plasma lyso-Gb3 at levels post-treatment that are lower than the levels observed when the patient received only ERT prior to administration
of AVR-RD-01, which we refer to as baseline ERT levels. We define baseline ERT for these Phase 1 patients as the mean of the plasma lyso-Gb3 values
reported prior to initiating mobilization. Based on the latest interim data we presented in February 2021, these four Phase 1 patients exhibited reductions in
plasma lyso-Gb3 levels ranging between 25% and 48% compared to
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their baseline ERT levels. With respect to the fourth patient, who discontinued ERT six months following administration of AVR-RD-01, we observed an
initial decline in plasma lyso-Gb3 levels through six months post-treatment compared to baseline ERT, and a 35% increase in plasma lyso-Gb3 levels at 24
months post-treatment compared to baseline ERT. This patient’s plasma lyso-Gb3 levels remain within the range for the Fabry disease patients on ERT
observed in this Phase 1 clinical trial.
Vector Copy Number
VCN, which is expressed as VCN per diploid genome, refers to the average number of copies of the lentiviral-vector inserted gene that are
integrated into the genome of a cell, and is another measure that can be used to help assess the durability of a gene therapy. We believe that different
diseases may require varying levels of VCN based on the underlying condition, and therefore VCN measurements across different diseases should be
assessed separately. For example, a VCN of 0.1 may represent 5% to 10% of all nucleated circulating blood cells carrying one to two copies of the inserted
gene, which we believe may be sufficient to result in clinically meaningful AGA enzyme activity in the case of Fabry disease, as suggested by our interim
data from our ongoing clinical trials of AVR-RD-01. Based on the latest interim data we presented in February 2021, these five Phase 1 patients exhibited
VCN levels of 0.04, 0.16, 0.24, 0.12 and 0.86 at 42 months, 36 months, 24 months, 24 months and 18 months after treatment, respectively.
Safety Data
Preliminary interim safety data indicate AVR-RD-01 has been generally well-tolerated with no SAEs related to the study drug.
Adverse events, or AEs, were consistent with expectations for the melphalan conditioning regimen prescribed by the study protocol. As of the most
recent safety cut-off date of November 26, 2020, there were 94 AEs reported, 14 of which were Grade 3 or 4. The remainder of the AEs were Grade 2 or
Grade 1.
Two SAEs were reported through the safety data cut-off date of November 26, 2020, which included one report of AE Grade 3 febrile neutropenia
and one report of AE Grade 2 thrombophlebitis, each occurring following the conditioning regimen and treatment with AVR-RD-01. Both SAEs have
subsequently resolved without clinical sequelae. One event, the development of a left thigh mass, was originally reported as an SAE but has now been
considered by the study investigator as not serious and has resolved in the patient. No new AEs have been reported for the first patient since January 2018,
the second patient since May 2018, the third patient since August 2018, the fourth patient since March 2019 or the fifth patient since August 2019. In
addition, investigators observed a temporary suppression of absolute neutrophil counts and platelets, which is an expected consequence of the conditioning
regimen. These decreases were transient and not associated with any negative long-term impact on the patients. Neutrophil and platelet counts recovered
after dosing.
Pre-existing low anti-AGA antibody titers have been detected in four patients in the Phase 1 trial. We believe none of these are of clinical relevance.
Because this clinical trial is ongoing, safety and efficacy data are preliminary and subject to change. As is typical in open-label studies in which
interim reports are provided, the data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or increases
in the number of reported safety events, until the database is locked at the end of the study.
Ongoing Phase 2 Multinational Clinical Trial (FAB-GT)
We are sponsoring an open label, multinational Phase 2 clinical trial of AVR-RD-01, which we refer to as the FAB-GT clinical trial. This study was
initiated in June 2018 in Australia and enrollment in this Phase 2 clinical trial is ongoing. Eight to 12 treatment-naïve males, 16 to 50 years old, with Fabry
disease are expected to be enrolled in this trial. Our objectives for this trial are to assess safety and efficacy as measured by multiple indicators, such as
AGA enzyme activity, Gb3 and lyso-Gb3 levels in blood and various tissues, kidney and cardiac function, gastrointestinal symptoms, and pain and quality
of life scores. All enrolled patients will receive a single treatment with AVR-RD-01 and will be followed for 48 weeks to measure safety and efficacy. We
have opened two U.S. sites for our ongoing FAB-GT clinical trial and are actively recruiting potential patients for our sites in Australia, Canada and the
United States. We are also engaged in discussions with the Pharmaceuticals and Medical Devices Agency, or PMDA, regarding potential future clinical
development of AVR-RD-01 in Japan.
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As of March 1, 2021, five patients have been dosed in the FAB-GT clinical trial. For the fourth and fifth patients, we transitioned the lentiviral
vector from LV1 to our optimized proprietary LV2 from our plato platform. All future patients in this clinical trial will be dosed using the plato platform,
which we believe will further improve the efficacy and further enhance the safety of our lentiviral-based gene therapy. Because the transition to LV2 only
impacts the ex vivo cell transduction process, and not the actual AGA enzyme that is produced by the transduced cells, or drug product, we believe this
transition will be supported with in vitro comparability studies.
Kidney Biopsy
The primary efficacy endpoint of our FAB-GT clinical trial is the change from baseline in the average number of Gb3 inclusions per peritubular
capillary, or PTC, as measured in a patient kidney biopsy one year (48 weeks) after treatment with AVR-RD-01. Gb3, also referred to as GL-3, is a type of
fatty substrate that builds in the cells of Fabry patients, resulting in damage to organs such as kidneys and heart. PTCs, also referred to as kidney interstitial
capillaries, or KICs, in Fabry clinical trials, convey blood after filtration in the glomeruli, enabling the blood to eventually exit the kidney and return to the
circulatory system. In February 2021, we announced that the fourth patient in our FAB-GT clinical trial exhibited a reduction from an average of 4.02 Gb3
inclusions per PTC at baseline to zero inclusions per PTC one year after administration of AVR-RD-01, representing a 100% clearance of Gb3 substrate.
These data followed our 2019 announcement that the first patient in the FAB-GT clinical trial exhibited a reduction from an average of 3.55 Gb3 inclusions
per PTC at baseline to an average of 0.47 inclusions per PTC one year after administration of AVR-RD-01, representing an 87% reduction and a numerical
decrease of 3.08. The assessments for these two patients were each made by two blinded pathologists who independently scored digital images of the
sectioned kidneys from the 12-month biopsies. The second patient in the FAB-GT clinical trial has an N215S genotype, which is associated with a late-
onset cardiac variant phenotype. This patient’s cardiac variant phenotype does not typically result in Gb3 accumulation in the kidney, and accordingly this
patient’s kidney biopsy had low levels of Gb3 and lyso-Gb3 at all measurements, including at baseline. Although we expect that data obtained from this
patient will not provide meaningful insight on the primary efficacy endpoint in our FAB-GT clinical trial, including kidney biopsies, other important
efficacy and safety measures continue to be derived from data collected from this patient. A kidney biopsy was conducted on the third patient in the FAB-
GT clinical trial, but due to human error in processing the biopsy sample at the external laboratory vendor, the kidney Gb3 inclusions could not be
evaluated and will not be available. The fifth patient in this clinical trial was dosed in February 2021 and we expect to have kidney biopsy data available for
that patient in the first half of 2022.
The following figure illustrates the decrease in average Gb3 inclusions per PTC for the first and fourth patients in the Phase 2 FAB-GT clinical trial.
Phase 2 FAB-GT: Patients 1 and 4 substrate reduction in kidney biopsy
Baseline: The last available, non-missing observation prior to AVR-RD-01 infusion
Note: With respect to Fabry disease clinical trials, Gb3 inclusions per PTC is interchangeable with GL-3 inclusions per KIC
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Lyso-Gb3 Levels
The first patient in our FAB-GT trial had an 86% reduction in plasma lyso-Gb3 levels as of 29 months post-treatment with AVR-RD-01, the third
patient had a plasma lyso-Gb3 reduction of 55% as of 19 months post-treatment, and the fourth patient had a plasma lyso-Gb3 reduction of 69% as of 12
months post-treatment with AVR-RD-01, in each case as compared to baseline. The second patient has an N215S genotype, which is associated with a late-
onset cardiac variant phenotype and does not typically result in Gb3 accumulation in the kidney or skin.
AGA Enzyme Activity
In the first two patients in our FAB-GT clinical trial, for whom we have presented data out to 29 and 24 months, respectively, plasma and leukocyte
AGA enzyme activity was observed to increase from nearly undetectable levels before treatment to a peak within three months after treatment, followed by
a decline and trending to stabilize to levels above the range for males with Fabry disease, defined as less than 1 nmol/hr/ml. The third patient in the FAB-
GT trial exhibited a rapid increase in plasma and leukocyte AGA enzyme activity from nearly undetectable levels before treatment to a peak within the first
seven days after treatment in the case of plasma enzyme activity and within the first 14 days after treatment in the case of leukocyte enzyme activity,
followed by a decline and subsequent increase which is trending toward a stable level above the range for males with Fabry disease at 18 months after
treatment. The fourth patient in the FAB-GT trial, who was dosed with the plato platform, exhibited a rapid increase in AGA enzyme activity post-
treatment and had not exhibited a substantial decline in AGA levels at 12 months after treatment. Similar to the results observed in the investigator-led
Phase 1 trial of AVR-RD-01, we believe that the steep initial increase reflects AGA enzyme activity from the early progeny of the transduced stem cells,
while the subsequent decline and stabilization in AGA enzyme levels reflect a shift from short-term progenitor cells towards the gradual secretion of AGA
enzyme by long-term engraftment cells that become more predominant over time.
Skin Biopsy
Skin biopsies have been performed in the FAB-GT trial and evaluated by two independent blinded readers using a standard scoring system for Gb3
accumulation and clearance. The scoring system has a range of zero to three, with a score of zero representing none or trace accumulation, and a score of
three representing severe accumulation. The first patient scored a three at baseline, a two at six months after treatment with AVR-RD-01 and a one at 12
months post-treatment with AVR-RD-01. The second patient in the FAB-GT trial, whose cardiac variant phenotype does not typically result in Gb3
accumulation in the kidney and skin, scored a zero at baseline and at six months post-treatment with AVR-RD-01. The third patient scored a two at baseline
and a two at six months post-treatment with AVR-RD-01. After consideration of the clinical relevance of substrate inclusion in the skin of Fabry patients
and the lack of direct, strong correlation with substrate in the kidney, we have changed this trial’s exclusion criteria so that patients with no or minimal
substrate in their skin at screening will still be eligible to participate in the clinical trial. We expect to continue collecting skin biopsy data as an exploratory
measurement.
Vector Copy Number
The first four patients in our FAB-GT clinical trial have exhibited consistent VCN trends following administration of AVR-RD-01. Based on the
latest interim data we presented in February 2021, these four FAB-GT patients exhibited VCN levels of 0.04, 0.06, 0.19 and 0.95 at 29 months, 18 months,
19 months and 12 months after treatment, respectively.
Kidney and Cardiac Function
Secondary endpoints of our FAB-GT trial include measurements of kidney function, as measured by estimated glomerular filtration rate, or eGFR,
and measured glomerular filtration rate, or mGFR, as well as measures of cardiac function, as assessed by Left Ventricular Mass Index, or LVMI. eGFR is
determined using the Chronic Kidney Disease Epidemiology Collaboration, or CKD-EPI, formula and mGFR is determined using plasma clearance of
iohexol. The left ventricular mass, or LVM, is assessed by cardiac magnetic resonance imaging, or cardiac MRI, which is an imaging technology that
enables non-invasive assessment of the function and structure of the heart. In general, for a patient with Fabry disease, an increase over time in LVM could
potentially be expected. Improving patient outcomes by slowing or halting the progression of organ damage is a key mission of our Company and our
investigational gene therapy programs.
In February 2021, we presented eGFR data for all five patients in the Phase 1 clinical trial of AVR-RD-01 and the first four patients in our FAB-GT
clinical trial. We believe these data suggest that eight out of nine patients are exhibiting stable kidney function, with the first patient from the Phase 1
clinical trial out 42 months post-treatment. One patient, who remains
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on ERT as of January 11, 2021, entered the Phase 1 clinical trial with advanced kidney disease and a baseline eGFR level of less than 50 mL/min/1.73m2.
As expected, this patient’s kidney function has not stabilized.
Also in February 2021, we presented mean average data on measures of cardiac function and structure in all four patients in the FAB-GT clinical
trial at 12-months post-treatment as compared to mean baseline. The mean measurements of ejection fraction, end diastolic volume, cardiac output and
LVMI at 12-months post-treatment showed an average percent change from baseline of 2.2%, 0.2%, 0.8% and 9.8%, respectively.
Safety Data
Preliminary interim safety data from the ongoing FAB-GT study indicate that AVR-RD-01 has been generally well-tolerated in the first four patients
enrolled in the study.
As of the safety cut-off date of December 7, 2020, there were 111 AEs reported, 22 of which were Grade 3 or 4. The remainder of the AEs were
Grade 2 or Grade 1. No AEs were deemed by the investigator to be possibly, probably, or definitely related to drug product. AEs in this study can be
assigned to more than one causality assessment.
As of December 7, 2020, six SAEs were reported, one pre-treatment and five post-treatment. No events were related to AVR-RD-01 and five events
were related to the conditioning regimen. All six SAEs subsequently resolved without clinical sequelae. After beginning stem cell mobilization but prior to
undergoing the conditioning regimen and treatment with AVR‑RD‑01, the first patient experienced a seizure. In addition, during a scheduled protocol visit
after dosing, the same patient experienced nausea and vomiting, dehydration and was admitted to the hospital for fluid hydration. Because this event
warranted hospital admission, the event was categorized as an SAE. An additional SAE of febrile neutropenia was reported in each of the second and third
patient post-treatment. The fourth patient experienced two post-treatment SAEs of culture negative fevers and mucositis Grade 2.
In addition to the above, each of the FAB-GT patients experienced a temporary suppression of absolute neutrophil counts and platelets, which is an
expected consequence of the conditioning regimen. These decreases were transient and not associated with any negative long-term impact on the patients.
Neutrophil and platelet counts recovered after dosing.
Because this clinical trial is ongoing, safety and efficacy data are preliminary and subject to change. As is typical in open-label studies in which
interim reports are provided, the data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or increases
in the number of reported safety events, until the database is locked at the end of the study.
AVR-RD-04, Our Gene Therapy for Cystinosis
Together with UCSD, we are developing CTNS-RD-04, which we refer to as AVR-RD-04, for the treatment of patients with cystinosis. AVR-RD-
04 is manufactured from hematopoietic stem cells that are first harvested from the patient, modified to add the gene that encodes for cystinosin, and then
infused into the patient. AVR-RD-04 is currently being studied by our collaborators at UCSD in a Phase 1/2 investigator-sponsored clinical trial. As of
March 1, 2021 three patients have been dosed with AVR-RD-04 and as of January 20, 2021 all three remained off cysteamine pills and eye drops.
Disease Overview
Cystinosis is a rare, genetic, autosomal recessive, lysosomal disorder caused by the accumulation of the amino acid cystine that is produced in the
lysosomes of cells as the result of protein degradation. Cystine is normally transported through the lysosomal membrane to the cytosol where it is reutilized
after its transformation to cysteine. In cystinosis, cystine accumulates inside the lysosomes because of a defect in the gene that encodes cystinosin, a protein
that transports cystine across the lysosomal membrane. Cystine is poorly soluble and forms crystals as its concentration increases. These crystals build up
and cause complications in many organs and tissues. The kidneys and eyes are especially vulnerable to damage, and the muscles, thyroid, pancreas and
testes may also be affected.
The most severe form of cystinosis begins in infancy, causing poor growth and a particular type of kidney damage in which certain molecules, such
as glucose, amino acids, phosphate, and bicarbonate, that should be reabsorbed into the bloodstream are instead eliminated in the urine. These renal
problems ultimately lead to impaired growth and may result in soft, bowed bones, especially in the legs. By the time the patient is approximately two years
old, cystine crystals may be present in the cornea, and the buildup of these crystals in the eye causes pain and an increased sensitivity to light. Untreated
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children with cystinosis may experience complete kidney failure by the age of ten. Other signs and symptoms that may occur in untreated patients,
especially after adolescence, include muscle deterioration, blindness, inability to swallow, diabetes, thyroid and nervous system problems. More than 90%
of untreated patients require a kidney transplant before the age of 20. It is estimated that cystinosis disease is diagnosed in approximately one in 170,000
people.
Limitations of Current Therapies
Cystinosis is currently treated with oral formulations of cysteamine that enter the lysosome and stimulate the breakdown of cystine into products
that do not require the cystinosin protein to be transported. Oral treatment can delay the development of kidney failure by six to ten years if it is started at a
very early age, however it cannot prevent kidney failure or the development of other complications, such as the formation of cystine crystals in the cornea.
The most commonly prescribed oral therapies for cystinosis are Procysbi (delayed release cysteamine bitartrate), marketed by Horizon Orphan, and
Cystagon (cysteamine bitartrate), marketed by Mylan and Recordati S.p.A. In 2020, Procysbi generated worldwide net sales of approximately $170 million.
We estimate that the average five-year cost to the healthcare system per cystinosis patient prescribed standard of care treatment in the United States is
approximately $4.3 million.
Procysbi and Cystagon must be taken orally every 12 or six hours, respectively, leading to significant pill burden and compliance challenges.
Because cysteamine works by directly binding to cystine, rather than through a typical small molecule that inhibits an enzyme or receptor, a substantial
quantity is required. For adults, this can mean taking at least 12 capsules twice a day, every day. Oral therapy with cysteamine is associated with a high
degree of noncompliance due to the frequency with which it must be dosed and the accompanying nausea, as well as the acrid sulfur smell that it produces
in the breath and body. It has been estimated that only one third of patients are able to adhere to the strict dosing schedule. Studies have shown that
adherence diminishes over time in adolescents and adults despite disease impact. Further, oral cysteamine treatment has no effect on ocular cystine crystals
deposits, thus requiring patients to be treated with topical cysteamine eye drops which must be applied each hour the patient is awake.
Our Solution
We are developing AVR-RD-04 to potentially provide a functional cure to patients with cystinosis with a single dose of the patient’s own
hematopoietic stem cells modified in an ex vivo procedure. AVR-RD-04 is a lentiviral-based gene therapy containing a human gene for cystinosin designed
to maximize the likelihood of sustained cystinosin production in hematopoietic stem cells and their progeny.
Ongoing Phase 1/2 Investigator-Sponsored Clinical Trial
In the Phase 1/2 clinical trial of AVR-RD-04 that is being conducted by our collaborators at UCSD, six patients with cystinosis who are currently
being treated with cysteamine will be enrolled. The clinical trial’s primary endpoints are safety and tolerability, assessed for up to two years after treatment.
Secondary endpoints to assess preliminary efficacy include change from baseline in cystine levels in rectal mucosa and granulocytes, as well as cystine
crystal counts in the cornea and skin. These secondary efficacy endpoints will also be evaluated through clinical tests of kidney function, ophthalmologic
measures, muscle strength, pulmonary function and neurological and psychometric function, as well as through patient-reported outcomes and assessments
of health-related quality of life. Mixed leukocyte and granulocyte cystine concentration measures have been part of cystinosis standard of care treatment for
the past two decades, and changes in the average level of cystine in granulocytes from baseline was originally a primary endpoint of the clinical trial of
AVR-RD-04. However, we and our collaborators at UCSD determined that cystine concentration in leukocytes and granulocytes, which is used to monitor
small molecule therapies, is not appropriate to represent the mechanism of action of a gene therapy. As a result, the protocol for this clinical trial was
amended in 2020 to retain safety and tolerability as the primary endpoint, as is appropriate for this stage of development, and shift measurement of cystine
in granulocytes to a secondary endpoint.
Because this is an investigator-sponsored clinical, the study drug will not be manufactured using our plato platform, and neither the automated,
closed manufacturing system nor LV2 will be used in connection with this clinical trial.
Kidney Function
Assessment of kidney function includes measurements of eGFR and serum creatinine, or sCR. eGFR is determined using the CKD-EPI formula and
sCR is measured as part of the comprehensive metabolic panel. The first patient in the Phase 1/2 clinical trial exhibited an eGFR value of 42
mL/min/1.73m2 16 months post-treatment as compared to a baseline value of 55 mL/min/1.73m2. This patient’s eGFR values had been trending downward
in the three years prior to administration of
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AVR-RD-04. However, at three and 16 months post-treatment the patient’s eGFR values were 43 mL/min/1.73m2 and 42 mL/min/1.73m2, respectively.
While these data suggest potential kidney function stabilization after years of pathological decline, this patient’s eGFR levels could resume declining at an
accelerated rate due to the irreversible nature of end-stage renal disease. At six months post-treatment the second patient in the clinical trial, who has
received two kidney transplants, exhibited an eGFR value of 81 mL/min/1.73m2 as compared to a baseline value of 71 mL/min/1.73m2.
Cystine Crystals in Skin and Rectal Biopsy Tissues
Skin and rectal biopsies were performed on the first patient at baseline and 12-months post-treatment with AVR-RD-04. The data from the biopsies
are intended to show the average skin intracytoplasmic crystals per cell, which is a measurement of the number of toxic crystals in each cell, as well as the
occupancy of cytoplasmic volume with crystals. In November 2020, we announced that at 12-months post-treatment the first patient’s skin and rectal
biopsies exhibited a 44% and 76% reduction, respectively, in average intracytoplasmic crystals per cell, and a 72% and 87% reduction, respectively, in
occupancy of cytoplasmic volume, in each case as compared to the patient’s baseline levels. We believe these data suggest that the patient is now producing
an endogenous supply of functional cystinosin that is reducing the accumulation of toxic cystine crystals.
Levels of Cystine in Skin
Levels of cystine in the skin are measured with in vivo confocal microscopy, or IVCM, on two separate areas of the skin: behind the ear and in a
location determined by the treating physician. The two measurements are analyzed and quantified with 3D Image-Pro software and averaged. The first
patient in the Phase 1/2 clinical trial exhibited a 56% reduction from baseline in skin cystine levels measured 12 months post-treatment with AVR-RD-
04. These skin measurements are considered experimental methodologies and will require additional study to determine their validity and significance.
Levels of Cystine in Cornea
Levels of corneal cystine crystals are being assessed in this clinical trial using IVCM. In November 2020, we presented one set of images of the
first patient’s cornea measured at baseline and 12-months post-administration of AVR-RD-04, and another set of images measured at baseline, seven-, nine-
and 12-months post-administration. The baseline IVCM images were taken using a Nidek ConfoScan microscope and the subsequent images were taken
using a Heidelberg (HRT3) with Rostock Cornea Module microscope. Each of the post-treatment images showed a noticeable decline in the presence of
corneal crystals.
Granulocyte Cystine Levels
The first patient in the Phase 1/2 clinical trial exhibited granulocyte cystine levels of 4.2 nmol half cystine per milligram 12 months post-treatment
with AVR-RD-04 as compared to the baseline value of 7.8. This patient’s baseline value was measured two weeks after discontinuation of cysteamine
treatment and prior to initiating mobilization.
Vector Copy Number
In February 2021 we presented interim VCN data for the first three patients dosed in the Phase 1/2 clinical trial. At 12 months post-treatment with
AVR-RD-04 the first patient exhibited VCN level of 0.9; at six months post-treatment the second patient exhibited VCN level of 1.7; and at one month
post-treatment the third patient exhibited VCN level of 2.55.
Photophobia
Photophobia, or light intolerance, is a symptom of cystinosis that is caused by the buildup of cystine crystals in the cornea, inflammatory cell
infiltration and corneal nerve damage. In the Phase 1/2 clinical trial, photophobia is being assessed on a grade of zero to five. The first patient in the clinical
trial scored a three at baseline and a one at 12-months post-treatment.
Exploratory Measurement – Skin and Hair Melanin
Photographs of the first patient in this clinical trial taken at four-, six- and nine-months post-treatment suggest that the patient’s complexion,
eyebrows and hair color have darkened following administration of AVR-RD-04. As is typical of many
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people with cystinosis, this patient had fair hair color and skin tone prior to dosing. Cystinosin has been demonstrated to impact the regulation of melanin
synthesis, and the protocol for this trial has been amended to prospectively assess changes in melanin.
Safety Data
As of the safety cut-off date of January 27, 2021, preliminary interim clinical data for the first three patients dosed in the Phase 1/2 clinical trial
appear to indicate that the AVR-RD-04 investigational gene therapy has been generally well tolerated with no unexpected safety events identified. There
have been no reports of safety events attributed to the AVR-RD-04 drug product. As of the safety data cut-off date of January 27, 2021 one SAE of
appendicitis was reported, which occurred post-treatment and was deemed by the investigator to be unrelated to AVR-RD-04 or the treatment procedures.
A total of 48 AEs were reported as of the safety cut-off date of January 27, 2021, a majority of which were reported by the investigator to be moderate or
mild. All reported AEs were consistent with expectations for the underlying disease and conditioning regimen prescribed by the study protocol.
Because this clinical trial is ongoing, safety and efficacy data are preliminary and subject to change. As is typical in open-label studies in which
interim reports are provided, the data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or increases
in the number of reported safety events, until the database is locked at the end of the study.
AVR-RD-02, Our Gene Therapy for Gaucher Disease type 1
We are developing AVR-RD-02 for the treatment of Gaucher disease type 1. We plan to manufacture AVR-RD-02 from hematopoietic stem cells
that are first harvested from the patient, modified to add the gene that encodes for glucocerebrosidase, or GCase, and then infused into the patient. Patient
enrollment has commenced for the Phase 1/2 Guard1 clinical trial of AVR-RD-02 in patients with Gaucher disease type 1, and we dosed the first patient in
the second quarter of 2020. The Guard1 trial is actively recruiting in Australia and Canada, with additional sites planned in the United States, Israel and
Europe. As of March 1, 2021 one patient has been dosed.
Disease Overview
Gaucher disease type 1 is the non-neuronopathic form of Gaucher disease, a rare, autosomal recessive, lysosomal disorder caused by a hereditary
deficiency of functional GCase, an enzyme responsible for degrading glucocerebroside, a cell membrane building block, into glucose and lipids within
lysosomes of cells. In patients with Gaucher disease type 1, the recycling of glucocerebroside from the breakdown of old red and white blood cells is
inhibited, leading to its accumulation in macrophages. These abnormal macrophages, known as Gaucher cells, accumulate in multiple organs, particularly
the liver, spleen and bone marrow.
Gaucher disease type 1 is one of the most common lysosomal disorders. It is diagnosed in approximately one in 44,000 births worldwide and is
more prevalent in certain ethnic groups, such as people of Ashkenazi Jewish heritage. Approximately 90% of patients suffering from Gaucher disease in
western countries have Gaucher disease type 1, which manifests as multiple morbidities including enlargement of the spleen and liver, low red blood cells,
or anemia, low platelet count, or thrombocytopenia, and bone abnormalities including bone pain, fractures and arthritis. Bruising, risk of bleeding and
fatigue are common due to the thrombocytopenia and anemia. Compared with the general population, patients with Gaucher disease type 1 have an
approximately 20-fold increased risk of developing Parkinson’s disease. Gaucher disease type 1 does not have manifestations of central nervous system
symptoms.
Limitations of Current Therapies
Gaucher disease type 1 is currently treated with bi-weekly infusions of ERT consisting of recombinant GCase over a patient’s lifetime. The most
commonly prescribed ERTs for Gaucher disease are Cerezyme, marketed by Sanofi Genzyme, and VPRIV, marketed by Shire.
Although long-term ERT for Gaucher disease type 1 results in some therapeutic benefit, ERTs leave patients with significant unmet needs. Twenty-
five percent of patients with Gaucher disease continue to experience physical limitations following two years of ERT, and a clinically significant percentage
of patients continue to experience bone pain, thrombocytopenia and enlargement of spleen following ten years of ERT. In a published study of ERT therapy
for Gaucher disease type 1, six target goals were evaluated, including parameters for hemoglobin and platelet levels, spleen and liver
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volumes, and general bone pain and severe disabling bone pain known as bone crisis. Following at least four years of ERT in this study, approximately 60%
of patients failed to achieve one or more of these six target goals.
In addition to ERTs, the FDA has approved several oral therapies for the treatment of Gaucher disease, including Zavesca (miglustat) marketed by
Actelion and Cerdelga (eliglustat) marketed by Sanofi Genzyme. We believe these oral therapies also provide suboptimal treatment. Zavesca is approved as
a second line therapy and is associated with significant toxicities, including diarrhea, weight loss and tremors. Cerdelga is not approved for use in children,
has highly variable metabolism due to patient-to-patient genetic variations and is highly susceptible to interactions with other drugs.
Both ERTs and oral therapies for Gaucher type 1 impose significant costs on the healthcare system. We estimate that the average five-year cost to
the healthcare system per Gaucher patient (all types) prescribed standard of care treatment in the United States is approximately $2.3 million. In 2020,
Sanofi Genzyme’s Cerezyme and Cerdelga together generated worldwide net sales of approximately €924 million euros and Takeda’s VPRIV generated
worldwide net sales of approximately ¥38.5 billion Japanese yen.
Our Solution
We are developing AVR-RD-02 to potentially provide a functional cure to patients with Gaucher disease type 1 with a single dose of the patient’s
own hematopoietic stem cells modified in an ex vivo procedure. AVR-RD-02 is a lentiviral-based gene therapy that contains a codon-optimized human gene
and is designed to maximize the likelihood of sustained GCase production in hematopoietic stem cells and their progeny.
Ongoing Phase 1/2 Clinical Trial (Guard1)
We have initiated our Guard1 Phase 1/2 clinical trial of AVR-RD-02 in patients with Gaucher disease type 1. Patient enrollment has commenced,
and as of March 1, 2021 one patient has been dosed. This clinical trial is actively recruiting in Australia and Canada, with additional sites planned in the
United States, Israel and Europe. Our initial clinical trial will be an adaptive trial that will include both treatment-naïve patients and patients that are
currently stable on ERT. We intend to enroll eight to 16 patients, between the ages of 16 and 35, with Gaucher disease type 1. Patients currently prescribed
ERT will cease treatment throughout the clinical trial. All enrolled patients will receive a single treatment with AVR-RD-02 and will be followed for 52
weeks to measure safety and efficacy. We intend to utilize our plato platform for all patients enrolling in our Phase 1/2 clinical trial of AVR-RD-02. Our
efficacy endpoints for this clinical trial will include measures of clinical efficacy, such as liver and spleen volumes, hemoglobin, platelet counts, bone pain
and bone density measures along with other blood markers used in Gaucher disease type 1.
In February 2021 we presented data on the first patient in the Guard1 clinical trial, who discontinued ERT one month prior to dosing of AVR-RD-02
and remains off ERT as of February 8, 2021.
Plasma Lyso-Gb1 Reductions
Glucosylsphingosine, or lyso-Gb1, is considered a surrogate marker for disease activity and treatment response for Gaucher disease type 1. In the
case of ERT-naïve patients and patients who have discontinued ERT, we believe that reductions in lyso-Gb1 levels following treatment with gene therapy
are likely driven by the therapeutic effect of gene therapy. In February 2021, we announced that the first patient in our Guard1 clinical trial exhibited a 44%
reduction in plasma lyso-Gb1 levels six months post-administration of AVR-RD-02 as compared to baseline while on ERT. In this study baseline ERT is the
measurement of a single plasma lyso-Gb1 value observed prior to initiating mobilization.
Plasma Chitotriosidase Reductions
Chitotriosidase is a biomarker of macrophage activation that is found in high levels in Gaucher patients where the macrophages have accumulated
an excess lipid burden. In February 2021, we announced that at six months post-treatment with AVR-RD-02 the first patient in the Guard1 clinical trial
exhibited a 49% reduction in chitotriosidase levels as compared to baseline while on ERT. In this study baseline ERT is the measurement of a single
chitotriosidase value observed prior to initiating mobilization.
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Hemoglobin Concentration and Platelet Counts
Gaucher disease type 1 typically causes patients to have low levels of hemoglobin and platelets. In February 2021, we presented data on the
hemoglobin and platelet levels of the first patient dosed in the Guard1 clinical trial at screening, baseline and six months post-administration of AVR-RD-
02. The baseline measurement was taken one month prior to discontinuation of ERT. At screening, baseline and six months post-treatment, the patient’s
platelet counts were 455x109/L, 432x109/L and 351 x109/L, respectively, and the patient’s hemoglobin concentration was 12.5 g/dL, 11.2 g/dL and 12.2
g/dL, respectively. Both six-month measurements are within the normal range for a healthy individual.
Vector Copy Number
In February 2021 we presented VCN data for the first patient dosed in the Guard1 trial. At six months post-treatment, the patient exhibited a VCN
of 0.6. In addition, at three months post-treatment an exploratory assessment of VCN in specific cell populations showed a VCN ≥ 0.7 in the myeloid cell
lines, which we believe could be indicative of transgene presence in the macrophages, the essential cell impacted in Gaucher patients.
Safety
As of the safety cut-off date of January 4, 2021, preliminary interim clinical data for the first patient dosed in the Guard1 clinical trial appear to
indicate that the AVR-RD-02 investigational gene therapy has been generally well tolerated with no unexpected safety events identified. There have been
no reports of safety events attributed to the AVR-RD-02 drug product, and no SAEs were reported as of the safety data cut-off date. A total of 29 AEs were
reported as of the safety cut-off date, two of which were Grade 4 and seven of which were Grade 3. The remainder of the AEs were Grade 2 or Grade 1. All
reported AEs were consistent with expectations for the underlying disease and conditioning regimen prescribed by the study protocol and have resolved.
Because this clinical trial is ongoing, safety and efficacy data are preliminary and subject to change. As is typical in open-label studies in which
interim reports are provided, the data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or increases
in the number of reported safety events, until the database is locked at the end of the study.
AVR-RD-05, Our Gene Therapy for Hunter Syndrome
We are developing AVR-RD-05 for the treatment of mucopolysaccharidosis type II (MPSII), or Hunter syndrome. AVR-RD-05 involves ex
vivo transduction of the patient’s own hematopoietic stem cells with a therapeutic transgene, in-licensed from the University of Manchester, or UoM,
designed to express functional iduronate 2-sulfatase, or IDS, which is the enzyme the patient needs to maintain cellular health, coupled to a proprietary
ApoE2 protein tag that is designed to improve stability of the enzyme in the bloodstream and facilitate uptake by tissues.
AVR-RD-05 will be studied by our collaborators at UoM and a Phase 1/2 investigator-sponsored clinical trial of AVR-RD-05 is expected to
commence in the first half of 2022.
Disease Overview
Hunter syndrome disease is a rare, recessive lysosomal disorder caused by a mutation in the gene that encodes for IDS that results in accumulation
of the glycosaminoglycans heparan and dermatan sulfate. Hunter syndrome affects a multitude of organs and is a chronic and progressive multi‐system
disorder. Clinical manifestations in Hunter syndrome include skeletal abnormalities, known as dysostosis multiplex, short stature, joint stiffness, and
hepatosplenomegaly, accompanied by cardiorespiratory symptoms. Severe cases of Hunter syndrome, which are most common, also feature progressive
neurodegeneration, typically followed by death in teenage years due to obstructive airway disease and cardiac failure.
Hunter syndrome is an X-linked disorder, meaning the gene that is responsible is located on the X chromosome. Because males have only one X
chromosome, an abnormal copy of the gene that causes Hunter syndrome disease is sufficient to cause the disease. The overall diagnosed incidence of
Hunter syndrome is estimated to be approximately one in 100,000 to one in 170,000 males worldwide.
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Limitations of Current Therapies
Hunter syndrome is currently treated with ERT delivered by weekly intravenous infusion. The only approved therapy for Hunter syndrome is
Elaprase, marketed by Shire, which generated worldwide net sales of approximately ¥67 billion Japanese yen in 2020. We estimate that the average five-
year cost to the healthcare system per Hunter patient prescribed standard of care treatment in the United States is approximately $2.4 million.
Two-thirds of patients experience developmental and neurological decline, which is often noted by approximately age two. Due to lack of newborn
screening, diagnosis usually occurs much later in patient’s lives, around five years of age and can be as late as eight years. Although patients typically begin
ERT treatment almost immediately after diagnosis, often the disease symptoms are far advanced and ERT is insufficient to halt the disease progression.
ERT does not treat the neurological symptoms of the disease, and therefore a significant unmet need remains in a majority of patients with Hunter
syndrome. Furthermore, anti-ERT antibodies are a limitation for a significant part of the entire patient population.
Our Solution
We, together with our collaborators at UoM, are developing AVR-RD-05 to potentially provide a functional cure to patients with Hunter syndrome.
AVR-RD-05 is intended to be a gene therapy product containing a codon-optimized human gene for IDS attached to a ApoE2 protein tag designed to
increase the cells’ secretion of IDS to potentially restore healthy cellular function, stabilize the secreted IDS so it has a longer half-life, and facilitate uptake
of IDS into the brain. In addition, we believe that the utilization of busulfan in our conditioning regimen may have the potential to allow AVR-RD-05 to
cross the blood-brain barrier, a feature which may yield therapeutic benefit.
Preclinical Data
In November 2020, we presented previously published preclinical data on AVR-RD-05. The study presented data from normal study mice, mice
affected with the equivalent of Hunter syndrome, mice treated with AVR-RD-05 modified to not incorporate the ApoE2 protein tag, and mice treated
with AVR-RD-05 incorporating the proprietary ApoE2 tag. These data demonstrated the effect of AVR-RD-05 on levels and composition of heparan sulfate
in the brain, neuro-inflammatory pathologies, facial and skeletal abnormalities, as well as cognitive performance and sensorimotor coordination and
balance. We believe these data support the potential of AVR-RD-05 to treat this progressive disease, and potentially prevent the onset of severe symptoms
if treated early.
Planned Phase 1/2 Investigator-Sponsored Clinical Trial
Our collaborators at UoM plan to initiate a Phase 1/2 clinical trial in the first half of 2022. The Phase 1/2 clinical trial is expected to enroll five male
patients, age three months to 24 months, with an early progressive form of the disease. The clinical trial is expected to be open to treatment-naïve patients
as well as patients currently on ERT. The clinical trial’s primary endpoints are expected to be safety and tolerability. Secondary endpoints to assess
preliminary efficacy are expected to include measurements of IDS levels and its activity as well as levels of glycosaminoglycans. Neurocognitive
evaluations will also be conducted to evaluate therapeutic activity in the brain.
Because this is an investigator-sponsored clinical, the study drug will not be manufactured using our plato platform, and neither the automated,
closed manufacturing system nor LV2 will be used in connection with this clinical trial.
AVR-RD-06, Our Gene Therapy for Gaucher disease type 3
In November 2020, we announced an expansion of our lysosomal disorder pipeline with a new preclinical product candidate, AVR-RD-06, our
investigational gene therapy for Gaucher disease type 3. Gaucher disease type 3 is the subacute neurological form of Gaucher disease characterized by
progressive encephalopathy and associated with the systemic manifestations of Gaucher type 1. As with Gaucher type 1, Gaucher type 3 disease is caused
by a gene that codes for the enzyme glucocerebrosidase. The deficiency in glucocerebrosidase leads to the accumulation of Gb1 and its toxic
metabolite, lyso-Gb1. AVR-RD-06 is expected to use the same vector and drug product that we use in AVR-RD-02, our investigational gene therapy for
Gaucher disease type 1. We currently expect to request a meeting with the FDA this year to discuss a potential path to the clinic for AVR-RD-06.
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Disease Overview
Gaucher disease type 3 is the subacute, chronic neurological form of Gaucher disease, a rare, autosomal recessive, lysosomal disorder caused by a
hereditary deficiency of functional GCase, an enzyme responsible for degrading glucocerebroside, a cell membrane building block, into glucose and lipids
within lysosomes of cells. In patients with Gaucher type 3 disease, the recycling of glucocerebroside from the breakdown of old red and white blood cells is
inhibited, leading to its accumulation in macrophages. These abnormal macrophages, known as Gaucher cells, accumulate in multiple organs, particularly
the liver, spleen and bone marrow. In addition, glucosylceramide accumulates in perivascular macrophages and brain glial cells and neurons leading to
neuronal death. Clinically, central nervous system manifestations of Gaucher disease type 3 appear in childhood or adolescence, typically within the latter
part of the first decade for the majority of patients, although the course of disease is markedly heterogenous.
Gaucher disease type 3 is estimated to occur in one in 100,000-300,00 births and is more prevalent in certain ethnic groups, such as people of
Swedish Norrbottnian descent. Systemic manifestations of Gaucher disease type 3 may include enlargement of the spleen and liver, low red blood cells, or
anemia, low platelet count, or thrombocytopenia, and bone abnormalities including bone pain, fractures and arthritis. Bruising, risk of bleeding and fatigue
are common due to the thrombocytopenia and anemia. Variable other features of Gaucher disease type 3 include pulmonary infiltrates and esophageal
varices associated with liver cirrhosis. Presentation of diverse neurologic features may begin at any time during infancy and early childhood with the most
prevalent finding of horizontal supranuclear gaze palsy. Other manifestations of neurological disease include generalized seizures, myoclonus, ataxia,
and/or dementia.
Limitations of Current Therapies
Current therapies used to treat Gaucher disease type 1, namely, ERT and substrate reduction therapy, or SRT, do not penetrate the brain and
therefore have no effect on the neurological aspects of Gaucher disease type 3. The most commonly prescribed ERTs for Gaucher disease are Cerezyme,
marketed by Sanofi Genzyme, and VPRIV, marketed by Shire.
Patients with Gaucher disease type 3 may exhibit wide variation of disease progression with the severity of systemic disease and neurological
deficits differing considerably between patients. In a published study of SRT therapy for Gaucher disease type 3, no significant benefits were demonstrated
on the neurological manifestations of Gaucher disease type 3. Although long-term ERT for Gaucher disease type 3 results in some therapeutic benefit on
visceral, hematological and bone manifestations, ERTs leave patients with significant unmet needs owing to persisting accumulation of substrate within the
central nervous system. Following 10 years of ERT, two patients’ epilepsy had worsened while a third patient developed epilepsy around eight years after
treatment initiation. Another published study on ERT showed that enzyme infusions had no effect on patients with myoclonus and approximately 40% of
patients deteriorated neurologically during a median 3.5 year follow-up period.
Our Solution
We are developing AVR-RD-06 to potentially provide a functional cure to patients with Gaucher disease type 3 with a single dose of the patient’s
own hematopoietic stem cells modified in an ex vivo procedure. AVR-RD-06 is a lentiviral-based gene therapy that contains a codon-optimized human gene
and is designed to maximize the likelihood of sustained GCase production in hematopoietic stem cells and their progeny.
Preclinical Data
In November 2020, we presented preclinical data from a mouse study which we believe demonstrate the potential of lentiviral gene therapy to
repopulate the microglia compartment of the brain with microglia cells carrying the therapeutic gene. We also presented preclinical data demonstrating a
technique that potentially allows us to examine individual cells in the brain to determine which cell types contain the therapeutic gene. Finally, we
presented data comparing the genetically modified microglia and endogenous microglia, which we believe suggest that even though the modified cells are
not native to the brain, they do not act as “invaders” and thus could be expected to carry out normal physiological functions.
AVR-RD-03, Our Gene Therapy for Pompe Disease
We are developing AVR-RD-03 for the treatment of Pompe disease. We will manufacture AVR-RD-03 from hematopoietic stem cells that are first
harvested from the patient, modified to add the gene that encodes for acid alpha glucosidase A, or GAA, attached to a peptide sequence known as a
glycosylation-independent lysosomal targeting, or GILT,
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tag and then infused into the patient. AVR-RD-03 will incorporate a GILT tag because the GILT tag has been found to increase the uptake of GAA into
cells, especially in muscle cells by a multiple of 25, which is a particularly important target tissue for patients with Pompe disease and a target tissue that is
considered difficult to access for ERT. AVR-RD-03 is designed to incorporate a potent promoter to increase volume of system enzyme in circulation.
Disease Overview
Pompe disease is a rare, autosomal recessive lysosomal disorder caused by a mutation in the gene that encodes for GAA that results in the buildup
of glycogen, a complex sugar, in the body’s cells. The accumulation of glycogen in certain organs and tissues, especially muscles, impairs normal tissue
and organ function. Patients with Pompe disease experience serious muscle related problems, including progressive muscle weakness, especially in the legs
and trunk, and the muscles that control breathing. As the disorder progresses, breathing problems can lead to respiratory failure.
The overall diagnosed incidence of Pompe disease is estimated to be approximately one in 58,000 people although frequency and disease
progression varies with age of onset, ethnicity and geography. Overall diagnosed incidence of Pompe disease is projected to increase to one in 22,000
people as it is increasingly included in newborn screening panels.
The severity of Pompe disease symptoms and rate of progression is highly variable and correlated with age of symptom onset and the degree of
enzyme deficiency. Infantile or early onset disease, the most severe form of Pompe disease, accounts for approximately 25% of all affected patients. Those
with early-onset disease are usually diagnosed in the first few months of life and is associated with cardiomyopathy. Left untreated, these patients can die
due to heart failure, respiratory distress or malnutrition resulting from feeding difficulties within the first year of life. Patients with late-onset disease
typically have higher enzyme levels and usually have symptoms such as reduced mobility and respiratory problems but are not at increased risk of
developing cardiomyopathy. Late-onset patients experience progressive difficulty walking and respiratory decline. While life expectancy can vary, Pompe
disease is a life-limiting disease that can result in death due to complications from respiratory failure.
Limitations of Current Therapies
Pompe disease is currently treated with ERT delivered by bi-weekly intravenous infusion. The only approved therapy for Pompe disease is
Lumizyme (known as Myozyme outside of the United States), marketed by Sanofi Genzyme, which generated worldwide net sales of approximately
€948 million euros in 2020. We estimate that the average five-year cost to the healthcare system per Pompe patient prescribed standard of care treatment in
the United States is approximately $3.2 million.
Though patients treated with ERT for Pompe disease have improved survival and respiratory function, ERT is not curative, and patients in long-
term observational studies continue to have increased risk of heart failure and have residual muscle weakness including difficulties swallowing with risk of
aspiration. One challenge with ERT treatment for Pompe disease is that a standard dose requires approximately twenty-fold more enzyme compared to
standard doses for Fabry or Gaucher diseases. Large doses of Lumizyme that are delivered systemically in order to achieve potentially therapeutic levels in
the target tissues result in approximately 90% of patients developing antibodies against the therapy. These antibody responses may impact both the efficacy
and safety of Lumizyme. The FDA approval of Lumizyme carries a black box warning related to the risk of severe allergic and immune mediated reactions,
including life-threatening anaphylaxis.
Our Solution
Our AVR-RD-03 program for Pompe disease is currently in preclinical development, and in 2020 we completed IND-enabling proof-of-concept
preclinical studies, with toxicology studies expected to be completed in 2021.We are developing AVR-RD-03 to be a gene therapy product containing a
codon-optimized human gene for GAA attached to a GILT tag designed to increase uptake of GAA in muscle cells. AVR-RD-03 will target patients with
late onset Pompe disease, which represent the majority of patients with this disease. In addition, we believe that the utilization of busulfan in our
conditioning regimen may have the potential to allow AVR-RD-03 to cross the blood-brain barrier, a feature which may yield therapeutic benefit.
Preclinical Data
In November 2020 we presented data from a study in which mice with the equivalent of classic infantile-onset Pompe disease were treated
with AVR-RD-03. We these data believe support the potential of lentiviral-based gene expression of
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GAA to prevent some of the symptoms of GAA deficiency. These results also demonstrated the need to further increase the uptake of GAA into muscle
cells to treat patients, which is a known challenge for ERTs and leads to the use of large quantities of enzyme to attempt to deliver effective treatment
levels.
We believe we can use a GILT tag to address the known challenges of skeletal muscle uptake in patients with Pompe disease. Attachment of a GILT
tag to a particular protein can increase the effective uptake of that protein into target tissues. We are designing AVR-RD-03 to use a GILT tag to facilitate
GAA uptake into cells and thereby reduce the therapeutically required amount of GAA produced by a patient’s cells following gene therapy treatment.
In mouse models of Pompe, administration of recombinant GAA with the GILT tag demonstrated significant reduction in glycogen in cardiac and
skeletal muscles as compared to the administration of recombinant GAA alone. We licensed GILT tag technology from BioMarin and are incorporating a
GILT tag into our lentiviral vector with the goal of the patient producing GILT-tagged GAA following treatment with AVR-RD-03.
GAA Enzyme Production
Our preclinical study measured the levels of GAA observed in normal mice, mice with the equivalent of infantile-onset Pompe disease, mice treated
with AVR-RD-03 modified to not incorporate our proprietary GILT tag, and mice treated with AVR-RD-03 including our GILT tag, in each case measured
16 weeks post-treatment. These data showed significant overexpression of GAA in bone marrow, white blood cells and plasma in mice treated with AVR-
RD-03 without our GILT tag as well as AVR-RD-03 incorporating our GILT tag.
Glycogen Reduction
Our preclinical study also measured glycogen levels in the heart and brain at four months post-treatment with our GILT-tagged version of AVR-RD-
03, which showed a 99% and 100% reduction, respectively, in glycogen levels. In addition, our study measured glycogen levels in various organs of the
study mice at eight months post-treatment. The data showed an average of greater than 99% reduction in glycogen levels in the heart, greater than 97%
reduction in the diaphragm, greater than 85% reduction in skeletal muscle, greater than 95% reduction in the brain, and greater than 99% reduction in the
spinal cord.
Manufacturing
Industrializing Our Gene Therapies Through Our Outsourced Manufacture and Supply Network
We are establishing global manufacturing relationships that we believe will provide us with drug product manufacturing capabilities to support all
aspects of the development and eventual commercialization of our gene therapies. Our team has leveraged their broad expertise in the manufacturing of
gene and cellular therapies to build a global network of CMO partners for the development and manufacture of drug products and outsourced suppliers for
the supply of vectors and plasmids. We believe that our third-party CMO partners and suppliers have capacity to accommodate current and future clinical
trials and we are continuing to build a global network that we expect will have capacity to generate sufficient quantities to meet our expected commercial
needs.
To optimize production of our gene therapies, we have moved our cell processing to an automated, closed system using disposable supplies. We
believe this industrialized manufacturing process will enable a repeatable approach through which we can design and manufacture commercially viable
lentiviral gene therapies to potentially treat a large variety of genetic disorders. We expect that our automation of the manufacturing processes will further
increase our CMO partners’ manufacturing capacity.
Producing a Patient’s Gene Therapy
We start the process to produce a patient’s gene therapy with the mobilization of a patient’s stem cells from the bone marrow to the blood stream
and isolate them using a standard procedure used in stem cell transplants. We then treat these cells with a lentiviral vector to insert the equivalent of a
functional copy of the gene that is defective in the target disease in a 48-hour process. We preserve patients’ modified cells at a very low temperature, using
cryopreservation to maintain the cellular material in optimal condition until it is thawed prior to being infused into the patient. The cryopreservation allows
us to conduct a number of tests to validate the modified cells prior to introducing them into the patient. We believe cryopreservation will also enable us to
supply our products globally, as well as significantly increase the convenience of
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infusion scheduling for clinicians and patients, compared to fresh ex vivo gene therapy products that may have shelf-lives of only 24 hours.
Prior to infusion of the gene therapy-modified cells into the patient, the patients undergo a conditioning regimen to remove some of the patient’s
unmodified cells from the bone marrow to create sufficient space for the modified hematopoietic stem cells to engraft and produce their progeny.
After the conditioning regimen is complete, the lentivirally-modified stem cells are infused into the patient by intravenous administration in an
outpatient setting. After infusion, these cells engraft into the bone marrow, replicate and differentiate into all the various types of blood cells that will
distribute throughout the body. These widely distributed cells lead to sustained expression of the desired therapeutic enzyme or other protein. The sustained
expression of the functional enzyme is a direct substitute for the protein currently delivered by ERTs, which require periodic infusions.
Intellectual Property and Other Barriers to Entry
The proprietary nature of, or protection for, our gene therapy technology, our product candidates, our production methods and supply chain are an
important part of our strategy to develop and commercialize novel therapies. To maximize the commercial opportunity for our gene therapies, if approved,
we and our partners have been building and continue to build barriers to entry by our competitors, including:
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We in-license and develop know-how, including data, relating to certain of our product candidates.
We rely on trade secret protection to protect aspects of our business that are not amenable to, or that we do not consider appropriate for, patent
protection.
Our management team has significant experience in cell processing and commercial-scale cellular therapy manufacturing. Leveraging this
experience, we are building our global network of suppliers and CMO partners which combines their expertise in vector manufacturing with a
closed, automated manufacturing system, all utilizing cGMP.
Our gene therapies are designed to potentially provide a curative benefit. If our gene therapies are approved before any other potentially
curative treatments, we believe the benefits of our approach and the resulting first mover advantage may provide meaningful disincentive for
companies seeking to develop potentially curative therapies that may compete with our own. See “—Competition.”
We are developing therapies to treat rare diseases and expect to pursue orphan-drug designation in the United States and similar protection
outside of the United States. To date, the FDA and the European Commission have each granted orphan drug designation to AVR-RD-01 for
the treatment of Fabry disease, AVR-RD-04 for the treatment of cystinosis, and AVR-RD-02 for the treatment of Gaucher disease type 1.
These and other regulatory exclusivities, if granted or applicable, can prevent competitors, during the exclusivity period, from obtaining
regulatory approval of the same drug or biological product for the same indication. See “—Government Regulation.”
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We currently in-license, and we expect to file our own, patents and patent applications relating to certain of our product candidates.
We have in-licensed patents and patent applications from BioMarin Pharmaceutical Inc., GenStem Therapeutics, Inc. and The University of
Manchester directed to compositions and methods related to the manufacture and use of certain of our gene therapies. In addition, we have in-licensed
certain intellectual property rights and know-how from the University Health Network and affiliates of Lund University. For example, we have in-licensed
know-how and data related to AVR-RD-01, including certain information about the vector and its use, from University Health Network, and we have in-
licensed know-how and data related to AVR-RD-02, including certain information about the vector and its use, from certain academic scientists affiliated
with Lund University. Each of our licenses are limited to particular fields, such as Fabry disease, Gaucher disease type 1, Pompe disease, cystinosis, or
Hunter syndrome, and are subject to certain retained rights. We do not control the prosecution and maintenance of all of our in-licensed patents and patent
applications, and our rights to enforce the patents are limited in certain ways. For additional detail regarding the risks associated with our license
agreements see “Risk Factors—Risks Related to Intellectual Property.”
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As of March 1, 2021, our in-licensed patent portfolio relating to certain of our gene therapies included the following:
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AVR-RD-03 (Pompe program): two U.S. patents, projected to expire in 2022 and 2023, and two U.S. patent applications, which if granted,
would be projected to expire in 2022 and 2029, as well as corresponding patents and patent applications in certain foreign jurisdictions, as
they pertain to compositions and methods for promoting lysosomal uptake of acid alpha-glucosidase and the treatment of Pompe disease.
These patents and patent applications are licensed to us by BioMarin and relate to the GILT tag.
AVR-RD-04 (cystinosis program): one U.S. patent application, which, if granted, would be projected to expire in 2038, as well as
corresponding patents and patent applications in certain foreign jurisdictions, containing claims directed to hematopoietic stem cells
expressing cystinosin and methods of using the same for the treatment of cystinosis. These patent applications are licensed to us by GenStem
Therapeutics, and GenStem obtained its rights from the University of California, San Diego.
AVR-RD-05 (Hunter program): one U.S. patent application, which, if granted, would be projected to expire in 2038, as well as corresponding
patents and patent applications in certain foreign jurisdictions, containing claims directed to gene therapy vectors encoding iduronate-2-
sulfatase and methods of using the same for the treatment of Hunter syndrome. These patent applications are licensed to us by the University
of Manchester.
The term of any given patent depends upon the legal term of 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 application, subject to the timely payment of maintenance fees, among other considerations. 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, or USPTO, in granting a patent, or may be shortened if a patent is terminally disclaimed over an earlier-filed commonly owned patent.
In addition, in certain instances, a patent term can be extended to recapture a portion of the term effectively lost as a result of FDA regulatory review
period. However, the restoration period cannot be longer than five years and the total patent term including the restoration period must not exceed 14 years
following FDA approval. In certain foreign jurisdictions similar extensions as compensation for regulatory delays are also available. The actual protection
afforded by a patent varies on a claim by claim and country by country basis for each applicable product and depends upon many factors, including the type
of patent, the scope of its coverage, the availability of regulatory related extensions, the availability of legal remedies in a particular country and the
validity and enforceability of the patent. Currently, we do not own or license patents or patent applications related to our AVR-RD-01, AVR-RD-02 or
AVR-RD-06 product candidates. We rely, in some circumstances, on trade secrets and unpatented know-how that is either owned by or licensed to us to
protect our technology. We seek to protect our proprietary technology and processes, in part, by entering into confidentiality agreements with our
employees, consultants, scientific advisors and contractors.
License Agreements
License Agreement with The University of Manchester
In September 2020, we entered into an agreement, or the MPSII License Agreement, with The University of Manchester, England, or UoM,
whereby UoM granted us an exclusive worldwide license under certain patent and other intellectual property rights, subject to certain retained rights, to
develop, commercialize and sell an ex vivo lentiviral gene therapy for use in the treatment of Hunter syndrome, or mucopolysaccharidosis type II. As
consideration for the MPSII License Agreement, we agreed to pay UoM an upfront, one-time fee of $8.0 million.
As part of the agreement, we are obligated to make milestone payments of up to an aggregate of $80.0 million upon the achievement of specified
development and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a mid-single digit percentage based on
net sales of products licensed under the agreement and to pay a low double-digit percentage of any sublicense fees received by us. The next anticipated
payment milestones under the MPSII License Agreement include $2.0 million, which would become due following the date of regulatory approval of the
clinical trial application for the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM, and $4.0 million, upon the dosing of the first patient in
the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM.
Unless terminated earlier, the agreement expires upon the later of 15 years from the effective date or the expiration of the last valid claim of the
licensed patents, subject to certain surviving rights and obligations. We and UoM can each terminate the agreement in the event of the bankruptcy or
insolvency of the other party, or a material breach by the other party and failure to cure such breach within a certain period of time. UoM has the right to
terminate the agreement in the event of certain actions relating to challenge or opposition to the licensed intellectual property brought us or its affiliates or
sublicensees.
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Concurrently with the MPSII License Agreement, we entered into a collaborative research funding agreement with UoM, or the CRFA. Under the
CRFA, we have agreed to fund the budgeted costs of an investigator-sponsored Phase 1/2 clinical trial to be sponsored by UoM in connection with the
development activities under the MPSII License Agreement, which are currently estimated to equal approximately £9.1 million in the aggregate.
Exclusive License Agreement with University Health Network
In November 2016, we entered into a license agreement with University Health Network, or UHN, pursuant to which UHN granted us an exclusive
worldwide license under certain intellectual property rights and a non-exclusive worldwide license under certain know-how, including certain rights to data,
in each case subject to certain retained rights, to develop, commercialize and sell products for use in the treatment of Fabry disease. Intellectual property
licensed to us under this agreement relates to our Fabry program. In addition, for three years following the execution of the agreement, UHN granted us an
exclusive option to obtain an exclusive license under certain improvements to the licensed intellectual property rights as well as an exclusive option to
negotiate a license under certain other improvements. Under the terms of the agreement, we are required to meet certain performance milestones within
specified timeframes. UHN may terminate the agreement if we fail to meet these performance milestones despite using commercially reasonable efforts
and we are unable to reach agreement with UHN on revised timeframes.
As consideration for the licenses, we paid to UHN a one-time upfront fee in the amount of C$75,000 and are obligated to pay an additional annual
fee until the first sale of a licensed product in certain markets. We are also required to make payments to UHN in connection with the achievement of
certain development and regulatory milestones, in an aggregate amount of C$2.45 million, as well as royalties on a country-by-country basis of a low to
mid-single digit percentages on annual sales of licensed products and a lower single digit royalty in certain circumstances. Additionally, we will pay a low
double-digit percentage of all sublicensing revenue. Our royalty obligation expires on a licensed product-by-licensed product and country-by-country basis
upon the latest to occur of the expiration or termination of the last valid claim under the licensed patent rights in such country (if and when any such patent
rights come into existence under the license agreement in the future), the tenth anniversary of the first commercial sale of such licensed product in such
country and the expiration of any applicable regulatory exclusivity in such country.
In addition, under this agreement we made a philanthropic commitment to donate funds to organizations for the benefit of the Canadian Fabry
community in an amount equal to a low double-digit percentage of our royalty payments and regulatory milestone payments, up to a maximum amount of
C$0.5 million in any calendar year.
Unless terminated earlier, this exclusive license agreement with UHN will expire upon the expiration of our royalty obligation for all licensed
products. Either we or UHN may terminate the license agreement if the other party commits a material breach and fails to cure such breach within a certain
period of time. UHN may terminate this agreement if we enter into bankruptcy or insolvency. We may terminate this agreement for any reason upon notice
to UHN.
License Agreement with Lund University Rights Holders
In January 2017, we entered into an exclusive license agreement with Prof. Stefan Karlsson and Dr. Maria Dahl, affiliates of Lund University,
pursuant to which Prof. Karlsson and Dr. Dahl, and certain other relevant rights holders that may have an interest in intellectual property generated under a
research project we are funding with Lund University, granted to us an exclusive worldwide license, subject to certain retained rights, under certain
intellectual property rights to develop, commercialize and sell products in any and all uses relevant to Gaucher disease. Intellectual property licensed to us
under this agreement relates to our Gaucher program.
As consideration for the license, we are required to make payments in connection with the achievement of certain milestones up to an aggregate of
$0.55 million.
Our license agreement with the rights holders expires on the latest of (i) the twentieth anniversary of the end of a certain research project we are
funding pursuant to an agreement with Lund University, (ii) the expiration of the term of any patent filed on the licensed rights that covers a licensed
product, (iii) the expiration of any applicable marketing exclusivity right and (iv) such time that neither we nor any of our sublicensees or partners or
contractors are commercializing a licensed product. Either we or the rights holders acting together may terminate the license agreement if the other such
party commits a material breach and fails to cure such breach within a certain period of time, or if the other party enters into liquidation, becomes insolvent,
or enters into composition or statutory reorganization proceedings.
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License Agreement with BioMarin Pharmaceutical Inc.
In August 2017, we entered into a license agreement with BioMarin Pharmaceutical Inc., or BioMarin, pursuant to which BioMarin granted us an
exclusive worldwide license under certain intellectual property rights related to GILT tags owned or controlled by BioMarin to develop, commercialize and
sell retroviridae-based gene therapy products for use in the treatment of Pompe disease. This agreement was amended in February 2018 and again in
January 2020 to, among things, provide that BioMarin would supply us with certain materials related to the GILT tags technology. Under the terms of the
agreement, we must use commercially reasonable efforts to develop and commercialize one or more licensed products in the United States and certain
European countries. In addition, we are required to initiate an IND-enabling pharmacology/toxicology study of a licensed product within a specified period
of time.
As consideration for the license, we paid an initial license fee in the amount of $0.5 million and issued 233,765 shares of our Series B preferred
stock to BioMarin at the time of our Series B financing. We are also obligated to make payments to BioMarin upon achievement of certain milestones up to
an aggregate of $13.0 million and pay to BioMarin a low single digit royalty percentage on net sales of licensed products covered by patent rights in a
relevant country. Our royalty obligation expires on a licensed product-by-licensed product and country-by-country basis upon the latest to occur of the
expiration or termination of the last valid claim under the licensed patent rights in such country, which is currently projected to occur in 2029, the tenth
anniversary of the first commercial sale of such licensed product in such country and the expiration of any applicable regulatory exclusivity in such
country.
Unless terminated earlier, our license agreement with BioMarin will expire upon the expiration of our royalty obligation for all licensed products
throughout the world. Either we or BioMarin may terminate the license agreement if the other party commits a material breach and fails to cure such breach
within a certain period of time. BioMarin may also terminate the agreement in the event of any challenge or opposition to the licensed patent rights or
related actions brought by us or our affiliates or sublicensees, or if we, our affiliates or sublicensees knowingly assist a third party in challenging or
otherwise opposing the licensed patent rights, except as required under a court order or subpoena. In addition, BioMarin may terminate the agreement upon
our bankruptcy or insolvency. We may terminate the agreement for any reason upon notice to BioMarin.
License Agreement with GenStem Therapeutics, Inc.
In October 2017, we entered into a license agreement with GenStem Therapeutics, Inc., or GenStem, pursuant to which GenStem granted us an
exclusive worldwide license, subject to certain retained rights, under certain intellectual property rights owned or controlled by GenStem related to our
cystinosis program, including certain rights licensed to GenStem from the University of California, San Diego, to develop, commercialize and sell products
for use in the treatment of cystinosis. Under the terms of the agreement, we must use commercially reasonable efforts to develop and commercialize one or
more licensed products in the United States and in at least one country from other specified markets. We also agreed to comply with certain access
requirements consistent with the California Institute for Regenerative Medicine regulations and to manufacture certain licensed products substantially in the
United States.
As consideration for the license, we paid an initial license fee in the amount of $1.0 million and are required to make payments upon completion of
certain development milestones up to an aggregate of $16.0 million. For example, in November 2019 we made a $2.0 million payment in connection with
the dosing of the first patient in the investigator-sponsored Phase 1/2 clinical trial of AVR-RD-04 in cystinosis in the United States. Additionally, we will
pay to GenStem a tiered mid to high-single digit royalty percentage on annual net sales of licensed products as well as a low double-digit percentage of
sublicense income received from certain third party sublicensees. Our royalty obligation expires on a licensed product-by-licensed product and country-by-
country basis on the eleventh anniversary of the first commercial sale of such licensed product in such country or the expiration of the last valid claim
under the licensed patent rights covering such licensed product in such country, which is currently projected to occur in 2038, whichever is later.
Unless terminated earlier, our license agreement with GenStem will terminate upon the expiration of our royalty obligation for all licensed products
throughout the world. Either we or GenStem may terminate the license agreement if the other party commits a material breach and fails to cure such breach
within a certain period of time. In addition, we may terminate the agreement for any reason upon notice to GenStem.
Competition
Our industry is highly competitive and subject to rapid and significant technological change. Our potential competitors include larger
pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as academic institutions,
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government agencies and private and public research institutions. Key competitive factors affecting the commercial success of our gene therapies are likely
to be efficacy, safety and tolerability profile, reliability, convenience, price and reimbursement.
The market for treatment of lysosomal disorders is especially large and competitive. The gene therapies we are currently developing, if approved,
will face competition.
Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a small
number of our competitors. Accordingly, our competitors may be more successful than we may be in obtaining FDA approval for drugs and achieving
widespread market acceptance. Our competitors’ products may be more effective, or more effectively marketed and sold, than any product we may
commercialize and may render our gene therapies obsolete or non-competitive before we can recover the expenses of developing and commercializing any
of our gene therapies. Our competitors may also obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for
ours. We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available.
Finally, the development of new treatment methods for the diseases we are targeting could render our gene therapies non-competitive or obsolete. See
“Risk Factors—Risks related to the discovery and development of our product candidates—We face significant competition and our competitors may
achieve regulatory approval before us or develop therapies that are more advanced or effective than ours, which may adversely affect our ability to
successfully market or commercialize any of our product candidates,” and elsewhere in this Annual Report on Form 10-K for more information regarding
competitors and competitive products.
Government Regulation
In the United States, biological products, including gene therapy products, are subject to regulation under the Federal Food, Drug, and Cosmetic
Act, or FD&C Act, and the Public Health Service Act, or PHS Act, and other federal, state, local and foreign statutes and regulations. Both the FD&C Act
and the PHS Act and their corresponding regulations govern, among other things, the testing, manufacturing, safety, efficacy, labeling, packaging, storage,
record keeping, distribution, reporting, advertising and other promotional practices involving biological products. Each clinical study protocol for a gene
therapy product must be reviewed by the FDA and, in some instances, the National Institute of Health, or NIH, through its Recombinant DNA Advisory
Committee, or RAC. FDA approval must be obtained before the marketing of biological products. The process of obtaining regulatory approvals and the
subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial
resources and we may not be able to obtain the required regulatory approvals.
Within the FDA, the Center for Biologics Evaluation and Research, or CBER, regulates gene therapy products. The CBER works closely with the
NIH and its RAC, which makes recommendations to the NIH on gene therapy issues and engages in a public discussion of scientific, safety, ethical and
societal issues related to proposed and ongoing gene therapy protocols. The FDA and the NIH have published guidance documents with respect to the
development and submission of gene therapy protocols. The FDA also has published guidance documents related to, among other things, gene therapy
products in general, their preclinical assessment, observing subjects involved in gene therapy studies for delayed adverse events, potency testing, and
chemistry, manufacturing and control information in INDs for gene therapies.
Ethical, social and legal concerns about gene therapy, genetic testing and genetic research could result in additional regulations restricting or
prohibiting the processes we may use. Federal and state agencies, congressional committees and foreign governments have expressed interest in further
regulating biotechnology. More restrictive regulations or claims that our products are unsafe or pose a hazard could prevent us from commercializing any
products. New government requirements may be established that could delay or prevent regulatory approval of our product candidates under development.
It is impossible to predict whether legislative changes will be enacted, regulations, policies or guidance changed, or interpretations by agencies or courts
changed, or what the impact of such changes, if any, may be.
U.S. Biological Products Development Process
The process required by the FDA before a biological product may be marketed in the United States generally involves the following:
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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;
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submission to the FDA of an application for an IND, which must become effective before human clinical studies may begin;
approval by an independent institutional review board, or IRB, or ethics committee at each clinical study site before each study may be
initiated;
performance of adequate and well-controlled human clinical studies 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 biological product for its intended use;
submission to the FDA of a Biologics License Application, or BLA, for marketing approval that includes substantive evidence of safety,
purity, and potency from results of nonclinical testing and clinical studies;
satisfactory completion of an FDA inspection of the manufacturing facility or facilities where the biological product is produced to assess
compliance with CGMPs, to assure that the facilities, methods and controls are adequate to preserve the biological product’s identity, strength,
quality and purity and, if applicable, the FDA’s current good tissue practices, or GTPs, for the use of human cellular and tissue products;
potential FDA audit of the nonclinical and clinical study sites that generated the data in support of the BLA;
payment of user fees for FDA review of the BLA (unless a fee waiver applies); and
FDA review and approval, or licensure, of the BLA.
Before testing any biological product candidate, including a gene therapy product, in humans, the product 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 product candidate. The conduct of the preclinical tests must comply with federal regulations
and requirements including GLPs.
The clinical study 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. An IND is a request for authorization from the FDA to ship an unapproved, investigational product in interstate commerce and to administer it
to humans, and must become effective before clinical trials may begin. The IND automatically becomes effective 30 days after receipt by the FDA, unless
the FDA places the clinical study 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 study can begin. In addition to the submission of an IND to the FDA before initiation of a clinical trial in the
United States, certain human clinical trials involving recombinant or synthetic nucleic acid molecules had historically been subject to review by the
Recombinant DNA Advisory Committee, or RAC, of the National Institutes of Health, or NIH, Office of Biotechnology Activities, or the OBA, pursuant to
the NIH Guidelines for Research Involving Recombinant DNA Molecules, or NIH Guidelines. On August 17, 2018, the NIH issued a notice in the Federal
Register and issued a public statement proposing changes to the oversight framework for gene therapy trials, including changes to the applicable NIH
Guidelines to modify the roles and responsibilities of the RAC with respect to human clinical trials of gene therapy products, and requesting public
comment on its proposed modifications. During the public comment period, which closed October 16, 2018, the NIH announced that it will no longer
accept new human gene transfer protocols for review as a part of the protocol registration process or convene the RAC to review individual clinical
protocols. In April 2019, NIH announced the updated guidelines, which reflect these proposed changes, and clarified that these trials will remain subject to
the FDA’s oversight and other clinical trial regulations, and oversight at the local level will continue as set forth in the NIH Guidelines. Specifically, under
the NIH Guidelines, supervision of human gene transfer trials includes evaluation and assessment by an institutional biosafety committee, or IBC, a local
institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid molecules at that institution. The FDA also may
impose clinical holds on a biological product candidate at any time before or during clinical studies due to safety concerns or non-compliance. If the FDA
imposes a clinical hold, studies 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 studies to begin, or that, once begun, issues will not arise that suspend or
terminate such studies.
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Clinical studies 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 study sponsor’s control. Clinical studies are conducted under protocols detailing, among
other things, the objectives of the clinical study, dosing procedures, subject selection and exclusion criteria, and the parameters to be used to monitor
subject safety, including stopping rules that assure a clinical study 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 studies must be conducted and monitored in accordance with the
FDA’s regulations comprising the GCP requirements, including the requirement that all research subjects provide informed consent. Further, each clinical
study must be reviewed and approved by an Institutional Review Board, or IRB, at or servicing each institution at which the clinical study will be
conducted. An IRB is charged with protecting the welfare and rights of study participants and considers such items as whether the risks to individuals
participating in the clinical studies 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 study subject or his or her legal representative and must monitor the clinical study until completed.
Clinical research involving recombinant DNA that is subject to NIH guidelines also must be reviewed by an institutional biosafety committee, or IBC, a
local institutional committee that reviews and oversees basic and clinical research conducted at that institution. The IBC assesses the safety of the research
and identifies any potential risk to public health or the environment.
Clinical studies typically are conducted in three sequential phases that may overlap or be combined:
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Phase 1. The biological product is initially introduced into healthy human subjects 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.
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 studies are undertaken to further evaluate dosage, clinical efficacy, potency, and safety in an expanded patient population at
geographically dispersed clinical study sites. These clinical studies are intended to establish the overall risk/benefit ratio of the product and
provide an adequate basis for approval and product labeling.
Post-approval clinical studies, sometimes referred to as Phase 4 clinical studies, may be conducted after initial marketing approval. These clinical
studies are used to gain additional experience from the treatment of patients in the intended therapeutic indication, particularly for long-term safety follow-
up. The FDA recommends that sponsors observe subjects for potential gene therapy-related delayed adverse events for a 15-year period, including a
minimum of five years of annual examinations followed by ten years of annual queries, either in person or by questionnaire, of study subjects.
During all phases of clinical development, regulatory agencies require extensive monitoring and auditing of all clinical activities, clinical data, and
clinical study investigators. Annual progress reports detailing the results of the clinical studies must be submitted to the FDA. Written IND safety reports
must be promptly submitted to the FDA, the NIH 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 studies may not be
completed successfully within any specified period, if at all. The FDA or the sponsor, acting on its own or based on a recommendation from the sponsor’s
data safety monitoring board may suspend a clinical study at any time on various grounds, including a finding that the research subjects or patients are
being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a clinical study at its institution if the clinical study is
not being conducted in accordance with the IRB’s requirements or if the biological product has been associated with unexpected serious harm to patients.
Human gene therapy products are a new category of therapeutics. Because this is a relatively new and expanding area of novel therapeutic
interventions, there can be no assurance as to the length of the study period, the number of patients the FDA will require to be enrolled in the studies in
order to establish the safety, efficacy, purity and potency of human gene therapy products, or that the data generated in these studies will be acceptable to
the FDA to support marketing approval. The NIH has a publicly accessible database, the Genetic Modification Clinical Research Information System
which includes information on gene transfer studies and serves as an electronic tool to facilitate the reporting and analysis of adverse events on these
studies.
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Concurrent with clinical studies, companies usually complete additional animal studies and also must 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 PHS Act 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 things, 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 studies 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 studies, information on the manufacture
and composition of the product, proposed labeling and other relevant information. 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.
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. In most cases, the submission of a BLA is subject to a substantial application user fee, although the fee may be
waived under certain circumstances. Under the goals and policies agreed to by the FDA under the Prescription Drug User Fee Act, or PDUFA, for original
BLAs, the FDA has ten months from the filing date in which to complete its initial review of a standard application and respond to the applicant, and six
months from the filing date for an application with priority review. The FDA does not always meet its PDUFA goal dates, and the review process is often
significantly extended by FDA requests for additional information or clarification. This review typically takes twelve months from the date the BLA is
submitted to the FDA because the FDA has approximately two months to make a ‘‘filing’’ decision. The review process and the PDUFA goal date may be
extended by three months if the FDA requests or the BLA sponsor otherwise provides additional information or clarification regarding information already
provided in the submission within the last three months before the PDUFA goal date.
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 and potent, 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 the BLA without a REMS, if required.
Before approving a BLA, the FDA typically 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. For a gene therapy product, the FDA also will not approve the product if the manufacturer is not in
compliance with GTPs. These are FDA regulations that govern the methods used in, and the facilities and controls used for, the manufacture of human
cells, tissues, and cellular and tissue-based products, or HCT/Ps, which are human cells or tissue intended for implantation, transplant, infusion, or transfer
into a human recipient. The primary intent of the GTP requirements is to ensure that cell and tissue-based products are manufactured in a manner designed
to prevent the introduction, transmission and spread of communicable disease. FDA regulations also require tissue establishments to register and list their
HCT/Ps with the FDA and, when applicable, to evaluate donors through screening and testing. Additionally, before approving a BLA, the FDA will
typically inspect one or more clinical sites to assure that the clinical studies were conducted in compliance with IND study requirements and GCP
requirements. To assure CGMP, GTP 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.
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Under the Pediatric Research Equity Act, or PREA, a BLA or supplement to a BLA for a novel product (e.g., new active ingredient, new indication,
etc.) must contain data to assess the safety and effectiveness of the biological 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. Unless otherwise required by regulation, PREA does not apply to any biological product for an indication for
which orphan designation has been granted.
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 studies 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 usually
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 studies. 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 REMS, or otherwise limit the scope of any approval. In addition, the FDA may require post marketing clinical studies, sometimes referred to as
Phase 4 clinical studies, 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.
Orphan Drug Designation
Under the Orphan Drug Act, the FDA may grant orphan designation to a drug or biological product intended to treat a rare disease or condition,
which is generally a disease or condition that affects fewer than 200,000 individuals in the United States, or more than 200,000 individuals in the United
States and for which there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States
for this type of disease or condition will be recovered from sales of the product. Orphan product designation must be requested before submitting a BLA.
After the FDA grants orphan product designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA.
Orphan product designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
Orphan drug designation entitles a party to financial incentives such as opportunities for grant funding towards clinical trial costs, tax advantages
and user-fee waivers. If a product that has orphan designation subsequently receives the first FDA approval for the disease or condition for which it has
such designation, the product is entitled to orphan product exclusivity, which means that the FDA may not approve any other applications to market the
same drug or biological product for the same indication for seven years, except in limited circumstances, such as a showing of clinical superiority to the
product with orphan exclusivity. Competitors, however, may receive approval of different products for the indication for which the orphan product has
exclusivity or obtain approval for the same product but for a different indication for which the orphan product has exclusivity. Orphan product exclusivity
also could block the approval of one of our products for seven years if a competitor obtains approval of the same biological product as defined by the FDA
or if our product candidate is determined to be contained within the competitor’s product for the same indication or disease. If a drug or biological product
designated as an orphan product receives marketing approval for an indication broader than what is designated, it may not be entitled to orphan product
exclusivity. Orphan drug status in the European Union has similar, but not identical, benefits.
Expedited Development and Review Programs
The FDA has various programs, including Fast Track designation, breakthrough therapy designation, accelerated approval and priority review, that
are intended to expedite or simplify the process for the development and FDA review of drugs and biologics that are intended for the treatment of serious or
life-threatening diseases or conditions. These programs do not change the standards for approval but may expedite the development or approval process. To
be eligible for fast track designation, new drugs and biological products must be 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. The sponsor of a new drug or biologic
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may request the FDA to designate the drug or biologic as a Fast Track product at any time during the clinical development of the product. One benefit of
fast track designation, for example, is that the FDA may consider for review sections of the marketing application for a product that has received Fast Track
designation on a rolling basis before the complete application is submitted.
Under the breakthrough therapy program, products intended to treat a serious or life-threatening disease or condition may be eligible for the benefits
of the Fast Track program when preliminary clinical evidence demonstrates that such product may have substantial improvement on one or more clinically
significant endpoints over existing therapies. Additionally, FDA will seek to ensure the sponsor of a breakthrough therapy product receives timely advice
and interactive communications to help the sponsor design and conduct a development program as efficiently as possible.
Any product is eligible for priority review if it has the potential to provide safe and effective therapy where no satisfactory alternative therapy exists
or a significant improvement in the treatment, diagnosis or prevention of a disease compared to marketed products. The FDA will attempt to direct
additional resources to the evaluation of an application for a new drug or biological product designated for priority review in an effort to facilitate the
review. Under priority review, the FDA’s goal is to review an application in six months, compared to ten months for a standard review.
Additionally, a product may be eligible for accelerated approval. Drug or biological products studied for their safety and effectiveness in treating
serious or life-threatening illnesses and that provide meaningful therapeutic benefit over existing treatments may receive accelerated approval, which
means that they may be approved on the basis of adequate and well-controlled clinical studies establishing that the product has an effect on a surrogate
endpoint that is reasonably likely to predict a clinical benefit, or on the basis of an effect on a clinical endpoint other than survival or irreversible morbidity.
As a condition of approval, the FDA may require that a sponsor of a drug or biological product receiving accelerated approval perform adequate and well-
controlled post-marketing clinical studies. In addition, the FDA currently requires as a condition for accelerated approval pre-approval of promotional
materials, which could adversely impact the timing of the commercial launch of the product.
Regenerative Medicine Advanced Therapies Designation
As part of the 21st Century Cures Act, enacted in December 2016, Congress amended the FD&C Act to facilitate an efficient development program
for, and expedite review of regenerative medicine advanced therapies, which include cell and gene therapies, therapeutic tissue engineering products,
human cell and tissue products, and combination products using any such therapies or products. Regenerative medicine advanced therapies do not include
those human cells, tissues, and cellular and tissue based products regulated solely under section 361 of the Public Health Service Act and 21 CFR Part
1271. This program is intended to facilitate efficient development and expedite review of regenerative medicine therapies, which are intended to treat,
modify, reverse, or cure a serious or life-threatening disease or condition and qualify for RMAT designation. A drug sponsor may request that the FDA
designate a drug as a RMAT concurrently with or at any time after submission of an IND. The FDA has 60 calendar days to determine whether the drug
meets the criteria, including whether there is preliminary clinical evidence indicating that the drug has the potential to address unmet medical needs for a
serious or life-threatening disease or condition. A BLA for a regenerative medicine therapy that has received RMAT designation may be eligible for priority
review or accelerated approval through use of surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit, or reliance upon
data obtained from a meaningful number of sites. Benefits of RMAT designation also include early interactions with the FDA to discuss any potential
surrogate or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy with RMAT designation that is granted
accelerated approval and is subject to post-approval requirements may fulfill such requirements through the submission of clinical evidence from clinical
studies, patient registries, or other sources of real world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-
approval monitoring of all patients treated with such therapy prior to its approval. Like the FDA’s other expedited development programs, RMAT
designation does not change the standards for approval but may expedite the development or approval process.
Post-Approval Requirements
Maintaining substantial compliance with applicable federal, state, and local statutes and regulations requires the expenditure of substantial time and
financial resources. Rigorous and extensive FDA regulation of biological products continues after approval, particularly with respect to CGMP. We will
rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of any products that we may commercialize.
Manufacturers of our products are required to comply with applicable requirements in the CGMP regulations, including quality control and quality
assurance and maintenance of records and documentation. Other post-approval requirements applicable to biological
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products, include reporting of CGMP deviations that may affect the identity, potency, purity and overall safety of a distributed product, record-keeping
requirements, reporting of adverse effects, reporting updated safety and efficacy information, and complying with electronic record and signature
requirements. After a BLA is approved, the product also may be subject to official lot release. As part of the manufacturing process, the manufacturer is
required to perform certain tests on each lot of the product before it is released for distribution. If the product is subject to official release by the FDA, the
manufacturer submits samples of each lot of product to the FDA together with a release protocol showing a summary of the history of manufacture of the
lot and the results of all of the manufacturer’s tests performed on the lot. The FDA also may perform certain confirmatory tests on lots of some products,
such as viral vaccines, before releasing the lots for distribution by the manufacturer. In addition, the FDA conducts laboratory research related to the
regulatory standards on the safety, purity, potency, and effectiveness of biological products.
We also must comply with the FDA’s advertising and promotion requirements, such as those related to direct-to-consumer advertising, the
prohibition on promoting products for uses or in patient populations that are not described in the product’s approved labeling (known as “off-label use”),
industry-sponsored scientific and educational activities, and promotional activities involving the internet. Discovery of previously unknown problems or
the failure to comply with the applicable regulatory requirements may result in restrictions on the marketing of a product or withdrawal of the product from
the market as well as possible civil or criminal sanctions. 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 or manufacturer to administrative or judicial civil or criminal sanctions
and adverse publicity. FDA sanctions could include refusal to approve pending applications, withdrawal of an approval, clinical holds, warning or untitled
letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts,
mandated corrective advertising or communications with doctors or other stakeholders, debarment, restitution, disgorgement of profits, or civil or criminal
penalties. Any agency or judicial enforcement action could have a material adverse effect on us.
Biological product manufacturers and other entities involved in the manufacture and distribution of approved biological products are 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 CGMPs 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 withdrawal of the product from the market. In addition, changes to the manufacturing process or
facility generally require prior FDA approval before being implemented and other types of changes to the approved product, such as adding new
indications and additional labeling claims, are also subject to further FDA review and approval.
U.S. Patent Term Restoration and Marketing Exclusivity
Depending upon the timing, duration and specifics of the FDA approval of the use of our product candidates, some of our U.S. patents may be
eligible for limited patent term extension under the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-
Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years as compensation for patent term lost during
product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total
of 14 years from the product’s approval date. The patent term restoration period is generally one-half the time between the effective date of an IND and the
submission date of a BLA plus the time between the submission date of a BLA and the approval of that application. Only one patent applicable to an
approved biological product is eligible for the extension and the application for the extension must be submitted prior to the expiration of the patent. In
addition, a patent can only be extended once and only for a single product. The U.S. PTO, in consultation with the FDA, reviews and approves the
application for any patent term extension or restoration. In the future, we may intend to apply for restoration of patent term for one of our patents, if and as
applicable, to add patent life beyond its current expiration date, depending on the expected length of the clinical studies and other factors involved in the
filing of the relevant BLA.
A biological product can obtain pediatric market exclusivity in the United States. Pediatric exclusivity, if granted, adds six months to existing
exclusivity periods, including some regulatory exclusivity periods tied to patent terms. This six-month exclusivity, which runs from the end of other
exclusivity protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an FDA-issued “Written
Request” for such a study.
The ACA, signed into law on March 23, 2010, includes a subtitle called the Biologics Price Competition and Innovation Act of 2009 which created
an abbreviated approval pathway for biological products shown to be similar to, or interchangeable with, an FDA-licensed reference biological product.
This amendment to the PHS Act attempts to minimize
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duplicative testing. Biosimilarity, which requires that there be no clinically meaningful differences between the biological product and the reference product
in terms of safety, purity, and potency, can be shown through analytical studies, animal studies, and a clinical study or studies. Interchangeability requires
that a product is biosimilar to the reference product and the product must demonstrate that it can be expected to produce the same clinical results as the
reference product and, for products administered multiple times, the biologic and the reference biologic may be switched after one has been previously
administered without increasing safety risks or risks of diminished efficacy relative to exclusive use of the reference biologic. However, complexities
associated with the larger, and often more complex, structure of biological products, as well as the process by which such products are manufactured, pose
significant hurdles to implementation that are still being worked out by the FDA.
A reference biological product is granted four and 12 year exclusivity periods from the time of first licensure of the product. FDA will not accept an
application for a biosimilar or interchangeable product based on the reference biological product until four years after the date of first licensure of the
reference product, and FDA will not approve an application for a biosimilar or interchangeable product based on the reference biological product until
twelve years after the date of first licensure of the reference product. “First licensure” typically means the initial date the particular product at issue was
licensed in the United States. Date of first licensure does not include the date of licensure of (and a new period of exclusivity is not available for) a
biological product if the licensure is for a supplement for the biological product or for a subsequent application by the same sponsor or manufacturer of the
biological product (or licensor, predecessor in interest, or other related entity) for a change (not including a modification to the structure of the biological
product) that results in a new indication, route of administration, dosing schedule, dosage form, delivery system, delivery device or strength, or for a
modification to the structure of the biological product that does not result in a change in safety, purity, or potency. Therefore, one must determine whether a
new product includes a modification to the structure of a previously licensed product that results in a change in safety, purity, or potency to assess whether
the licensure of the new product is a first licensure that triggers its own period of exclusivity. Whether a subsequent application, if approved, warrants
exclusivity as the “first licensure” of a biological product is determined on a case-by-case basis with data submitted by the sponsor.
Additional Regulation
In addition to the foregoing, state and federal laws regarding environmental protection and hazardous substances, including the Occupational Safety
and Health Act, the Resource Conservancy and Recovery Act and the Toxic Substances Control Act, affect our business. These and other laws govern our
use, handling and disposal of various biological, chemical and radioactive substances used in, and wastes generated by, our operations. If our operations
result in contamination of the environment or expose individuals to hazardous substances, we could be liable for damages and governmental fines. We
believe that we are in material compliance with applicable environmental laws and that continued compliance therewith will not have a material adverse
effect on our business. We cannot predict, however, how changes in these laws may affect our future operations.
U.S. Foreign Corrupt Practices Act
The U.S. Foreign Corrupt Practices Act, to which we are subject, prohibits corporations and individuals from engaging in certain activities to obtain
or retain business or to influence a person working in an official capacity. It is illegal to pay, offer to pay or authorize the payment of anything of value to
any foreign government official, government staff member, political party or political candidate in an attempt to obtain or retain business or to otherwise
influence a person working in an official capacity.
Government Regulation outside of the United States
In addition to regulations in the United States, we will be subject to a variety of regulations in other jurisdictions governing, among other things,
clinical studies and any commercial sales and distribution of our products. Because biologically sourced raw materials are subject to unique contamination
risks, their use may be restricted in some countries.
Whether or not we obtain FDA approval for a product, we must obtain the requisite approvals from regulatory authorities in foreign countries prior
to the commencement of clinical studies or marketing of the product in those countries. Certain countries outside of the United States have a similar
process that requires the submission of a clinical study application much like the IND prior to the commencement of human clinical studies. In the
European Union, for example, a Clinical Trial Application, or CTA, must be submitted for each clinical trial to each country’s national health authority and
an independent ethics committee, much like the FDA and an IRB, respectively. Once the CTA is approved in accordance with a country’s requirements, the
corresponding clinical study may proceed.
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The requirements and process governing the conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country.
In all cases, the clinical studies must be conducted in accordance with GCP and the applicable regulatory requirements and the ethical principles that have
their origin in the Declaration of Helsinki.
To obtain regulatory approval of an investigational product under European Union regulatory systems, we must submit a marketing authorization
application. The application used to file the BLA in the United States is similar to that required in the European Union, with the exception of, among other
things, region-specific document requirements. The European Union also provides opportunities for market exclusivity. For example, in the European
Union, upon receiving marketing authorization, innovative medicinal products generally receive eight years of data exclusivity and an additional two years
of market exclusivity. If granted, data exclusivity prevents regulatory authorities in the European Union from referencing the innovator’s data to assess a
generic or biosimilar application. During the additional two-year period of market exclusivity, a generic or biosimilar marketing authorization can be
submitted, and the innovator’s data may be referenced, but no generic or biosimilar product can be marketed until the expiration of the market exclusivity.
However, there is no guarantee that a product will be considered by the European Union’s regulatory authorities to be an innovative medicinal product, and
products may not qualify for data exclusivity. Products receiving orphan designation in the European Union can receive ten years of market exclusivity,
during which time no similar medicinal product for the same indication may be placed on the market. An orphan product can also obtain an additional two
years of market exclusivity in the European Union for pediatric studies. No extension to any supplementary protection certificate can be granted on the
basis of pediatric studies for orphan indications.
The criteria for designating an “orphan medicinal product” in the European Union are similar in principle to those in the United States. Under
Article 3 of Regulation (EC) 141/2000, a medicinal product may be designated as orphan if (1) it is intended for the diagnosis, prevention or treatment of a
life-threatening or chronically debilitating condition; (2) either (a) such condition affects no more than five in 10,000 persons in the European Union when
the application is made, or (b) the product, without the benefits derived from orphan status, would not generate sufficient return in the European Union to
justify investment; and (3) there exists no satisfactory method of diagnosis, prevention or treatment of such condition authorized for marketing in the
European Union, or if such a method exists, the product will be of significant benefit to those affected by the condition, as defined in Regulation (EC)
847/2000. Orphan medicinal products are eligible for financial incentives such as reduction of fees or fee waivers and are, upon grant of a marketing
authorization, entitled to ten years of market exclusivity for the approved therapeutic indication. The application for orphan drug designation must be
submitted before the application for marketing authorization. The applicant will receive a fee reduction for the marketing authorization application if the
orphan drug designation has been granted, but not if the designation is still pending at the time the marketing authorization is submitted. Orphan drug
designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The 10-year market exclusivity may be reduced to six years if, at the end of the fifth year, it is established that the product no longer meets the
criteria for orphan designation, for example, if the product is sufficiently profitable not to justify maintenance of market exclusivity. Additionally,
marketing authorization may be granted to a similar product for the same indication at any time if:
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The second applicant can establish that its product, although similar, is safer, more effective or otherwise clinically superior;
The applicant consents to a second orphan medicinal product application; or
The applicant cannot supply enough orphan medicinal product.
For other countries outside of the European Union, such as countries in Eastern Europe, Latin America or Asia, the requirements governing the
conduct of clinical studies, product licensing, pricing and reimbursement vary from country to country. In all cases, again, the clinical studies must be
conducted in accordance with GCPs and the applicable regulatory requirements and the ethical principles that have their origin in the Declaration of
Helsinki.
If we fail to comply with applicable foreign regulatory requirements, we may be subject to, among other things, fines, suspension or withdrawal of
regulatory approvals, product recalls, seizure of products, operating restrictions and criminal prosecution.
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Other Healthcare Laws and Compliance Requirements
In addition to FDA restrictions on the marketing of pharmaceutical products, we may be subject to various federal and state laws targeting fraud and
abuse in the healthcare industry. These laws may impact, among other things, our business or financial arrangements and relationships through which we
market, sell and distribute the gene therapies for which we obtain approval. In addition, we may be subject to patient privacy regulation by both the federal
government and the states in which we conduct our business. The laws that may affect our ability to operate include:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any
remuneration (including any kickback, bribe, or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,
either the referral of an individual, 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 a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be
found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, 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 False
Claims Act, or FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the
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. On December 2, 2020, HHS published a regulation removing safe harbor
protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit
managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-
sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to an order
entered by the U.S. District Court for the District of Columbia, the portion of the rule eliminating safe harbor protection for certain rebates
related to the sale or purchase of a pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D has been delayed to
January 1, 2023. Further, implementation of this change and new safe harbors for point-of-sale reductions in price for prescription
pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be
amended or repealed;
federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by
Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or
knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be
held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of
false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal
government alleging violations of the FCA and to share in any monetary recovery;
the anti-inducement law, which prohibits, among other things, the offering or giving of remuneration, which includes, without limitation, any
transfer of items or services for free or for less than fair market value (with limited exceptions), 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 Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit
knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by means of false
or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any
healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering up
by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for, healthcare
benefits, items or services relating to healthcare matters; 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;
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HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009, and their respective implementing
regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their
respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information,
relating to the privacy, security and transmission of individually identifiable health information;
the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act,
which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or
the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services information related to
payments or other transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and teaching hospitals,
as well as ownership and investment interests held by the physicians described above and their immediate family members.
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to
government programs; and
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers.
Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be
broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which
apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors, including private insurers. In addition,
some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program
Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare
Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the
state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement
we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information, many of which differ
from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available, it is possible that some of our
business activities could be subject to challenge under one or more of such laws.
Violations of fraud and abuse laws may be punishable by criminal and/or civil sanctions, including penalties, fines, imprisonment and/or exclusion
or suspension from federal and state healthcare programs such as Medicare and Medicaid and debarment from contracting with the U.S. government. In
addition, private individuals have the ability to bring actions on behalf of the U.S. government under the federal False Claims Act as well as under the false
claims laws of several states.
Law enforcement authorities are increasingly focused on enforcing fraud and abuse laws, and it is possible that some of our practices may be
challenged under these laws. Efforts to ensure that our current and future business arrangements with third parties, and our business generally, will comply
with applicable healthcare laws and regulations will involve substantial costs. It is possible that governmental authorities will conclude that our business
practices, including our arrangements with physicians and other healthcare providers, some of whom receive stock options as compensation for services
provided, may not comply with current or future statutes, regulations, agency guidance or case law involving applicable fraud and abuse or other healthcare
laws and 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, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary
fines, imprisonment, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, 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. In addition, the approval and commercialization of any of our gene therapies outside the United States will also likely subject us
to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
If any of the physicians or other healthcare providers or entities with whom we expect to do business are 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,
which may also adversely affect our business.
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Regulators globally are also imposing greater monetary fines for privacy violations. For example, in 2016, the European Union adopted a new
regulation governing data practices and privacy called the General Data Protection Regulation, or GDPR, which became effective on May 25, 2018. Non-
compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is higher. Notably, on
January 21, 2019, Google was fined almost $57 million by French regulators for violating GDPR.
European Data Collection
The collection and use of personal health data in the European Union is governed by the provisions of the Data Protection Directive, and as of
May 25, 2018 the GDPR. The GDPR applies to any company established in the European Union as well as to those outside the European Union if they
collect and use personal data in connection with the offering of goods or services to individuals in the European Union or the monitoring of their behavior.
The GDPR enhances data protection obligations for processors and controllers of personal data, including, for example, expanded disclosures about how
personal information is to be used, limitations on retention of information, mandatory data breach notification requirements and onerous new obligations on
services providers. Non-compliance with the GDPR may result in monetary penalties of up to €20 million or 4% of worldwide revenue, whichever is
higher. The GDPR and other changes in laws or regulations associated with the enhanced protection of certain types of personal data, such as healthcare
data or other sensitive information, could greatly increase our cost of providing our products and services or even prevent us from offering certain services
in jurisdictions that we may operate in.
Healthcare Reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medical products. For example, in March 2010, the ACA
was enacted, which, among other things, increased the minimum Medicaid rebates owed by most manufacturers under the Medicaid Drug Rebate Program;
introduced 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; extended the Medicaid Drug Rebate Program to utilization of prescriptions of individuals enrolled in
Medicaid managed care plans; created a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 70% (as of
2019) point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for
manufacturers’ outpatient drugs coverage under Medicare Part D; subjects drug manufacturers to new annual fees based on pharmaceutical companies’
share of sales to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to oversee, identify priorities in and conduct
comparative clinical effectiveness research, along with funding for such research; and established the Center for Medicare Innovation at Centers for
Medicare & Medicaid Services, or CMS, to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we
expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and
constitutional challenges in the United States Supreme Court and members of Congress have introduced several pieces of legislation aimed at significantly
revising or repealing the ACA. The United States Supreme Court is expected to rule on a legal challenge to the constitutionality of the ACA in early 2021.
The implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the
Medicare program, and may also increase our regulatory burdens and operating costs. Litigation and legislation related to the ACA are likely to continue,
with unpredictable and uncertain results. In addition, the Budget Control Act of 2011 and the Bipartisan Budget Act of 2015 led to aggregate reductions of
Medicare payments to providers of up to 2% per fiscal year that will remain in effect through 2030 unless additional Congressional action is taken.
Pursuant to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, as well as subsequent legislation, these reductions
have been suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend this
suspension until the end of the pandemic. Further, on January 2, 2013, the American Taxpayer Relief Act was signed into law, which, among other things,
reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment centers, and increased the statute of
limitations period for the government to recover overpayments to providers from three to five years. More recently, there has been heightened
governmental scrutiny over the manner in which manufacturers set prices for their marketed products, which have resulted in several recent Congressional
inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for pharmaceutical products. Individual states in the United
States have also become increasingly active in proposing and passing legislation and implementing regulations designed to control pharmaceutical
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product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and
transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
Finally, on May 30, 2018, the Right to Try Act, was signed into law. The law, among other things, provides a federal framework for certain patients
to access certain investigational new drug products that have completed a Phase I clinical trial and that are undergoing investigation for FDA -approval.
Under certain circumstances, eligible patients can seek treatment without enrolling in clinical trials and without obtaining FDA permission under the FDA
expanded access program. There is no obligation for a drug manufacturer to make its drug products available to eligible patients as a result of the Right to
Try Act, but the manufacturer must develop an internal policy and respond to patient requests according to that policy.
At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical product pricing,
including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency
measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
We expect that additional foreign, federal and state healthcare reform measures will be adopted in the future, any of which could limit the amounts
that foreign federal and state governments will pay for healthcare products and services, which could result in limited coverage and reimbursement and
reduced demand for our products, if approved, or additional pricing pressures.
Coverage and Reimbursement
Significant uncertainty exists as to the coverage and reimbursement status of any gene therapies for which we obtain regulatory approval. In the
United States and markets in other countries, sales of any gene therapies for which we receive regulatory approval for commercial sale will depend, in part,
on the availability of coverage and reimbursement from third-party payors. Third-party payors include government authorities, managed care providers,
private health insurers and other organizations. The process for determining whether a payor will provide coverage for a product may be separate from the
process for setting the reimbursement rate that the payor will pay for the product. Third-party payors may limit coverage to specific products on an
approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. A decision by a third-party payor not to
cover our gene therapies could reduce physician utilization of our products once approved and have a material adverse effect on our sales, results of
operations and financial condition. Moreover, a payor’s decision to provide coverage for a product does not imply that an adequate reimbursement rate will
be approved. Adequate third-party reimbursement may not be available to enable us to maintain price levels sufficient to realize an appropriate return on
our investment in product development.
In addition, coverage and reimbursement for products can differ significantly from payor to payor. One third-party payor’s decision to cover a
particular medical product or service does not ensure that other payors will also provide coverage for the medical product or service, or will provide
coverage at an adequate reimbursement rate.
As a result, the coverage determination process will require us to provide scientific and clinical support for the use of our products to each payor
separately and will be a time-consuming process.
Third-party payors are increasingly challenging the price and examining the medical necessity and cost-effectiveness of medical products and
services, in addition to their safety and efficacy. In order to obtain and maintain coverage and reimbursement for any product, we may need to conduct
expensive clinical trials in order to demonstrate the medical necessity and cost-effectiveness of such product, in addition to the costs required to obtain
regulatory approvals. If third-party payors do not consider a product to be cost-effective compared to other available therapies, they may not cover the
product as a benefit under their plans or, if they do, the level of payment may not be sufficient to allow a company to sell its products at a profit. Factors
payors consider in determining reimbursement are based on whether the product is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
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Outside of the United States, the pricing of pharmaceutical products is subject to governmental control in many countries. For example, in the
European Union, pricing and reimbursement schemes vary widely from country to country. Some countries provide that products may be marketed only
after a reimbursement price has been agreed. Some countries may require the completion of additional studies that compare the cost-effectiveness of a
particular therapy to currently available therapies or so-called health technology assessments, in order to obtain reimbursement or pricing approval. Other
countries may allow companies to fix their own prices for products, but monitor and control product volumes and issue guidance to physicians to limit
prescriptions. Efforts to control prices and utilization of pharmaceutical products and medical devices will likely continue as countries attempt to manage
healthcare expenditures.
Employees
As of December 31, 2020, we had 121 full-time employees, 34 of whom have Ph.D. or M.D. degrees. Of these full-time employees, 88 employees
are engaged in research and development activities and 33 employees are engaged in finance, legal, human resources, facilities and general management.
We have no collective bargaining agreements with our employees and we have not experienced any work stoppages. We consider our relationship with our
employees to be good.
Website Access to Reports
We are subject to the informational requirements of the Exchange Act and are required to file annual, quarterly and current reports, proxy
statements and other information with the SEC. You can read our SEC filings at the SEC’s website at www.sec.gov. We also maintain a website at
www.avrobio.com. You may access, free of charge, our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any
amendments to those reports, as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.
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Item 1A. Risk Factors
Investing in our common stock involves a high degree of risk. You should carefully consider the following risks and uncertainties, together with all
other information in this Annual Report on Form 10-K, including our consolidated financial statements and related notes and “Management’s Discussion
and Analysis of Financial Condition and Results of Operations,” as well as our other filings with the Securities and Exchange Commission, or the SEC,
before investing in our common stock. Any of the risk factors we describe below could adversely affect our business, financial condition or results of
operations. The market price of our common stock could decline if one or more of these risks or uncertainties were to occur, which may cause you to lose
all or part of the money you paid to buy our common stock. Additional risks that are currently unknown to us or that we currently believe to be immaterial
may also impair our business. Certain statements below are forward-looking statements. See “Forward-Looking Information” in this Annual Report on
Form 10-K.
Risks related to our business, financial position and need for additional capital
We have incurred net losses since inception. We expect to incur net losses for the foreseeable future and may never achieve or maintain
profitability.
Since inception, we have incurred net losses. We incurred net losses of $119.7 million and $73.0 million for the years ended December 31, 2020
and 2019, respectively. We historically financed our operations primarily through private placements of our preferred stock and, more recently, our initial
public offering and follow-on public offerings of our common stock, as well as sales of our common stock under our “at-the-market” facility. We have
devoted substantially all of our efforts to research and development, including clinical and preclinical development of our product candidates, as well as
assembling our team. We expect that it will be several years, if ever, before we have commercialized any product candidates. We expect to continue to incur
significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if, and as, we:
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continue our development of our product candidates, including continuing enrollment in our ongoing clinical trials, particularly if and as we
commence and continue clinical-stage activities for our product candidates;
initiate additional clinical trials, including the planned investigator-sponsored clinical trial of AVR-RD-05, and preclinical studies for our
current and future product candidates;
experience delays or interruptions in preclinical studies, clinical trials, or our supply chain due to the COVID-19 pandemic;
seek to identify and develop or in-license additional product candidates;
seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing
approval;
continue our implementation of our plato platform as we seek to industrialize our ex vivo lentiviral gene therapy approach into a robust,
scalable and, if approved, commercially viable process;
hire and retain additional personnel, such as clinical, quality control, commercial and scientific personnel;
expand our office space, infrastructure and facilities to accommodate our growing employee base, including adding equipment and physical
infrastructure to support our research and development; and
continue to incur additional public company-related costs.
To become and remain profitable, we must develop and eventually commercialize product candidates with significant market potential. This will
require us to be successful in a range of challenging activities, and our expenses will increase substantially as we seek to complete preclinical and clinical
trials of our product candidates, and manufacture, market and sell these or any future product candidates for which we may obtain marketing approval, if
any, and satisfy any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate
revenues that are significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on
a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our Company and could impair our ability to raise
capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our Company also could
cause you to lose all or part of your investment.
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We have never generated revenue from product sales and do not expect to do so for the next several years, if ever.
Our ability to generate revenue from product sales and achieve profitability depends on our ability, alone or with collaborative partners, to
successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates. We do not anticipate
generating revenues from product sales for the next several years, if ever. Our ability to generate future revenues from product sales depends heavily on
our, or our collaborators’, success in:
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completing research and preclinical and clinical development of our product candidates and identifying new lentiviral-based gene therapy
product candidates;
seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;
launching and commercializing product candidates for which we obtain regulatory and marketing approval by establishing a sales force,
marketing and distribution infrastructure or, alternatively, collaborating with a commercialization partner;
qualifying for adequate coverage and reimbursement by government and third-party payors for our product candidates;
establishing and maintaining supply and manufacturing processes and relationships with third parties that can provide adequate, in both
amount and quality, products and services to support clinical development and the market demand for our product candidates, if approved;
obtaining market acceptance of our product candidates, if approved, as a viable treatment option;
addressing any competing technological and market developments;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter and performing our obligations
under such arrangements; and
attracting, hiring and retaining qualified personnel.
Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated
with commercializing any approved product candidate. Our expenses could increase beyond expectations if we are required by the FDA or other foreign
regulatory authorities to perform clinical and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from
the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations.
We will need additional funding, which may not be available on acceptable terms, or at all. Failure to obtain this necessary capital when needed
may force us to delay, limit or terminate our product development efforts or other operations.
As of December 31, 2020, we had cash and cash equivalents of $259.7 million. We believe that our existing cash and cash equivalents as of
December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. This forecast of cash
resources is forward-looking information that involves risks and uncertainties, and the actual amount of our expenses could vary materially and adversely
as a result of a number of factors. We have based our estimates on assumptions that may prove to be wrong, and our expenses could prove to be
significantly higher than we currently anticipate.
We expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research and development of, initiate
further clinical trials of and seek marketing approval for, our product candidates and continue to enhance and optimize our vector technology and
manufacturing processes. For example, as part of our registration strategy for AVR-RD-01, we are evaluating expanding our clinical development program
in support of optimizing the potential for a broad label. Such expansion, if implemented, could require significant additional development costs for AVR-
RD-01. Furthermore, we have expanded the number of programs in our pipeline to a total of six investigational gene therapies, three of which are in clinical
development. As a result, further development of these programs will require us to expend significant resources to advance these candidates. In addition, if
we obtain marketing approval for any of our product candidates, we expect to incur significant expenses related to product sales, medical affairs,
marketing, manufacturing and distribution. Furthermore, we expect to continue to incur additional costs associated with operating as a public company.
Accordingly, we will need to obtain substantial additional funding in connection with our continuing operations. If we are unable to raise
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capital when needed or on reasonable terms, we would be forced to delay, reduce or eliminate certain of our research and development programs. Our
future capital requirements will depend on many factors, including:
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the scope, progress, results and costs of drug discovery, laboratory testing, preclinical development and clinical trials for our other product
candidates, including the extent of any impacts from the COVID-19 pandemic on these activities;
the costs, timing and outcome of regulatory review of our product candidates;
the costs of future activities, including product sales, medical affairs, marketing, manufacturing and distribution, for any of our product
candidates for which we receive marketing approval;
the costs associated with our manufacturing process development and evaluation of third-party manufacturers;
revenue, if any, received from commercial sale of our products, should any of our product candidates receive marketing approval;
the costs of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property rights and defending
intellectual property-related claims;
the terms of our current and any future license agreements and collaborations; and
the extent to which we acquire or in-license other product candidates, technologies and intellectual property.
Identifying potential product candidates and conducting preclinical testing and clinical trials is a time-consuming, expensive and uncertain process
that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In
addition, our product candidates, if approved, may not achieve commercial success. Our product revenues, if any, will be derived from or based on sales of
products that may not be commercially available for many years, if at all. Accordingly, we will need to continue to rely on additional financing to achieve
our business objectives. Adequate additional financing may not be available to us on acceptable terms, or at all.
Raising additional capital may cause dilution to our existing stockholders, restrict our operations or cause us to relinquish valuable rights.
We may seek additional capital through a combination of public and private equity offerings, debt financings, strategic partnerships and alliances
and licensing arrangements. To the extent that we raise additional capital through the sale of equity, convertible debt securities or other equity-based
derivative securities, your ownership interest will be diluted and the terms may include liquidation or other preferences that adversely affect your rights as a
stockholder. Any additional indebtedness we incur would result in increased fixed payment obligations and could involve restrictive covenants, such as
limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions
that could adversely impact our ability to conduct our business. Furthermore, the issuance of additional securities, whether equity or debt, by us, or the
possibility of such issuance, may cause the market price of our common stock to decline and existing stockholders may not agree with our financing plans
or the terms of such financings. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we
may have to relinquish valuable rights to our technologies, or our product candidates, or grant licenses on terms unfavorable to us. Adequate additional
financing may not be available to us on acceptable terms, or at all.
Our limited operating history may make it difficult for you to evaluate the success of our business to date and to assess our future viability.
We are a clinical-stage company founded in November 2015. Our operations to date have been limited to corporate organization, recruiting key
personnel, business planning, raising capital, acquiring rights to our technology, identifying potential product candidates, undertaking preclinical studies
and planning and supporting clinical trials of certain of our product candidates and establishing research and development and manufacturing capabilities.
We have not yet demonstrated the ability to complete clinical trials of our product candidates, obtain marketing approvals, manufacture products on a
clinical or commercial scale or conduct sales and marketing activities necessary for successful commercialization. Consequently, any predictions you make
about our future success or viability may not be as accurate as they could be if we had a longer operating history. In addition, as an early-stage company,
we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors.
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Risks related to the discovery and development of our product candidates
Business interruptions resulting from the coronavirus disease (COVID-19) pandemic or similar public health crises have caused and may
continue to cause a disruption of the development of our product candidates and adversely impact our business.
Public health crises such as pandemics or similar outbreaks could adversely impact our business. In December 2019, a novel strain of a virus named
SARS-CoV-2 (severe acute respiratory syndrome coronavirus 2), or coronavirus, which causes coronavirus disease, or COVID-19, was reported to have
surfaced in Wuhan, China and subsequently spread across the world. The COVID-19 pandemic has led to the implementation of various responses,
including government-imposed quarantines and stay-at-home orders, business closures, border closures and travel restrictions, cancellations of public
gatherings, and other public health safety measures. These measures continue to disrupt normal business operations both in and outside of affected areas
and have had significant negative impacts on businesses and financial markets worldwide.
We continue to monitor our operations and applicable government recommendations and have implemented a work-from-home policy for most
employees, excluding our laboratory staff and a limited number of non-laboratory employees. Notwithstanding these measures, the COVID-19 pandemic
could affect the health and availability of our workforce as well as those of the third parties on which we rely. If members of our management and other key
personnel are unable to perform their duties or have limited availability due to COVID-19, we may not be able to execute on our business strategy and/or
our operations may be negatively impacted. We may experience limitations in employee resources, including because of sickness of employees or their
families or the desire of employees to avoid contact with individuals or large groups of people.
In addition, clinical trial activities, including patient enrollment and data collection, are dependent upon global clinical trial sites which have been
and continue to be adversely affected by the COVID-19 pandemic. For example, as the global healthcare community responded to the fluctuations in
COVID-19 cases and hospitalizations, many hospitals, including our clinical sites, temporarily paused elective procedures, which included dosing of new
patients with our investigational gene therapies. While dosing of new patients has begun to resume, our ability to continue clinical activities without further
delay or interruption will depend on future developments that are highly uncertain and cannot be accurately predicted. Additionally, while ongoing data
collection has continued for our patients that have been dosed, certain data collection has been delayed and additional delays could result from COVID-19-
related interruptions. We are currently conducting clinical trials for our product candidates in the United States, Canada and Australia, and plan to expand
to other geographies including Japan, Europe and Israel, and each of these regions are currently being affected by COVID-19.
Additional factors from the COVID-19 pandemic that have delayed and may continue to delay or otherwise adversely affect enrollment in or the
progress of the clinical trials of our product candidates, as well as our business generally, include:
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the potential diversion of healthcare resources away from the conduct of clinical trials to focus on pandemic concerns, including the attention
of physicians serving as our clinical trial investigators, hospitals serving as our clinical trial sites and hospital staff supporting the conduct of
our clinical trials;
limitations on travel that could interrupt key trial activities, such as clinical trial site initiations and monitoring, domestic and international
travel by employees, contractors or patients to clinical trial sites, including any government-imposed travel restrictions or quarantines that may
impact the ability or willingness of patients, employees or contractors to travel to our clinical trial sites or secure visas or entry permissions,
any of which could delay or adversely impact the conduct or progress of our clinical trials;
interruption in global shipping affecting the transport of clinical trial materials, such as patient samples, investigational drug product and
conditioning drugs and other supplies used in our clinical trials;
business disruptions caused by workplace, laboratory and office closures and an increased reliance on employees working from home,
disruptions to or delays in ongoing laboratory experiments and operations, staffing shortages, travel limitations or mass transit disruptions, any
of which could adversely impact our business operations or those of third party service providers, contractors, or suppliers on whom we rely,
impair the productivity of our personnel, subject us to additional cybersecurity risks, create data accessibility problems, cause us to become
more susceptible to communication disruptions, or delay necessary interactions with local regulators, ethics committees and other important
agencies and contractors;
business disruptions involving our third parties on whom we rely, including CROs and other collaborators for the conduct of our clinical trials
or our third party suppliers or manufacturers, which could impact their ability to perform adequately or disrupt our supply chain; and
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changes in hospital or research institution policies or government regulations, which could delay or adversely impact our ability to conduct
our clinical trials.
Additionally, three vaccines for COVID-19 were granted Emergency Use Authorization by the FDA in late 2020 and early 2021, and more are
likely to be authorized in the coming months. The resultant demand for vaccines and potential for manufacturing facilities and materials to be
commandeered under the Defense Production Act of 1950, or equivalent foreign legislation, may make it more difficult to obtain materials or
manufacturing slots for the products needed for our clinical trials, which could lead to delays in these trials.
These and other factors arising from the COVID-19 pandemic could worsen and further adversely impact our ability to conduct clinical trials and
our business generally, and could have a material adverse impact on our operations and financial condition and results. The extent to which the COVID-19
pandemic impacts our operations or those of our third party partners will depend on future developments, which are highly uncertain and cannot be
predicted with confidence, including the duration of the pandemic, the efficacy and safety of vaccines, the ability of third parties to manufacture and
distribute vaccines, new information that may emerge concerning mutations of the coronavirus, and the actions to contain or mitigate the coronavirus or
treat its impact, among others.
Our lentiviral-based gene therapy product candidates are based on a novel technology, which makes it difficult to predict the time and cost of
product candidate development and of subsequently obtaining regulatory approval.
We have concentrated our research and development efforts on our lentiviral-based gene therapy approach, and our future success depends on our
successful development of viable gene therapy product candidates. There can be no assurance that we will not experience problems or delays in developing
new product candidates and that such problems or delays will not cause unanticipated costs, or that any such development problems can be solved. For
example, timely enrollment in our clinical trials is dependent upon global clinical trial sites which have been and may continue to be adversely affected by
the COVID-19 pandemic. In addition, the implementation of our plato platform and upgrades, including our transition to TCI conditioning using busulfan
for our single-agent conditioning regimen, may result in delays or setbacks in our research and development activities, and we may not realize the intended
benefits of these efforts. In addition, we may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or
transferring that process to commercial partners, which may prevent us from completing our clinical studies or commercializing our products on a timely or
profitable basis, if at all. For example, as of March 1, 2021 we have only dosed three patients using our plato platform, which we plan to utilize for the
majority of patients in our ongoing FAB-GT clinical trial for AVR-RD-01 and all patients in the Guard1 clinical trial of AVR-RD-02. Our implementation
of the LV2 lentiviral vector or of our cell processing to an industrialized, automated closed system using disposable supplies may not be successful or may
experience unforeseen delays, which may cause shortages or delays in the supply of our products available for clinical trials and future commercial sales, if
any, or impair our research and development efforts, including those in our ongoing and future clinical trials. In addition, there is no assurance that products
using our proprietary LV2 lentiviral vector or manufactured using this automated system will ultimately achieve the same favorable preliminary results
observed to date.
In addition, the clinical trial requirements of the FDA and other foreign regulatory authorities and the criteria these regulators use to determine the
safety and efficacy of a product candidate vary substantially according to the type, complexity, novelty and intended use and market of such product
candidates. The regulatory approval process for novel product candidates such as ours can be more expensive and take longer than for other, better known
or more extensively studied product candidates. To date, only a limited number of gene therapies have received marketing authorization from the FDA or
foreign regulatory authorities. It is difficult to determine how long it will take or how much it will cost to obtain regulatory approvals for our product
candidates in the United States, Canada or other major markets or how long it will take to commercialize our product candidates, if any are approved.
Approvals by foreign regulatory authorities may not be indicative of what the FDA may require for approval, and vice versa.
Regulatory requirements governing gene and cell therapy products have changed frequently and may continue to change in the future. The FDA has
established the Office of Tissues and Advanced Therapies within its Center for Biologics Evaluation and Research, or CBER, to consolidate the review of
gene therapy and related products, and has established the Cellular, Tissue and Gene Therapies Advisory Committee to advise the CBER in its review.
Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the United States National Institutes of
Health, or NIH, also are subject to the NIH Guidelines, under which supervision of human gene transfer trials includes evaluation and assessment by an
institutional biosafety committee, or IBC, a local institutional committee that reviews and oversees research utilizing recombinant or synthetic nucleic acid
molecules at that institution. The IBC assesses the safety of the research and identifies any potential risk to public health or the environment, and such
review may result in some delay
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before initiation of a clinical trial. If we were to engage an NIH-funded institution to conduct a clinical trial, that institution’s IBC as well as its institutional
review board, or IRB, would need to review the proposed clinical trial to assess the safety of the trial. In addition, adverse developments in clinical trials of
gene therapy products conducted by others may cause the FDA or other oversight bodies to change the requirements for approval of any of our product
candidates. Similarly, foreign regulatory authorities may issue new guidelines concerning the development and marketing authorization for gene therapy
medicinal products and require that we comply with these new guidelines.
The FDA, NIH and the European Medicines Agency, or EMA, have each expressed interest in further regulating biotechnology, including gene
therapy and genetic testing. For example, the EMA advocates a risk-based approach to the development of a gene therapy product. Agencies at both the
federal and state level in the United States, as well as the U.S. congressional committees and other governments or governing agencies, have also expressed
interest in further regulating the biotechnology industry. Such action may delay or prevent commercialization of some or all of our product candidates.
These regulatory review committees and advisory groups and any new guidelines they promulgate may lengthen the regulatory review process,
require us to perform additional studies, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent
approval and commercialization of these product candidates or lead to significant post-approval limitations or restrictions. As we advance our product
candidates, we will be required to consult with these regulatory and advisory groups, and comply with applicable guidelines. If we fail to do so, we may be
required to delay or discontinue development of certain of our product candidates. These additional processes may result in a review and approval process
that is longer than we otherwise would have expected. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to
bring a potential product to market could decrease our ability to generate sufficient product revenue, and our business, financial condition, results of
operations and prospects would be materially and adversely affected.
The FDA continues to develop its approach to assessing gene and cell therapy products. For example, the agency has released a series of draft and
final guidance documents relating to, among other topics, various aspects of gene therapy product development, review, and approval, including aspects
relating to clinical and manufacturing issues related to gene therapy products. In January 2020, the FDA released a final guidance with recommendations
for long-term follow-up studies of patients following human gene therapy administration due to the increased risk of undesirable and unpredictable
outcomes with gene therapies that may present as delayed adverse events. We cannot be certain whether such guidance, or other guidance that the FDA
may issue, will be relevant to or have an adversely impact on our gene therapy candidates or the duration or expense of any applicable regulatory
development and review processes.
Our product candidates and the process for administering our product candidates may cause undesirable side effects or have other properties
that could delay or prevent their regulatory approval, limit their commercial potential or result in significant negative consequences following
any potential marketing approval.
During the conduct of clinical trials, patients may experience changes in their health, including illnesses, injuries, discomforts or a fatal outcome. It
is possible that as we test our product candidates in larger, longer and more extensive clinical programs, or as use of our product candidates becomes more
widespread if they receive regulatory approval, illnesses, injuries, discomforts and other adverse events that were observed in earlier clinical trials, as well
as conditions that did not occur or went undetected in previous clinical trials, will be reported by patients. Gene therapies are also subject to the potential
risk that occurrence of adverse events will be delayed following administration of the gene therapy due to persistent biological activity of the genetic
material or other components of the vectors used to carry the genetic material. Many times, side effects are only detectable after investigational products
are tested in larger scale, pivotal clinical trials or, in some cases, after they are made available to patients on a commercial scale after approval. FDA
guidance advises that patients treated with gene therapies undergo long-term follow-up observation for potential adverse events for as long as 15 years. If
additional clinical or long-term follow-up experience indicates that any of our product candidates have side effects or cause serious or life-threatening side
effects, the development of the product candidate may fail or be delayed, or, if the product candidate has received regulatory approval, such approval may
be revoked or limited.
There have been several significant adverse side effects in gene therapy treatments in the past, including multiple reported cases of leukemia,
myelodysplastic syndrome and death seen in other clinical trials. For example, in February 2021 a case of potential myelodysplastic syndrome and a
separate case of acute myeloid leukemia were reported in a third party’s clinical trials of lentiviral gene therapy for the treatment of sickle cell disease.
These safety events are currently under investigation, and while several factors have been posited as potential direct or contributing causes, including the
use of busulfan in the conditioning process, no definitive conclusion has been made as of the date of this Annual Report on Form 10-K. Gene therapy is
still a relatively new approach to disease treatment and additional adverse side effects could develop.
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Possible adverse side effects that may occur with treatment with gene therapy products include an immunologic reaction early after administration that
could substantially limit the effectiveness of the treatment or represent safety risks for patients. Another traditional safety concern for gene therapies using
viral vectors has been the possibility of insertional oncogenesis by the vectors, leading to malignant transformation of transduced cells. In addition,
dominant clonal expansion due to vector integration has been observed in third-party ex vivo lentiviral gene therapy clinical trials, including one case of
thalassemia and two cases of cerebral adrenoleukodystrophy. Although to date there have been no reports of malignant transformation in these patients,
these cases and any similar cases will require further monitoring and follow-up. While our lentiviral gene therapy approach is designed to avoid
immunogenicity against the vector after administration, there can be no assurance that patients would not create antibodies that may impair treatment. In
addition, although we are investigating a plan to potentially implement molecular cytogenetic screening, there can be no assurance that we will successfully
implement such screening procedures or that, if implemented, they will enhance the safety profile of our gene therapy product candidates. If any of our
gene therapy product candidates demonstrates adverse side effects at unacceptable rates or degrees of severity, we may decide or be required to halt or
delay clinical development of such product candidates.
In addition to side effects caused by our product candidates, the conditioning, administration process or related procedures, which we evaluate from
time to time as part of our process improvement and optimization efforts, also can cause adverse side effects. A gene therapy patient is generally
administered one or more myeloablative drugs to remove stem cells from the bone marrow to create sufficient space in the bone marrow for the modified
gene-corrected stem cells to engraft and produce their progeny. This procedure causes adverse side effects and transiently compromises the patient’s
immune system, known as neutropenia, and ability to form blood clots, known as thrombocytopenia.
In 2019 we began transitioning, in connection with our Company-sponsored clinical trials, towards a new conditioning regimen for our product
candidates utilizing busulfan as the myeloablative conditioning agent instead of the melphalan that we previously used. The use of this conditioning
regimen is designed to utilize a precision dosing program, TCI, to achieve a balance between the removal of a sufficient amount of bone marrow cells from
a patient against potential risks such as toxicity or graft failure. While we believe that the conditioning regimen could be performed during a limited
hospital stay, we cannot guarantee that the conditioning will not require a lengthier hospitalization. Our conditioning regimens may not be successful or
may nevertheless result in adverse side effects. For example, in each of our ongoing clinical trials several adverse events, including suppression of
neutrophils and platelet counts following the conditioning process, were observed. While such adverse events in connection with conditioning is expected,
if in the future any such adverse events caused by the conditioning process or related procedures continue at unacceptable rates or degrees of severity, the
FDA or other foreign regulatory authorities could order us to cease development of, or deny approval of, our product candidates for any or all targeted
indications. There have been cases of therapy-related myelodysplastic syndrome, a type of blood disorder that is a potential precursor to acute myeloid
leukemia, in patients with preexisting cancer where busulfan treatment was posited to be a contributing factor to this secondary malignancy. Although we
are investigating a plan to potentially implement molecular cytogenetic screening as an additional risk reduction measure, there can be no guarantees that
these procedures, if implemented, would be successful. Even if we are able to demonstrate that adverse events are not product-related, such occurrences
could adversely affect patient recruitment or the ability of enrolled patients to complete the clinical trial.
Additionally, if any of our product candidates receives marketing approval, the FDA could require us to adopt a Risk Evaluation and Mitigation
Strategy, or REMS, to ensure that the benefits outweigh its risks, which may include, among other things, a medication guide outlining the risks of the
product for distribution to patients, a communication plan to health care practitioners, and restrictions on how or where the product can be distributed,
dispensed or used. Furthermore, if we or others later identify undesirable side effects caused by our product candidates, several potentially significant
negative consequences could result, including:
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regulatory authorities may suspend or withdraw approvals of such product candidate;
regulatory authorities may require additional or boxed warnings on the label;
we may be required to change the way a product candidate is distributed, dispensed, or administered or conduct additional clinical trials;
we could be sued and held liable for harm caused to patients; and
our reputation may suffer.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates, lead to a drop in our stock price,
and significantly harm our business, prospects, financial condition and results of operations.
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We have never completed a pivotal clinical trial, and may be unable to do so for any product candidates we may develop.
We are at an early stage of development for all of our product candidates. As of March 1, 2021, we have dosed only 14 patients across four ongoing
clinical trials. These ongoing clinical trials, as well as potentially additional pivotal clinical trials, must be completed in order to obtain FDA approval to
market these product candidates. We have limited experience in preparing, submitting and prosecuting regulatory filings, and have not previously submitted
a biologics license application, or BLA, for any product candidate.
Carrying out later-stage clinical trials is a complicated and lengthy process, and we do not expect that all data from patients participating in the
clinical trials will be relevant or meaningful. For example, the primary efficacy endpoint of our Phase 2 clinical trial of AVR-RD-01, which we refer to as
the FAB-GT clinical trial, is the change, from baseline to one year post-treatment with AVR-RD-01, in the average number of Gb3 inclusions per PTC, as
measured in a patient kidney biopsy. The second patient in the FAB-GT trial has an N215S genotype, which is associated with a late-onset cardiac variant
phenotype and lower plasma lyso-Gb3 levels. This patient’s cardiac variant phenotype does not typically result in Gb3 accumulation in the kidney and skin,
and accordingly we do not expect that data obtained from this patient will have a meaningful impact on certain efficacy endpoints in our FAB-GT clinical
trial, including kidney and skin biopsies. Nonetheless, there may be other important insights derived from data collected from this patient in the FAB-GT
clinical trial. In addition, although a kidney biopsy was performed on the third patient in the FAB-GT clinical trial, as a result of human error in processing
the biopsy sample at the external laboratory vendor, the kidney Gb3 inclusions could not be evaluated and will not be available. However, we expect to
continue collecting other data from the third patient, including measures of kidney function such as estimated glomerular filtration rate and measured
glomerular filtration rate.
In addition, we have not yet conducted any company-sponsored clinical trials of any of our product candidates in the United States, and our
interactions with the FDA have generally been limited. We cannot be certain how many additional clinical trials of AVR-RD-01, AVR-RD-04, AVR-RD-02
or any other product candidates will be required or how such trials should be designed. In order to commence a clinical trial in the United States, we are
required to seek FDA acceptance of an IND for each of our product candidates. We cannot be sure any IND we submit to the FDA, or any similar clinical
trial application we submit in other countries, will be accepted. While we have received clearance from the FDA to commence clinical testing in the United
States for AVR-RD-01 and AVR-RD-02, and the sponsor of the investigator-led clinical trial for AVR-RD-04 has received the same, there can be no
assurance that we will be able to submit and secure similar clearances for any of our other product candidates. We may also be required to conduct
additional preclinical testing prior to filing an IND for any of our product candidates, and the results of any such testing may not be positive. Consequently,
we may be unable to successfully and efficiently execute and complete necessary clinical trials in a way that leads to a BLA submission and approval of
any of our product candidates. We may require more time and incur greater costs than our competitors and may not succeed in obtaining regulatory
approvals of product candidates that we develop. Failure to commence or complete, or delays in, our planned clinical trials, could prevent us from or delay
us in commercializing any of our product candidates.
The ongoing Phase 1 clinical trial of AVR-RD-01 is an investigator-sponsored trial being conducted by University Health Network, and the ongoing
Phase 1/2 clinical trial of AVR-RD-04 is also an investigator-sponsored clinical trial, which is being conducted by our collaborators at the University of
California, San Diego. In addition, the planned Phase 1/2 clinical trial of AVR-RD-05 will be an investigator-sponsored trial conducted by our collaborators
at The University of Manchester. We do not control the design or administration of investigator-sponsored trials, nor the submission or approval of any IND
or foreign equivalent required to conduct these trials, and the investigator-sponsored trials could, depending on the actions of such third parties, jeopardize
the validity of the clinical data generated, identify significant concerns with respect to our product candidates that could impact our findings or clinical
trials, and adversely affect our ability to obtain marketing approval from the FDA or other applicable regulatory authorities. To the extent the results of this
or other investigator-sponsored trials are inconsistent with, or different from, the results of our planned Company-sponsored trials or raise concerns
regarding our product candidates, the FDA or a foreign regulatory authority may question the results of the Company-sponsored trial, or subject such
results to greater scrutiny than it otherwise would. In these circumstances, the FDA or such foreign regulatory authorities may require us to obtain and
submit additional clinical data, which could delay clinical development or marketing approval of our product candidates. In addition, while investigator-
sponsored trials could be useful to inform our own clinical development efforts, there is no guarantee that we will be able to use the data from these trials to
form the basis for regulatory approval of our product candidates.
Success in preclinical studies or early clinical trials may not be indicative of results obtained in later trials.
Results from preclinical studies or early clinical trials are not necessarily predictive of future clinical trial results and are not necessarily indicative
of final results. For example, there can be no assurance that prior results, such as signals of
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safety, activity or durability of effect, observed from preclinical studies or clinical trials will be replicated or will continue in ongoing or future studies or
trials. Furthermore, preliminary results may not be indicative of the final results of a trial after all data have been collected and analyzed. There is a high
failure rate for gene therapy and biologic product candidates proceeding through clinical trials. Many companies in the pharmaceutical and biotechnology
industries have suffered significant setbacks in late-stage clinical trials even after achieving promising results in preclinical testing and earlier-stage clinical
trials. Data obtained from preclinical and clinical activities are subject to varying interpretations, which may delay, limit or prevent regulatory approval. In
addition, the design of a pivotal clinical trial can determine whether its results will support approval of a product and flaws in the design of a clinical trial
may not become apparent until the clinical trial is well advanced. Our Company has limited experience in designing and conducting clinical trials and we
may be unable to design and execute a clinical trial to support regulatory approval. Although we plan to meet with the FDA in the first quarter of 2021 to
discuss our regulatory strategy and a potential accelerated approval pathway for AVR-RD-01, to date we have not received definitive guidance from the
FDA or other foreign regulatory bodies regarding the necessary endpoints for approval of any of our product candidates. While we are aware that the FDA
utilized an efficacy endpoint based on patients’ kidney biopsy in the recent approval of Migalastat for Fabry disease, for which we are also measuring as
our primary efficacy endpoint in our ongoing Phase 2 FAB-GT clinical trial of AVR-RD-01, there can be no guarantees that regulatory agencies will permit
us to use the same endpoint in connection with further development of AVR-RD-01. Therefore, there are no assurances that the FDA or other foreign
regulatory bodies will find the efficacy endpoints we propose in future pivotal trials to be sufficiently validated and clinically meaningful, or that our
product candidates will achieve the pre-specified endpoints in future pivotal trials to a degree of statistical significance. We also may experience regulatory
delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development. Any
of our current or future product candidates may fail to show the desired safety and efficacy in clinical development despite positive results in preclinical
studies. Any such failure would cause us to abandon the product candidate.
Additionally, the clinical trials performed to date have been open-label studies and have been conducted at a limited number of clinical sites on a
limited number of patients. An “open-label” clinical trial is one where both the patient and investigator know whether the patient is receiving the
investigational product candidate or either an existing approved drug or placebo. Most typically, open-label clinical trials test only the investigational
product candidate and sometimes may do so at different dose levels. Open-label clinical trials are subject to various limitations that may exaggerate any
therapeutic effect as patients in open-label clinical trials are aware when they are receiving treatment. Open-label clinical trials may be subject to a “patient
bias” where patients perceive their symptoms to have improved merely due to their awareness of receiving an experimental treatment. Moreover, patients
selected for early clinical studies often include the most severe sufferers and their symptoms may have been bound to improve notwithstanding the new
treatment. In addition, open-label clinical trials may be subject to an “investigator bias” where those assessing and reviewing the physiological outcomes of
the clinical trials are aware that patients have received treatment and may interpret the information more favorably given this knowledge. Because our
clinical trials are ongoing, the data that we report are preliminary and subject to change. As is typical in open-label studies in which interim reports are
provided, the safety and efficacy data are regularly reviewed and validated. As a result, certain data may change over time, including reductions or
increases in the number of reported safety events, until the database is locked at the end of the study.
We may find it difficult to enroll patients in our clinical trials, which could delay or prevent us from proceeding with clinical trials of our
product candidates.
Although we hope to have dosed an aggregate of 30 patients across all our clinical programs by the end of 2021, there can be no assurance we will
achieve that goal. The timing and success of our patient enrollment and clinical trial activities depend on our ability to recruit patients to participate as well
as the completion of required follow-up periods. Patients may be unwilling to participate in our gene therapy clinical trials because of negative publicity
from adverse events related to the biotechnology or gene therapy fields, such as the recent announcement from a lentiviral gene therapy company regarding
potential cases of myelodysplastic syndrome and acute myeloid leukemia in its clinical trials for sickle cell disease, competitive clinical trials for similar
patient populations, clinical trials in product candidates employing our vectors, the existence of current treatments or for other reasons. In addition, the
indications that we are currently targeting and may in the future target are rare diseases, which may limit the pool of patients that may be enrolled in our
ongoing or planned clinical trials. The timeline for recruiting patients, conducting studies and obtaining regulatory approval of our product candidates may
be delayed, including as a result of the ongoing COVID-19 pandemic, which could result in increased costs, delays in advancing our product candidates,
delays in testing the effectiveness of our product candidates or termination of the clinical trials altogether. For example, as a result of the COVID-19
pandemic, patient enrollment and dosing was temporarily paused in our ongoing clinical trials and certain data collection has been delayed. While patient
enrollment and dosing activities have begun to resume, there could be additional pauses in the future as a result of the COVID-19 pandemic or other
factors.
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We may not be able to identify, recruit and enroll a sufficient number of patients, or those with required or desired characteristics, to complete our
clinical trials in a timely manner. For example, in 2017, the ongoing investigator-sponsored Phase 1 clinical trial of AVR-RD-01 encountered delays in the
enrollment of patients due to delays in identifying patients for enrollment and the evaluation of information from screened potential trial participants. In
2019, we encountered delays in the enrollment of patients in the Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for Gaucher disease, which we
refer to as the Guard1 clinical trial. While a number of patients had been identified for the Guard1 clinical trial, we encountered patient pre-screening
failures that impacted the commencement of enrollment.
Patient enrollment and trial completion is affected by factors including the:
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ability to enroll patients and conduct studies as a result of the ongoing COVID-19 pandemic;
size of the patient population and process for identifying patients;
design of the trial protocol;
eligibility and exclusion criteria;
perceived risks and benefits of the product candidate under study;
perceived risks and benefits of gene therapy-based approaches to treatment of diseases, including any required pretreatment conditioning
regimens;
availability of competing therapies and clinical trials;
severity of the disease under investigation;
availability of genetic testing for potential patients;
proximity and availability of clinical trial sites for prospective patients;
ability to obtain and maintain subject consent;
risk that enrolled patients will drop out before completion of the trial;
patient referral practices of physicians; and
ability to monitor patients adequately during and after treatment.
We are expanding our patient enrollment activities to include patients who reside in a country other than the country where the applicable clinical
site is located, and who are required to travel for some or all of the clinical testing and procedures required for patients in the applicable clinical trial. We
have encountered and in the future may continue to encounter logistical and regulatory challenges that could delay or prevent any such international
patients from successfully enrolling and completing clinical trial procedures, including delays in processing or obtaining patient travel visas or denials of
entry at borders, potential travel disruptions, or de-prioritization or unavailability of resources at clinical sites for non-resident international clinical trial
participants, any of which could delay our progress and completion of planned clinical trials and which would have an adverse effect on our business. In
addition, once these international patients return to their home country they may need to travel back to the country where the applicable clinical site is
located. If these patients are unwilling or unable to return to the clinical site for testing and procedures, progress and completion of the clinical trial could
be delayed or prevented.
Our current product candidates are being developed to treat rare conditions. We plan to seek initial marketing approvals in the United States, Europe
and certain other major markets, including Japan. We may not be able to initiate or continue clinical trials if we cannot enroll a sufficient number of eligible
patients to participate in the clinical trials required by FDA or other foreign regulatory authorities. Our ability to successfully initiate, enroll and complete a
clinical trial in any foreign country is subject to numerous risks unique to conducting business in foreign countries, including:
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difficulty in establishing or managing relationships with contract research organizations, or CROs, and physicians;
different standards for the conduct of clinical trials;
the absence in some countries of established groups with sufficient regulatory expertise for review of gene therapy protocols;
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our inability to locate qualified local consultants, physicians and partners; and
the potential burden of complying with a variety of foreign laws, medical standards and regulatory requirements, including the regulation of
pharmaceutical and biotechnology products and treatment.
If we have difficulty enrolling a sufficient number of patients to conduct our clinical trials as planned, we may need to delay, limit or terminate
ongoing or planned clinical trials, any of which would have an adverse effect on our business, financial condition, results of operations and prospects.
We may encounter substantial delays in our clinical trials or we may fail to demonstrate safety and efficacy to the satisfaction of applicable
regulatory authorities.
Before obtaining marketing approval from regulatory authorities for the sale of our product candidates, we must conduct extensive clinical studies
to demonstrate the safety and efficacy of the product candidates in humans. Clinical testing is expensive, time-consuming and uncertain as to outcome. We
cannot guarantee that any clinical studies will be conducted as planned or completed on schedule, if at all. A failure of one or more clinical studies can
occur at any stage of testing. Events that may prevent successful or timely completion of clinical development include:
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delays as a result of the ongoing COVID-19 pandemic;
delays in reaching a consensus with regulatory agencies on study design;
delays in reaching agreement on acceptable terms with prospective CROs and clinical study sites;
delays in obtaining required Institutional Review Board, or IRB, approval at each clinical study site;
delays in recruiting suitable patients to participate in our clinical studies;
imposition of a clinical hold by regulatory agencies, after an inspection of our clinical study operations or study sites;
failure by our CROs, other third parties or us to adhere to clinical study requirements;
failure to perform in accordance with the FDA’s good clinical practices, or GCP, or applicable regulatory guidelines in other countries;
delays in the testing, validation, manufacturing and delivery of our product candidates to the clinical sites;
delays in having patients complete participation in a study or return for post-treatment follow-up;
clinical study sites or patients dropping out of a study;
the occurrence of serious adverse events associated with the product candidate that are viewed to outweigh its potential benefits; or
changes in regulatory requirements and guidance that require amending or submitting new clinical protocols.
Any inability to successfully complete preclinical and clinical development could result in additional costs to us or impair our ability to generate
revenues. In addition, if we make changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates
to earlier versions, which could delay our clinical development plan or marketing approval for our product candidates. For example, for our FAB-GT
clinical trial of AVR-RD-01, we have transitioned our lentiviral vectors to an LV2 version in connection with our plato platform implementation. In
addition, the transition from LV1 to LV2 has required (and is anticipated to continue to require) submission of relevant data to the applicable regulatory
authorities in connection with certain of our regulatory filings, including our INDs and clinical trial applications, to demonstrate analytic comparability
between LV1 and LV2. Our IND application for our FAB-GT clinical study of AVR-RD-01 for Fabry disease in the United States, which was cleared by the
FDA in April 2019, included data to demonstrate comparability between LV1 and LV2 and a transition to an automated manufacturing platform. In
addition, our CTA (including amendments) and IND for our Guard1 clinical study of AVR-RD-02 for Gaucher disease in Canada and the United States, for
which Health Canada has issued no objection letters and the FDA has cleared, respectively, included data utilizing LV2 and our automated manufacturing
platform. While these applications included data relating to our LV2 lentiviral vector and our automated manufacturing process, which are elements of our
plato platform, and allow us to commence clinical trials incorporating such elements, there can be no assurance that the FDA, Health Canada or other
regulatory authorities will not require us to undertake additional actions in connection with our transition to our plato platform, including submission of
additional comparability studies in connection with future regulatory filings, which may result in delays, suspension or termination of ongoing or future
clinical trials, or our inability to conduct our trials according
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to the plans or the timelines that we have envisioned. For example, the Phase 1/2 investigator-sponsored clinical study of AVR-RD-04 for cystinosis in the
United States, which has been cleared by the FDA, does not include our LV2 lentiviral vector or our automated manufacturing platform, and we anticipate
that we will be required to submit comparability data in future regulatory filings relating to our transition to LV2 and the automated manufacturing
platform. Any such filings may result in delay, suspension or termination of ongoing or future clinical trials pending our submission, and the applicable
regulatory agency’s review, of such updates. Clinical trial delays could also shorten any periods during which we may have the exclusive right to
commercialize our product candidates, if approved, or allow our competitors to bring products to market before we do, which could impair our ability to
successfully commercialize our product candidates and may harm our business and results of operations.
If the results of our clinical studies are inconclusive or if there are safety concerns or adverse events associated with our product candidates, we
may:
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be delayed in obtaining marketing approval for our product candidates, if at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
obtain approval with labeling or a REMS that includes significant use or distribution restrictions or safety warnings;
be subject to changes with the way the product is administered;
be required to perform additional clinical studies to support approval or be subject to additional post-marketing testing requirements;
have regulatory authorities withdraw their approval of the product or impose restrictions on its distribution in the form of a REMS;
be subject to the addition of labeling statements, such as warnings or contraindications;
be sued; or
experience damage to our reputation.
Any of these events could prevent us from achieving or maintaining market acceptance of our product candidates and impair our ability to
commercialize our products.
Even if we complete the necessary preclinical and clinical studies, we cannot predict when or if we will obtain regulatory approval to
commercialize a product candidate and the approval may be for a narrower indication than we seek.
We cannot commercialize a product until the appropriate regulatory authorities have reviewed and approved the product candidate. Even if our
product candidates demonstrate safety and efficacy in clinical studies, the regulatory agencies may not complete their review processes in a timely manner,
or we may not be able to obtain regulatory approval. Additional delays may result if an FDA Advisory Committee or other regulatory authority
recommends non-approval or restrictions on approval. In addition, we may experience delays or rejections based upon additional government regulation
from future legislation or administrative action, or changes in regulatory agency policy during the period of product development, clinical studies and the
review process. Regulatory agencies also may approve a treatment candidate for fewer or more limited indications than requested or may grant approval
subject to the performance of post-marketing studies. In addition, regulatory agencies may not approve the labeling claims that are necessary or desirable
for the successful commercialization of our product candidates. If we are unable to obtain necessary regulatory approvals, our business, prospects, financial
condition and results of operations may suffer.
Only certain of our clinical trials, including the Phase 2 FAB-GT clinical trial of AVR-RD-01 for Fabry disease and the Phase 1/2 Guard1
clinical trial of AVR-RD-02 for Gaucher disease type 1, utilize our commercial-scale plato platform.
While we have submitted and intend to continue to submit comparability studies to the FDA and other regulatory agencies, as needed, with respect
to our implementation of our commercial-scale plato platform in these and future clinical trials sponsored by us, there can be no assurance that the FDA or
other regulatory agencies will not in the future require us to conduct additional preclinical studies or clinical trials that could result in delays and additional
costs in our development or commercialization programs for our product candidates, which could adversely affect our business. We intend to continue
implementing our commercial-scale plato platform, including heightened vector efficiency, our closed, automated manufacturing system and utilization of a
TCI conditioning regimen with busulfan, in connection with each of our
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investigational product candidates. We have developed the plato platform to form the backbone of our commercial programs, with the intent of replacing
our original academic platform with improved solutions for delivering our gene therapy candidates to patients in multiple disease indications. We believe
improvements from our plato platform may lead to better patient outcomes with our gene therapy candidates. In order to implement this transition, we have
been and will be required to conduct additional studies to bridge our modified product candidates to earlier versions, which could delay our clinical
development plans or marketing approvals, if any. Clinical trial delays could also shorten any periods during which we may have the exclusive right to
commercialize our product candidates, if approved, or allow our competitors to bring products to market before we do, which could impair our ability to
successfully commercialize our product candidates and may harm our business and results of operations.
We face significant competition in our industry and there can be no assurance that our product candidates, if approved, will achieve acceptance
in the market over existing established therapies. In addition, our competitors may develop therapies that are more advanced or effective than
ours, which may adversely affect our ability to successfully market or commercialize any of our product candidates.
We operate in a highly competitive segment of the biopharmaceutical market. We face competition from many different sources, including larger
pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as from academic institutions, government agencies and private and public
research institutions. Our product candidates, if successfully developed and approved, will compete with established therapies, some of which are being
marketed by large and international companies. In addition, we expect to compete with new treatments that are under development or may be advanced into
the clinic by our competitors. There are a variety of product candidates, including gene therapies, in development for the indications that we are targeting.
We anticipate competing with the largest pharmaceutical companies in the world. For example, Sanofi Genzyme and Shire, acquired by Takeda
Pharmaceutical Company Ltd., market the enzyme replacement therapies, or ERTs, that represent the standard of care for Fabry patients. Amicus has
secured regulatory approval in the United States and Europe for Migalastat, its oral chaperone therapy for Fabry disease. In addition, in August 2020,
Protalix BioTherapeutics, together with Chiesi Global Rare Diseases, announced that the FDA had accepted a BLA and granted priority review designation
for pegunigalsidase alfa, their investigational product candidate for Fabry disease. For Gaucher disease, we expect to compete with existing enzyme
replacement therapies marketed by Sanofi Genzyme, Shire, Protalix and Pfizer, as well as oral therapies marketed by Actelion and Sanofi. Sanofi also
markets an enzyme replacement therapy for Pompe disease, and Shire markets an enzyme replacement therapy for Hunter syndrome. Cystinosis is currently
treated by therapies marketed by Horizon Orphan, Mylan, Chiesi, Recordati and Sigma Tau Pharmaceuticals, and Eloxx Pharmaceuticals has been
advancing a new treatment in clinical trials, though in March 2020 it announced that its Phase 2 study of the new treatment has been discontinued. In
addition, we may compete with other gene therapy companies in our industry such as bluebird bio and Spark Therapeutics (which was acquired by Roche
in 2019). In particular, a number of gene therapy companies have announced preclinical or clinical non-viral and adeno-associated viral based gene therapy
programs that, if successful in obtaining regulatory approval, could compete with our gene therapies.
Many of our competitors have significantly greater financial, product candidate development, manufacturing and marketing resources than we do.
Large pharmaceutical and biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for their products, and
mergers and acquisitions within these industries may result in even more resources being concentrated among a smaller number of larger competitors.
Established pharmaceutical companies may also invest heavily to accelerate discovery and development of novel therapeutics or to in-license novel
therapeutics that could make the product candidates that we develop obsolete. 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 business would be materially and adversely affected if
competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, have broader market acceptance, are
more convenient or are less expensive than any product candidate that we may develop.
Even if we obtain regulatory approval of our product candidates, the availability and price of our competitors’ products could limit the demand and
the price we are able to charge for our product candidates. We may not be able to implement our business plan if the acceptance of our product candidates
is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians
switch to other new drug or biologic products or choose to reserve our product candidates for use in limited circumstances.
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While we intend to seek designations for our product candidates with the FDA and comparable foreign regulatory authorities that are intended
to confer benefits such as a faster development process or an accelerated regulatory pathway, there can be no assurance that we will
successfully obtain such designations. In addition, even if one or more of our product candidates are granted such designations, we may not be
able to realize the intended benefits of such designations.
The FDA and comparable foreign regulatory authorities offer certain designations for product candidates that are designed to encourage the
research and development of product candidates that are intended to address conditions with significant unmet medical need. These designations may
confer benefits such as additional interaction with regulatory authorities, a potentially accelerated regulatory pathway and priority review. However, there
can be no assurance that we will successfully obtain such designations for any of our product candidates. In addition, while such designations could
expedite the development or approval process, they generally do not change the standards for approval. Even if we obtain such designations for one or
more of our product candidates, there can be no assurance that we will realize their intended benefits.
For example, we have submitted a briefing book to the FDA outlining our proposal for a potential accelerated approval strategy for AVR-RD-01,
and we currently expect to meet with the FDA in the first quarter of 2021 to discuss our proposed strategy. The outcome of our meeting with the FDA is
highly uncertain at this time, and there can be no assurances that the FDA will agree to our proposals or provide any accelerated regulatory pathway for
AVR-RD-01.
We may seek a Breakthrough Therapy Designation for some of our product candidates. A breakthrough therapy is defined as a therapy that is
intended, alone or in combination with one or more other therapies, to treat a serious or life-threatening disease or condition, and preliminary clinical
evidence indicates that the therapy may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such
as substantial treatment effects observed early in clinical development. For therapies that have been designated as breakthrough therapies, interaction and
communication between the FDA and the sponsor of the trial can help to identify the most efficient path for clinical development while minimizing the
number of patients placed in ineffective control regimens. Therapies designated as breakthrough therapies by the FDA are also eligible for accelerated
approval. Designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our product candidates meets
the criteria for designation as a breakthrough therapy, the FDA may disagree and instead determine not to make such designation. In any event, the receipt
of a Breakthrough Therapy Designation for a product candidate may not result in a faster development process, review or approval compared to therapies
considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition, even if one or more of our
product candidates qualify as breakthrough therapies, the FDA may later decide that such product candidates no longer meet the conditions for
qualification.
In addition, we may seek Fast Track Designation for some of our product candidates. If a therapy is intended for the treatment of a serious or life-
threatening condition and the therapy demonstrates the potential to address unmet medical needs for this condition, the therapy sponsor may apply for Fast
Track Designation. The FDA has broad discretion whether or not to grant this designation, so even if we believe a particular product candidate is eligible
for this designation, there can be no assurance that the FDA would decide to grant it. Even if we do receive Fast Track Designation, we may not experience
a faster development process, review or approval compared to conventional FDA procedures, and receiving a Fast Track Designation does not provide
assurance of ultimate FDA approval. In addition, the FDA may withdraw Fast Track Designation if it believes that the designation is no longer supported
by data from our clinical development program.
In addition, we may seek a regenerative medicine advanced therapy, or RMAT, designation for some of our product candidates. An RMAT is
defined as cell therapies, therapeutic tissue engineering products, human cell and tissue products, and combination products using any such therapies or
products. Gene therapies, including genetically modified cells that lead to a durable modification of cells or tissues may meet the definition of a
regenerative medicine therapy. The RMAT program is intended to facilitate efficient development and expedite review of RMATs, which are intended to
treat, modify, reverse, or cure a serious or life-threatening disease or condition. A new drug application or a BLA for an RMAT may be eligible for priority
review or accelerated approval through (1) surrogate or intermediate endpoints reasonably likely to predict long-term clinical benefit or (2) reliance upon
data obtained from a meaningful number of sites. Benefits of such designation also include early interactions with FDA to discuss any potential surrogate
or intermediate endpoint to be used to support accelerated approval. A regenerative medicine therapy that is granted accelerated approval and is subject to
post-approval requirements may fulfill such requirements through the submission of clinical evidence, clinical studies, patient registries, or other sources of
real-world evidence, such as electronic health records; the collection of larger confirmatory data sets; or post-approval monitoring of all patients treated
with such therapy prior to its approval. RMAT designation is within the discretion of the FDA. Accordingly, even if we believe one of our product
candidates meets the criteria for designation as a regenerative medicine advanced therapy, the FDA may disagree and instead determine not to make such
designation. In any event, the receipt of RMAT designation for a product candidate may not result in a faster development process, review or
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approval compared to drugs considered for approval under conventional FDA procedures and does not assure ultimate approval by the FDA. In addition,
even if one or more of our product candidates qualify for RMAT designation, the FDA may later decide that the biological products no longer meet the
conditions for qualification.
Outside of the United States, we intend to develop AVR-RD-01 in Japan under the purview of the Japanese Pharmaceutical and Medical Device
Agency, or PMDA. Pursuant to Japan’s regenerative medicine law, an expedited path to conditional approval may exist for regenerative medicine products
that show sufficient safety evidence and signals of efficacy in a Phase 2 clinical trial. However, there can be no assurance that the results of our ongoing
Phase 2 FAB-GT clinical trial will demonstrate the safety evidence and efficacy signals required for such conditional approval. In addition, this conditional
approval is time-limited, and there must be an agreement as to follow-up collection of information to confirm efficacy and safety, similar to a post-
marketing commitment in the United States.
We may be unable to obtain orphan drug designation for our product candidates and, even if we obtain such designation, we may not be able to
realize the benefits of such designation, including potential marketing exclusivity of our product candidates, if approved.
Regulatory authorities in some jurisdictions, including the United States and other major markets, may designate drugs intended to treat conditions
or diseases affecting relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate
as an orphan drug if it is intended to treat a rare disease or condition, which is generally defined as having a patient population of fewer than 200,000
individuals in the United States, or a patient population greater than 200,000 in the United States where there is no reasonable expectation that the cost of
developing the drug will be recovered from sales in the United States. In the European Union, EMA’s Committee for Orphan Medicinal Products grants
orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or
chronically debilitating condition affecting not more than 5 in 10,000 persons in the European Union. Additionally, orphan designation is granted for
products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without
incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or
biologic product.
In December 2018, October 2019 and March 2020, the FDA granted our requests for orphan drug designation for AVR-RD-01 for the treatment of
Fabry disease, AVR-RD-02 for the treatment of Gaucher disease and AVR-RD-04 for the treatment of cystinosis, respectively. In September 2020, October
2020 and March 2021 we announced that the European Commission granted our request for orphan drug designation for AVR-RD-02 for the treatment of
Gaucher disease, AVR-RD-01 for the treatment of Fabry disease, and AVR-RD-04 for the treatment of cystinosis, respectively. If we request orphan drug
designation (or the foreign equivalent) for any other product candidates, there can be no assurances that the FDA or foreign regulatory authorities will grant
any of our product candidates such designation. Additionally, the designation of any of our product candidates as an orphan product does not mean that any
regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency
to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product
candidates receiving exclusive marketing approval.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such
designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or foreign regulatory authorities from approving another
marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited
circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving
marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the United States and 10 years in the
European Union. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug
designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any
regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the
product to meet the needs of patients with the rare disease or condition.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from
competition because different drugs can be approved for the same condition in the United States. Even after an orphan drug is approved, the FDA may
subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug or is clinically superior in that it is
shown to be safer, more effective or
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makes a major contribution to patient care. In the European Union, marketing authorization may be granted to a similar medicinal product for the same
orphan indication if:
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the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already
authorized, is safer, more effective or otherwise clinically superior;
the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application;
or
the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal
product.
Even if we obtain regulatory approval for a product candidate, our products will remain subject to regulatory oversight.
Even if we obtain any regulatory approval for our product candidates, they will be subject to ongoing regulatory requirements for manufacturing,
labeling, packaging, storage, advertising, promotion, sampling, record-keeping and submission of safety and other post-market information. Any regulatory
approvals that we receive for our product candidates also may be subject to a REMS, limitations on the approved indicated uses for which the product may
be marketed or to the conditions of approval, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and
surveillance to monitor the quality, safety and efficacy of the product. For example, the holder of an approved BLA is obligated to monitor and report
adverse events and any failure of a product to meet the specifications in the BLA. FDA guidance advises that patients treated with gene therapies undergo
long-term follow-up observation for potential adverse events for as long as 15 years. The holder of an approved BLA also must submit new or
supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising
and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws.
In addition, product manufacturers and their facilities are subject to payment of user fees and continual review and periodic inspections by the FDA
and other regulatory authorities for compliance with current good manufacturing practices, or CGMP, requirements and adherence to commitments made in
the BLA or foreign marketing application. If we, or a regulatory authority, discover previously unknown problems with a product, such as adverse events of
unanticipated severity or frequency, or problems with the facility where the product is manufactured or disagrees with the promotion, marketing or labeling
of that product, a regulatory authority may impose restrictions relative to that product, the manufacturing facility or us, including requiring recall or
withdrawal of the product from the market or suspension of manufacturing.
If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory authority may:
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issue a warning letter asserting that we are in violation of the law;
seek an injunction or impose administrative, civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve a pending BLA or comparable foreign marketing application (or any supplements thereto) submitted by us or our strategic
partners;
restrict the marketing or manufacturing of the product;
seize or detain the product or otherwise require the withdrawal of the product from the market;
refuse to permit the import or export of products; or
refuse to allow us to enter into supply contracts, including government contracts.
Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate
negative publicity. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and adversely
affect our business, financial condition, results of operations and prospects.
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In addition, the FDA’s policies, and those of equivalent foreign regulatory agencies, may change and additional government regulations may be
enacted that could prevent, limit or delay regulatory approval of our product candidates. We cannot predict the likelihood, nature or extent of government
regulation that may arise from future legislation or administrative action, either in the United States or abroad. 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 and we may not achieve or sustain profitability, which would materially and adversely affect our business,
financial condition, results of operations and prospects.
Our focus on developing our current product candidates may not yield any commercially viable products, and our failure to successfully identify
and develop additional product candidates could impair our ability to grow.
As part of our growth strategy, we intend to identify, develop and market additional product candidates beyond our existing product candidates. We
may spend several years completing our development of any particular current or future product candidates, and failure can occur at any stage. The product
candidates to which we allocate our resources may not end up being successful. Because we have limited resources, we may forego or delay pursuit of
opportunities with certain programs or product candidates or for indications that later prove to have greater commercial potential than our product
candidates. Our spending on current and future research and development programs may not yield any commercially viable product candidates. If we do
not accurately evaluate the commercial potential for a particular product candidate, we may relinquish valuable rights to that product candidate through
strategic collaborations, licensing or other arrangements in cases in which it would have been more advantageous for us to retain sole development and
commercialization rights to such product candidate. If any of these events occur, we may be forced to abandon our development efforts with respect to a
particular product candidate or fail to develop a potentially successful product candidate.
Because our internal research capabilities are limited, we may be dependent upon biotechnology companies, academic scientists and other
researchers to sell or license product candidates, approved products or the underlying technology to us. The success of this strategy depends partly upon our
ability to identify, select, discover and acquire promising product candidates and products.
In addition, certain of our current or future product candidates may not demonstrate in patients any or all of the pharmacological benefits we believe
they may possess or compare favorably to existing, approved therapies, such as ERT. We have not yet succeeded and may never succeed in demonstrating
efficacy and safety of our product candidates or any future product candidates in clinical trials or in obtaining marketing approval thereafter. Accordingly,
our focus on treating these diseases may not result in the development of commercially viable products.
If we are unsuccessful in our development efforts, we may not be able to advance the development of our product candidates, commercialize
products, raise capital, expand our business or continue our operations.
Risks related to manufacturing
Gene therapies are novel, complex and difficult to manufacture. We could experience production problems that result in delays in our
development or commercialization programs or otherwise adversely affect our business.
The manufacturing process we use to produce our product candidates is complex, novel and has not been validated for commercial use. Several
factors could cause production interruptions, including equipment malfunctions, facility contamination, raw material shortages or contamination, natural
disasters, disruption in utility services, human error or disruptions in the operations of our suppliers.
Our product candidates require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike
chemical pharmaceuticals, the physical and chemical properties of a biologic such as ours generally cannot be fully characterized. As a result, assays of the
finished product may not be sufficient to ensure that the product will perform in the intended manner. Accordingly, we and our manufacturing suppliers
employ multiple steps to control the manufacturing process with the goal of ensuring that the product candidate is made strictly and consistently in
compliance with the process. Problems with the manufacturing process, including even minor deviations from the intended process, could result in product
defects or manufacturing failures that result in lot failures, product recalls, product liability claims or insufficient inventory. We may encounter problems
achieving adequate quantities and quality of clinical-grade materials that meet FDA or other applicable regulatory standards or specifications with
consistent and acceptable production yields and costs.
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In addition, the FDA and other foreign regulatory authorities may require us to submit samples of any lot of any approved product together with the
protocols showing the results of applicable tests at any time. Under some circumstances, the FDA or other foreign regulatory authorities may require that
we not distribute a lot until the agency authorizes its release. Even slight deviations in the manufacturing process, including those affecting quality
attributes and stability, may result in unacceptable changes in the product that could result in lot failures or product recalls. There is no assurance we will
not experience lot failures in the future. Lot failures or product recalls could cause us to delay clinical trials, or, if approved, commercial product launches,
which could be costly to us and otherwise harm our business, financial condition, results of operations and prospects.
Risks related to our reliance on third parties
We expect to rely on third parties to conduct some or all aspects of our vector production, product manufacturing, protocol development,
research and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We do not expect to independently conduct all aspects of our vector production, product manufacturing, protocol development, research and
preclinical and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these items. For example, we have moved
our cell processing to an automated, closed system with a single third-party supplier.
Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it could delay our
product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but
will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols. For example, for product candidates that we
develop and commercialize on our own, we will remain responsible for ensuring that each of our preclinical and clinical studies are conducted in
accordance with the study plan, protocols and regulatory requirements.
If our contract counterparties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance
with regulatory requirements or our stated study plans and protocols, we will not be able to complete, or may be delayed in completing, the preclinical and
clinical studies required to support approval of our product candidates or the FDA or other regulatory agencies may refuse to accept our clinical or
preclinical data. For example, in 2017, the ongoing investigator-sponsored Phase 1 clinical trial of AVR-RD-01 encountered delays in the enrollment of
patients due to delays in identifying patients for enrollment and the evaluation of information from screened potential trial participants. In 2019, we
encountered delays in the enrollment of patients in the Company-sponsored Guard1 clinical trial of AVR-RD-02 for Gaucher disease. While a number of
interested patients had been identified for the Guard1 clinical trial, we encountered patient pre-screening failures that impacted the commencement of
enrollment in these studies. In 2020, a kidney biopsy was conducted on the third patient in the FAB-GT clinical trial of AVR-RD-01, but due to human
error in processing the biopsy sample at the external laboratory vendor, the kidney Gb3 inclusions could not be evaluated and will not be available.
Although our quality assurance personnel have worked closely with the external vendor to identify the cause of the vendor error and to identify additional
protocols for implementation by the vendor that are designed to prevent similar errors in the future, there can be no assurances that such protocols will be
successfully implemented by the vendor.
Reliance on third-party manufacturers entails risks to which we would not be subject if we manufactured the product candidates ourselves,
including:
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the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations,
including the impact of the ongoing COVID-19 pandemic or the bankruptcy of the manufacturer or supplier.
Any of these events could lead to delays of our preclinical and clinical studies or failure to obtain regulatory approval, or impact our ability to
successfully commercialize future products. Some of these events could be the basis for FDA action, including injunction, recall, seizure or total or partial
suspension of production.
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We are dependent on a limited number of suppliers for some of our components and materials used in our product candidates.
We currently depend on a limited number of suppliers for some of the components necessary for our product candidates. We cannot be sure that
these suppliers will remain in business, or that they will not be purchased by one of our competitors or another company that is not interested in continuing
to produce these materials for our intended purpose. Our use of a limited number of suppliers of raw materials, components and finished goods exposes us
to several risks, including disruptions in supply, price increases, late deliveries and an inability to meet customer demand. There are, in general, relatively
few alternative sources of supply for these components. These vendors may be unable or unwilling to meet our future demands for our clinical trials or
commercial sale. Establishing additional or replacement suppliers for these components could take a substantial amount of time and it may be difficult to
establish replacement suppliers who meet regulatory requirements. Any disruption in supply from any supplier or manufacturing location could lead to
supply delays or interruptions which would damage our business, financial condition, results of operations and prospects.
If we are required to switch to a replacement supplier or manufacture materials ourselves, the manufacture and delivery of our product candidates
could be interrupted for an extended period, adversely affecting our business. Establishing additional or replacement suppliers may not be accomplished
quickly, and we may not be able to enter agreements with replacement suppliers on reasonable terms, if at all. In either scenario, our clinical trials supply
could be delayed significantly as we establish alternative supply sources. In some cases, the technical skills required to manufacture our products or product
candidates may be unique or proprietary to the original CMO and we may have difficulty, or there may be contractual restrictions prohibiting us from,
transferring such skills to a back-up or alternate supplier, or we may be unable to transfer such skills at all. If we are able to find a replacement supplier, the
replacement supplier would need to be qualified and may require additional regulatory authority approval, which could result in further delay. For example,
the FDA could require additional supplemental bridging data if we rely upon a new supplier. We may be unsuccessful in demonstrating the comparability
of clinical supplies which could require the conduct of additional clinical trials. While we seek to maintain adequate inventory of the components and
materials used in our product candidates, any interruption or delay in the supply of components or materials, or our inability to obtain components or
materials from alternate sources at acceptable prices in a timely manner, could impair our ability to conduct our clinical trials and, if our product candidates
are approved, to meet the demand of our customers and cause them to cancel orders.
In addition, as part of the FDA’s approval of our product candidates, the FDA must review and approve the individual components of our
production process, which includes the manufacturing processes and facilities of our suppliers. Our current suppliers have not undergone this process, nor
have they had any components included in any product approved by the FDA.
Our reliance on these suppliers subjects us to a number of risks that could harm our reputation, business, and financial condition, including, among
other things:
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delays in production, supply, shipment or delivery as a result of the ongoing COVID-19 pandemic;
the interruption of supply resulting from modifications to or discontinuation of a supplier’s operations;
delays in product shipments resulting from uncorrected defects, reliability issues, or a supplier’s variation in a component;
a lack of long-term supply arrangements for key components with our suppliers;
the inability to obtain adequate supply in a timely manner, or to obtain adequate supply on commercially reasonable terms;
difficulty and cost associated with locating and qualifying alternative suppliers for our components in a timely manner;
production delays related to the evaluation and testing of products from alternative suppliers, and corresponding regulatory qualifications;
a delay in delivery due to our suppliers prioritizing other customer orders over ours;
damage to our reputation caused by defective components produced by our suppliers;
increased cost of our warranty program due to product repair or replacement based upon defects in components produced by our suppliers;
and
fluctuation in delivery by our suppliers due to changes in demand from us or their other customers.
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If any of these risks materialize, costs could significantly increase and our ability to conduct our clinical trials and, if our product candidates are
approved, to meet demand for our products could be impacted.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing
facilities on which we rely may not continue to meet regulatory requirements and have limited capacity.
We currently have relationships with a limited number of suppliers for the manufacturing of our viral vectors and product candidates. Each supplier
may require licenses to manufacture such components if such processes are not owned by the supplier or in the public domain and we may be unable to
transfer or sublicense the intellectual property rights we may have with respect to such activities.
All entities involved in the preparation of therapeutics for clinical studies or commercial sale, including our existing contract manufacturers for our
product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in clinical
studies must be manufactured in accordance with CGMP. These regulations govern manufacturing processes and procedures (including record keeping) and
the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor
control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or
stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary
documentation in support of a BLA on a timely basis and must adhere to the FDA’s good laboratory practices, or GLP, and CGMP regulations enforced by
the FDA through its facilities inspection program. Some of our contract manufacturers have not produced a commercially-approved product and have never
been inspected by the FDA before. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors
must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any
of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect a manufacturing facility involved with the
preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the
activities being conducted. If these facilities do not pass a pre-approval plant inspection, or if the FDA is unable to conduct such an inspection due to the
COVID-19 pandemic, the FDA may issue a complete response letter or defer action on our applications, and approval of the products may be delayed or
may not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-
party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or
applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may
be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or
commercial sales or the temporary or permanent closure of a facility. Any such remedial measures imposed upon us or third parties with whom we contract
could materially harm our business.
If we or any of our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among
other things, refusal to approve a pending application for a new drug product or biologic product, or revocation of a pre-existing approval. As a result, our
business, financial condition and results of operations may be materially harmed.
These factors could cause the delay of clinical studies, regulatory submissions, required approvals or commercialization of our product candidates,
cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual
requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our preclinical and
clinical studies may be delayed.
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.
Because we rely on third parties to manufacture our vectors and our product candidates, and because we collaborate with various organizations and
academic institutions on the advancement of our gene therapy approach, we must, at times, share trade secrets with them. We seek to protect our
proprietary technology in part by entering into confidentiality agreements and, if applicable, material transfer agreements, collaborative research
agreements, consulting agreements or other similar agreements with our collaborators, advisors, employees and consultants prior to beginning research or
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disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, such as
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 a material adverse effect on our business.
In addition, these agreements typically restrict the ability of our collaborators, advisors, employees and consultants to publish data potentially
relating to our trade secrets. Our academic collaborators typically have rights to publish data, provided that we are notified in advance and may delay
publication for a specified time in order to secure our intellectual property rights arising from the collaboration. In other cases, publication rights are
controlled exclusively by us, although in some cases we may share these rights with other parties. Despite our efforts to protect our trade secrets, our
competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including
our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade
secrets would impair our competitive position and have an adverse impact on our business.
Risks related to commercialization of our product candidates
If we are unable to establish sales, distribution and marketing capabilities or enter into agreements with third parties to market and sell our
product candidates, we will be unable to generate any product revenue.
We are in the preliminary stages of building our commercial organization. To successfully commercialize any of our current or future product
candidates, if approved, we will need to develop these capabilities, either on our own or with others. The establishment and development of our own
commercial team or the establishment of a contract sales force to market any product candidate we may develop will be expensive and time-consuming and
could delay any product launch. Moreover, we cannot be certain that we will be able to successfully develop this capability. We may enter into
collaborations regarding any approved product candidates with other entities to utilize their established marketing and distribution capabilities, but we may
be unable to enter into such agreements on favorable terms, if at all. If any future collaborators do not commit sufficient resources to commercialize our
product candidates, or we are unable to develop the necessary capabilities on our own, we will be unable to generate sufficient product revenue to sustain
our business. We compete with many companies that currently have extensive, experienced and well-funded sales, distribution and marketing operations to
recruit, hire, train and retain marketing and sales personnel. We also face competition in our search for third parties to assist us with the sales and marketing
efforts of our product candidates, if approved. 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 the market opportunities for our product candidates are smaller than we believe they are, our product revenues may be adversely affected and
our business may suffer.
We focus our research and product development on treatments for serious lysosomal disorders. Our understanding of both the number of people
who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with our product candidates,
are based on estimates. These estimates may prove to be incorrect and new studies may reduce the estimated incidence or prevalence of these diseases. The
number of patients in the United States and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with our
products or patients may become increasingly difficult to identify and access, all of which would adversely affect our business, financial condition, results
of operations and prospects.
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The commercial success of any current or future product candidate will depend upon the degree of market acceptance by physicians, patients,
third-party payors and others in the medical community.
Even if we obtain any regulatory approval for our product candidates, the commercial success of our product candidates will depend in part on the
medical community, patients, and third-party payors accepting gene therapy products in general, and our product candidates in particular, as effective, safe
and cost-effective. Any product that we bring to the market may not gain market acceptance by physicians, patients, third-party payors and others in the
medical community. The degree of market acceptance of these product candidates, if approved for commercial sale, will depend on a number of factors,
including:
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the potential efficacy and potential advantages over alternative treatments, including any similar generic treatments;
the efficacy and safety as demonstrated in pivotal clinical trials and published in peer-reviewed journals;
the prevalence and severity of any adverse events or side effects, including any limitations or warnings contained in a product’s approved
labeling or that are later found to be associated with a product, including in findings from long-term follow-up studies;
the prevalence and severity of any side effects resulting from the conditioning regimen for the administration of our product candidates;
the ability to offer the products for sale at competitive prices;
the clinical indications for which the products are approved by the FDA or comparable regulatory agencies;
the relative convenience and ease of dosing and administration compared to alternative treatments;
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
the strength of marketing and distribution support and timing of market introduction of competitive products;
restrictions on how the product is distributed;
publicity concerning our products or competing products and treatments; and
favorable third-party insurance coverage and sufficient reimbursement.
Sales of medical products also depend on the willingness of physicians to prescribe the treatment, which is likely to be based on a determination by
these physicians that the products are safe, therapeutically effective and cost effective. In addition, the inclusion or exclusion of products from treatment
guidelines established by various physician groups and the viewpoints of influential physicians can affect the willingness of other physicians to prescribe
the treatment. We cannot predict whether physicians, physicians’ organizations, hospitals, other healthcare providers, government agencies or private
insurers will determine that our product is safe, therapeutically effective and cost effective as compared with competing treatments.
Even if a product candidate displays a favorable efficacy and safety profile in preclinical and clinical studies, market acceptance of the product, if
approved for commercial sale, will not be known until after it is launched. Our efforts to educate the medical community and third-party payors on the
benefits of our product candidates may require significant resources and may never be successful. Such efforts to educate the marketplace may require
more resources than are required by the conventional technologies marketed by our competitors. If these products do not achieve an adequate level of
acceptance, we may not generate significant product revenue and may not become profitable.
If we obtain approval to commercialize our product candidates outside of the United States, a variety of risks associated with international
operations could materially adversely affect our business.
We are currently conducting clinical trials for our product candidates in the United States, Canada and Australia, and plan to expand to other
geographies including Japan, Europe and Israel. If any of our product candidates are approved for commercialization, we may enter into agreements with
third parties to market them on a worldwide basis or in more limited geographical regions. We expect that we will be subject to additional risks related to
entering into international business relationships, including:
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different regulatory requirements for approval of drugs and biologics in foreign countries;
reduced protection for intellectual property rights;
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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 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;
production 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.
The insurance coverage and reimbursement status of newly-approved products are uncertain. Failure to obtain or maintain adequate coverage
and reimbursement for any of our product candidates, if approved, could limit our ability to market those products and decrease our ability to
generate revenue.
The regulations that govern marketing approvals, pricing 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 or their 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.
Our ability to successfully commercialize our product candidates or any other products that we or they may develop also will depend in part on the
extent to which reimbursement for these products and related treatments will be available from government health administration authorities, private health
insurers, and other organizations. Government authorities and other 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 and extent of reimbursement by
governmental and private payors is essential for most patients to be able to afford treatments. Sales of our product candidates 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. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. If
reimbursement is not available, or is available only at limited levels, we may not be able to successfully commercialize our product candidates, if approved.
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.
There is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States, the principal
decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services, or CMS, an agency within the U.S.
Department of Health and Human Services, as CMS decides whether and to what extent a new medicine will be covered and reimbursed under Medicare.
Private payors tend to follow CMS to a substantial degree. It is difficult to predict what CMS will decide with respect to reimbursement for fundamentally
novel products such as ours, as there is no body of established practices and precedents for these new products. Patients who are provided medical
treatment for their conditions generally rely on third-party payors to reimburse all or part of the costs associated with their treatment. Adequate coverage
and reimbursement from governmental healthcare programs and commercial payors are critical to new product acceptance. Government authorities and
other third-party payors, such as private health insurers and health maintenance organizations, decide which drugs and treatments they will cover and the
amount of reimbursement. Coverage and reimbursement by a third-party payor may depend upon a number of factors, including the third-party payor’s
determination that use of a product is:
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a covered benefit under its health plan;
safe, effective and medically necessary;
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appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have
attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. 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 and certain other major markets where we plan to commercialize may put pressure on the pricing and usage of our
product candidates. In many countries, the prices of medical products are subject to varying price control mechanisms as part of national health systems,
and 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 our product
candidates to other available therapies. In general, the prices of medicines under such systems are substantially lower than in the United States. Other
countries allow companies to fix their own prices for medicines, but monitor and control company profits. Additional foreign price controls or other
changes in pricing regulation could restrict the amount that we are able to charge for our product candidates. Accordingly, in markets outside the United
States, the reimbursement for our products may be reduced compared with the United States and may be insufficient to generate commercially reasonable
revenues and profits.
Moreover, efforts by governmental and other third-party payors, in the United States and abroad, to cap or reduce healthcare costs may cause such
organizations to limit both coverage and level of reimbursement for new products approved and, as a result, they may not cover or provide adequate
payment for our product candidates. We expect to experience pricing pressures in connection with the sale of any of our product candidates, 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 to the entry of new products.
Due to the novel nature of our technology and the potential for our product candidates to offer therapeutic benefit in a single administration, we
face uncertainty related to pricing and reimbursement for these product candidates.
Our target patient populations are relatively small, as a result of which the pricing and reimbursement of our product candidates, if approved, must
be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell
our product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates
(e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and
adversely affect our ability to market or sell our product candidates, if approved.
Healthcare legislative reform measures and constraints on national budget social security systems may have a material adverse effect on our
business and results of operations.
The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that
could prevent or delay marketing approval of our product candidates or any future product candidates, restrict or regulate post-approval activities and affect
our ability to profitably sell any product 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 the operation of our business.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For example, in 2010, the
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act of 2010, or the ACA, was enacted, which,
substantially changes the way healthcare is financed by both governmental and private insurers, and significantly impacts the U.S. pharmaceutical industry.
The ACA, among other things, subjects biologic 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 most manufacturers under the Medicaid Drug Rebate Program, increases the minimum Medicaid rebates
owed by manufacturers under the Medicaid Drug Rebate Program, extends the Medicaid Drug Rebate program to utilization of prescriptions of individuals
enrolled in Medicaid
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managed care organizations, subjects manufacturers to new annual fees and taxes for certain branded prescription drugs, creates a new Medicare Part D
coverage gap discount program, in which manufacturers must agree to offer 70% (as of 2019) 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, and provides incentives to programs that increase the federal government’s comparative effectiveness research.
Since its enactment, there have been numerous judicial, administrative, executive, and legislative challenges to certain aspects of the ACA, and we
expect there will be additional challenges and amendments to the ACA in the future. Various portions of the ACA are currently undergoing legal and
constitutional challenges in the United States Supreme Court and members of Congress have introduced several pieces of legislation aimed at significantly
revising or repealing the ACA. The United States Supreme Court is expected to rule on a legal challenge to the constitutionality of the ACA in early 2021.
The implementation of the ACA is ongoing, the law appears likely to continue the downward pressure on pharmaceutical pricing, especially under the
Medicare program, and may also increase our regulatory burdens and operating costs. Litigation and legislation related to the ACA are likely to continue,
with unpredictable and uncertain results.In addition, other legislative changes have been proposed and adopted in the United States since the ACA was
enacted. In August 2011, the Budget Control Act of 2011, among other things, created measures for spending reductions by Congress. A Joint Select
Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was
unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This includes aggregate reductions
of Medicare payments to providers of 2% per fiscal year, which went into effect in April 2013, and will remain in effect through 2030 unless additional
Congressional action is taken; however, pursuant to the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act, these
reductions have been suspended from May 1, 2020 through March 31, 2021 due to the COVID-19 pandemic. Proposed legislation, if passed, would extend
this suspension until the end of the pandemic. In January 2013, the American Taxpayer Relief Act of 2012, was signed into law, which, among other things,
further reduced Medicare payments to several providers, including hospitals and cancer treatment centers, and increased the statute of limitations period for
the government to recover overpayments to providers from three to five years.
There has been increasing legislative and enforcement interest in the United States with respect to specialty drug pricing practices. Specifically,
there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more
transparency to drug pricing, reduce the cost of prescription drugs under Medicare, review the relationship between pricing and manufacturer patient
programs, and reform government program reimbursement methodologies for drugs.
In 2020, the former President signed four Executive Orders aimed at lowering drug prices. In response, the FDA released a final rule on September
24, 2020, which went into effect on November 30, 2020, providing guidance for states to build and submit importation plans for drugs from Canada.
Further, on November 20, 2020 CMS issued an Interim Final Rule implementing the Most Favored Nation, or MFN, Model under which Medicare Part B
reimbursement rates will be calculated for certain drugs and biologicals based on the lowest price drug manufacturers receive in Organization for Economic
Cooperation and Development countries with a similar gross domestic product per capita. The MFN Model regulations mandate participation by identified
Part B providers and would have applied to all U.S. states and territories for a seven-year period beginning January 1, 2021, and ending December 31,
2027. However, in response to a lawsuit filed by several industry groups, on December 28, the U.S. District Court for the Northern District of California
issued a nationwide preliminary injunction enjoining government defendants from implementing the MFN Rule pending completion of notice-and-
comment procedures under the Administrative Procedure Act. On January 13, 2021, in a separate lawsuit brought by industry groups in the U.S. District of
Maryland, the government defendants entered a joint motion to stay litigation on the condition that the government would not appeal the preliminary
injunction granted in the U.S. District Court for the Northern District of California and that performance for any final regulation stemming from the MFN
Interim Final Rule shall not commence earlier than 60 days after publication of that regulation in the Federal Register. Further, authorities in Canada have
passed rules designed to safeguard the Canadian drug supply from shortages. If implemented, importation of drugs from Canada and the MFN Model may
materially and adversely affect the price we receive for any of our product candidates. Additionally, on December 2, 2020, HHS published a regulation
removing safe harbor protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy
benefit managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-sale, as
well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to an order entered by the U.S.
District Court for the District of Columbia, the portion of the rule eliminating safe harbor protection for certain rebates related to the sale or purchase of a
pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D has been delayed to January 1, 2023. Further, implementation of this
change and new safe harbors for point-of-sale reductions in price for prescription pharmaceutical products and pharmacy benefit manager service
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fees are currently under review by the Biden administration and may be amended or repealed. The regulatory and market implications of the Executive
Orders are unknown at this time, but could decrease the price we receive for any products that we may develop and commercialize and could adversely
affect our future revenues and prospects for profitability. Additionally, HHS, has already implemented certain measures. For example, in May 2019, CMS
issued a final rule to allow Medicare Advantage Plans the option of using step therapy, a type of prior authorization, for Part B drugs beginning January 1,
2020. This final rule codified CMS’s policy change that was effective January 1, 2019. At the state level, legislatures have increasingly passed legislation
and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints,
discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage
importation from other countries and bulk purchasing.
We expect that the healthcare reform measures that have been adopted and may be adopted in the future, may result in more rigorous coverage
criteria and in additional downward pressure on the price that we receive for any approved product and could seriously harm our future revenues. Any
reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private third-party payors.
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. We cannot predict the initiatives that may be adopted in the future. The
continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs
of healthcare and/or impose price controls may adversely affect:
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the demand for our drug product candidates, if we obtain regulatory approval;
our ability to set a price that we believe is fair for our products;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Any denial in coverage or reduction in reimbursement from Medicare or other government programs may result in a similar denial or reduction in
payments from private payors, which may adversely affect our future profitability.
Inadequate funding for the FDA and other government agencies could hinder their ability to hire and retain key leadership and other
personnel, prevent new products and services from being developed or commercialized in a timely manner or otherwise prevent those agencies
from performing normal business functions on which the operation of our business may rely, which could negatively impact our business.
The ability of the FDA to review and approve new products can be affected by a variety of factors, including government budget and funding
levels, ability to hire and retain key personnel and accept the payment of user fees, and statutory, regulatory, and policy changes. Average review times at
the agency have fluctuated in recent years as a result. In addition, government funding of other agencies on which our operations may rely, including those
that fund research and development activities, is subject to the political process, which is inherently fluid and unpredictable.
Disruptions at the FDA and other agencies may also slow the time necessary for new drugs to be reviewed and/or approved by necessary
government agencies, which would adversely affect our business. For example, over the last several years the U.S. government has shut down several times
and certain regulatory agencies, such as the FDA, have had to furlough critical FDA and other government employees and stop critical activities.
Additionally, as of June 23, 2020, the FDA noted it is continuing to ensure timely reviews of applications for medical products during the COVID-19
pandemic in line with its user fee performance goals; however, the FDA may not be able to continue its current pace and review timelines could be
extended, including where a pre-approval inspection or an inspection of clinical sites is required and due to the COVID-19 pandemic and travel restrictions
FDA is unable to complete such required inspections during the review period. Since March 2020, foreign and domestic inspections by the FDA have
largely been on hold with the FDA announcing plans in July 2020 to resume prioritized domestic inspections. However, the FDA’s inspection activities will
depend on data about the virus’ trajectory in a given state and locality and the rules and guidelines that are put in place by state and local governments. The
FDA has developed a rating system to assist in determining when and where it is safest to conduct prioritized domestic inspections. Should the FDA
determine that an inspection is necessary for approval and an inspection cannot be completed during the review cycle due to restrictions on travel, the FDA
has stated that it generally intends to issue a complete response letter. Further, if there is inadequate information to make a determination on the
acceptability of a
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facility, the FDA may defer action on the application until an inspection can be completed. In 2020, several companies announced receipt of complete
response letters due to the FDA's inability to complete required inspections for their applications. Regulatory authorities outside the U.S. may adopt similar
restrictions or other policy measures in response to the COVID-19 pandemic and may experience delays in their regulatory activities. If a prolonged
government shutdown occurs, it could significantly impact the ability of the FDA to timely review and process our regulatory submissions, which could
have a material adverse effect on our business. Further, future shutdowns of other government agencies, such as the SEC, may also impact our business
through review of our public filings and our ability to access the public markets.
Any contamination in our manufacturing process, shortages of materials or failure of any of our key suppliers to deliver necessary components
could result in interruption in the supply of our product candidates and delays in our clinical development or commercialization schedules.
Given the nature of biologics manufacturing, there is a risk of contamination in our manufacturing processes. Any contamination could materially
adversely affect our ability to produce product candidates on schedule and could, therefore, harm our results of operations and cause reputational damage.
Some of the materials required in our manufacturing process are derived from biologic sources. Such materials are difficult to procure and may be
subject to contamination or recall. A material shortage, contamination, recall or restriction on the use of biologically derived substances in the manufacture
of our product candidates could adversely impact or disrupt the commercial manufacturing or the production of clinical material, which could materially
and adversely affect our development timelines and our business, financial condition, results of operations and prospects.
Risks related to our business operations
Our gene therapy approach utilizes lentiviral vectors derived from viruses, which may be perceived as unsafe or may result in unforeseen
adverse events. Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception
of our product candidates or adversely affect our ability to conduct our business or obtain regulatory approvals for our product candidates.
Gene therapy remains a novel technology, with only a limited number of gene therapy products approved to date. Public perception may be
influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our
success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve
the use of our product candidates in lieu of, or in addition to, existing treatments they are already familiar with and for which greater clinical data may be
available. More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may
delay or impair the development and commercialization of our product candidates or demand for any products we may develop. For example, earlier gene
therapy trials led to several well-publicized adverse events, including cases of leukemia, myelodysplastic syndromes and deaths seen in other trials using
other vectors. In addition, in February 2021 a lentiviral gene therapy company reported a potential case of myelodysplastic syndrome and another case of
acute myeloid leukemia in their clinical trials for sickle cell disease, and these cases remain under investigation. Adverse events in our clinical studies or
discovered in long-term follow-up, even if not ultimately attributable to our product candidates (such as the many adverse events that typically arise from
the conditioning process), or adverse events in other lentiviral gene therapy trials, and the resulting publicity could result in a decline in our stock price,
increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates,
stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates.
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Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified
personnel.
We are highly dependent on principal members of our executive team and key employees, the loss of whose services may adversely impact the
achievement of our objectives. While we have entered into employment agreements with each of our executive officers, any of them could leave our
employment at any time, as all of our employees are “at will” employees. We do not maintain “key person” insurance policies on the lives of these
individuals or the lives of any of our other employees. The loss of the services of one or more of our current employees might impede the achievement of
our research, development and commercialization objectives. Recruiting and retaining other qualified employees, consultants and advisors for our business,
including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is
likely to continue. As a result, competition for skilled personnel, including in gene therapy research and vector manufacturing, is intense and the turnover
rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical and
biotechnology companies for individuals with similar skill sets. In addition, failure to succeed in preclinical or clinical trials may make it more challenging
to recruit and retain qualified personnel. The inability to recruit or the loss of the services of any executive, key employee, consultant or advisor may
impede the progress of our research, development and commercialization objectives.
We will need to expand our operations and we may experience difficulties in managing this growth, which could disrupt our operations.
As of December 31, 2020, we had 121 full-time employees. As we mature, we expect to rapidly expand our full-time employee base and to hire
more consultants and contractors. Our management may need to divert a disproportionate amount of its attention away from our day-to-day activities and
devote a substantial amount of time to managing these growth activities. We may not be able to effectively manage the expansion of our operations, which
may result in weaknesses in our infrastructure, operational mistakes, loss of business opportunities, loss of employees and reduced productivity among
remaining employees. Our expected growth could require significant capital expenditures and may divert financial resources from other projects, such as
the development of additional product candidates. If our management is unable to effectively manage our growth, our expenses may increase more than
expected, our ability to generate and/or grow revenues could be reduced, and we may not be able to implement our business strategy. Our future financial
performance and our ability to commercialize product candidates and compete effectively will depend, in part, on our ability to effectively manage any
future growth.
If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
If we are successful in executing our business strategy, we will need to expand our managerial, operational, financial and other systems and
resources to manage our operations, continue our research and development activities and, in the longer term, build a commercial infrastructure to support
commercialization of any of our product candidates that are approved for sale. Future growth would impose significant added responsibilities on members
of management. It is likely that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support
this future growth. Our need to effectively manage our operations, growth and product candidates requires that we continue to develop more robust
business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We
may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities, including
non-compliance with regulatory standards and requirements and insider trading.
We are exposed to the risk of fraud or other misconduct by our employees, principal investigators, consultants and commercial partners. Misconduct
by these parties could include intentional failures to comply with the regulations of the FDA or of other foreign regulatory authorities, provide accurate
information to the FDA and other foreign regulatory authorities, comply with healthcare fraud and abuse laws and regulations in the United States and
abroad, report financial information or data accurately or disclose unauthorized activities to us. In particular, sales, marketing and business arrangements in
the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, kickbacks, self-dealing and other abusive
practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer
incentive programs and other business arrangements. Such misconduct could also involve the improper use of information obtained in the course of clinical
studies, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct
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applicable to all of our employees, but it is not always possible to identify and deter employee 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 us from governmental investigations or
other actions or lawsuits stemming from a failure to comply with these 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, including the imposition of
significant fines or other sanctions.
We are subject to certain U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and
regulations. We can face serious consequences for violations.
Among other matters, U.S. and foreign anti-corruption, anti-money laundering, export control, sanctions, and other trade laws and regulations,
which are collectively referred to as Trade Laws, prohibit companies and their employees, agents, clinical research organizations, legal counsel,
accountants, consultants, contractors, and other partners from authorizing, promising, offering, providing, soliciting, or receiving directly or indirectly,
corrupt or improper payments or anything else of value to or from recipients in the public or private sector. Violations of Trade Laws can result in
substantial criminal fines and civil penalties, imprisonment, the loss of trade privileges, debarment, tax reassessments, breach of contract and fraud
litigation, reputational harm, and other consequences. We have direct or indirect interactions with officials and employees of government agencies or
government-affiliated hospitals, universities, and other organizations. We also expect our non-U.S. activities to increase in time. We plan to engage third
parties for clinical trials and/or to obtain necessary permits, licenses, patent registrations, and other regulatory approvals and we can be held liable for the
corrupt or other illegal activities of our personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities. The
failure to comply with laws governing international business practices may result in substantial civil and criminal penalties and suspension or debarment
from government contracting. The SEC also may suspend or bar issuers from trading securities on U.S. exchanges for violations of the United States
Foreign Corrupt Practices Act’s accounting provisions.
We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws health information privacy and
security laws, and other health care laws and regulations. If we are unable to comply, or have not fully complied, with such laws, we could face
substantial penalties.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations will be
directly, or indirectly through our prescribers, customers and purchasers, subject to various federal and state fraud and abuse laws and regulations,
including, without limitation, the federal Health Care Program Anti-Kickback Statute, the federal civil and criminal False Claims Act and Physician
Payments Sunshine Act and regulations. These laws will impact, among other things, our proposed sales, marketing and educational programs. In addition,
we may be subject to patient privacy laws by both the federal government and the states in which we conduct our business. The laws that will affect our
operations include, but are not limited to:
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the federal Anti-Kickback Statute, which prohibits, among other things, knowingly and willfully soliciting, receiving, offering or paying any
remuneration (including any kickback, bribe or rebate), directly or indirectly, overtly or covertly, in cash or in kind, to induce, or in return for,
either the referral of an individual, 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 a federal healthcare program, such as the Medicare and Medicaid programs. A person or entity can be
found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, 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 False
Claims Act, or FCA. The Anti-Kickback Statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the
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. On December 2, 2020, HHS published a regulation removing safe harbor
protection for price reductions from pharmaceutical manufacturers to plan sponsors under Part D, either directly or through pharmacy benefit
managers, unless the price reduction is required by law. The rule also creates a new safe harbor for price reductions reflected at the point-of-
sale, as well as a safe harbor for certain fixed fee arrangements between pharmacy benefit managers and manufacturers. Pursuant to an order
entered by the U.S. District Court for the District of Columbia, the portion of the rule eliminating safe harbor protection for certain rebates
related to the sale or purchase of a pharmaceutical product from a manufacturer to a plan sponsor under Medicare Part D has been delayed to
January 1, 2023. Further, implementation of this change and new safe harbors for point-of-sale reductions in price for prescription
pharmaceutical products and pharmacy benefit manager service fees are currently under review by the Biden administration and may be
amended or repealed;
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federal civil and criminal false claims laws and civil monetary penalty laws, including the FCA, which prohibit, among other things,
individuals or entities from knowingly presenting, or causing to be presented, false or fraudulent claims for payment to, or approval by
Medicare, Medicaid, or other federal healthcare programs, knowingly making, using or causing to be made or used a false record or statement
material to a false or fraudulent claim or an obligation to pay or transmit money to the federal government, or knowingly concealing or
knowingly and improperly avoiding or decreasing or concealing an obligation to pay money to the federal government. Manufacturers can be
held liable under the FCA even when they do not submit claims directly to government payors if they are deemed to “cause” the submission of
false or fraudulent claims. The FCA also permits a private individual acting as a “whistleblower” to bring actions on behalf of the federal
government alleging violations of the FCA and to share in any monetary recovery;
the anti-inducement law, which prohibits, among other things, the offering or giving of remuneration, which includes, without limitation, any
transfer of items or services for free or for less than fair market value (with limited exceptions), 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 Health Insurance Portability and Accountability Act of 1996, or HIPAA, which created new federal criminal statutes that prohibit a
person from knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program or obtain, by
means of false or fraudulent pretenses, representations or promises, any of the money or property owned by, or under the custody or control of,
any healthcare benefit program, regardless of the payor (e.g., public or private) and knowingly and willfully falsifying, concealing or covering
up by any trick or device a material fact or making any materially false statements in connection with the delivery of, or payment for,
healthcare benefits, items or services relating to healthcare matters; 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;
HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and their respective implementing
regulations, which impose requirements on certain covered healthcare providers, health plans, and healthcare clearinghouses as well as their
respective business associates that perform services for them that involve the use, or disclosure of, individually identifiable health information
relating to the privacy, security and transmission of individually identifiable health information;
the federal transparency requirements under the ACA, including the provision commonly referred to as the Physician Payments Sunshine Act,
which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or
the Children’s Health Insurance Program to report annually to the U.S. Department of Health and Human Services information related to
payments or other transfers of value made to physicians (currently defined to include doctors, dentists, optometrists, podiatrists and
chiropractors), physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists and teaching hospitals,
as well as ownership and investment interests held by the physicians described above and their immediate family members.
federal government price reporting laws, which require us to calculate and report complex pricing metrics in an accurate and timely manner to
government programs; and
federal consumer protection and unfair competition laws, which broadly regulate marketplace activities and activities that potentially harm
consumers
Additionally, we are subject to state and foreign equivalents of each of the healthcare laws described above, among others, some of which may be
broader in scope and may apply regardless of the payor. Many U.S. states have adopted laws similar to the federal Anti-Kickback Statute, some of which
apply to the referral of patients for healthcare services reimbursed by any source, not just governmental payors, including private insurers. In addition,
some states have passed laws that require pharmaceutical companies to comply with the April 2003 Office of Inspector General Compliance Program
Guidance for Pharmaceutical Manufacturers and/or the Pharmaceutical Research and Manufacturers of America’s Code on Interactions with Healthcare
Professionals. Several states also impose other marketing restrictions or require pharmaceutical companies to make marketing or price disclosures to the
state. There are ambiguities as to what is required to comply with these state requirements and if we fail to comply with an applicable state law requirement
we could be subject to penalties. Finally, there are state and foreign laws governing the privacy and security of health information, many of which differ
from each other in significant ways and often are not preempted by HIPAA, thus complicating compliance efforts.
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The distribution of pharmaceutical products is subject to additional requirements and regulations, including extensive record-keeping, licensing,
storage and security requirements intended to prevent the unauthorized sale of pharmaceutical products.
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. 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.
The failure to comply with any of these laws or regulatory requirements subjects entities to possible legal or regulatory action. Depending on the
circumstances, failure to meet applicable regulatory requirements can result in significant civil, criminal and administrative penalties, damages, fines,
disgorgement, individual imprisonment, exclusion from participation in federal and state funded healthcare programs (such as Medicare and Medicaid),
contractual damages and the curtailment or restructuring of our operations, as well as additional reporting obligations and oversight if we become subject to
a corporate integrity agreement or other agreement to resolve allegations of non-compliance with these laws. Any action for violation of these laws, even if
successfully defended, could cause a pharmaceutical manufacturer to incur significant legal expenses and divert management’s attention from the operation
of the business. If any of the physicians or other healthcare providers or entities with whom we expect to do business is found not to be in compliance with
applicable laws, that person or entity may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs. Prohibitions or restrictions on sales or withdrawal of future marketed products could materially affect business in an adverse way.
Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that
governmental and enforcement authorities will conclude that our business practices may not comply with current or future statutes, regulations or case law
interpreting applicable fraud and abuse or other healthcare laws and 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, including the imposition of civil, criminal and
administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare
programs, contractual damages, 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. In addition, the approval and commercialization of any of our candidates outside the
United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.
Failure to comply with health and data protection laws and regulations could lead to government enforcement actions (which could include
civil or criminal penalties), private litigation, and/or adverse publicity and could negatively affect our operating results and business.
We and any potential collaborators may be subject to federal, state, and foreign data protection laws and regulations (i.e., laws and regulations that
address privacy and data security). In the United States, numerous federal and state laws and regulations, including federal health information privacy laws,
state data breach notification laws, state health information privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal
Trade Commission Act), that govern the collection, use, disclosure and protection of health-related and other personal information could apply to our
operations or the operations of our collaborators. In addition, we may obtain health information from third parties (including research institutions from
which we obtain clinical trial data) that are subject to privacy and security requirements under HIPAA, as amended by HITECH. Depending on the facts
and circumstances, we could be subject to civil, criminal, and administrative penalties if we knowingly obtain, use, or disclose individually identifiable
health information maintained by a HIPAA-covered entity in a manner that is not authorized or permitted by HIPAA.
Compliance with U.S. and international data protection laws and regulations could require us to take on more onerous obligations in our contracts,
restrict our ability to collect, use and disclose data, or in some cases, impact our ability to operate in certain jurisdictions. Failure to comply with these laws
and regulations could result in government enforcement actions (which could include civil, criminal and administrative penalties), private litigation, and/or
adverse publicity and could negatively affect our operating results and business. Moreover, clinical trial patients, employees and other individuals about
whom we or our potential collaborators obtain personal information, as well as the providers who share this information with us, may limit our ability to
collect, use and disclose the information. Claims that we have violated individuals’ privacy rights,
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failed to comply with data protection laws, or breached our contractual obligations, even if we are not found liable, could be expensive and time-consuming
to defend and could result in adverse publicity that could harm our business.
European data collection is governed by restrictive regulations governing the use, processing and cross-border transfer of personal information.
We currently plan to conduct clinical trials in the European Union, or EU, and as a result will be subject to additional privacy restrictions. The
collection and use of personal health data in the EU is governed by the provisions of the General Data Protection Regulation, or GDPR. This directive
imposes several requirements relating to the consent of the individuals to whom the personal data relates, the information provided to the individuals,
notification of data processing obligations to the competent national data protection authorities and the security and confidentiality of the personal data. The
GDPR also imposes strict rules on the transfer of personal data out of the European Union to the United States. Failure to comply with the requirements of
the Data Protection Directive, the GDPR, and the related national data protection laws of the European Union Member States may result in fines and other
administrative penalties. The GDPR introduces new data protection requirements in the European Union and substantial fines for breaches of the data
protection rules. The GDPR regulations may impose additional responsibility and liability in relation to personal data that we process and we may be
required to put in place additional mechanisms ensuring compliance with these and/or new data protection rules. This may be onerous and adversely affect
our business, financial condition, prospects and results of operations.
We face potential product liability, and, if successful claims are brought against us, we may incur substantial liability and costs. If the use of our
product candidates harms patients, or is perceived to harm patients even when such harm is unrelated to our product candidates, our regulatory
approvals could be revoked or otherwise negatively impacted and we could be subject to costly and damaging product liability claims.
The use of our product candidates in clinical studies and the sale of any products for which we obtain marketing approval exposes us to the risk of
product liability claims. Product liability claims might be brought against us by consumers, healthcare providers, pharmaceutical companies or others
selling or otherwise coming into contact with our products. There is a risk that our product candidates may induce adverse events. If we cannot successfully
defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability
claims may result in:
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the impairment of our business reputation;
the withdrawal of clinical study participants;
costs due to related litigation;
the distraction of management’s attention from our primary business;
substantial monetary awards to patients or other claimants;
the inability to commercialize our product candidates; and
decreased demand for our product candidates, if approved for commercial sale.
We carry master product liability insurance of $5.0 million per occurrence and $5.0 million in the aggregate in the United States. For studies
conducted in Australia and Canada, we maintain local admitted policies with varying limits. We believe our product liability insurance coverage is
sufficient in light of our current clinical programs; however, we may not be able to maintain insurance coverage at a reasonable cost or in sufficient
amounts to protect us against losses due to liability. If and when we obtain marketing approval for product candidates, we intend to expand our insurance
coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or
in adequate amounts. On occasion, large judgments have been awarded in class action lawsuits based on drugs or medical treatments that had unanticipated
adverse effects. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed
our insurance coverage, could adversely affect our results of operations and business.
Patients with the diseases targeted by certain of our product candidates are often already in severe and advanced stages of disease and have both
known and unknown significant pre-existing and potentially life- threatening health risks. During the course of treatment, patients may suffer adverse
events, including death, for reasons that may be related to our product candidates. Such events could subject us to costly litigation, require us to pay
substantial amounts of money to injured patients, delay, negatively impact or end our opportunity to receive or maintain regulatory approval to market our
products, or require us to suspend or abandon our commercialization efforts. Even in a circumstance in which we do not believe that an
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adverse event is related to our products, the investigation into the circumstance may be time-consuming or inconclusive. These investigations may interrupt
our sales efforts, delay our regulatory approval process in other countries, or impact and limit the type of regulatory approvals our product candidates
receive or maintain. As a result of these factors, a product liability claim, even if successfully defended, could have a material adverse effect on our
business, financial condition or results of operations.
If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that
could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the
handling, use, storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials,
including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the
disposal of these materials and wastes. We cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury
resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also
could incur significant costs associated with civil or criminal fines and penalties. Furthermore, environmental laws and regulations are complex, change
frequently and have tended to become more stringent. We cannot predict the impact of such changes and cannot be certain of our future compliance. In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or
future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result
in substantial fines, penalties or other sanctions.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting
from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In
addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or
future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result
in substantial fines, penalties or other sanctions or liabilities, which could materially adversely affect our business, financial condition, results of operations
and prospects.
We might not be able to utilize a significant portion of our net operating loss carryforwards and research and development tax credit
carryforwards.
As of December 31, 2020, we had federal and state net operating loss carryforwards of $214.0 million and $201.6 million, respectively, and federal
and state research and development tax credit carryforwards of approximately $3.7 million and $0.7 million, respectively. If not utilized, the net operating
loss carryforwards and research and development credits will generally expire at various dates through 2038 (other than federal net operating loss
carryforwards generated in taxable years ending after December 31, 2017, which are not subject to expiration and generally may not be carried back to
prior taxable years except that net operating losses generated in 2018, 2019 and 2020 may be carried back five taxable years). These net operating loss and
tax credit carryforwards could expire unused and be unavailable to offset future income tax liabilities. In addition, under Section 382 of the Internal
Revenue Code of 1986, as amended, or the Code, and corresponding provisions of state law, if a corporation undergoes an “ownership change,” which is
generally defined as a greater than 50 percentage point change, by value, in its equity ownership over a three-year period, the corporation’s ability to use its
pre-change net operating loss carryforwards and other pre-change tax attributes to offset its post-change income may be limited. We may have experienced
ownership changes in the past. We may also experience ownership changes in the future as a result of subsequent shifts in our stock ownership, some of
which may be outside of our control. If an ownership change occurred or occurs and our ability to use our historical net operating loss and tax credit
carryforwards is materially limited, or if our research and development carryforwards are adjusted, it would harm our future operating results by effectively
increasing our future tax obligations.
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Risks related to our intellectual property
Third-party claims of intellectual property infringement may prevent or delay our development and commercialization efforts.
Our commercial success depends in part on avoiding infringement of the patents and proprietary rights of third parties. There is a substantial
amount of litigation, both within and outside the United States, involving patent and other intellectual property rights in the biotechnology and
pharmaceutical industries, including patent infringement lawsuits, interferences, oppositions and inter partes reexamination proceedings before the U.S.
Patent and Trademark Office, or USPTO, and corresponding foreign patent offices. Numerous U.S. and foreign issued patents and pending patent
applications, which are owned by third parties, exist in the fields in which we are pursuing development candidates. As the biotechnology and
pharmaceutical industries expand and more patents are issued, the risk increases that our product candidates may be subject to claims of infringement of the
patent rights of third parties.
Third parties may assert that we or our licensors are employing their proprietary technology without authorization. There may be third-party patents
or patent applications with claims to materials, formulations, methods of manufacture or methods for treatment related to the use or manufacture of our
product candidates. In particular, we are aware of issued patents in the United States that cover the lentiviral vectors used in the manufacture of our product
candidates. While we believe that we have reasonable defenses against a claim of infringement, potentially including that certain of these patents are
expected to expire prior to commercializing our product candidates, if approved, in the United States, there can be no assurance that we will prevail in any
such action by the holder of these patents. In the event that the holder of these patents seeks to enforce its patent rights and our defenses against a claim of
infringement are unsuccessful, we may not be able to commercialize our product candidates in the United States, if approved, without first obtaining a
license to some or all of these patents, which may not be available on commercially reasonable terms or at all. In addition, the defense of any claim of
infringement, even if successful, is time-consuming, expensive and diverts the attention of our management from our ongoing business operations.
Because patent applications can take many years to issue, there may be currently pending patent applications which may later result in issued
patents that our product candidates may infringe or be alleged to infringe. In addition, third parties may obtain patents in the future and claim that use of
our or our licensors’ technologies infringes upon these patents. If any third-party patents were held by a court of competent jurisdiction to cover the
manufacturing process of any of our product candidates, any molecules formed during the manufacturing process or any final product itself, the holders of
any such patents may be able to block our ability to commercialize such product candidate unless we obtained a license under the applicable patents, or
until such patents expire.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, processes for manufacture
or methods of use, including combination therapy, the holders of any such patents may be able to block our ability to develop and commercialize the
applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially
reasonable terms or at all.
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and
commercialize one or more of our product candidates. Defense of these claims, regardless of their merit, would involve substantial litigation expense and
would be a substantial diversion of employee resources from our business. In the event of a successful claim of infringement against us, we may have to
pay substantial damages, including treble damages and attorneys’ fees for willful infringement, pay royalties, redesign our infringing products or obtain one
or more licenses from third parties, which may be impossible or require substantial time and monetary expenditure. Even in the absence of a finding of
infringement, we may choose to obtain a license, if such a license is available. A successful claim of patent or other intellectual property infringement
against us could materially adversely affect our business, results of operations and financial condition.
Our rights to develop and commercialize our product candidates are subject, in part, to the terms and conditions of licenses granted to us by
others.
We depend upon the intellectual property rights granted to us under licenses from third parties that are important or necessary to the development of
our technology and products, including technology related to our manufacturing process and our gene therapy product candidates. In particular, we have in-
licensed certain intellectual property rights and know-how from the University Health Network (relevant to AVR-RD-01 and our Fabry program) and
affiliates of Lund University (relevant to AVR-RD-02 and our Gaucher type 1 program). In addition, we have in-licensed patents and patent applications
from BioMarin Pharmaceutical Inc., or BioMarin (relevant to AVR-RD-03 and our Pompe program), GenStem Therapeutics,
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Inc., or GenStem (relevant to AVR-RD-04 and our cystinosis program) and The University of Manchester (relevant to AVR-RD-05 and our Hunter
program), directed to compositions and methods related to the manufacture and use of AVR-RD-03, AVR-RD-04 and AVR-RD-05, respectively. Any
termination of these licenses could result in the loss of significant rights and could harm or prevent our ability to commercialize our product candidates.
Each of our existing licenses are exclusive but are limited to particular fields, such as Fabry disease, cystinosis, Gaucher disease type 1, Hunter
syndrome, or Pompe disease, and are subject to certain retained rights. Absent an amendment or additional agreement, we may not have the right to use
intellectual property in-licensed for one of our programs for another program. In addition, licenses that we may enter into in the future may not provide
exclusive rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or
commercialize our technology and products in the future. As a result, we may not be able to prevent competitors from developing and commercializing
competitive products in territories included in all of our licenses. Licenses to additional third-party technology that may be required for our development
programs may not be available in the future or may not be available on commercially reasonable terms, or at all, which could have a material adverse effect
on our business and financial condition.
In some circumstances, we may not have the right to control the preparation, filing and prosecution of patent applications, or to maintain the
patents, covering technology that we license from third parties. For example, pursuant to each of our intellectual property licenses with GenStem,
BioMarin, the rights holders associated with Lund University, and The University of Manchester, our licensors retain control of such activities. Therefore,
we cannot be certain that these patents and applications will be prosecuted, maintained and enforced in a manner consistent with the best interests of our
business. If our licensors fail to maintain such patents, or lose rights to those patents or patent applications, the rights we have licensed may be reduced or
eliminated and our right to develop and commercialize any of our products that are the subject of such licensed rights could be adversely affected.
Our current license agreements impose, and we expect that future license agreements that we may enter into will impose, various obligations,
including diligence and certain payment obligations. If we fail to satisfy our obligations, the licensor may have the right to terminate the agreement.
Disputes may arise between us and any of our licensors regarding intellectual property subject to such agreements and other issues. Such disputes over
intellectual property that we have licensed or the terms of our license agreements may prevent or impair our ability to maintain our current arrangements on
acceptable terms, or at all, or may impair the value of the arrangement to us. Any such dispute could have a material adverse effect on our business. If we
cannot maintain a necessary license agreement or if the agreement is terminated, we may be unable to successfully develop and commercialize the affected
product candidates.
If we are unable to obtain and maintain patent protection for our product candidates, or if the scope of the patent protection obtained is not
sufficiently broad, our competitors could develop and commercialize products similar or identical to ours, and our ability to successfully
commercialize our product candidates may be adversely affected.
Our ability to compete effectively will depend, in part, on our ability to maintain the proprietary nature of our technology and manufacturing
processes. We rely on manufacturing and other know-how, patents, trade secrets, trademarks, license agreements and contractual provisions to establish our
intellectual property rights and protect our products. These legal means, however, afford only limited protection and may not adequately protect our rights.
The failure to obtain, maintain, enforce or defend such intellectual property rights, for any reason, could allow third parties to make competing products or
impact our ability to develop, manufacture and market our products, if approved, on a commercially viable basis, or at all, which could have a material
adverse effect on our financial condition and results of operations.
In particular, we rely primarily on trade secrets, know-how and other unpatented technology, which are difficult to protect. Although we seek such
protection in part by entering into confidentiality agreements with our vendors, employees, consultants and others who may have access to proprietary
information, we cannot be certain that these agreements will not be breached, adequate remedies for any breach would be available or our trade secrets,
know-how and other unpatented proprietary technology will not otherwise become known to or be independently developed by our competitors. If we are
unsuccessful in protecting our intellectual property rights, sales of our products may suffer and our ability to generate revenue could be severely impacted.
Our licensors and we have sought, and we intend to continue to seek to protect our proprietary position by filing patent applications in the United
States and, in at least some cases, one or more countries outside the United States related to current and future product candidates that are important to our
business. However, we cannot predict whether the patent applications we and our licensors are currently pursuing will issue as patents, whether the claims
of any issued patents will provide us
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with a competitive advantage, or whether we will be able to successfully pursue patent applications in the future related to our current or future product
candidates. While we have in-licensed patents and patent applications relevant to AVR-RD-03, we currently have no owned or in-licensed patents or patent
applications covering AVR-RD-01, AVR-RD-02 or AVR-RD-06, and the patent applications that we in-licensed related to AVR-RD-04 and AVR-RD-05
are at a very early stage. Many of our product candidates are in-licensed from third parties. Accordingly, in some cases, the availability and scope of
potential patent protection is limited based on prior decisions by our licensors or the inventors, such as decisions on when to file patent applications or
whether to file patent applications at all.
We may not be able to protect our intellectual property rights throughout the world.
Filing, prosecuting and defending patents on product candidates in all countries throughout the world would be prohibitively expensive, and our
intellectual property rights in some countries outside the United States could be less extensive than those in the United States. Although our license
agreements grant us worldwide rights, and our currently in-licensed U.S. patent rights have certain corresponding foreign patents or patent applications,
there can be no assurance that we will obtain or maintain such corresponding patents or patent applications with respect to any future license agreements. In
addition, the laws of some foreign countries do not protect intellectual property rights to the same extent as federal and state laws in the United States even
in jurisdictions where we and our licensors pursue patent protection. Consequently, we and our licensors may not be able to prevent third parties from
practicing our inventions in all countries outside the United States, even in jurisdictions where we and our licensors pursue patent protection, or from
selling or importing products made using our inventions in and into the United States or other jurisdictions. Competitors may use our technologies in
jurisdictions where we and our licensors have not pursued and obtained patent protection to develop their own products and, further, may export otherwise
infringing products to territories where we have patent protection, but enforcement is not as strong as that in the United States. These products may
compete with our product candidates and our patents or other intellectual property rights may not be effective or sufficient to prevent them from competing.
Many companies have encountered significant problems in protecting and defending intellectual property rights in foreign jurisdictions. The legal
systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents, trade secrets and other intellectual property
protection, particularly those relating to biotechnology products, which could make it difficult for us to stop the infringement of our patents or marketing of
competing products in violation of our proprietary rights generally. Proceedings to enforce our patent rights, even if obtained, in foreign jurisdictions could
result in substantial costs and divert our efforts and attention from other aspects of our business, could put our patents at risk of being invalidated or
interpreted narrowly and our patent applications at risk of not issuing and could provoke third parties to assert claims against us. We may not prevail in any
lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. Accordingly, our efforts to enforce our
intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop
or license.
Issued patents covering our product candidates could be found invalid or unenforceable if challenged in court. We may not be able to protect
our trade secrets in court.
If one of our licensing partners or we initiate legal proceedings against a third-party to enforce a patent covering one of our product candidates,
should such a patent issue, the defendant could counterclaim that the patent covering our product candidate is 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, written description or non-enablement. Grounds for an
unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld information material to patentability from
the USPTO, or made a misleading statement, during prosecution. Third parties also may raise similar claims before administrative bodies in the United
States or abroad, even outside the context of litigation. Such mechanisms include re-examination, post grant review, inter partes review and equivalent
proceedings in foreign jurisdictions. Such proceedings could result in the revocation or cancellation of or amendment to our patents in such a way that they
no longer cover our product candidates. The outcome following legal assertions of invalidity and unenforceability is unpredictable. With respect to the
validity question, for example, we cannot be certain that there is no invalidating prior art, of which the patent examiner and we or our licensing partners
were unaware during prosecution. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we could lose at least part, and
perhaps all, of the patent protection on one or more of our product candidates. Such a loss of patent protection could have a material adverse impact on our
business.
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In addition to the protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary know-how
that is not patentable or that we elect not to patent, processes for which patents are difficult to enforce and any other elements of our product candidate
discovery and development processes that involve proprietary know-how, information or technology that is not covered by patents. However, trade secrets
can be difficult to protect and some courts inside and outside the United States are less willing or unwilling to protect trade secrets. 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 cannot guarantee that we have entered into such agreements with each party that may have or have had access to our trade secrets or
proprietary technology and processes. 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 individuals,
organizations and systems, 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.
We may be subject to claims asserting that our employees, consultants or advisors have wrongfully used or disclosed alleged trade secrets of
their current or former employers or claims asserting ownership of what we regard as our own intellectual property.
Certain of our employees, consultants or advisors are currently, or were previously, employed at universities or other biotechnology or
pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees, consultants and advisors do
not use the proprietary information or know-how of others in their work for us, we may be subject to claims that these individuals or we have used or
disclosed intellectual property, including trade secrets or other proprietary information, of any such individual’s current or former employer. Litigation may
be necessary to defend against these 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. Our licensors may face similar risks, which could have an adverse impact on intellectual property that is licensed to us.
In addition, while it is our policy to require our employees and contractors who may be involved in the conception or development of intellectual
property to execute agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who, in
fact, conceives or develops intellectual property that we regard as our own. The assignment of intellectual property rights may not be self-executing or the
assignment agreements may be breached, and we may be forced to bring claims against third parties, or defend claims that they may bring against us, to
determine the ownership of what we regard as our intellectual property.
We may be subject to claims challenging the inventorship or ownership of the patents and other intellectual property that we own or license.
We or our licensors may be subject to claims that former employees, collaborators or other third parties have an ownership interest in the patents
and intellectual property that we own or license or that we may own or license in the future. While it is our policy to require our employees and contractors
who may be involved in the development of intellectual property to execute agreements assigning such intellectual property to us, we may be unsuccessful
in executing such an agreement with each party who in fact develops intellectual property that we regard as our own; our licensors may face similar
obstacles. We could be subject to ownership disputes arising, for example, from conflicting obligations of consultants or others who are involved in
developing our product candidates. Litigation may be necessary to defend against any claims challenging inventorship or ownership. If we or our licensors
fail in defending any such claims, we may have to pay monetary damages and may lose valuable intellectual property rights, such as exclusive ownership
of, or right to use, intellectual property, which could adversely impact our business, results of operations and financial condition.
Some intellectual property which we have in-licensed may have been discovered through government funded programs and thus may be subject
to federal regulations such as “march-in” rights, certain reporting requirements, and a preference for U.S. industry. Compliance with such
regulations may limit our exclusive rights, and limit our ability to contract with non-U.S. manufacturers.
Some of the intellectual property rights we have licensed, including rights licensed to us by GenStem, may have been generated through the use of
U.S. government and California state funding and may therefore be subject to certain federal and state laws and regulations. For example, with respect to
the AVR-RD-04 program for cystinosis, the NIH previously granted funding to UCSD for certain research in connection with the development of UCSD’s
gene therapy program for cystinosis, which we have licensed from GenStem. As a result, the U.S. government may have certain rights to intellectual
property
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embodied in our AVR-RD-04 program, or in other product candidates to the extent funded by the U.S. government pursuant to the Bayh-Dole Act of 1980,
or Bayh-Dole Act. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-
transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us to
grant exclusive, partially exclusive, or non-exclusive licenses to any of these inventions to a third party if it determines that: (i) adequate steps have not
been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary
to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to
these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual
property within specified time limits. Intellectual property generated under a government funded program is also subject to certain reporting requirements,
compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the U.S. government requires that any
products embodying the subject invention or produced through the use of the subject invention be manufactured substantially in the United States. The
manufacturing preference requirement can be waived if the owner of the intellectual property can show that reasonable but unsuccessful efforts have been
made to grant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the
circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability to contract with non-U.S.
product manufacturers for products covered by such intellectual property. To the extent any of our current or future intellectual property is generated
through the use of U.S. government funding, the provisions of the Bayh-Dole Act may similarly apply. Any exercise by the government of certain of its
rights could harm our competitive position, business, financial condition, results of operations and prospects. With respect to state funding, specifically
funding via the California Institute of Regenerative Medicine, or CIRM, which has granted funds for the study of AVR-RD-04 for cystinosis, the grantee
has certain obligations and the state or CIRM has certain rights. For example, the grantee has an obligation to share intellectual property, including research
results, generated by CIRM-funded research, for research use in California.
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our product candidates.
Changes in either the patent laws or the interpretation of the patent laws in the United States could increase the uncertainties and costs surrounding
the prosecution of patent applications and the enforcement or defense of issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or
the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes several significant changes to U.S. patent law. These include provisions that
affect the way patent applications are prosecuted and also may affect patent litigation. These also include provisions that switched the United States from a
“first-to-invent” system to a “first-to-file” system, allow third-party submission of prior art to the USPTO during patent prosecution and set forth additional
procedures to attack the validity of a patent by the USPTO administered post grant proceedings. Under a first-to-file system, assuming the other
requirements for patentability are met, the first inventor to file a patent application generally will be entitled to the patent on an invention regardless of
whether another inventor had made the invention earlier. The USPTO 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 on March 16, 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 a material adverse effect on our business, financial condition, results of operations
and prospects.
The patent positions of companies engaged in the development and commercialization of biologics and pharmaceuticals are particularly uncertain.
Two cases involving diagnostic method claims and “gene patents” have recently been decided by the Supreme Court of the United States, or Supreme
Court. On March 20, 2012, the Supreme Court issued a decision in Mayo Collaborative Services v. Prometheus Laboratories, Inc., or Prometheus, a case
involving patent claims directed to a process of measuring a metabolic product in a patient to optimize a drug dosage for the patient. According to the
Supreme Court, the addition of well-understood, routine or conventional activity such as “administering” or “determining” steps was not enough to
transform an otherwise patent-ineligible natural phenomenon into patent-eligible subject matter. On July 3, 2012, the USPTO issued a guidance memo to
patent examiners indicating that process claims directed to a law of nature, a natural phenomenon or a naturally occurring relation or correlation that do not
include additional elements or steps that integrate the natural principle into the claimed invention such that the natural principle is practically applied and
the claim amounts to significantly more than the natural principle itself should be rejected as directed to not patent-eligible subject matter. On June 13,
2013, the Supreme Court issued its decision in Association for Molecular Pathology v. Myriad Genetics, Inc., or Myriad, a case involving patent claims
held by Myriad Genetics, Inc. relating to the breast cancer
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susceptibility genes BRCA1 and BRCA2. Myriad held that an isolated segment of naturally occurring DNA, such as the DNA constituting the BRCA1 and
BRCA2 genes, is not patent-eligible subject matter, but that complementary DNA, which is an artificial construct that may be created from RNA transcripts
of genes, may be patent-eligible. On March 4, 2014, the USPTO issued a guidance memorandum to patent examiners entitled 2014 Procedure For Subject
Matter Eligibility Analysis Of Claims Reciting Or Involving Laws Of Nature/Natural Principles, Natural Phenomena, And/Or Natural Products. These
guidelines instruct USPTO examiners on the ramifications of the Prometheus and Myriad rulings and apply the Myriad ruling to natural products and
principles including all naturally occurring nucleic acids.
Certain claims of our licensed patents and patent applications contain, and any future patents we may obtain may contain, claims that relate to
specific recombinant DNA sequences that are naturally occurring at least in part and, therefore, could be the subject of future challenges made by third
parties. In addition, the 2014 USPTO guidance could impact our ability to pursue similar patent claims in patent applications we may prosecute in the
future.
We cannot assure you that our efforts to seek patent protection for our product candidates will not be negatively impacted by the decisions described
above, rulings in other cases or changes in guidance or procedures issued by the USPTO. We cannot fully predict what impact the Supreme Court’s
decisions in Prometheus and Myriad may have on the ability of life science companies to obtain or enforce patents relating to their products in the future.
These decisions, the guidance issued by the USPTO and rulings in other cases or changes in USPTO guidance or procedures could have a material adverse
effect on our existing patent rights and our ability to protect and enforce our intellectual property in the future.
Moreover, although the Supreme Court has held in Myriad that isolated segments of naturally occurring DNA are not patent-eligible subject matter,
certain third parties could allege that activities that we may undertake infringe other gene-related patent claims, and we may deem it necessary to defend
ourselves against these claims by asserting non-infringement and/or invalidity positions, or paying to obtain a license to these claims. In any of the
foregoing or in other situations involving third-party intellectual property rights, if we are unsuccessful in defending against claims of patent infringement,
we could be forced to pay damages or be subjected to an injunction that would prevent us from utilizing the patented subject matter. Such outcomes could
harm our business, financial condition, results of operations or prospects.
If we do not obtain patent term extension and data exclusivity for our product candidates, our business may be materially harmed.
Depending upon the timing, duration and specifics of any FDA marketing approval of our product candidates, one or more U.S. patents that we
license or may own or license in the future, if any, may be eligible for limited patent term extension under the Drug Price Competition and Patent Term
Restoration Act of 1984, or Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent extension term of up to five years as
compensation for patent term lost during the FDA regulatory review process. A patent term extension cannot extend the remaining term of a patent beyond
a total of 14 years from the date of product approval, only one patent may be extended and only those claims covering the approved drug, a method for
using it or a method for manufacturing it may be extended. A patent may only be extended once and only based on a single approved product. However, we
may not be granted an extension because of, for example, failing to exercise due diligence during the testing phase or regulatory review process, failing to
apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover,
the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or the
term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our
revenue could be reduced, possibly materially. In addition, we do not control the efforts of our licensors to obtain a patent term extension, and there can be
no assurance that they will pursue or obtain such extensions to the patents that we license from them.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest
and our business may be adversely affected.
We have registered the marks “AVROBIO” and “plato” with the USPTO but do not have trademarks or trademark applications with the USPTO for
the marks “AVRO” or the AVROBIO logo. In the future, even if we apply for registration of these marks, there can be no assurance that such registration
will be approved. Once registered, our trademarks or trade names may be challenged, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these trademarks and trade names, which we need to build name recognition among
potential partners or customers in our markets of interest. At times, competitors may adopt trade names or trademarks similar to ours, thereby impeding our
ability to build brand identity and possibly leading to market confusion. In addition, there could be potential trade name or trademark infringement claims
brought by owners of other registered trademarks or trademarks
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that incorporate variations of our registered or unregistered trademarks or trade names. Over the long term, if we are unable to establish name recognition
based on our trademarks and trade names, then we may not be able to compete effectively and our business may be adversely affected. Our efforts to
enforce or protect our proprietary rights related to trademarks, trade secrets, domain names, copyrights or other intellectual property may be ineffective and
could result in substantial costs and diversion of resources and could adversely impact our financial condition or results of operations.
Intellectual property rights and regulatory exclusivity rights do not necessarily address all potential threats.
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. For example:
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others may be able to make gene therapy products that are similar to our product candidates but that are not covered by the claims of the
patents that we license or may own or license in the future;
we, our license partners or current or future collaborators, might not have been the first to make the inventions covered by the issued patents
or pending patent applications that we license or may own or license in the future;
we, our license partners or current or future collaborators, might not have been the first to file patent applications covering certain of our or
their inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our owned or
licensed intellectual property rights;
it is possible that our pending licensed patent applications or those that we may own or license in the future will not lead to issued patents;
issued patents that we hold rights to or may hold rights to in the future may be held invalid or unenforceable, including as a result of legal
challenges by our competitors;
one or more of our product candidates may never be protected by patents;
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 additional proprietary technologies that are patentable;
the patents of others may have an adverse effect on our business; and
we may choose not to file a patent application for certain trade secrets or know-how, and a third party may subsequently file a patent
application or obtain a patent covering such intellectual property.
Should any of these events occur, they could significantly harm our business, financial condition, results of operations and prospects.
Risks related to ownership of our common stock
The market price of our common stock may be highly volatile, and you may not be able to resell your shares at or above the price at which you
purchased our shares.
Our stock price is likely to be volatile. Since our initial public offering, or IPO, in June 2018, through March 1, 2021, the trading price of our
common stock has ranged from $9.76 to $53.70. The stock market in general, and the market for biopharmaceutical companies in particular, has
experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, you may not
be able to sell your common stock at or above the price at which you purchased shares. The market price for our common stock may be influenced by many
factors, including:
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the ongoing COVID-19 pandemic;
adverse results or delays in preclinical studies or clinical trials;
reports of adverse events in other gene therapy products or clinical studies of such products;
an inability to obtain additional funding;
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failure by us to successfully develop and commercialize our product candidates;
failure by us to maintain our existing strategic collaborations or enter into new collaborations;
failure by us or our licensors and strategic partners to prosecute, maintain or enforce our intellectual property rights;
changes in laws or regulations applicable to future products;
an inability to obtain adequate product supply for our product candidates or the inability to do so at acceptable prices;
adverse regulatory decisions;
the introduction of new products, services or technologies by our competitors;
failure by us to meet or exceed financial projections we may provide to the public;
failure by us to meet or exceed the financial projections of the investment community;
the perception of the pharmaceutical industry by the public, legislatures, regulators and the investment community;
announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us, our strategic partner or our
competitors;
disputes or other developments relating to proprietary rights, including patents, litigation matters and our ability to obtain patent protection for
our technologies;
additions or departures of key scientific or management personnel;
significant lawsuits, including patent or stockholder litigation;
changes in the market valuations of similar companies;
sales of our common stock by us or our stockholders in the future; and
the trading volume of our common stock.
In addition, companies trading in the stock market in general, and The Nasdaq Global Select Market in particular, have experienced extreme price
and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these companies. Broad market and industry
factors may negatively affect the market price of our common stock, regardless of our actual operating performance.
We could be subject to securities class action litigation.
In the past, securities class action litigation has often been brought against a company following a decline in the market price of its securities. This
risk is especially relevant for us because pharmaceutical companies have experienced significant stock price volatility in recent years. If we face such
litigation, it could result in substantial costs and a diversion of management’s attention and resources, which could harm our business.
An active trading market for our common stock may not be sustained.
Prior to our IPO in June 2018, there had been no public market for our common stock. Although our common stock is listed on The Nasdaq Global
Select Market, an active trading market for our shares may never be sustained. If an active market for our common stock is not sustained, it may be difficult
for you to sell shares you purchased without depressing the market price for the shares, or at all.
An inactive trading market may also impair our ability to raise capital to continue to fund operations by selling additional shares and may impair
our ability to acquire other companies or technologies by using our shares as consideration.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our share price and
trading volume could decline.
The trading market for our common stock will likely depend in part on the research and reports that securities or industry analysts publish about us
or our business. We do not have any control over these analysts. Although we have obtained research coverage from certain analysts, there can be no
assurance that analysts will continue to cover us or provide
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favorable coverage. If one or more analysts downgrade our stock or change their opinion of our stock, our share price would likely decline. In addition, if
one or more analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could
cause our share price or trading volume to decline.
Concentration of ownership of our common stock among our existing executive officers, directors and principal stockholders may prevent new
investors from influencing significant corporate decisions.
Based on shares outstanding as of March 9, 2021, our executive officers, directors, five percent stockholders and their affiliates beneficially owned
approximately 27% of our voting stock. As a result, if these stockholders were to act together, they would be able to significantly influence all matters
submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, acting together, may be able to
influence elections of directors, amendments of our organizational documents, or approval of any merger, sale of assets, or other major corporate
transaction. This may prevent or discourage unsolicited acquisition proposals or offers for our common stock that you may believe are in your best interest
as one of our stockholders. Some of these persons or entities may have interests different than yours. For example, because many of these stockholders
purchased their shares at prices substantially below the current trading price of our stock and have held their shares for a longer period, they may be more
interested in selling our Company to an acquirer than other investors or they may want us to pursue strategies that deviate from the interests of other
stockholders.
We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our
common stock less attractive to investors.
We are an “emerging growth company,” or EGC, as defined in the JOBS Act. We will remain an EGC until the earliest of: (i) the last day of the
fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of the fiscal year following the fifth anniversary of the
date of the completion of our IPO; (iii) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years; or
(iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which means the first day of the year following the first year
in which the market value of our common stock that is held by non-affiliates exceeds $700 million as of June 30 in any given year. For so long as we
remain an EGC, we are permitted and intend to rely on exemptions from certain disclosure requirements that are applicable to other public companies that
are not emerging growth companies. These exemptions include:
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not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, or Section 404;
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;
being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements,
with correspondingly reduced “Management’s discussion and analysis of financial condition and results of operations” disclosure;
reduced disclosure obligations regarding executive compensation; and
an exemption from the requirement to seek nonbinding advisory votes on executive compensation or golden parachute arrangements.
We may choose to take advantage of some, but not all, of the available exemptions. We have taken advantage of reduced reporting burdens in this
Annual Report on Form 10-K. In particular, we have not included in this Annual Report, and do not intend to include in our 2021 Proxy Statement, all of
the executive compensation information that would be required if we were not an EGC. We cannot predict whether investors will find our common stock
less attractive if we rely on certain or all of 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.
In addition, the JOBS Act provides that an EGC may take advantage of an extended transition period for complying with new or revised accounting
standards. This allows an EGC to delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We
have elected to avail ourselves of this exemption from new or revised accounting standards and, therefore, we will not be subject to the same new or
revised accounting standards as other public companies that are not emerging growth companies.
Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company” if the market value of our
common stock held by non-affiliates is below $250 million (or $700 million if our
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annual revenue is less than $100 million) as of June 30 in any given year, which would allow us to take advantage of many of the same exemptions from
disclosure requirements.
We expect to continue to incur increased costs as a result of operating as a public company, and our management is required to devote
substantial time to new compliance initiatives.
As a public company, and particularly after we are no longer an EGC, we will incur significant legal, accounting and other expenses that we did not
incur as a private company. In addition, the Sarbanes-Oxley Act of 2002 and rules subsequently implemented by the SEC and Nasdaq have imposed
various requirements on public companies, including establishment and maintenance of effective disclosure and financial controls and corporate
governance practices. Our management and other personnel will continue to devote a substantial amount of time to these compliance initiatives. Moreover,
these rules and regulations have increased our legal and financial compliance costs and will continue to make some activities more time-consuming and
costly. For example, we expect that these rules and regulations may make it more difficult and increasingly more expensive for us to obtain and maintain
director and officer liability insurance.
Pursuant to Section 404, we are required to furnish a report by our management on our internal control over financial reporting, and, once we are no
longer an EGC or a “smaller reporting company”, we will be required to furnish an attestation report on internal control over financial reporting issued by
our independent registered public accounting firm. To achieve compliance with Section 404, we continue to be engaged in a process to document and
evaluate our internal control over financial reporting, which is both costly and challenging. In this regard, we will need to continue to dedicate internal
resources, potentially continue to engage outside consultants and adopt a detailed work plan to assess and document the adequacy of internal control over
financial reporting, continue steps to improve control processes as appropriate, validate through testing that controls are functioning as documented and
implement a continuous reporting and improvement process for internal control over financial reporting. Despite our efforts, there is a risk that we will not
be able to conclude that our internal control over financial reporting is effective as required by Section 404. This could result in an adverse reaction in the
financial markets due to a loss of confidence in the reliability of our financial statements.
If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial
results or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harm our
business and the trading price of our common stock.
Effective internal control over financial reporting is necessary for us to provide reliable financial reports and, together with adequate disclosure
controls and procedures, are designed to prevent fraud. Any failure to implement required new or improved controls, or difficulties encountered in their
implementation could cause us to fail to meet our reporting obligations. In addition, any testing by us conducted in connection with Section 404, or any
subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal control over financial reporting that are
deemed to be material weaknesses or that may require prospective or retroactive changes to our financial statements, or may identify other areas for further
attention or improvement. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a
negative effect on the trading price of our stock.
We are required to disclose changes made in our internal controls and procedures on a quarterly basis and our management is required to assess the
effectiveness of these controls annually. However, for as long as we are an EGC or a “smaller reporting company”, our independent registered public
accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting pursuant to Section 404. We could be an
EGC for up to five years following the completion of our IPO and will qualify as a “smaller reporting company” if the market value of our common stock
held by non-affiliates is below $250 million (or $700 million if our annual revenue is less than $100 million) as of June 30 in any given year. An
independent assessment of the effectiveness of our internal control over financial reporting could detect problems that our management’s assessment might
not. Undetected material weaknesses in our internal control over financial reporting could lead to financial statement restatements and require us to incur
the expense of remediation.
We and our independent registered public accounting firm previously identified material weaknesses in our internal control over financial
reporting, which have now been remediated. Nevertheless, if we experience additional material weaknesses or deficiencies in the future or
otherwise fail to establish and maintain effective internal controls, we may be unable to produce timely and accurate financial statements, and
we may conclude that our internal control over financial reporting is not effective, which could adversely impact our investors’ confidence and
our stock price.
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In our Annual Report on Form 10-K for the year ended December 31, 2018, we reported material weaknesses in our internal control over financial
reporting related to deficiencies in our controls over the financial statement close process, including over complex accounting issues, expense classification
and accrued research and development expenses, as well as the cash disbursement process. During 2018 and 2019, we took a number of actions to improve
our internal control over financial reporting to remediate these material weaknesses. As a result of these efforts, management has concluded that the
previously disclosed material weaknesses have been remediated as of December 31, 2020.
We expect to continue our efforts to improve our control processes, though there can be no assurance that our efforts will ultimately be successful or
avoid potential future material weaknesses, and we expect to continue incurring additional costs as a result of these efforts. If we are unable to successfully
remediate any future material weaknesses in our internal control over financial reporting, or if we identify any additional material weaknesses, the accuracy
and timing of our financial reporting may be adversely affected, we may be unable to maintain compliance with securities law requirements regarding
timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, and
our stock price may decline as a result. We also could become subject to investigations by Nasdaq, the SEC or other regulatory authorities.
Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.
Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit
under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods
specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well
conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls.
Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be
detected.
A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future,
which could cause the market price of our common stock to drop significantly.
Sales of a substantial number of shares of our common stock in the public market could occur at any time, subject to certain restrictions described
below. These sales, or the perception in the market that holders of a large number of shares intend to sell shares, could reduce the market price of our
common stock. As of March 1, 2021, holders of an aggregate of approximately 4.5 million shares of our common stock will have rights, subject to certain
conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for
ourselves or other stockholders. In addition, shares reserved for issuance upon the exercise of stock options outstanding under our equity incentive plans
will become eligible for sale in the public market in the future. We have registered all shares of common stock that we may issue under our equity
compensation plans, which can be freely sold in the public market upon issuance, subject to volume limitations applicable to affiliates.
We do not intend to pay dividends on our common stock, so any returns will be limited to the value of our stock.
We have never declared or paid any cash dividends on our common stock. We currently anticipate that we will retain future earnings for the
development, operation and expansion of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return
to stockholders will therefore be limited to the appreciation of their stock. For example, our prior loan facility with Silicon Valley Bank restricted our
ability to pay any dividends or making any distributions on account of our capital stock, and we may enter into agreements in the future with similar
restrictions. As a result, capital appreciation, if any, of our common stock will be your sole source of gain for the foreseeable future.
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Provisions in our amended and restated certificate of incorporation and by-laws, as well as provisions of Delaware law, could make it more
difficult for a third party to acquire us or increase the cost of acquiring us, even if doing so would benefit our stockholders or remove our
current management.
Our amended and restated certificate of incorporation, amended and restated by-laws and Delaware law contain provisions that may have the effect
of delaying or preventing a change in control of us or changes in our management. Our amended and restated certificate of incorporation and by-laws,
include provisions that:
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authorize “blank check” preferred stock, which could be issued by our board of directors without stockholder approval and may contain
voting, liquidation, dividend and other rights superior to our common stock;
create a classified board of directors whose members serve staggered three-year terms;
specify that special meetings of our stockholders can be called only by our board of directors, the chairperson of our board of directors, our
chief executive officer or our president;
prohibit stockholder action by written consent;
establish an advance notice procedure for stockholder approvals to be brought before an annual meeting of our stockholders, including
proposed nominations of persons for election to our board of directors;
provide that our directors may be removed only for cause;
provide that vacancies on our board of directors may be filled only by a majority of directors then in office, even though less than a quorum;
specify that no stockholder is permitted to cumulate votes at any election of directors;
expressly authorize our board of directors to modify, alter or repeal our amended and restated by-laws; and require supermajority votes of the
holders of our common stock to amend specified provisions of our amended and restated certificate of incorporation and amended and restated
by-laws.
These provisions, alone or together, could delay or prevent hostile takeovers and changes in control or changes in our management.
In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law,
which limits the ability of stockholders owning in excess of 15% of our outstanding voting stock to merge or combine with us.
Any provision of our amended and restated certificate of incorporation or amended and restated by-laws or Delaware law that has the effect of
delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and
could also affect the price that some investors are willing to pay for our common stock.
Our bylaws contain exclusive forum provisions, which may limit a stockholder’s ability to bring a claim in a judicial forum it finds favorable
and may discourage lawsuits with respect to such claims.
Our amended and restated bylaws provide that, unless we consent in writing to an alternative forum, the Court of Chancery of the State of Delaware
will be the sole and exclusive forum for any state law claim for (1) any derivative action or proceeding brought on our behalf; (2) any action asserting a
claim of breach of or based on a fiduciary duty owed by any of our current or former directors, officers or other employees to us or our stockholders;
(3) any action asserting a claim against us or any of our current or former directors, officers, employees or stockholders arising pursuant to any provision of
the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws; or (4) any action
asserting a claim governed by the internal affairs doctrine, or the Delaware Forum Provision. The Delaware Forum Provision will not apply to any causes
of action arising under the Securities Act or the Exchange Act. Our amended and restated bylaws further provide that, unless we consent in writing to an
alternative forum, the United States District Court for the District of Massachusetts will be the exclusive forum for resolving any complaint asserting a
cause of action arising under the Securities Act, or the Federal Forum Provision, as our principal executive offices are located in Cambridge,
Massachusetts. In addition, our amended and restated bylaws provide that any person or entity purchasing or otherwise acquiring any interest in shares of
our capital stock is deemed to have notice of and consented to the foregoing Delaware Forum Provision and the Federal Forum Provision; provided,
however, that stockholders cannot and will not be deemed to have waived our compliance with the U.S. federal securities laws and the rules and regulations
thereunder.
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We recognize that the Delaware Forum Provision and the Federal Forum Provision may impose additional litigation costs on stockholders who
assert the provision is not enforceable and may impose more general additional litigation costs in pursuing any such claims, particularly if the stockholders
do not reside in or near the State of Delaware or the Commonwealth of Massachusetts. Additionally, these forum selection clauses in our amended and
restated bylaws may limit our stockholders’ ability to bring a claim in a judicial forum that they find favorable for disputes with us or our directors, officers
or employees, which may discourage such lawsuits against us and our directors, officers and employees even though an action, if successful, might benefit
our stockholders. While the Delaware Supreme Court ruled in March 2020 that federal forum selection provisions purporting to require claims under the
Securities Act be brought in federal court are “facially valid” under Delaware law, there is uncertainty as to whether other courts will enforce our Federal
Forum Provision. The Federal Forum Provision may also impose additional litigation costs on stockholders who assert the provision is unenforceable, and
if the Federal Forum Provision is found to be unenforceable, we may incur additional costs with resolving such matters. The Court of Chancery of the State
of Delaware and the United States District Court for the District of Massachusetts may also reach different judgments or results than would other courts,
including courts where a stockholder considering an action may be located or would otherwise choose to bring the action, and such judgments may be more
or less favorable to us than our stockholders.
General Risk Factors
Unfavorable global economic conditions could adversely affect our business, financial condition or results of operations.
Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. The COVID-
19 pandemic has caused extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn could result in a
variety of risks to our business, including weakened demand for our product candidates and our ability to raise additional capital when needed on
acceptable terms, if at all. A weak or declining economy could also strain our suppliers, possibly resulting in supply disruption, or cause delays in payments
for our services by third-party payors or our collaborators. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which
the current economic climate and financial market conditions could adversely impact our business, financial condition, results of operations and prospects.
We or the third parties upon whom we depend may be adversely affected by earthquakes or other natural disasters and our business continuity
and disaster recovery plans may not adequately protect us from a serious disaster.
Earthquakes or other natural disasters could severely disrupt our operations, and have a material adverse effect on our business, results of
operations, financial condition and prospects. If a natural disaster, power outage or other event occurred that prevented us from using all or a significant
portion of our headquarters, that damaged critical infrastructure, such as the manufacturing facilities of our third-party contract manufacturers, or that
otherwise disrupted operations, it may be difficult or, in certain cases, impossible for us to continue our business for a substantial period of time. The
disaster recovery and business continuity plans we have in place currently are limited and are unlikely to prove adequate in the event of a serious disaster or
similar event. We may incur substantial expenses as a result of the limited nature of our disaster recovery and business continuity plans, which, particularly
when taken together with our lack of earthquake insurance, could have a material adverse effect on our business, financial condition, results of operations
and prospects.
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Our internal computer systems, or those of our collaborators or other contractors or consultants, may fail or suffer security breaches, which
could result in a material disruption of our product development programs.
Despite our security measures, our internal computer systems and those of our current and any future collaborators and other contractors or
consultants are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical
failures. For example, in 2017 we were subjected to a cyberattack by a third party, which led to the theft of a portion of our funds. We implemented
remedial measures promptly following this breach and do not believe that this breach had a material adverse effect on our business. In addition, in February
2019, one of our vendors was subject to a cyberattack by a third party, which resulted in the payment by us of a fraudulent invoice. We have implemented
remedial measures following this breach and do not believe that this breach had a material effect on our business. However, if any cyberattack or data
breach were to occur in the future and cause interruptions in our or our collaborators’, contractors’ or consultants’ operations, it could result in a material
disruption of our development programs and our business operations, whether due to a loss of our business data, trade secrets or other proprietary
information or other similar disruptions. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our
regulatory approval efforts and significantly increase our costs to recover or reproduce the data. To the extent that any disruption or security breach were to
result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability, our
competitive position could be harmed and the further development and commercialization of our product candidates could be delayed.
Changes in tax law could adversely affect our business and financial condition.
The rules dealing with U.S. federal, state, and local income taxation are constantly under review by persons involved in the legislative process and
by the Internal Revenue Service and the U.S. Treasury Department. Changes to tax laws (which changes may have retroactive application) could adversely
affect us or holders of our common stock. In recent years, many such changes have been made and changes are likely to continue to occur in the future.
Future changes in tax laws could have a material adverse effect on our business, cash flow, financial condition or results of operations. We urge investors to
consult with their legal and tax advisers regarding the implications of potential changes in tax laws on an investment in our common stock.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters are located in Cambridge, Massachusetts. Our current leased facility for our corporate headquarters encompasses
approximately 11,218 square feet of office space. The lease for this facility expires in January 2023. In August 2018, we entered into a sub-lease for 13,643
square feet of laboratory space located in Cambridge Massachusetts, which expires in April 2022. In June 2020, we entered into a lease agreement for
3,885 square feet office space located in Toronto, Ontario, Canada, which expires in June 2025. We believe that our office and laboratory space is sufficient
to meet our current needs and that suitable additional space or alternative space will be available as needed on commercially reasonable terms.
Item 3. Legal Proceedings
From time to time, we are subject to various legal proceedings and claims that arise in the ordinary course of our business activities. Although the
results of litigation and claims cannot be predicted with certainty, as of the date of this Annual Report on Form 10-K, we are not presently subject to any
pending or threatened litigation that we believe, if determined adversely to us, would individually or in the aggregate be reasonably expected to have a
material adverse effect on our business. Regardless of the outcome, litigation can 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.
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PART II
Item 5. Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is traded on the Nasdaq Global Select Market under the symbol “AVRO”. Trading of our common stock commenced on
June 21, 2018, following the completion of our initial public offering. Prior to that time, there was no established public trading market for our common
stock.
Holders of Common Stock
As of March 5, 2021, the number of holders of record of our common stock was eight. The number of holders is based upon the actual number of
holders registered in our records at such date and excludes holders in “street name” or persons, partnerships, associations, corporations, or other entities
identified in security positions listings maintained by depository trust companies.
Dividends
We have never declared or paid any cash dividends on our capital stock. We currently intend to retain all available funds and any future earnings to
support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our common stock for the
foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors and will depend on, among
other factors, our results of operations, financial condition, capital requirements, contractual restrictions, business prospects and other factors our board of
directors may deem relevant. Investors should not purchase our common stock with the expectation of receiving cash dividends.
Equity Compensation Plans
The information required by Item 5 of Form 10-K regarding equity compensation plans is incorporated herein by reference to Item 12 of Part III of
this Annual Report.
Issuer Purchases of Equity Securities
We did not purchase any of our registered equity securities during the period covered by this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities during the period covered by this Annual Report on Form 10-K.
Item 6. Reserved
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our management’s discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements included in this Annual Report on Form 10-K, which have been prepared by us in accordance with United States generally accepted accounting
principles, or GAAP, and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be
read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the
information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our
plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those
factors set forth in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K, our actual results could differ materially from the results described in
or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a leading clinical-stage gene therapy company with a mission to free people from a lifetime of genetic disease. Our company is focused on
developing potentially curative ex vivo lentiviral-based gene therapies to treat patients with rare diseases following a single dose treatment regimen. Our
gene therapies employ hematopoietic stem cells that are harvested from the patient and then modified with a lentiviral vector to insert the equivalent of a
functional copy of the gene that is defective in the target disease. We believe that our approach, which is designed to transform stem cells from patients into
therapeutic products, has the potential to provide curative benefit for a range of diseases. Our initial focus is on a group of rare genetic diseases referred to
as lysosomal disorders, some of which today are primarily managed with enzyme replacement therapies, or ERTs. These lysosomal disorders have well-
understood biologies, identified patient populations, established standards of care yet with significant unmet needs, and represent large market
opportunities with approximately $4.8 billion in worldwide net sales in 2020.
Our initial pipeline is comprised of six lentiviral-based gene therapy programs: AVR-RD-01 for the treatment of Fabry disease; AVR-RD-04 for the
treatment of cystinosis; AVR-RD-02 for the treatment of Gaucher disease type 1; AVR-RD-05 for the treatment of Hunter syndrome; AVR-RD-06 for the
treatment of Gaucher disease type 3; and AVR-RD-03 for the treatment of Pompe disease. AVR-RD-01 is currently being evaluated for the treatment of
Fabry disease in an investigator-sponsored Phase 1 clinical trial and a Company-sponsored Phase 2 clinical trial. Five patients have been dosed in the
investigator-sponsored Phase 1 clinical trial of AVR-RD-01, and enrollment is complete. Five patients have been dosed in our Company-sponsored Phase 2
clinical trial of AVR-RD-01, which we refer to as the FAB-GT clinical trial, and we are actively recruiting additional potential patients for our currently
active sites in Australia, Canada and the United States. AVR-RD-04 is currently being studied for the treatment of cystinosis by our collaborators at the
University of California, San Diego, or UCSD, in a Phase 1/2 investigator-sponsored clinical trial, and three patients have been dosed. One patient has been
dosed in our Company-sponsored Phase 1/2 clinical trial of AVR-RD-02 for the treatment of Gaucher disease, which we refer to as the Guard1 clinical trial,
and we are actively recruiting in Australia and Canada, with additional sites planned in the United States, Israel and Europe. AVR-RD-05 is being studied
for the treatment of Hunter syndrome by our collaborators at The University of Manchester, and a Phase 1/2 investigator-sponsored clinical trial is expected
to commence in the first half of 2022. In November 2020, we announced a new preclinical program, AVR-RD-06 for the treatment of Gaucher disease type
3, and we expect to request a meeting with the Food and Drug Administration, or FDA, this year to discuss a potential path to the clinic. Our AVR-RD-03
program for Pompe disease is currently in preclinical development, and in 2020 we completed IND-enabling proof-of-concept preclinical studies, with
toxicology studies expected to be completed in 2021.
Since our inception in 2015, we have devoted substantially all of our resources to organizing and staffing our company, business planning, raising
capital, acquiring or discovering product candidates and securing related intellectual property rights, conducting discovery, research and development
activities for our programs and planning for potential commercialization. To date, we have not generated any product revenue and have financed our
operations primarily through the private placement of our securities and through public offerings of our common stock. Through December 31, 2020, we
had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting underwriting discounts and
commissions and expenses, of $428.1 million from sales of our common stock through our initial public offering and follow-on offerings; and gross cash
proceeds, before deducting commissions and expenses, of $8.5 million from sales of our common stock through our “at-the-market” (ATM) facility.
Additionally, we have incurred significant operating losses. Our ability to generate product revenue sufficient to achieve profitability will depend
heavily on the successful development and eventual commercialization of one or more of our current or future product candidates and programs. Our net
losses were $119.7 million and $73.0 million for the years
91
ended December 31, 2020 and 2019, respectively. As of December 31, 2020, we had an accumulated deficit of $264.4 million. We expect to continue to
incur significant expenses for at least the next several years as we advance our current and future product candidates from discovery through preclinical
development and clinical trials and seek regulatory approval of our product candidates. We have expanded the number of programs in our pipeline to a total
of six investigational gene therapies, three of which are currently in clinical development. As a result, further development of these programs will require
us to expend significant resources to advance these candidates. In addition, if we obtain marketing approval for any of our product candidates, we expect to
incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. We may also incur expenses in
connection with the in-licensing or acquisition of additional product candidates.
We will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate
significant revenue from product sales, if ever, we expect to finance our operations with proceeds from outside sources, with a majority of such proceeds to
be derived from sales of equity, including the net proceeds from our follow-on offerings. We also plan to pursue additional funding from outside sources,
including our expansion of, or our entry into, new borrowing arrangements; research and development incentive payments from the Australian government;
and our entry into potential future collaboration agreements for one or more of our programs. We may be unable to raise additional funds or enter into such
other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as, and when, needed,
we may have to significantly delay, scale back or discontinue the development and commercialization of one or more of our product candidates or delay
our pursuit of potential in-licenses or acquisitions.
Because of the numerous risks and uncertainties associated with product development, we are unable to predict the timing or amount of increased
expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If
we fail to become profitable or are unable to sustain profitability on a continuing basis, we may be unable to continue our operations at planned levels and
be forced to reduce or terminate our operations.
As of December 31, 2020, we had cash and cash equivalents of $259.7 million. We believe that our existing cash and cash equivalents as of
December 31, 2020 will enable us to fund our operating expenses and capital expenditure requirements into the first quarter of 2023. We have based this
estimate on assumptions that may prove to be wrong, and we could exhaust our available capital resources sooner than we expect. See “Liquidity and
Capital Resources.” To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured.
Components of Our Consolidated Results of Operations
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection with the discovery and development of our product
candidates. We expense research and development costs as incurred. These expenses consist of costs incurred in connection with the development of our
product candidates, including:
•
•
•
•
•
•
•
license maintenance fees and milestone fees incurred in connection with various license agreements;
expenses incurred under agreements with contract research organizations, or CROs, contract manufacturing organizations, or CMOs, as well
as investigative sites and consultants that conduct our clinical trials, preclinical studies and other scientific development services;
manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical trial materials and commercial materials,
including manufacturing validation batches;
costs of purchasing lab supplies and non‑capital equipment used in our preclinical activities;
employee-related expenses, including salaries, related benefits, travel and stock-based compensation expense for employees engaged in
research and development functions;
costs related to compliance with regulatory requirements; and
allocated facilities costs, depreciation and other expenses, which include rent and utilities.
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We recognize external development costs based on an evaluation of the progress to completion of specific tasks using information provided to us by
our service providers.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of
external costs, such as fees paid to outside consultants, CROs, CMOs, and central laboratories in connection with our preclinical development, process
development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred
under license agreements. We do not allocate employee costs or facility expenses, including depreciation or other indirect costs, to specific programs
because these costs are deployed across multiple programs and, as such, are not separately classified. We use internal resources primarily to oversee the
research and discovery as well as for managing our preclinical development, process development, manufacturing and clinical development activities.
These employees work across multiple programs and, therefore, we do not track their costs by program.
The table below summarizes our research and development expenses related to our product candidates (in thousands):
Fabry
Gaucher
Pompe
Cystinosis
Hunter
Other research activities
Unallocated research and development expenses
Total research and development expenses
Year Ended
December 31,
2020
2019
$
$
11,483 $
7,546
5,593
1,225
8,728
5,138
47,523
87,236 $
9,833
6,591
5,722
4,177
—
4,451
24,200
54,974
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have
higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials.
As a result, we expect that our research and development expenses will increase substantially over the next several years, particularly as we increase
personnel costs, including stock-based compensation, contractor costs and facilities costs, as we continue to advance the development of our product
candidates. We also expect to incur additional expenses related to milestone and royalty payments payable to third parties with whom we have entered into
license agreements to acquire the rights to our product candidates.
The successful development and commercialization of our product candidates is highly uncertain. At this time, we cannot reasonably estimate or
know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates
or when, if ever, material net cash inflows may commence from any of our product candidates. This uncertainty is due to the numerous risks and
uncertainties associated with product development and commercialization, including the uncertainty of:
•
•
•
•
•
•
•
•
•
the scope, progress, outcome and costs of our preclinical development activities, clinical trials and other research and development activities;
establishing an appropriate safety profile with IND-enabling studies;
successful patient enrollment in, and the design, initiation and completion of, clinical trials;
the timing, receipt and terms of any marketing approvals from applicable regulatory authorities;
establishing commercial manufacturing capabilities or making arrangements with third-party manufacturers;
development and timely delivery of commercial-grade drug formulations that can be used in our clinical trials and for commercial launch;
obtaining, maintaining, defending and enforcing patent claims and other intellectual property rights;
significant and changing government regulation;
launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;
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•
•
maintaining a continued acceptable safety profile of the product candidates following approval; and
the risks disclosed in the section entitled “Risk Factors” of this Annual Report on Form 10-K.
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical
trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of
these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the
costs and timing associated with the development of these product candidates. For example, if the FDA, or another regulatory authority were to delay our
planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect, or if we experience significant
delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the
completion of clinical development of that product candidate. Identifying potential product candidates and conducting preclinical testing and clinical trials
is a time-consuming, expensive and uncertain process that takes years to complete, and we may never generate the necessary data or results required to
obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries, related benefits, travel and stock-based compensation expense for personnel in
executive, finance and administrative functions. General and administrative expenses also include professional fees for legal, consulting, accounting and
audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued
research activities and development of our product candidates. We also anticipate that we will continue to incur increased accounting, audit, legal,
compliance, director and officer insurance costs as well as investor and public relations expenses associated with being a public company. We anticipate the
additional costs for these services will substantially increase our general and administrative expenses. Additionally, if and when we believe a regulatory
approval of a product candidate appears likely, we anticipate an increase in payroll and other commercialization-related expenses as a result of our
preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.
Other Income (Expense), net
Other income (expense), net primarily consists of interest income earned on our cash and cash equivalents and changes in foreign currency.
Consolidated Results of Operations
Comparison of the Years Ended December 31, 2020 and 2019
The following table summarizes our consolidated results of operations (in thousands):
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Other expense
Total other income, net
Net loss
Year Ended
December 31,
2020
2019
Change
$
87,236 $
32,992
120,228
(120,228)
719
(203)
516
$
(119,712) $
54,974 $
20,835
75,809
(75,809)
2,934
(90)
2,844
(72,965) $
32,262
12,157
44,419
(44,419)
(2,215)
(113)
(2,328)
(46,747)
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Research and Development Expenses
Research and development expenses increased by $32.3 million to $87.2 million for the year ended December 31, 2020, from approximately
$55.0 million for the year ended December 31, 2019. This increase was attributable to increased program development activities related to the advancement
of our pipeline programs, including a $11.7 million increase in personnel-related costs, $9.1 million in one-time, upfront licensing fees, including payment
to The University of Manchester as consideration for the MPSII License Agreement, a $4.6 million increase in noncash stock-based compensation, a $5.7
million increase in clinical costs, a $2.1 million increase in facility costs, a $1.9 million increase in consulting fees, a $0.8 million increase in lab supplies
expense, and a $1.1 million increase in other expenses. These increases were partially off-set by a $2.0 million one-time licensing fee paid in 2019, a $2.1
million decrease in preclinical costs, and a $0.6 million decrease in manufacturing costs.
General and Administrative Expenses
General and administrative expenses increased by $12.2 million to $33.0 million for the year ended December 31, 2020, from $20.8 million for the
year ended December 31, 2019. This increase was attributable to a $4.3 million increase in non-cash stock-based compensation, a $3.6 million increase in
personnel-related costs, a $2.1 million increase in professional fees, a $1.0 million increase in facility costs, a $0.6 million increase in insurance costs, and
$0.6 million in other expenses.
Other Income (Expense), net
Other income, net decreased by $2.3 million to $0.5 million in other income, net during the fiscal year ended December 31, 2020, from $2.8 million
other income, net for the year ended December 31, 2019. The decrease was primarily due to a $2.2 million decrease in interest income and an approximate
increase in foreign currency losses of $0.1 million.
Liquidity and Capital Resources
Since our inception, we have not generated any revenue and have incurred significant operating losses and negative cash flows from our operations.
We have funded our operations to date primarily with proceeds from the sale of preferred stock and our common stock through our initial public offering,
or IPO, and we have raised additional capital through subsequent follow-on offerings and our “at-the-market” facility, or ATM facility. Through
December 31, 2020, we had received gross cash proceeds of $87.5 million from sales of our preferred stock; gross cash proceeds, before deducting
underwriting discounts and commissions and expenses, of $428.1 million from sales of our common stock through our IPO and follow-on public offerings;
and $8.5 million in gross proceeds from the sale of our common stock under our ATM Facility.
On July 1, 2019, we filed a shelf registration statement on Form S-3 with the SEC, or the July 2019 Shelf, which covers the offering, issuance and
sale by us of up to an aggregate of $200.0 million of our common stock, preferred stock, debt securities, warrants and/or units. We simultaneously entered
into a Sales Agreement with Cowen and Company, LLC, as sales agent, to provide for the offering, issuance and sale by us of up to $50.0 million of our
common stock from time to time in ATM offerings under the July 2019 Shelf. The July 2019 Shelf was declared effective by the SEC on July 10, 2019.
On December 20, 2019, we filed a shelf registration statement on Form S-3 with the SEC, or the December 2019 Shelf, which covers the offering,
issuance and sale by us of up to an aggregate of $250.0 million of our common stock, preferred stock, debt securities, warrants and/or units. The December
2019 Shelf was declared effective by the SEC on January 14, 2020.
In July 2019, we closed an underwritten public offering, or the July 2019 Follow-On Offering, under the July 2019 Shelf of 7,475,000 shares of our
common stock at a public offering price of $18.50 per share, which included 975,000 shares of our common stock resulting from the full exercise of the
underwriters’ option to purchase additional shares at the public offering price, less underwriting discounts and commissions. The net proceeds to us from
this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $129.5 million.
In February 2020, we closed an underwritten public offering, or the February 2020 Follow-On Offering, under the December 2019 Shelf of
4,350,000 shares of our common stock at a public offering price of $23.00 per share, less underwriting discounts and commissions. The net proceeds to us
from this offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $93.6 million.
95
In June 2020, we sold an aggregate of 384,140 shares of common stock under the ATM Facility for net proceeds, after deducting commissions and
other offering expenses payable by us, of $8.1 million. As of December 31, 2020, approximately $41.5 million of common stock remained available for
future issuance under the ATM Facility.
In November 2020, we closed an underwritten public offering, or the November 2020 Follow-On Offering, of 5,000,000 shares of our common
stock at a public offering price of $15.00 per share, less underwriting discounts and commissions. The net proceeds to us from the November 2020 Follow-
On Offering, after deducting underwriting discounts and commissions and other offering expenses payable by us, were $70.2 million.
As of December 31, 2020, we had cash and cash equivalents of $259.7 million. Cash in excess of immediate requirements is invested primarily with
a view to liquidity and capital preservation. We believe that our existing cash and cash equivalents as of December 31, 2020 will enable us to fund our
operating expenses and capital expenditure requirements into the first quarter of 2023.
Cash Flows
The following table summarizes our cash flows for each of the periods presented (in thousands):
Net cash used in operating activities
Net cash used in investing activities
Net cash provided by financing activities
Net increase in cash, cash equivalents and restricted
cash
Operating Activities
Year Ended
December 31,
2020
2019
$
(98,803) $
(1,177)
172,619
(67,668)
(1,585)
129,994
$
72,639
$
60,741
During the year ended December 31, 2020, operating activities used $98.8 million of cash and cash equivalents, resulting from our net loss of
$119.7 million, partially off-set by net cash provided by changes in our operating assets and liabilities of $4.2 million and non-cash charges of
$16.7 million. Net cash provided by changes in our operating assets and liabilities for the year ended December 31, 2020 consists primarily of a $3.9
million increase in accrued expenses and other current liabilities, a $1.1 million decrease in prepaid expenses and other current assets and a $0.1 million
decrease in other assets, partially offset by a $0.9 million decrease in accounts payable. The increase in accrued expenses and other current liabilities was
primarily due to a $3.4 million increase in accrued compensation and benefit costs.
During the year ended December 31, 2019, operating activities used $67.7 million of cash and cash equivalents, resulting from our net loss of $73.0
million and net cash used by changes in our operating assets and liabilities of $2.2 million, offset in part by non-cash charges of $7.5 million. Net cash used
by changes in our operating assets and liabilities for the year ended December 31, 2019 consisted primarily of a $4.9 million increase in prepaid expenses
and other current assets and a $0.2 million increase in other assets, partially offset by a $1.0 million increase in accounts payable and a $1.9 million
increase in accrued expenses and other current liabilities. The increase in prepaid expenses and other current assets was primarily due to a $3.9 million
increase in prepaid development costs, $0.6 million increase in prepaid insurance and a $0.6 million increase in a tax incentive refund receivable from the
Australian government.
Investing Activities
Net cash used in investing activities was $1.2 million for the year ended December 31, 2020 compared to $1.6 million for the year ended
December 31, 2019. The decrease in cash used in investing activities was primarily due to a reduction in purchases of property and equipment.
Financing Activities
Net cash provided by financing activities was $172.6 million for the year ended December 31, 2020 compared to $130.0 million for the year ended
December 31, 2019. The increase in cash provided by financing activities was primarily due to the proceeds of $164.1 million raised from the February
Follow-On Offering and November 2020 Follow-On Offering
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and proceeds of $8.1 million raised from our ATM facility, as compared to the $129.5 million in proceeds raised from the July 2019 Follow-On Offering in
the comparative period.
Funding Requirements
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance the preclinical activities and
clinical trials of our product candidates. Our expenses will also increase as we:
•
•
•
•
•
•
•
•
•
continue our development of our product candidates, including continuing enrollment in our ongoing FAB-GT clinical trial for AVR-RD-01,
the ongoing investigator-sponsored clinical trial of AVR-RD-04 and our ongoing clinical trial of AVR-RD-02;
initiate additional clinical trials, including the planned investigator-sponsored clinical trial of AVR-RD-05, and preclinical studies for our other
current and future product candidates;
seek to identify and develop or in-license or acquire additional product candidates and technologies;
seek to industrialize our ex vivo lentiviral gene therapy approach into a robust, scalable and, if approved, commercially viable process;
seek marketing approvals for our product candidates that successfully complete clinical trials, if any;
establish a sales, marketing and distribution infrastructure to commercialize any product candidates for which we may obtain marketing
approval;
hire and retain additional personnel, such as clinical, quality control, commercial and scientific personnel;
expand our infrastructure, office space and facilities to accommodate our growing employee base, including adding equipment and physical
infrastructure to support our research and development; and
continue to incur additional public company-related costs.
We believe that our $259.7 million of existing cash and cash equivalents as of December 31, 2020, will enable us to fund our operating expenses
and capital expenditure requirements into the first quarter of 2023. We have based these estimates on assumptions that may prove to be wrong, and we
could utilize our available capital resources sooner than we expect. If we receive regulatory approval for any of our product candidates, we expect to incur
significant commercialization expenses related to product manufacturing, sales, marketing and distribution, depending on where we choose to
commercialize.
Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a
combination of equity offerings, debt financings, collaboration agreements, government and other third-party funding, strategic alliances, licensing
arrangements or marketing and distribution arrangements. 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 or declaring dividends. If
we raise additional funds through government and other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or
marketing and distribution arrangements, 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, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to
develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of December 31, 2020 and the effects that such obligations are expected to have on
our liquidity and cash flows in future periods (in thousands):
Operating lease commitments (1)
Total
Total
$
$
3,801 $
3,801 $
Less than
1 Year
Payments Due by Period
1 to 3
Years
4 to 5
Years
More than
5 Years
2,078 $
2,078 $
1,504 $
1,504 $
219 $
219 $
—
—
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(1)
Represents future minimum lease payments under our non-cancelable operating leases for office and laboratory space, which are located in
Cambridge, Massachusetts and Toronto, Canada. Those leases will expire from April 2022 to June 2025. The minimum lease payments above do
not include any related common area maintenance charges or real estate taxes.
We enter into contracts in the normal course of business with CROs, CMOs and other third parties for clinical trials, preclinical research studies and
testing and manufacturing services. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including
noncancelable obligations of our service providers, up to the date of cancellation. These payments are not included in the preceding table as the amount and
timing of such payments are not known.
In addition, pursuant to our license agreements with UHN, BioMarin, The University of Manchester, GenStem and the Lund University rights
holders, we are required to make certain milestone and royalty payments to our licensors. See “Business—License Agreements” for additional details
regarding our payment obligations to these licensors.
Critical Accounting Policies and Significant Judgments and Estimates
Our consolidated financial statements are prepared in accordance with generally accepted accounting principles in the United States. The
preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our financial statements. We base our estimates on
historical experience, known trends and events and various other factors that we believe are reasonable under 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. We evaluate our estimates
and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions.
While our significant accounting policies are described in more detail in Note 2 “Summary of Significant Accounting Policies” to our consolidated
financial statements appearing elsewhere in this Annual Report, we believe that the following accounting policies are those most critical to the judgments
and estimates used in the preparation of our consolidated financial statements.
Accrued Research and Development Expenses
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 open contracts and purchase orders, communicating with our 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 costs. The majority of our service providers invoice us in arrears for services performed, on a pre-determined schedule or
when contractual milestones are met; however, some require advanced payments. We make estimates of our accrued expenses as of each balance sheet date
in the consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of these estimates
with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to:
•
•
•
vendors, including central laboratories, in connection with preclinical development activities;
CROs and investigative sites in connection with preclinical and clinical studies; and
CMOs in connection with drug substance and drug product formulation of preclinical and clinical trial materials.
We base our expenses related to preclinical studies and clinical trials on our estimates of the services received and efforts expended pursuant to
quotes and contracts with multiple research institutions and CROs that conduct and manage preclinical studies and clinical trials 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. There may be
instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. 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 the estimate, we adjust the accrual or the amount of prepaid expenses accordingly. Although we
do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed
relative to the
98
actual status and timing of services performed may vary and may result in reporting amounts that are too high or too low in any particular period. To date,
there have not been any material adjustments to our prior estimates of accrued research and development expenses.
Stock-Based Compensation
We measure stock options and other stock-based awards granted to employees and members of our board of directors for their services as directors
based on the fair value on the date of the grant and recognize the corresponding compensation expense of those awards over the requisite service period,
which is generally the vesting period of the respective award. We have issued stock options, restricted stock and restricted stock units with service-based
vesting conditions.
Prior to the adoption of Accounting Standards Update (ASU) No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting (ASU 2018-07), as discussed in Note 2 “Summary of Significant Accounting Policies” to our consolidated
financial statements appearing elsewhere in this Annual Report, the measurement date for non-employee awards was generally the date the services were
completed, resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the
awards. After the adoption of ASU 2018-07, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the date
of grant, without change in the fair value of the award.
We estimate the fair value of each stock option grant using the Black-Scholes option-pricing model, which uses as inputs the estimated fair value of
our common stock and assumptions we make for the volatility of our common stock, the expected term of our stock options, the risk-free interest rate for a
period that approximates the expected term of our stock options and our expected dividend yield.
We determined the assumptions for the Black-Scholes option-pricing model as discussed below. Each of these inputs is subjective and generally
requires significant judgment to determine.
•
•
•
•
•
Determination of the Fair Value of Common Stock. The fair value of our common stock is determined based on the quoted market price of our
common stock. Prior to our IPO, there was no public market for our common stock, and consequently, the estimated fair value of our common
stock was determined by our board of directors as of the date of each option grant, with input from management, considering third-party
valuations of our common stock as well as our board of directors’ assessment of additional objective and subjective factors that it believed
were relevant and which may have changed from the date of the most recent third-party valuation through the date of the grant. These third-
party valuations were performed in accordance with the guidance outlined in the American Institute of Certified Public Accountants’
Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. After a public trading
market for our common stock was established following the closing of our IPO, it was no longer necessary for our board of directors to
estimate the fair market value of our common stock in connection with our accounting for granted equity awards.
Expected Term. The expected term represents the period that the stock-based awards are expected to be outstanding. The expected term of
stock options granted has been determined using the simplified method, which uses the midpoint between the vesting date and the contractual
term.
Risk-Free Interest Rate. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the date of grant for zero-coupon U.S.
Treasury constant maturity notes with terms approximately equal to the stock-based award’s expected term.
Expected Volatility. Because we do not have long-term trading history of our common stock, the expected volatility was derived from the
average historical stock volatilities of several public companies within our industry that we consider to be comparable to our business over a
period equivalent to the expected term of the stock-based awards.
Dividend Rate. The expected dividend is zero as we have not paid and do not anticipate paying any dividends in the foreseeable future.
If any of the assumptions used in the Black-Scholes model change significantly, stock-based compensation for future awards may differ materially
compared with the awards granted previously.
99
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we
are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended
transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition
period for complying with new or revised accounting standards and, as a result of this election, our financial statements may not be comparable to
companies that comply with public company effective dates. We may take advantage of these exemptions up until the last day of the fiscal year following
the fifth anniversary of our IPO or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth
company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and
we have been a public company for at least 12 months and have filed one annual report on Form 10-K) or we issue more than $1.0 billion of non-
convertible debt securities over a three-year period.
Off-Balance Sheet Arrangements
We did not have, during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and
regulations of the Securities and Exchange Commission.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed
in Note 2 “Summary of Significant Accounting Policies” to our audited financial statements appearing elsewhere in this Annual Report.
100
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Interest Rate Risk
As of December 31, 2020, we had cash and cash equivalents of $259.7 million, which consisted of cash and money market funds. Interest income is
sensitive to changes in the general level of interest rates; however, due to the nature of these investments, an immediate 10% change in interest rates would
not have a material impact on our cash and cash equivalents, financial position or results of operations.
Foreign Currency Exchange Risk
We are exposed to foreign exchange rate risk. Our headquarters are located in the United States, where the majority of our general and
administrative expenses and research and development costs are incurred in U.S. dollars. A portion of our research and development costs are incurred by
our subsidiaries in Australia and Canada, whose functional currencies are the U.S. dollar but engage in transactions in Australian dollars and Canadian
dollars, respectively. During each of the years ended December 31, 2020 and 2019, we recognized immaterial foreign currency transaction losses. These
losses primarily related to unrealized and realized foreign currency gains and losses as a result of transactions entered into by our Australian and Canadian
subsidiaries in currencies other than the U.S. dollar. These foreign currency transaction gains and losses were recorded in other expense, net in our
consolidated statements of operations. We believe that a 10% change in the exchange rate between the U.S. dollar, Australian dollar and Canadian dollar
would not have a material impact on our financial position or results of operations.
As we continue to grow our business, our results of operations and cash flows will be subject to fluctuations due to changes in foreign currency
exchange rates, which could adversely impact our results of operations. To date, we have not entered into any foreign currency hedging contracts to
mitigate our exposure to foreign currency exchange risk.
Item 8. Financial Statements and Supplementary Data
All financial statements and supplementary data required to be filed hereunder are filed as listed under Item 15(a) of this Annual Report on Form
10-K and are incorporated herein by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer (our principal executive officer and
principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a
company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits
under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers,
as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating
the cost-benefit relationship of possible controls and procedures.
Based on the evaluation of our disclosure controls and procedures as of December 31, 2020, our Chief Executive Officer and Chief Financial
Officer concluded that our disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this
Annual Report on Form 10-K.
101
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) for the Company. Our internal control over financial reporting is designed to provide reasonable assurances
regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with U.S. generally accepted
accounting principles, or GAAP, and includes those policies and procedures that:
•
•
•
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the
Company;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets
that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
or compliance with the policies or procedures may deteriorate.
Our management, with the participation of its Chief Executive Officer and Chief Financial Officer, assessed our internal control over financial
reporting as of December 31, 2020. Management based its assessment on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and concluded that our internal control over financial reporting was effective at the
reasonable assurance level as of December 31, 2020.
This Annual Report on Form 10-K does not include an attestation report of our independent registered public accounting firm due to a transition
period established by rules of the SEC for “emerging growth companies”.
Remediation of Previously Reported Material Weaknesses
During the year ended December 31, 2018, we reported material weaknesses in our internal control over financial reporting related to deficiencies
in our controls over the financial statement close process, including over complex accounting issues, expense classification and accrued research and
development expenses, as well as the cash disbursement process. We took a number of actions in 2018 and 2019 to improve our internal control over
financial reporting to remediate these material weaknesses.
For the year ended December 31, 2020, we completed our testing of the operating effectiveness of the implemented controls and determined they
were effective. As a result, we have concluded the material weaknesses identified in fiscal year 2018 have been remediated as of December 31, 2020.
We cannot assure you that material weaknesses or significant deficiencies will not occur in the future or that we will be able to remediate such
weaknesses or deficiencies in a timely manner, which could impair our ability to accurately and timely report our financial position, results of operations or
cash flows. For additional information see the related risks in the section titled “Risk Factors” in Part I, Section 1.A of this Annual Report.
Changes in Internal Control over Financial Reporting
No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the
quarter ended December 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
102
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K and is incorporated by reference from our definitive
proxy statement relating to our 2021 annual meeting of stockholders, pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended, also
referred to in this Annual Report on Form 10-K as our 2021 Proxy Statement, which we expect to file with the SEC no later than April 30, 2021.
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this item with respect to our directors and executive officers and compliance with Section 16(a) of the Exchange Act will
be included in our 2021 Proxy Statement and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this item regarding executive compensation will be included in our 2021 Proxy Statement and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this item regarding security ownership of certain beneficial owners and management and securities authorized for
issuance under equity compensation plans will be included in our 2021 Proxy Statement and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item regarding certain relationships and related transactions and director independence will be included in our
2021 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
The information required by this item regarding principal accounting fees and services will be included in our 2021 Proxy Statement and is
incorporated herein by reference.
103
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are included in this Annual Report on Form 10-K:
PART IV
1.
The following Report and Consolidated Financial Statements of the Company are included in this Annual Report:
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2.
3.
All financial schedules have been omitted because the required information is either presented in the consolidated financial statements or the
notes thereto or is not applicable or required.
The exhibits required by Item 601 of Regulation S-K and Item 15(b) of this Annual Report on Form 10-K are listed in the Exhibit Index
immediately preceding the signature page of this Annual Report on Form 10-K. The exhibits listed in the Exhibit Index are incorporated by
reference herein.
Item 16. Form 10-K Summary
Not Applicable.
104
AVROBIO, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Comprehensive Loss
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
F-1
Page
F-2
F-3
F-4
F-5
F-6
F-7
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of AVROBIO, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of AVROBIO, Inc. (the Company) as of December 31, 2020 and 2019, the related
consolidated statements of operations and comprehensive loss, stockholders’ equity and cash flows for each of the years then ended, and the related notes
(collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material
respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years
then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s 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 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 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 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 financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2018.
Boston, Massachusetts
March 18, 2021
F-2
AVROBIO, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except per share data)
Assets
Current assets:
Cash and cash equivalents
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Restricted cash
Other assets
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Deferred rent
Total current liabilities
Deferred rent, net of current portion
Total liabilities
Commitments and contingencies (Note 6)
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000 shares authorized and
no shares issued or outstanding as of December 31, 2020 and 2019
Common stock, $0.0001 par value; 150,000 shares authorized as of
December 31, 2020 and 2019; 41,569 and 31,673 shares issued
as of December 31, 2020 and 2019, respectively; 41,569 and 31,643
shares outstanding as of December 31, 2020 and 2019, respectively
Additional paid-in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders' equity
December 31,
2020
2019
259,682 $
7,560
267,242
3,064
492
436
271,234 $
2,682 $
13,693
239
16,614
276
16,890
187,043
8,658
195,701
3,696
492
625
200,514
3,949
9,854
214
14,017
484
14,501
—
—
4
518,756
(264,416)
254,344
271,234 $
3
330,714
(144,704)
186,013
200,514
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
F-3
AVROBIO, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(amounts in thousands, except per share data)
Operating expenses:
Research and development
General and administrative
Total operating expenses
Loss from operations
Other income (expense):
Interest income
Other expense, net
Total other income, net
Net loss
Comprehensive loss
Net loss per share —basic and diluted
Weighted-average number of common shares outstanding—basic and diluted
Year Ended December 31,
2020
2019
$
$
$
$
87,236 $
32,992
120,228
(120,228)
719
(203)
516
(119,712) $
(119,712) $
(3.31) $
36,206
54,974
20,835
75,809
(75,809)
2,934
(90)
2,844
(72,965)
(72,965)
(2.66)
27,432
The accompanying notes are an integral part of these consolidated financial statements.
F-4
AVROBIO, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(amounts in thousands)
Balance as of December 31, 2018
Vesting of restricted stock awards and units
Exercise of stock options
Issuance of common stock upon public
offering, net of offering costs of $525
Issuance of common stock under 2018 employee stock
purchase plan
Stock-based compensation expense
Net loss
Balance as of December 31, 2019
Vesting of restricted stock awards and units
Exercise of stock options
Issuance of common stock upon public
offerings, net of offering costs of $697
Issuance of common stock under
ATM facility, net of offering costs of $67
Issuance of common stock under 2018 employee stock
purchase plan
Stock-based compensation expense
Net loss
Balance as of December 31, 2020
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Deficit
Total
Stockholders’
Equity
23,807
123
236
7,475
2
—
—
31,643
31
148
9,350
384
13
—
—
41,569
$
$
2
—
—
1
—
—
—
3
—
—
1
—
—
—
—
4
$
$
193,921
—
502
129,464
27
6,800
—
330,714
—
270
163,848
8,130
166
15,628
—
518,756
$
(71,739) $
—
—
—
—
—
(72,965)
(144,704)
—
—
—
—
—
—
$
(119,712)
(264,416) $
122,184
—
502
129,465
27
6,800
(72,965)
186,013
—
270
163,849
8,130
166
15,628
(119,712)
254,344
The accompanying notes are an integral part of these consolidated financial statements.
F-5
AVROBIO, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Year Ended December 31,
2020
2019
$
(119,712) $
(72,965)
Cash flows from operating activities:
Net loss
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
Depreciation and amortization expense
Deferred rent expense
Other
Changes in operating assets and liabilities:
Prepaid expenses and other current assets
Other assets
Accounts payable
Accrued expenses and other current liabilities
Net cash used in operating activities
Cash flows from investing activities:
Purchases of property and equipment
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock upon completion of public
offerings, net of offering costs
Proceeds from issuance of common stock under ATM facility, net of offering costs
Exercise of stock options
Proceeds from issuance of common stock under 2018 employee stock purchase plan
Net cash provided by financing activities
Net increase 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 non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and
accrued expenses
Common stock offering costs incurred but unpaid at period end
Reconciliation of cash, cash equivalents and restricted cash reported within the consolidated
balance sheets:
Cash and cash equivalents, end of period
Restricted cash
Cash, cash equivalents and restricted cash, end of period
$
$
$
$
$
15,628
1,207
(183)
20
1,098
84
(881)
3,936
(98,803)
(1,177)
(1,177)
164,053
8,130
270
166
172,619
72,639
187,535
260,174 $
— $
205 $
259,682 $
492
260,174 $
6,800
850
(172)
—
(4,888)
(241)
1,028
1,920
(67,668)
(1,585)
(1,585)
129,465
—
502
27
129,994
60,741
126,794
187,535
582
104
187,043
492
187,535
The accompanying notes are an integral part of these consolidated financial statements.
F-6
AVROBIO, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(amounts in thousands, except share and per share data)
1. Nature of the Business
AVROBIO, Inc. (the “Company” or “AVROBIO”) is a clinical-stage gene therapy company focused on developing potentially curative ex vivo
lentiviral gene therapies to treat rare diseases following a single dose treatment regimen.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including but not limited to,
risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors
of new biopharmaceutical products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the
ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and
development efforts, including preclinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant
amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product
development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales.
The Company has devoted substantially all of its efforts to research and development, business planning, acquiring operating assets, seeking
protection for its technology and product candidates, and raising capital. Since inception, the Company has funded its operations through sales of preferred
stock and common stock. As of December 31, 2020, the Company had an accumulated deficit of $264,416. Although the Company has incurred recurring
losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of
December 31, 2020 of $259,682 will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve
months from the filing date of this Annual Report on Form 10-K with the SEC. However, the future viability of the Company is dependent on its ability to
raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial
condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding
will be available on terms acceptable to the Company, or at all.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United
States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted
accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting
Standards Board (“FASB”).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of AVROBIO, Inc. and its wholly owned subsidiaries. All intercompany
transactions and balances have been eliminated in consolidation.
Segment Information
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by
the chief operating decision maker, or decision-making group, in making decisions on how to allocate resources and assess performance. The Company’s
chief operating decision maker is the chief executive officer (“CEO”). The Company and the CEO view the Company’s operations and manage its business
as one operating segment. All material long-lived assets of the Company reside in the United States.
Reclassifications
Restricted cash totaling $492 as of December 31, 2019 has been reclassified from “Other assets” to “Restricted cash” in order to conform to the
current period presentation. Additionally, the Company has reclassified $214 which was previously classified as “Accrued expenses and other current
liabilities” as of December 31, 20219 to “Deferred rent” in order to
F-7
conform to the current period presentation. These reclassifications had no effect on the consolidated results of operation or cash flows for the year ended
December 31, 2019.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires that the Company make estimates and judgments that may affect the
reported amounts of assets, liabilities and expenses and the related disclosure of contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting periods. On an on‑going basis, the Company evaluates its estimates, judgments and methodologies.
The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the
basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates. Changes in estimates are
reflected in reported results in the period in which they become known.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with original maturities of three months or less at acquisition to be cash
equivalents. As of December 31, 2020 and 2019, cash and cash equivalents were primarily held in interest-bearing money market funds.
Concentrations of Credit Risk
The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements.
Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents and restricted cash.
Periodically, the Company maintains deposits in accredited financial institutions in excess of federally insured limits. The Company deposits its cash and
cash equivalents in financial institutions that it believes have high credit quality and has not experienced any losses on such accounts and does not believe it
is exposed to any unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
Deferred Issuance Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity
financings as deferred issuance costs until such financings are consummated. After consummation of the equity financing, these costs are recorded as a
reduction of the proceeds generated as a result of the offering. Should the planned equity financing be abandoned, the deferred issuance costs will be
expensed immediately as a charge to operating expenses in the consolidated statements of operations. As of December 31, 2019, the Company recorded
deferred issuance costs of $133 within other assets on the consolidated balance sheet related to a follow-on offering of common stock completed in
February 2020. There were no amounts deferred as of December 31, 2020.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be
received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable
inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the
following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
•
•
•
Level 1— Fair values are determined utilizing prices (unadjusted) in active markets for identical assets or liabilities that the Company has the
ability to access.
Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted
prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by
observable market data.
Level 3—Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets
or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
F-8
The carrying amounts of the Company’s financial instruments, which include cash equivalents, accounts payable, and accrued expenses,
approximated their fair values as of December 31, 2020 and 2019 due to the short‑term nature of these instruments.
The Company has evaluated the estimated fair value of financial instruments using available market information. The use of different market
assumptions, estimation methodologies, or both, could have a significant effect on the estimated fair value amounts. See Note 4 “Fair Value of Financial
Assets and Liabilities” for further discussion.
Property and Equipment
Property and equipment are recorded at cost. Depreciation and amortization is calculated using the straight-line method over the following
estimated useful lives of the assets:
Laboratory and office equipment
Computer equipment
Leasehold improvements
Estimated Useful Life
5 years
2 years
Lesser of lease term or 10 years
Impairment of Long-Lived Assets
Long-lived assets consist of property and equipment. Long-lived assets to be held and used are tested for recoverability whenever events or changes
in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. Factors that the Company considers in deciding
when to perform an impairment review include significant underperformance of the business in relation to expectations, significant negative industry or
economic trends and significant changes or planned changes in the use of the assets. If an impairment review is performed to evaluate a long-lived asset
group for recoverability, the Company compares forecasts of undiscounted cash flows expected to result from the use and eventual disposition of the long-
lived asset group to its carrying value. An impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the
use of an asset group are less than its carrying amount. The impairment loss would be based on the excess of the carrying value of the impaired asset group
over its fair value, determined based on discounted cash flows. The Company did not record any impairment loss during the years ended December 31,
2020 and 2019.
Leases
The Company categorizes leases at their inception as either operating or capital leases. On certain lease arrangements, the Company may receive
rent holidays or other incentives. The Company recognizes lease costs on a straight-line basis once control of the space is achieved, without regard to
deferred payment terms, such as rent holidays, that defer the commencement date of required payments or escalating payment amounts. The difference
between required lease payments and rent expense has been recorded as deferred rent and accrued expenses and other current liabilities in the
accompanying consolidated balance sheets. Additionally, incentives received are treated as a reduction of costs over the term of the agreement, as they are
considered an inseparable part of the lease agreement.
Comprehensive Income (Loss)
Comprehensive income (loss) is defined as the change in stockholders’ equity of a business enterprise during a period from transactions and other
events and circumstances from non-owner sources. Comprehensive income (loss) includes net income (loss) as well as other changes in stockholders’
equity (deficit) which includes certain changes in equity that are excluded from net income (loss). Comprehensive loss has been disclosed in the
accompanying consolidated statements of operations and comprehensive loss and equals the Company’s net loss for all periods presented.
Foreign Currency Translation
F-9
The functional currency of the Company’s international operations in Canada and Australia is the U.S. dollar. Accordingly, all operating assets and
liabilities of these international subsidiaries are remeasured into U.S. dollars using the exchange rates in effect at the balance sheet date or historical rates,
as appropriate, while expenses are remeasured into U.S. dollars at the average rates in effect during the period. Any differences resulting from the
remeasurement of assets, liabilities, and operations of the Canadian and Australian subsidiaries are recorded within other income (expense), net in the
consolidated statements of operations and comprehensive loss. During the years ended December 31, 2020 and 2019, the Company recorded foreign
exchange losses of $203 and $90, respectively, in other expense.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and
development activities, including salaries, stock-based compensation and benefits, facilities costs, depreciation, third-party license fees, and external costs
of outside vendors engaged to conduct preclinical development activities and clinical trials as well as to manufacture research and development materials.
Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized.
Such amounts are recognized as an expense as the goods are delivered or the related services are performed or until it is no longer expected that the goods
will be delivered or the services rendered.
The Company has entered into various research and development related contracts with parties both inside and outside of the United States. The
payments related to these agreements are recorded as research and development expenses as incurred. The Company records accrued liabilities for
estimated ongoing research costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies or clinical trials,
including the phase or completion of events, invoices received and contracted costs. Significant judgments and estimates are made in determining the
accrued balances at the end of any reporting period. Actual results could differ from the Company’s estimates. The Company’s historical accrual estimates
have not been materially different from the actual costs.
Stock-Based Compensation
For stock-based awards issued to employees and members of the Company’s board of directors (the “Board”) for their services on the Board, the
Company measures the estimated fair value of the stock-based award on the date of grant and recognizes compensation expense for those awards over the
requisite service period, which is generally the vesting period of the respective award. The Company issues stock-based awards with only service-based
vesting conditions and records the expense for these awards using the straight-line method. The Company has not issued any stock-based awards with
performance- or market-based vesting conditions. The Company accounts for forfeitures as they occur.
Prior to the adoption of Accounting Standards Update (“ASU”) No. 2018-07, Compensation-Stock Compensation (Topic 718): Improvements to
Nonemployee Share-Based Payment Accounting, the measurement date for non-employee awards was generally the date the services are completed,
resulting in financial reporting period adjustments to stock-based compensation during the vesting terms for changes in the fair value of the awards. Since
the Company’s adoption of ASU 2018-07 in 2018, the measurement date for non-employee awards is the later of the adoption date of ASU 2018-07, or the
date of grant, without change in the fair value of the award. For stock-based awards granted to nonemployees subject to graded vesting that only contain
service conditions, the Company has elected to recognize stock-based compensation expense using the straight-line recognition method.
The Company classifies stock-based compensation expense in its consolidated statements of operations and comprehensive loss in the same manner
in which the award recipient’s cash compensation costs are classified.
Given the absence of an active market for the Company’s common stock prior to its initial public offering (“IPO”), the Company and the Board, the
members of which the Company believes have extensive business, finance, and venture capital experience, were required to estimate the fair value of the
Company’s common stock at the time of each grant of a stock-based award. The Company and the Board determined the estimated fair value of the
Company’s equity instruments based on a number of factors, including external market conditions affecting the biotechnology industry sector. The
Company and the Board utilized various valuation methodologies in accordance with the framework of the American Institute of Certified Public
Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation, to estimate the fair value of its
common stock. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions
include a number of objective and subjective factors in determining the value of the Company’s common stock at each grant date, including: (1) prices paid
for the Company’s redeemable convertible preferred stock, which the Company had sold to outside investors in arm’s-length transactions, and the rights,
preferences, and privileges of the Company’s redeemable convertible preferred stock and common stock; (2) valuations performed by an independent
valuation specialist; (3) the Company’s stage of development; (4) the fact that the grants of stock-based awards involved illiquid securities in a private
company; and (5) the likelihood of achieving a liquidity event for the common stock underlying the stock-based awards, such as an IPO or sale of the
Company, given prevailing market conditions.
F-10
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model. As there was no public
market for its common stock prior to June 21, 2018, which was the first day of trading, and as the trading history of the Company’s common stock was
limited through December 31, 2020, the Company determined the volatility for awards granted based on an analysis of reported data for a group of
guideline companies that issued options with substantially similar terms. The expected volatility has been determined using a weighted-average of the
historical volatility measures of this group of guideline companies. The Company expects to continue to do so until such time as it has adequate historical
data regarding the volatility of its own traded stock price. The expected term of the Company’s stock options has been determined utilizing the “simplified”
method for awards that qualify as “plain-vanilla” options. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at
the time of grant of the award for time periods approximately equal to the expected term of the award. The Company has not paid, and does not anticipate
paying, cash dividends on its common stock; therefore, the expected dividend yield is assumed to be zero.
Income Taxes
Deferred tax assets and liabilities are determined on the basis of the differences between the consolidated financial statements and tax basis of assets
and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Changes in deferred tax assets and liabilities are
recorded in the provision for income taxes. The Company assesses the likelihood that its deferred tax assets will be recovered from future taxable income
and, to the extent it believes, based upon the weight of available evidence, that it is more likely than not that all or a portion of the deferred tax assets will
not be realized, a valuation allowance is established.
The Company accounts for uncertain tax positions recognized in the consolidated financial statements by prescribing a more-likely-than-not
threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The provision for income
taxes includes the effects of any resulting tax reserves, or unrecognized tax benefits, that are considered appropriate as well as the related net interest and
penalties.
Net Loss per Share
Basic net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period,
without consideration of potential dilutive securities. Diluted net loss per share is computed by adjusting the weighted-average shares outstanding for the
potential dilutive effects of common stock equivalents outstanding during the period calculated in accordance with the treasury stock method. For purposes
of the diluted net loss per share calculation, stock options and restricted stock units are considered to be common stock equivalents but have been excluded
from the calculation of diluted net loss per share, as their effect would be anti-dilutive for all periods presented. Therefore, basic and diluted net loss per
share were the same for all periods presented.
Subsequent Event Considerations
The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the consolidated financial
statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. Subsequent events have been
evaluated as required. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent
events requiring disclosure.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The
Company may take advantage of these exemptions until the Company is no longer an “emerging growth company.” Section 107 of the JOBS Act provides
that an “emerging growth company” can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or
revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and
as a result of this election, its consolidated financial statements may not be comparable to companies that comply with public company effective dates. The
Company may take advantage of these exemptions up until the last day of the fiscal year following the fifth anniversary of an offering or such earlier time
that it is no longer an “emerging growth company.”
F-11
Recently Adopted Accounting Pronouncements
In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808)—Clarifying the Interaction between Topic 808
and Topic 606, or ASU 2018-18. The amendments in ASU 2018-18 clarify that certain transactions between collaborative arrangement participants should
be accounted for as revenue under ASC 606 when the collaborative arrangement participant is a customer in the context of a unit of account. The
amendments under ASU 2018-18 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. The
amendments in ASU 2018-18 should be applied retrospectively to the date of initial application of ASC 606. The Company adopted ASU 2018-18 during
the quarter ended March 31, 2020. The adoption did not have a material impact on the consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40), or ASU 2018-
15. ASU 2018-15 updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service
contract. The amendments under ASU 2018-15 are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption
permitted. The Company adopted ASU 2018-15 during the quarter ended March 31, 2020. The adoption did not have a material impact on the consolidated
financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure
Requirements for Fair Value Measurement, or ASU 2018-13. The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements
for fair value measurements. The amendments are effective for interim and annual reporting periods beginning after December 15, 2019, with early
adoption permitted for either the entire ASU or only the provisions that eliminate or modify requirements. The amendments with respect to changes in
unrealized gains and losses, the range and weighted-average of significant unobservable inputs used to develop Level 3 fair value measurements, and the
narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods
presented. The Company adopted ASU 2018-13 during the quarter ended March 31, 2020. The adoption did not have a material impact on the consolidated
financial statements.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, (Topic 842) Leases, or ASU 2016-02. ASU 2016-02 requires an entity to recognize assets
and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help
investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. For public
entities, ASU 2016-02 is effective for fiscal years beginning after December 15, 2018. As a result of the Company having elected the extended transition
period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, ASU 2016-02 is effective for the Company for
the year ended December 31, 2022, and all interim periods thereafter. Early adoption is permitted. The Company is currently evaluating the impact that the
adoption of ASU 2016-02 will have on its consolidated financial statements. Based on this evaluation the Company currently expects that its operating
lease commitments will be subject to the new standard and recognized as right-of-use assets and operating lease liabilities upon adoption of this standard,
which will increase the Company’s total assets and total liabilities.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments, or ASU 2016-13. ASU 2016-13 requires that credit losses be reported as an allowance using an expected losses model, representing the
entity's current estimate of credit losses expected to be incurred. The accounting guidance currently in effect is based on an incurred loss model. For
available-for-sale debt securities with unrealized losses, this standard now requires allowances to be recorded instead of reducing the amortized cost of the
investment. ASU 2016-13 is effective for non-emerging growth companies (“EGCs”) for fiscal years beginning December 15, 2019 and interim periods
within those fiscal years, and will be effective for the Company for fiscal years beginning after December 15, 2022 and interim periods within those fiscal
years, assuming the Company remains an EGC. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2016-13
may have on its financial statements.
In November 2019, the FASB issued ASU 2019-11, “Codification Improvements to Topic 326, Financial Instruments – Credit Losses”, or ASU
2019-11. ASU 2019-11 is an accounting pronouncement that amends ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of
Credit Losses on Financial Instruments.” The amendments update guidance on reporting credit losses for financial assets. These amendments affect loans,
debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not
excluded from the scope that have the contractual right to receive cash. The amendments in both ASU 2016-13 and ASU 2019-11 are
F-12
effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years. As a result of the Company
having elected the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act, 2016-13
and ASU 2019-11 are effective for the Company for fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The
Company is currently evaluating ASU 2016-13 and ASU 2019-11 and their impact on its consolidated financial statements and financial statement
disclosures.
In December 2019, the FASB issued ASU No. 2019-12, Simplifying the Accounting for Income Taxes, or ASU 2019-12. ASU 2019-12 eliminates
certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the
recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes. ASU
2019-12 is effective for non-EGCs for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years and will be effective for
the Company for fiscal years beginning after December 15, 2021 and interim periods beginning after December 15, 2022, assuming the Company remains
an EGC. Early adoption is permitted. The Company is currently evaluating the effects the adoption of ASU 2019-12 may have on its financial statements.
3. License Agreements
Agreement with The University of Manchester
On September 30, 2020, the Company entered into an agreement (“MPSII License Agreement”) with The University of Manchester, England
(“UoM”), whereby UoM granted to the Company an exclusive worldwide license under certain patent and other intellectual property rights, subject to
certain retained rights, to develop, commercialize and sell an ex vivo lentiviral gene therapy for use in the treatment of Hunter syndrome, or
mucopolysaccharidosis type II (“MPSII”). As consideration for the MPSII License Agreement, the Company agreed to pay UoM an upfront, one-time fee
of $8,000, which was recognized as research and development expense during the year ended December 31, 2020.
As part of the agreement, the Company is obligated to make milestone payments of up to an aggregate of $80,000 upon the achievement of
specified development and regulatory milestones, to pay royalties, on a product-by-product and country-by-country basis, of a mid-single digit percentage
based on net sales of products licensed under the agreement and to pay a low double digit percentage of any sublicense fees received by the Company. The
next anticipated payment milestones under the MPSII License Agreement include $2,000, which would become due following the date of regulatory
approval of the clinical trial application for the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM, and $4,000, upon the dosing of the first
patient in the investigator-sponsored Phase 1/2 clinical trial sponsored by UoM.
Unless terminated earlier, the agreement expires upon the later of 15 years from the effective date or the expiration of the last valid claim of the
licensed patents, subject to certain surviving rights and obligations. UoM and the Company can each terminate the agreement in the event of the
bankruptcy or insolvency of the other party, or a material breach by the other party and failure to cure such breach within a certain period of time. UoM has
the right to terminate the agreement in the event of certain actions relating to challenge or opposition to the licensed intellectual property brought by the
Company or its affiliates or sublicensees.
Concurrently with the MPSII License Agreement, the Company entered into a collaborative research funding agreement with UoM (“CRFA”).
Under the CRFA, the Company has agreed to fund the budgeted costs of an investigator-sponsored Phase 1/2 clinical trial to be sponsored by UoM in
connection with the development activities under the MPSII License Agreement, which are currently estimated to equal approximately £9,100 in the
aggregate.
For the year ended December 31, 2020, the Company recognized $565 of costs related to the CRFA.
Agreements with University Health Network (“UHN”)
Fabry License Agreement—
On January 27, 2016, the Company entered into an agreement with UHN, pursuant to which UHN granted the Company an option to enter into an
exclusive license under the UHN intellectual property related to Fabry disease in accordance with the pre-negotiated licensing terms. On November 4,
2016, the Company exercised its option and entered into a license agreement with UHN, pursuant to which UHN granted the Company an exclusive
worldwide license under certain intellectual property rights and a non-exclusive worldwide license under certain know-how, in each case subject to certain
retained rights, to develop, commercialize and sell products for use in the treatment of Fabry disease. In addition, for three years following the execution of
the agreement, UHN granted the Company an exclusive option to obtain a license under
F-13
certain improvements to the licensed intellectual property rights as well as an option to negotiate a license under certain other improvements.
Under this agreement, the Company paid an option fee of CAD $20, an upfront license fee of CAD $75, plus the annual license maintenance fee for
the first year. Thereafter, the Company is also required to pay UHN future annual license maintenance fees until the first sale of a licensed product in
certain markets. The Company is also obligated to make future milestone payments in an aggregate amount of up to CAD $2,450 upon the achievement of
specified milestones as well as royalties on a country-by-country basis of a low to mid-single-digit percentage of annual net sales of licensed products and a
lower single-digit royalty percentage in certain circumstances. Additionally, the Company has agreed to pay a low double-digit royalty percentage of all
sublicensing revenue.
The agreement requires the Company to meet certain performance milestones within specified timeframes. UHN may terminate the agreement if the
Company fails to meet these performance milestones despite using commercially reasonable efforts and the Company is unable to reach agreement with
UHN on revised timeframes. The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis upon the
latest to occur of the expiration or termination of the last valid claim under the licensed intellectual property rights in such country, the tenth anniversary of
the first commercial sale of such licensed product in such country and the expiration of any applicable regulatory exclusivity in such country.
Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products. UHN can
terminate the agreement if the Company fails to make any payments within a specified period after receiving written notice of such failure, or in the event
that the Company fails to obtain or maintain insurance. Either the Company or UHN may terminate the license agreement in the event of a material breach
by the other party and failure to cure such breach within a certain period of time. The Company can voluntarily terminate the agreement with prior notice to
UHN.
For the years ended December 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of
$344 and $783, respectively, which consists of reimbursable funded study trial costs and license maintenance fees. No milestone fees were incurred related
to the Fabry license agreement in the years ended December 31, 2020 and 2019.
Interleukin 12 License Agreement—
On January 27, 2016, the Company entered into an exclusive license agreement with UHN, pursuant to which UHN granted the Company a license
to certain patent rights for the commercial development, manufacture, distribution and use of any products or processes resulting from development of
those patent rights related to Interleukin 12. Upon execution of this agreement, the Company paid an upfront license fee of CAD $264. In addition, as part
of the initial consideration for the license, the Company issued to UHN 1,161,665 shares of the Company’s common stock and agreed to pay UHN up to
$2,000 upon the closing of an IPO if certain criteria are met. The fair value of the shares issued to UHN of $480 and the upfront fee was expensed upon the
execution of the agreement. Upon the closing of the IPO in 2018, as the criteria were met, the Company paid UHN $2,000. The Company is also required
to pay UHN future annual license maintenance fees of CAD $50 on each anniversary of the effective date of the license agreement prior to expiration or
termination and potential future milestone payments of up to CAD $19,275 upon the achievement of specified clinical and regulatory milestones. The
Company also agreed to pay UHN royalties of a low single-digit percentage of net sales of licensed products sold by the Company. If the Company grants
any sublicense rights under the license agreement, the Company has agreed to pay UHN a low double-digit royalty percentage of any sublicense income
received by the Company.
The agreement requires the Company to meet certain diligence requirements based upon specified milestones. The agreement expires on the later of
the date the last patent rights expire in the last country or ten years from the date of first sale. UHN can terminate the agreement if the Company fails to
make any payments within a specified period after receiving written notice of such failure, or in the event that the Company fails to obtain or maintain
insurance. The Company can voluntarily terminate the agreement with prior notice to UHN. Either the Company or UHN may terminate the license
agreement in the event of a material breach by the other party and failure to cure such breach within a certain period of time.
For the years ended December 31, 2020 and 2019, the Company recorded research and development expense related to this agreement with UHN of
$37 and $38, respectively, which consists of license maintenance fees. No milestone fees were incurred related to the Interleukin 12 license agreement in
the years ended December 31, 2020 and 2019.
F-14
Agreement with BioMarin Pharmaceutical Inc. (“BioMarin”)
On August 31, 2017, the Company entered into a license agreement with BioMarin, pursuant to which BioMarin granted the Company an exclusive
worldwide license under certain intellectual property rights owned or controlled by BioMarin to develop, commercialize and sell products for use in the
treatment of Pompe disease. The license agreement was amended in February 2018 and again in January 2020 to, among things, provide that BioMarin
would supply the Company with certain technology materials. As consideration for this agreement, the Company paid an upfront license fee of $500 in
cash and issued 233,765 shares of Series B Preferred Stock to BioMarin at the time of the Company’s Series B Preferred Stock financing in January 2018.
The Company is also obligated to make future milestone payments of up to $13,000 upon the achievement of certain specified milestones and agreed to pay
BioMarin royalties of a low single-digit percentage of net sales of licensed products sold by the Company or its affiliates covered by patent rights in a
relevant country. No expenses related to the license were recorded for the years ended December 31, 2020 and 2019.
Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty obligation for all licensed products throughout the
world. BioMarin and the Company can terminate the agreement in the event of a material breach by the other party and failure to cure such breach within a
certain period of time. The Company may terminate the agreement at will upon written notice to BioMarin. BioMarin has the right to terminate the
agreement upon the Company’s bankruptcy or insolvency, or in the event of any challenge or opposition to the licensed patent rights or related actions
brought by the Company or its affiliates or sublicensees, or if the Company, its affiliates or sublicensees knowingly assist a third-party in challenging or
otherwise opposing the licensed patent rights, except as required under a court order or subpoena.
Agreement with GenStem Therapeutics, Inc. (“GenStem”)
On October 2, 2017, the Company entered into a license agreement with GenStem, pursuant to which GenStem granted the Company an exclusive
worldwide license, subject to certain retained rights, under certain intellectual property rights owned or controlled by GenStem to develop, commercialize
and sell products for use in the treatment of cystinosis. Under this agreement, the Company paid an upfront license fee of $1,000 and is required to make
payments upon completion of certain milestones up to an aggregate of $16,000. The Company also agreed to pay GenStem a tiered mid to high single-digit
royalty percentage on annual net sales of licensed products as well as a low double-digit percentage of sublicense income received from certain third-party
licensees. The Company’s royalty obligation expires on a licensed product-by-licensed product and country-by-country basis on the eleventh anniversary of
the first commercial sale of such licensed product in such country or the expiration of the last valid claim under the licensed patent rights covering such
licensed product in such country, whichever is later. Unless terminated earlier, the agreement expires upon the expiration of the Company’s royalty
obligation for all licensed products throughout the world. GenStem and the Company can terminate the agreement in the event of a material breach by the
other party and failure to cure such breach within a certain period of time. The Company may terminate the agreement at will upon the specified prior
written notice to GenStem.
For the year ended December 31, 2020 the Company recorded no research and development expense related to milestone payments. For the year
ended December 31, 2019 the Company recorded $2,000 related to milestone payments.
Agreement with Lund University Rights Holders
On November 17, 2016, the Company entered into a license agreement with affiliates of Lund University, along with certain other relevant rights
holders that may be added from time to time, pursuant to which such rights holders granted to the Company an exclusive worldwide license, subject to
certain retained rights, under certain intellectual property rights to develop, commercialize and sell products in any and all uses relevant to Gaucher disease.
As consideration for the license, the Company is required to make payments in connection with the achievement of certain milestones up to an aggregate of
$550. The agreement expires on the latest of (i) the twentieth anniversary of the end of a certain research project the Company is funding pursuant to an
agreement with Lund University, (ii) the expiration of the term of any patent filed on the licensed rights that covers a licensed product, (iii) the expiration of
any applicable marketing exclusivity right and (iv) such time that neither the Company nor any sublicensees, partners or contractors are commercializing a
licensed product. Either the Company or the rights holders acting together may terminate the license agreement if the other such party commits a material
breach and fails to cure such breach within a certain period of time, or if the other party enters into liquidation, becomes insolvent, or enters into
composition or statutory reorganization proceedings. No expenses related to the license were recorded for the years ended December 31, 2020 and 2019.
F-15
4. Fair Value of Financial Assets and Liabilities
The following table presents information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and
indicates the level of the fair value hierarchy utilized to determine such fair values as of December 31, 2020 and 2019:
Assets:
Cash equivalents—money market funds
Assets:
Cash equivalents—money market funds
Fair Value Measurements as of
December 31, 2020
Level 1
Level 2
Level 3
Total
$
$
44,416 $
44,416 $
— $
— $
— $
— $
44,416
44,416
Level 1
Fair Value Measurements as of
December 31, 2019
Level 2
Level 3
Total
$
$
186,797 $
186,797 $
— $
— $
— $
— $
186,797
186,797
During the years ended December 31, 2020 and 2019, there were no transfers between levels.
5. Supplemental Balance Sheet Information
Prepaid expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following:
Tax incentive refund
Prepaid research and development expenses
Prepaid insurance
Prepaid compensation benefits
Interest income receivable
Other current assets
Property and equipment, net
Property and equipment, net consisted of the following:
Laboratory and office equipment
Leasehold improvements
Computer equipment
Less: Accumulated depreciation and amortization
Property and equipment, net
December 31,
2020
2019
2,558 $
3,145
973
609
4
271
7,560 $
1,916
4,915
897
362
224
344
8,658
December 31,
2020
2019
3,965 $
1,377
143
5,485
(2,421)
3,064 $
3,456
1,340
134
4,930
(1,234)
3,696
$
$
$
$
Depreciation and amortization expense for the years ended December 31, 2020 and 2019 was $1,207 and $850, respectively.
F-16
Restricted Cash
As of December 31, 2020 and 2019, the Company had restricted cash as presented in the table below, which consists of cash used to secure
letters of credit for the benefit of the landlord in connection with the Company’s lease agreements. The cash will be restricted until the termination or
modification of the lease arrangement.
Restricted cash
Accrued Expenses
Accrued expenses consisted of the following:
Compensation and benefit costs
Research and development expenses
Consulting and professional fees
Other liabilities
6. Commitments and Contingencies
Lease Agreements
December 31,
2020
2019
$
492 $
492
December 31,
2020
2019
$
$
6,402 $
5,847
1,096
348
13,693 $
3,028
5,794
917
115
9,854
On January 12, 2018, the Company entered into a lease agreement for office space located in Cambridge, Massachusetts. The lease agreement
expires in January 2023. The annual lease payments are subject to a 3% increase each year. The Company recognizes rent expense on a straight-line basis
over the lease period and has recorded deferred rent for rent expense incurred but not yet paid. The Company received a tenant incentive allowance of $842
in 2018. Such incentive allowance is being amortized as a reduction of rent expense on a straight-line basis over the lease period. In accordance with the
lease agreement, the Company is required to maintain a security deposit of $209, which was recorded in restricted cash as of December 31, 2020 and 2019.
On August 31, 2018, the Company entered into a sub-lease agreement for lab space located in Cambridge Massachusetts, United States, which was
set to expire in October 2020. On June 9, 2020, the Company amended the terms of the sublease, which is now set to expire in April 2022. The annual lease
payments are subject to a 5% increase each year. In accordance with the lease agreement, the Company is required to maintain a security deposit of $283,
which was recorded in restricted cash as of December 31, 2020 and 2019.
On June 1, 2020, the Company entered into a lease agreement for office space located in Toronto, Ontario, Canada, which is set to expire in June
2025. The annual lease payments are fixed for years 1 and 2, and then subject to a 6.67% increase for years 3 through 5. In accordance with the lease
agreement, the Company is required to maintain a security deposit of CAD $27, which was recorded in other long-term assets as of December 31, 2020.
The Company recorded rent expense of $2,352 and $2,257 during the years ended December 31, 2020 and 2019, respectively.
The following table summarizes the future minimum lease payments due under operating leases as of December 31, 2020:
Year Ending December 31,
2021
2022
2023
2024
Thereafter
$
$
2,078
1,297
207
146
73
3,801
F-17
Other Funding Commitments
As of December 31, 2020, the Company had several ongoing clinical and non-clinical studies for its various pipeline programs. The Company
enters into contracts in the normal course of business with contract research organizations and clinical sites for the conduct of clinical trials, professional
consultants for expert advice and other vendors for clinical supply manufacturing or other services. These contracts are generally cancellable, with notice,
at the Company’s option and do not have significant cancellation penalties.
Guarantees
The Company enters into certain agreements with other parties in the ordinary course of business that contain indemnification provisions. These
typically include agreements with directors and officers, business partners, contractors, landlords and clinical sites. Under these provisions, the Company
generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of the Company’s
activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments
the Company could be required to make under these indemnification provisions is unlimited. However, to date the Company has not incurred material costs
to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of these obligations is minimal.
Litigation
The Company, from time to time, may be party to litigation arising in the ordinary course of business. The Company was not subject to any material
legal proceedings during the years ended December 31, 2020 and 2019, and to the best of its knowledge, no material legal proceedings are currently
pending or threatened.
Other
The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not
met as of December 31, 2020 and 2019, or royalties on future sales of specified products. No milestone or royalty payments under these agreements are
expected to be payable in the immediate future. See Note 3 “Licenses Agreements” for discussion of these arrangements.
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company agrees
to indemnify, hold harmless, and to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s
business partners, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third-party with respect to
the Company’s products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum
potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never
incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
7. Common Stock
As of December 31, 2020 and 2019, the authorized capital stock of the Company included 150,000,000 shares of common stock, $0.0001 par value,
and 10,000,000 shares of undesignated preferred stock. As of December 31, 2020 and 2019, no undesignated shares of preferred stock were outstanding.
F-18
In accordance to the Fourth Amended and Restated Certificate of Incorporation, the holders of the common stock shall have the exclusive right to
vote for the election of directors of the Company and on all other matters requiring stockholder action, each outstanding share entitling the holder thereof to
one vote on each matter properly submitted to the stockholders of the Company for their vote; provided, however, that, except as otherwise required by law,
holders of common stock, as such, shall not be entitled to vote on any amendment to any amendment to a certificate of designations of any series of
undesignated preferred stock that alters or changes the powers, preferences, rights or other terms of one or more outstanding series of undesignated
preferred stock if the holders of such affected series of undesignated preferred stock are entitled to vote, either separately or together with the holders of
one or more other such series, on such amendment pursuant to a certificate of designations of any series of undesignated preferred stock.
Through December 31, 2020, no cash dividends have been declared or paid.
Public Offerings
In July 2019, the Company closed an underwritten public offering of 7,475,000 shares of its common stock at a public offering price of $18.50 per
share (the “July 2019 Follow-on Offering”), which included 975,000 shares of the Company’s common stock resulting from the full exercise of the
underwriters’ option to purchase additional shares at the public offering price, less underwriting discounts and commissions. The net proceeds to the
Company from the July 2019 Follow-on Offering, after deducting underwriting discounts and commissions and other offering expenses payable by the
Company, were $129,464.
In February 2020, the Company closed an underwritten public offering of 4,350,000 shares of its common stock at a public offering price of $23.00
per share (the “February 2020 Follow-on Offering”). The net proceeds to the Company from the February 2020 Follow-on Offering, after deducting
underwriting discounts and commissions and other offering expenses payable by the Company, were $93,627.
In June 2020, the Company sold an aggregate of 384,140 shares of common stock under its “at-the-market” facility (the “ATM Facility”) for net
proceeds, after deducting commissions and other offering expenses payable by the Company, of $8,130. As of December 31, 2020, approximately $41,549
of common stock remained available for future issuance under the ATM Facility.
In November 2020, the Company closed an underwritten public offering of 5,000,000 shares of its common stock at a public offering price of
$15.00 per share (the “November 2020 Follow-on Offering”). The net proceeds to the Company from the November 2020 Follow-on Offering, after
deducting underwriting discounts and commissions and other offering expenses payable by the Company, were $70,221.
Common Stock Reserved for Future Issuance
As of December 31, 2020 and 2019, the Company has reserved the following shares of common stock for future issuance:
Shares reserved for vesting of restricted stock awards
Shares reserved for exercise of outstanding stock options
Shares reserved for vesting of restricted stock units
Shares reserved for issuance under the 2018 Stock Option
and Incentive Plan
Shares reserved for issuance under the 2018 Employee
Stock Purchase Plan
Shares reserved for issuance under the 2019 Inducement
Plan
Shares reserved for issuance under the 2020 Inducement
Plan
Total shares of authorized common stock reserved for
future issuance
F-19
December 31,
2020
—
5,559,545
1,198
2019
30,252
3,414,445
2,300
3,877,478
332,513
762,900
459,595
365,050
1,800,000
1,700,000
—
12,266,171
6,039,105
8. Stock-Based Compensation
Amended and Restated 2015 Stock Option and Grant Plan
The Company’s Amended and Restated 2015 Stock Option and Grant Plan, (the “2015 Plan”) provides for the Company to issue restricted stock
awards and restricted stock units, or to grant incentive stock options or non-statutory stock options. Incentive stock options may be granted only to the
Company’s employees including officers and members of the Board who are also employees. Restricted stock awards and restricted stock units and non-
statutory stock options may be granted to employees, members of the Board, outside advisors, and consultants of the Company.
The total number of common shares that may be issued under the 2015 Plan was 2,008,564 shares. Following the IPO, no further grants have been
made under 2015 plan.
Shares that expire, are terminated, surrendered or cancelled under the 2015 Plan without having been fully exercised will be available for future
awards under the 2018 Plan (as defined below). In addition, shares of common stock that are tendered to the Company by a participant to exercise an award
are added to the number of shares of common stock available for future awards.
The 2015 Plan is administered by the Board. Equity awards granted to employees and members of the Board typically vest over four years.
2018 Stock Option and Incentive Plan
The Company’s 2018 Stock Option and Incentive Plan (the “2018 Plan”) was adopted by the Board on June 1, 2018 and approved by stockholders
on June 7, 2018 and became effective upon the effectiveness of the Company’s Registration Statement on Form S-1. The 2018 Plan replaced the 2015 Plan
as the Board determined not to make additional awards under the 2015 Plan following the pricing of the Company’s IPO. The 2018 Plan allows the Board,
compensation committee or other designated committee to make equity-based and cash-based incentive awards to its officers, employees, directors and
other key persons (including consultants).
The Company initially reserved 616,300 shares of its common stock for the issuance of awards under the 2018 Plan. The 2018 Plan provides that
the number of shares reserved and available for issuance under the plan will automatically increase each January 1, beginning on January 1, 2019, by 4% of
the outstanding number of shares of our common stock on the immediately preceding December 31, or such lesser number of shares as determined by its
Board or compensation committee (the “Plan Evergreen”). This number is subject to adjustment in the event of a stock split, stock dividend or other change
in its capitalization.
On April 16, 2020, the Board adopted an amendment to the 2018 Plan (the “Amendment”), to (i) increase the number of shares of common stock
currently reserved for issuance under the 2018 Plan by 3,300,000 shares and (ii) automatically terminate the 2018 Plan’s annual increase (or “evergreen”)
provision after January 2022. The Amendment was approved by the Board on June 4, 2020 and the Company’s stockholders on June 4, 2020.
The number of shares of common stock available for future grant under the 2018 Plan was 3,877,478 as of December 31, 2020, which does not
include the shares added to the 2018 Plan reserve on January 1, 2021 as a result of the Plan Evergreen for the year ended December 31, 2020.
During the years ended December 31, 2020 and 2019, the Company granted options to purchase 3,019,663 and, 1,677,967 shares, respectively, of
common stock to employees, nonemployees and members of the Board.
2018 Employee Stock Purchase Plan
The Company’s 2018 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board on June 1, 2018 and approved by stockholders on
June 7, 2018 and became effective upon the effectiveness of the Company’s Registration Statement on Form S-1. The ESPP is intended to qualify as an
“employee sto
F-20
ck purchase plan” within the meaning of Section 423(b) of the Code. The ESPP initially reserves and authorizes the issuance of up to a total of 223,200
shares of common stock to participating employees. The ESPP provides that the number of shares reserved and available for issuance will automatically
increase each January 1, beginning on January 1, 2019 and each January 1 thereafter through January 1, 2028, by the least of (i) 1% of the outstanding
number of shares of our common stock on the immediately preceding December 31; (ii) 1,115,700 shares or (iii) such number of shares as determined by
the ESPP administrator (the “ESPP Evergreen”). The number of shares reserved under the ESPP is subject to adjustment in the event of a stock split, stock
dividend or other change in our capitalization.
During the years ended December 31, 2020 and 2019, the Company issued 13,425 and 1,671 shares, respectively of common stock. The total
number of shares of common stock that may be issued under the ESPP was 762,900 shares as of December 31, 2020, of which 762,900 shares remained
available for future grant, and which does not include the shares added to the ESPP reserve on January 1, 2021 as a result of the ESPP Evergreen for the
year ended December 31, 2020.
2019 Inducement Plan
The Company’s 2019 Inducement Plan (the “2019 Plan”) was adopted by the Board on December 11, 2019. The purpose of the 2019 Plan is to
allow the Company to grant equity awards to new employees as inducements material to such new employee’s acceptance of employment with the
Company. The Company intends that the shares underlying the 2019 Plan be reserved for persons to whom the Company may issue securities without
stockholder approval as an inducement pursuant to Rule 5635(c)(4) of the Nasdaq marketplace rules.
The Company initially reserved 1,800,000 shares of its common stock for the issuance of awards under the 2019 Plan.
The number of shares of common stock available for future grant under the 2019 Plan was 365,050 as of December 31, 2020.
2020 Inducement Plan
The Company’s 2020 Inducement Plan (the “2020 Plan”) was adopted by the Board on December 9, 2020. The purpose of the 2020 Plan is to allow
the Company to grant equity awards to new employees as inducements material to such new employee’s acceptance of employment with the Company. The
Company intends that the shares underlying the 2020 Plan be reserved for persons to whom the Company may issue securities without stockholder
approval as an inducement pursuant to Rule 5635(c)(4) of the Nasdaq marketplace rules.
The Company initially reserved 1,700,000 shares of its common stock for the issuance of awards under the 2020 Plan.
The number of shares of common stock available for future grant under the 2020 Plan was 1,700,000 as of December 31, 2020.
Stock Option Valuation
The assumptions that the Company used to determine the grant-date fair value of stock options granted to employees and members of the Board
were as follows, presented on a weighted-average basis:
Expected option life (years)
Risk-free interest rate
Expected volatility
Expected dividend yield
F-21
Year Ended
December 31,
2020
2019
6.00
0.76%
76.02%
—%
5.62
2.09%
76.83%
—%
The following table summarizes the Company’s stock option activity for the year ended December 31, 2020:
Outstanding as of December 31, 2019
Granted
Exercised
Cancelled or forfeited
Outstanding as of December 31, 2020
Exercisable as of December 31, 2020
Weighted-
Average
Exercise
Price
Weighted-
Average
Remaining
Contractual
Term (Years)
Aggregate
Intrinsic
Value
12.08
18.74
1.83
19.70
14.97
10.37
8.43 $
29,353
7.65 $
5.40 $
13,511
11,188
Number of
Options
3,414,445 $
3,019,663 $
(147,335) $
(727,228) $
5,559,545 $
1,934,685 $
The aggregate intrinsic value of stock options is calculated as the difference between the exercise price of the underlying stock options and the
estimated fair value of the Company’s common stock for those stock options that had exercise prices lower than the estimated fair value of the Company’s
common stock.
The aggregate intrinsic value of options exercised during the years ended December 31, 2020 and 2019 was $2,077 and $3,514, respectively.
The weighted-average grant-date fair value of the Company’s stock options granted during the years ended December 31, 2020 and 2019 was
$12.28 and $11.61, respectively.
Restricted Common Stock
The Company has granted restricted common stock (or restricted stock awards) with time-based vesting conditions to certain employees of the
Company. The purchase price of the restricted stock awards are determined by the Board. Unvested shares of restricted stock awards may not be sold or
transferred by the holder. These restrictions lapse according to the time-based vesting conditions of each award. The Company has the option to repurchase
the restricted stock awards at the original purchase price if the grantee terminates its working relationship with the Company prior to the vesting date. There
were no unvested restricted stock awards as of December 31, 2020.
Restricted stock units
Restricted stock units represent an unsecured promise to grant at no cost a set number of shares of common stock upon vesting. With respect to
restricted stock units, recipients are not entitled to cash dividends and have no voting rights during the vesting period.
The following table summarizes the Company’s restricted stock award and restricted stock unit activity for the year ended December 31, 2020:
Issued and unvested as of December 31, 2019
Granted
Vested
Forfeited, cancelled or expired
Issued and unvested as of December 31, 2020
Number
of Shares
32,552 $
— $
(31,354) $
— $
1,198 $
Weighted-
Average
Grant Date
Fair Value
1.50
—
0.96
—
15.65
The total fair value of restricted stock awards and restricted stock units vested during the years ended December 31, 2020 and 2019 was $29 and
$50, respectively.
F-22
Stock-Based Compensation
Stock-based compensation expense was allocated as follows:
Research and development
General and administrative
Total stock-based compensation expense
Year Ended
December 31,
2020
2019
$
$
8,207 $
7,421
15,628 $
3,646
3,154
6,800
As of December 31, 2020, total unrecognized compensation cost related to unvested stock-based awards was $36,045, which is expected to be
recognized over a weighted-average period of 3.01 years.
As of December 31, 2020, the Company modified certain awards in conjunction with employee terminations. The modification provided for the
extension of the post-employment exercise period. The modifications resulted in approximately $417 of additional research and development expenses for
the year ended December 31, 2020.
9. 401(k) Savings Plan
The Company established a defined contribution savings plan under Section 401(k) of the Internal Revenue Code. Eligible employees may make
pretax contributions to the 401(k) Plan up to statutory limits. At the election of the Board, the Company may elect to match employee contributions.
Currently, the Company makes matching contributions at a rate of 50% of the first 6% of employee contributions. The Company recorded $468 and
$224 of expenses related to its 401(k) match for the years ended December 31, 2020 and 2019, respectively.
10. Income Taxes
For the years ended December 31, 2020 and 2019, the Company did not record a current or deferred income tax expense or (benefit) due to current
and historical losses incurred by the Company. The Company’s operations are predominantly based in the United States and the Company’s foreign
subsidiaries generated de minimis losses for the years ended December 31, 2020 and 2019.
A reconciliation of income tax expense (benefit) computed at the statutory federal income tax rate to the Company’s effective tax rate as reflected in
the consolidated financial statements is as follows:
Federal income tax expense at statutory rate
State income taxes, net of federal benefit
Permanent differences
Foreign rate differential
Research and development tax credits
Change in valuation allowance
Provision to Return
Effective income tax rate
F-23
Year Ended
December 31,
2020
2019
21.0%
5.6%
-0.6%
0.1%
2.3%
-28.3%
-0.1%
0.0%
21.0%
5.2%
-0.9%
0.2%
2.1%
-27.6%
0.0%
0.0%
Deferred taxes are recognized for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes.
The significant components of the Company’s deferred tax assets and liabilities are comprised of the following:
Deferred tax assets:
U.S., foreign and state net operating loss carryforwards
Research and development credits
Capitalized start up and organizational costs
Equity based compensation
Licensing agreements
Accruals and other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Property and equipment
Total deferred tax liabilities
December 31,
2020
2019
57,705 $
4,383
29
2,944
4,004
1,587
70,652
(70,492)
160 $
33,594
1,716
32
543
1,756
993
38,634
(38,425)
209
(160) $
— $
(209)
—
$
$
$
$
The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. As of December 31, 2020
and 2019, based on the Company’s history of operating losses, the Company has concluded that it is not more likely than not that the benefit of its deferred
tax assets will be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2020 and 2019.
The valuation allowance increased $32,066 and $19,968 during the years ended December 31, 2020 and 2019, respectively, due primarily to net operating
losses generated.
As of December 31, 2020 and 2019, the Company had U.S. federal net operating loss carryforwards of $213,991 and $121,836, respectively, that
may be available to offset future income tax liabilities. The U.S. federal tax operating loss carryforwards of approximately $17,743 will expire at various
dates through 2037. Approximately $196,248 of the U.S. federal tax operating losses can be carried forward indefinitely. As of December 31, 2020 and
2019, the Company also had U.S. state net operating loss carryforwards of $201,642 and $115,129, respectively, which may be available to offset future
taxable income. These losses expire at various dates through 2040.
As of December 31, 2020 and 2019, the Company has federal research and development tax credit carryforwards of $3,677 and $1,547,
respectively. Included in the $3,677 of federal tax credit carryforwards are $1,351 of orphan drug credits. The Company qualifies for, and has elected to,
apply part of its federal research credits against its payroll tax liability in accordance with certain provisions of the Internal Revenue Code. The amount
applied towards the Company’s payroll tax liability is capped at $250 per year. The federal research credits generated in excess of the $250 cap are able to
be carried forward for 20 years. As of December 31, 2020 and 2019, the Company had state research and development tax credit carryforwards of
approximately $894 and $214, respectively, available to reduce future tax liabilities which expire at various dates through 2034. For all years through
December 31, 2020, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an
adjustment to the Company’s research and development credit carryforwards.
As the Company carries out extensive research and development activities, it seeks to benefit from the Australian research and development tax
credit cash rebate regime. Under this regime, the Company’s Australian subsidiary may be eligible to surrender the trading losses that arise from its
research and development activities for a payable tax credit of up to approximately 43.5% of eligible research and development expenditures. Qualifying
expenditures largely comprise employment costs for research staff, consumables, certain internal overhead costs and subcontracted expenditures as part of
research projects for which the Company does not receive income. For the year ended December 31, 2020, the Company recorded $589 in research and
development tax credits as an offset to research and development expenses.
Under the provisions of the Internal Revenue Code, the net operating loss and tax credit carryforwards are subject to review and possible
adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carryforwards may become subject to an annual
limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of
50 percentage points, as defined under Sections 382
F-24
and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized
annually to offset future tax liabilities. The amount of the annual limitation is determined based on the value of the Company immediately prior to the
ownership change. Subsequent ownership changes may further affect the limitation in future years. The Company has completed numerous financings
since its inception, which may have resulted in a change in control as defined by Sections 382 and 383 of the Internal Revenue Code, or could result in a
change in control in the future.
The Company files income tax returns in the United States, Australia and Canada, and in several states. The foreign, federal and state income tax
returns are generally subject to tax examinations for the tax years ended December 31, 2016 through December 31, 2019. To the extent the Company has
tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by foreign tax authorities, the Internal
Revenue Service, or state tax authorities to the extent utilized in a future period.
11. Net Loss per Share
For purposes of the diluted net loss per share calculation, stock options, unvested restricted stock awards and unvested restricted stock units are
considered to be common stock equivalents but have been excluded from the calculation of diluted net loss per share, as their effect would be anti-dilutive
for all periods presented. Therefore, the weighted-average number of common shares outstanding used to calculate both basic and diluted net loss per share
attributable to common stockholders is the same.
The following potentially dilutive common stock equivalents, presented based on amounts outstanding at each period end, were excluded from the
computation of diluted net loss per share attributable to common stockholders for the periods indicated:
Options to purchase common stock
Restricted stock awards and units
Year Ended December 31,
2019
2020
3,414,445
5,559,545
32,552
1,198
12. Related Party Transactions
UHN
In connection with the Company’s entry into a license agreement with UHN on January 27, 2016, the Company issued UHN 1,161,665 shares of its
common stock. Upon the closing of the IPO in 2018, as UHN’s fully-diluted percentage ownership of the Company was reduced within a range of specified
percentages, the Company was obligated to pay UHN an amount of $2,000, which was paid in July 2018. For the years ended December 31, 2020 and
2019, the Company recognized $381 and $821, respectively, of research and development expense related to the license agreements with UHN. Refer to
Note 3 “License Agreements” for additional information regarding the UHN license agreements.
Others
For the years ended December 31, 2020 and 2019, the Company recorded expenses of $1,488 and $1,451, respectively, related to a sublease to rent
lab space, provided by an entity affiliated with a member of the board.
F-25
EXHIBIT
NO.
3.1
3.2
3.3
4.1
4.2
4.3
10.1#
10.2#
10.3#
10.4#
10.5#
10.6†
10.7†
10.8††
10.9††
10.10†
Fourth Amended and Restated Certificate of Incorporation of the Registrant (filed as Exhibit 3.1 to the Registrant’s Current Report on
Form 8-K filed on June 25, 2018 (File No. 001-38537) and incorporated herein by reference)
EXHIBIT INDEX
Certificate of Change of Registered Agent and/or Registered Office of the Registrant (filed as Exhibit 3.2 to the Registrant’s Quarterly
Report on Form 10-Q filed on November 5, 2020 (File No. 001-38537) and incorporated herein by reference)
Amended and Restated By-laws (filed as Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on June 25, 2018 (File
No. 001-38537) and incorporated herein by reference)
Form of Specimen Common Stock Certificate (filed as Exhibit 4.1 to the Registrant’s Second Amendment to the Registration Statement
on Form S-1 filed on June 11, 2018 (File No. 333-225213) and incorporated herein by reference)
Second Amended and Restated Investors’ Rights Agreement among the Registrant and certain of its stockholders, dated January 9, 2018
(filed as Exhibit 4.2 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No. 333-225213) and
incorporated herein by reference)
Description of Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (filed as Exhibit 4.3 to
the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No. 001-38537) and incorporated herein by reference)
2015 Amended and Restated Stock Option and Grant Plan, as amended, and forms of award agreements thereunder (filed as Exhibit 10.1
to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No. 333-225213) and incorporated herein by
reference)
2018 Stock Option and Incentive Plan and forms of award agreements thereunder (filed as Exhibit 10.2 to the Registrant’s Second
Amendment to the Registration Statement on Form S-1 filed on June 11, 2018 (File No. 333-225213) and incorporated herein by
reference)
First Amendment to the AVROBIO, Inc. 2018 Stock Option and Incentive Plan (filed as Exhibit 10.1 to the Registrant’s Current Report
on Form 8-K filed on June 9, 2020 (File No. 333-225213) and incorporated herein by reference)
Senior Executive Cash Incentive Bonus Plan (filed as Exhibit 10.3 to the Registrant’s Second Amendment to the Registration Statement
on Form S-1 filed on June 11, 2018 (File No. 333-225213) and incorporated herein by reference)
Form of Indemnification Agreement (filed as Exhibit 10.4 to the Registrant’s Second Amendment to the Registration Statement on Form
S-1 filed on June 11, 2018 (File No. 333-225213) and incorporated herein by reference)
Exclusive License Agreement, by and between the Registrant and University Health Network, dated November 4, 2016, as amended
(filed as Exhibit 10.5 to the Registrant’s First Amendment to the Registration Statement on Form S-1 filed on June 1, 2018 (File No.
333-225213) and incorporated herein by reference)
License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated August 31, 2017 (filed as Exhibit 10.6 to
the Registrant’s Second Amendment to the Registration Statement on Form S-1 filed on June 11, 2018 (File No. 333-225213) and
incorporated herein by reference)
Amendment No. 1 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated February 21, 2018
(filed as Exhibit 10.7 to the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No. 001-38537) and
incorporated herein by reference)
Amendment No. 2 to License Agreement, by and between the Registrant and BioMarin Pharmaceutical Inc., dated January 7, 2020 (filed
as Exhibit 10.8 to the to the Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No. 001-38537) and incorporated
herein by reference)
Exclusive License Agreement, by and among the Registrant, Stefan Karlsson and Maria Dahl, dated January 30, 2017 (filed as Exhibit
10.7 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No. 333-225213) and incorporated herein by
reference)
105
EXHIBIT
NO.
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#
License Agreement, by and between the Registrant and GenStem Therapeutics, Inc., dated October 2, 2017 (filed as Exhibit 10.8 to the
Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No. 333-225213) and incorporated herein by reference)
EXHIBIT INDEX
Amended and Restated Employment Agreement, by and between the Registrant and Geoff MacKay, effective as of June 25, 2018 (filed
as Exhibit 10.9 to the Registrant’s Second Amendment to the Registration Statement on Form S-1 filed on June 11, 2018 (File No. 333-
225213) and incorporated herein by reference)
Employment Agreement, by and between the Registrant and Erik Ostrowski, dated December 17, 2018 (filed as Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K filed on December 21, 2018 (File No. 001-38537) and incorporated herein by reference)
Employment Agreement, by and between the Registrant and Steven Avruch, dated December 17, 2018 (filed as Exhibit 10.13 to the
Registrant’s Annual Report on Form 10-K filed on March 25, 2019 (File No. 001-38537) and incorporated herein by reference)
Consulting Agreement, by and between the Registrant and Birgitte Volck, M.D., Ph.D., dated December 17, 2018 (filed as Exhibit 10.14
to the Registrant’s Annual Report on Form 10-K filed on March 25, 2019 (File No. 001-38537) and incorporated herein by reference)
Employment Agreement, by and between the Registrant and Birgitte Volck, M.D., Ph.D., dated December 17, 2018 (filed as Exhibit
10.15 to the Registrant’s Annual Report on Form 10-K filed on March 25, 2019 (File No. 001-38537) and incorporated herein by
reference)
Separation Agreement and Release, by and between the Registrant and Birgitte Volck, M.D., Ph.D., dated July 16, 2020 (filed as Exhibit
10.2 to the Registrant’s Quarterly Report on Form 10-Q filed on August 6, 2020 (File No. 001-38537) and incorporated herein by
reference).
Employment Agreement, by and between the Registrant and Deanna Petersen, dated September 1, 2018 (filed as Exhibit 10.16 to the
Registrant’s Annual Report on Form 10-K filed on March 16, 2020 (File No. 001-38537) and incorporated herein by reference)
Employment Agreement, by and between the Registrant and Chris Mason, dated September 1, 2018
Employment Agreement, by and between the Registrant and Diana Escolar, dated December 4, 2020
2018 Employee Stock Purchase Plan (filed as Exhibit 10.14 to the Registrant’s Second Amendment to the Registration Statement on
Form S-1 filed on June 11, 2018 (File No. 333-225213) and incorporated herein by reference)
Lease Agreement, dated as of January 12, 2018, by and between the Registrant and ARE-MA Region No. 59, LLC (filed as Exhibit
10.12 to the Registrant’s Registration Statement on Form S-1 filed on May 25, 2018 (File No. 333-225213) and incorporated herein by
reference)
2019 Inducement Plan and form of award agreement thereunder (filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form
S-8 filed on December 20, 2019 (File No. 333-235643) and incorporated herein by reference)
Form of 2019 Inducement Stock Option Award (filed as Exhibit 99.1 to the Registrant’s Registration Statement on Form S-8 filed on
March 25, 2019 (File No. 333-230493)) and incorporated herein by reference)
10.25#
2020 Inducement Plan and form of award agreement thereunder
21.1
23.1
31.1
31.2
32.1*
Subsidiaries of the Registrant
Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm
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 and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
106
EXHIBIT
NO.
101.INS
Interactive Data Files pursuant to Rule 405 of Regulation S-T formatted in Inline Extensible Business Reporting Language (“Inline
XBRL”).
EXHIBIT INDEX
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
†
††
#
*
Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits
101.*).
Confidential treatment has been granted for portions of this Exhibit pursuant to Rule 406 promulgated under the Securities Act of 1933, as
amended.
Portions of this exhibit have been omitted because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if
publicly disclosed.
Indicates a management contract or any compensatory plan, contract or arrangement.
Indicates the exhibit is being furnished, not filed, with this report.
107
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized on the 18th day of March, 2021.
SIGNATURES
AVROBIO, INC.
By: /s/ Geoff Mackay
Geoff MacKay
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Geoff MacKay and Erik
Ostrowski, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his
or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective 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 or she 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant
in the capacities and on the dates indicated.
Name
/s/ Geoff MacKay
Geoff MacKay
/s/ Erik Ostrowski
Erik Ostrowski
/s/ Bruce Booth
Bruce Booth, D.Phil.
/s/ Ian T. Clark
Ian T. Clark
/s/ Gail Farfel, Ph.D.
Gail Farfel
/s/ Phillip B. Donenberg
Phillip B. Donenberg
/s/ Annalisa Jenkins
Annalisa Jenkins, M.B.B.S., F.R.C.P
/s/ Christopher Paige
Christopher Paige, Ph.D.
/s/ Philip J. Vickers
Philip J. Vickers, Ph.D.
Title
President, Chief Executive Officer and
Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer and Principal
Accounting Officer)
Date
March 18, 2021
March 18, 2021
Chairman of the Board of Directors
March 18, 2021
Director
Director
Director
Director
Director
Director
108
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
March 18, 2021
AVROBIO, INC.
EMPLOYMENT AGREEMENT
Exhibit 10.19
This Employment Agreement (“Agreement”) is made as of the 1st day of September, 2018, between AVROBIO, Inc., a
Delaware corporation (the “Company”), and Chris Mason (the “Executive”) and is effective as of the closing of the Company’s
first underwritten public offering of its equity securities pursuant to an effective registration statement under the Securities Act of
1933, as amended (the “Effective Date”).
WHEREAS, the Company and the Executive are parties to an existing employment agreement, dated November 1,
2016 (the “Prior Agreement”); and
WHEREAS, the parties intend to replace the Prior Agreement with this Agreement, effective as of the Effective Date.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree to restate the Prior
Agreement as follows:
1.
Employment.
(a)
Term. The term of this Agreement shall commence on the Effective Date and continue until
terminated in accordance with the provisions hereof (the “Term”). The Executive’s employment with the Company will continue
to be “at will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and
for any reason subject to the terms of this Agreement.
(b)
Position and Duties. During the Term, the Executive shall serve as the Chief Science Officer of the
Company, and shall have supervision and control over and responsibility for the day‑to‑day business and affairs of the Company
and shall have such other powers and duties as may from time to time be prescribed by the Board of Directors of the Company
(the “Board”), the Chief Executive Officer of the Company (the “CEO”) or other authorized executive. The Executive shall
devote his full working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, the
Executive may serve on other boards of directors, with the approval of the Board, or engage in religious, charitable or other
community activities as long as such services and activities are disclosed to the Board and do not materially interfere with the
Executive’s performance of his duties to the Company as provided in this Agreement. For the avoidance of doubt, the Executive
may continue to serve in the roles set forth on Schedule 1 hereto without the necessity of further approval from the Board,
provided that no conflicts result in the future from the Executive’s service in such role.
2.
Compensation and Related Matters.
(a)
Base Salary. During the Term, the Executive’s annual base salary shall be $303,850. The
Executive’s base salary shall be reviewed annually by the Board or the Compensation Committee of the Board (the
“Compensation Committee”). The base salary in
effect at any given time is referred to herein as “Base Salary.” The Base Salary shall be payable in a manner that is consistent
with the Company’s usual payroll practices for executive officers.
(b)
Incentive Compensation. During the Term, the Executive shall be eligible to receive cash incentive
compensation as determined by the Board or the Compensation Committee from time to time. The Executive’s initial target
annual incentive compensation shall be thirty-five percent of his Base Salary effective July 1, 2018 (resulting in a 30 percent
effective rate for the 2018 target annual incentive compensation) (as in effect at any time, the “Target Annual Incentive
Compensation”). Except as otherwise provided herein, to earn incentive compensation, the Executive must be employed by the
Company on the day such incentive compensation is paid.
(c)
Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by his during the Term in performing services hereunder, in accordance with the policies and procedures then
in effect and established by the Company for its senior officers.
(d)
Other Benefits. During the Term, the Executive shall be eligible to participate in or receive
benefits under the Company’s employee benefit plans in effect from time to time, subject to the terms of such
plans. Additionally, during the Term, the Executive shall be eligible to receive such benefits and perquisites as those made
available to the other employees of the Company generally.
(e)
Vacations. During the Term, the Executive shall be entitled to paid vacation in accordance with the
Company’s policies and procedures, which shall be a minimum of 20 days in addition to the Company’s paid holidays. The
Executive shall also be entitled to all paid holidays given by the Company to its executive officers.
3.
Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach
of this Agreement under the following circumstances:
(a)
(b)
Death. The Executive’s employment hereunder shall terminate upon his death.
Disability. The Company may terminate the Executive’s employment if he is disabled and unable
to perform the essential functions of the Executive’s then existing position or positions under this Agreement with or without
reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. If any question
shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the
Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request
of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to
whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how
long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the
issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such
question shall arise and the Executive shall fail to submit such certification,
2
the Company’s determination of such issue shall be binding on the Executive. Nothing in this Section 3(b) shall be construed to
waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993,
29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c)
Termination by Company for Cause. The Company may terminate the Executive’s employment
hereunder for Cause. For purposes of this Agreement, “Cause” shall mean: (i) conduct by the Executive constituting a material
act of misconduct in connection with the performance of his duties, including, without limitation, misappropriation of funds or
property of the Company or any of its subsidiaries or affiliates other than the occasional, customary and de minimis use of
Company property for personal purposes; (ii) the commission by the Executive of any felony or a misdemeanor involving moral
turpitude, material deceit or dishonesty, or fraud, or any conduct by the Executive that would reasonably be expected to result in
material injury or reputational harm to the Company or any of its subsidiaries or affiliates if he were retained in his position; (iii)
continued non-performance by the Executive of his duties hereunder (other than by reason of the Executive’s physical or mental
illness, incapacity or disability) which has continued for more than 30 days following written notice (with a reasonably detailed
summary of such alleged non-performance specified) of such non-performance from the Company’s CEO or the Executive’s
direct supervisor; (iv) a breach by the Executive of any of the provisions incorporated into or contained in Section 7 of this
Agreement; (v) a material violation by the Executive of the Company’s written employment policies; or (vi) failure to cooperate
with a bona fide internal investigation or an investigation by regulatory or law enforcement authorities, after being instructed by
the Company to cooperate, or the willful destruction or failure to preserve documents or other materials known to be relevant to
such investigation or the inducement of others to fail to cooperate or to produce documents or other materials in connection with
such investigation.
(d)
Termination Without Cause. The Company may terminate the Executive’s employment hereunder
at any time without Cause. Any termination by the Company of the Executive’s employment under this Agreement which does
not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the Executive under
Section 3(a) or (b) shall be deemed a termination without Cause.
(e)
Termination by the Executive. The Executive may terminate his employment hereunder at any
time for any reason, including but not limited to Good Reason. For purposes of this Agreement, “Good Reason” shall mean that
the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the
following events: (i) a material diminution in the Executive’s responsibilities, authority or duties; (ii) a material diminution in the
Executive’s Base Salary except for across-the-board salary reductions based on the Company’s financial performance similarly
affecting all or substantially all senior management employees of the Company; (iii) a material change in the geographic location
at which the Executive provides services to the Company; or (iv) a material breach of this Agreement by the Company. “Good
Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a “Good Reason” condition has
occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good Reason condition within 60 days
of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the Company’s efforts, for a period not
less than 30 days following such notice
3
(the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues to exist;
and (v) the Executive terminates his employment within 60 days after the end of the Cure Period. If the Company cures the Good
Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.
(f)
Notice of Termination. Except for termination as specified in Section 3(a), any termination of the
Executive’s employment by the Company or any such termination by the Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon.
(g)
Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is
terminated by his death, the date of his death; (ii) if the Executive’s employment is terminated on account of disability under
Section 3(b) or by the Company for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the
Executive’s employment is terminated by the Company under Section 3(d), the date on which a Notice of Termination is given;
(iv) if the Executive’s employment is terminated by the Executive under Section 3(e) without Good Reason, 30 days after the
date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive under
Section 3(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure
Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the
Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the
Company for purposes of this Agreement.
4.
Compensation Upon Termination.
(a)
Termination Generally. If the Executive’s employment with the Company is terminated for any
reason, the Company shall pay or provide to the Executive (or to his authorized representative or estate) (i) any Base Salary
earned through the Date of Termination, unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of this
Agreement) and unused vacation that accrued through the Date of Termination on or before the time required by law but in no
event more than 30 days after the Executive’s Date of Termination; and (ii) any vested benefits the Executive may have under any
employee benefit plan of the Company through the Date of Termination, which vested benefits shall be paid and/or provided in
accordance with the terms of such employee benefit plans (collectively, the “Accrued Benefit”).
(b)
Termination by the Company Without Cause or by the Executive with Good Reason. During the
Term, if the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d), or the Executive
terminates his employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive his Accrued
Benefit. In addition, subject to the Executive signing a separation agreement containing, among other provisions, a general
release of claims in favor of the Company and related persons and entities, confidentiality, return of property and non-
disparagement, in a form and manner satisfactory to the company (the “Separation Agreement and Release”) and the Separation
Agreement and Release becoming irrevocable and fully effective and, if applicable, the
4
Executive resigning as a member of the Board of Directors, all within 60 days after the Date of Termination (or such shorter time
period provided in the Separation Agreement and Release):
(i)
the Company shall pay the Executive an amount equal to 0.75 times the sum of the
Executive’s Base Salary (the “Severance Amount”). Notwithstanding the foregoing, if the Executive breaches any of
the provisions incorporated into or contained in Section 7 of this Agreement, all payments of the Severance Amount
shall immediately cease;
(ii)
notwithstanding anything to the contrary in any applicable option agreement or stock-
based award agreement, all time-based stock options and other time-based stock-based awards held by the Executive in
which such stock option or other stock-based award would have vested if the Executive had remained employed for an
additional nine months following the Date of Termination shall vest and become exercisable or nonforfeitable as of the
Date of Termination;
(iii)
if the Executive was participating in the Company’s group health plan immediately prior
to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for nine months or the Executive’s COBRA health continuation period, whichever ends earlier,
in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company; and
(iv)
the amounts payable under Section 4(b)(i) and (iii) shall be paid out in substantially equal
installments in accordance with the Company’s payroll practice over nine months commencing within 60 days after the
Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second
calendar year, the Severance Amount shall begin to be paid in the second calendar year by the last day of such 60-day
period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the
day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute
a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2).
5.
Change in Control Payment. The provisions of this Section 5 set forth certain terms of an agreement reached
between the Executive and the Company regarding the Executive’s rights and obligations upon the occurrence of a Change in
Control of the Company. In the event of a Change in Control during the Term, all time-based stock options and other time based
stock-based awards held by the Executive as of the Effective Date that were granted to the Executive at least 12 months prior to
the Effective Date shall immediately accelerate and become fully exercisable or nonforfeitable as of immediately prior to such
Change in Control. These provisions are intended to assure and encourage in advance the Executive’s continued attention and
dedication to his assigned duties and his objectivity during the pendency and after the occurrence of any such event. These
provisions shall apply in lieu of, and expressly supersede, the provisions of Section 4(b) regarding severance pay and benefits
upon a termination of employment, if such termination of employment occurs within three months prior to or 18
5
months after the occurrence of the first event constituting a Change in Control. These provisions shall terminate and be of no
further force or effect beginning 18 months after the occurrence of a Change in Control.
(a)
Change in Control. During the Term, if within three months prior to or 18 months after a Change in
Control, the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d) or the Executive
terminates his employment for Good Reason as provided in Section 3(e), then, subject to the signing of the Separation Agreement
and Release by the Executive and the Separation Agreement and Release becoming irrevocable and fully effective and, if
applicable, the Executive resigning as a member of the Board of Directors, all within 60 days after the Date of Termination (or
such shorter time period provided in the Separation Agreement and Release):
(i)
the Company shall pay the Executive a lump sum in cash in an amount equal to one times
the sum of (A) the Executive’s current Base Salary (or the Executive’s Base Salary in effect immediately prior to the
Change in Control, if higher) and (B) the Executive’s Target Annual Incentive Compensation then in effect;
(ii)
notwithstanding anything to the contrary in any applicable option agreement or stock-
based award agreement, all time-based stock options and other time-based stock-based awards held by the Executive
shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination;
(iii)
if the Executive was participating in the Company’s group health plan immediately prior
to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for twelve months or the Executive’s COBRA health continuation period, whichever ends
earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company; and
(iv)
The amounts payable under Section 5(a)(i) and (iii) shall be paid or commence to be paid
within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year
and ends in a second calendar year, such payment shall be paid or commence to be paid in the second calendar year by
the last day of such 60-day period.
(b)
Additional Limitation.
(i)
Anything in this Agreement to the contrary notwithstanding, in the event that the amount
of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner
consistent with Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and the applicable
regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the
Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate
Payments shall be
6
$1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by Section 4999 of the
Code; provided that such reduction shall only occur if it would result in the Executive receiving a higher After Tax
Amount (as defined below) than the Executive would receive if the Aggregate Payments were not subject to such
reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case, in reverse
chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from consummation
of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section 409A of the
Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration; and (4)
non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or payments
that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before any amounts
that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(ii)
For purposes of this Section 5(b), the “After Tax Amount” means the amount of the
Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as
a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the
Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation
applicable to individuals for the calendar year in which the determination is to be made, and state and local income
taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(iii)
The determination as to whether a reduction in the Aggregate Payments shall be made
pursuant to Section 5(b)(i) shall be made by a nationally recognized accounting firm selected by the Company (the
“Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by
the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the
Executive.
(c)
Definitions. For purposes of this Section 5, the following terms shall have the following meanings:
“Change in Control” shall mean any of the following:
(i)
any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the “Act”) (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other
person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries),
together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person,
shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 50 percent or more of the combined voting power of the Company’s then
outstanding securities having the right to vote in an election of the Board (“Voting
7
Securities”) (in such case other than as a result of an acquisition of securities directly from the Company); or
the date a majority of the members of the Board is replaced during any 12-month period
by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date
of the appointment or election; or
(ii)
(iii)
the consummation of (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate more than 50 percent of the voting shares of the Company issuing cash or
securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer
(in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of the
foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares
of Voting Securities outstanding, increases the proportionate number of Voting Securities beneficially owned by any person to 50
percent or more of the combined voting power of all of the then outstanding Voting Securities; provided, however, that if any
person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities
(other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly
from the Company) and immediately thereafter beneficially owns 50 percent or more of the combined voting power of all of the
then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of the foregoing
clause (i).
6.
Section 409A.
(a)
Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s
separation from service within the meaning of Section 409A of the Code, the Company determines that the Executive is a
“specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code, then to the extent any payment or benefit that
the Executive becomes entitled to under this Agreement on account of the Executive’s separation from service would be
considered deferred compensation otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the
Code as a result of the application of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit
shall not be provided until the date that is the earlier of (A) six months and one day after the Executive’s separation from service,
or (B) the Executive’s death. If any such delayed cash payment is otherwise payable on an installment basis, the first payment
shall include a catch-up payment covering amounts that would otherwise have been paid during the six-month period but for the
application of this provision, and the balance of the installments shall be payable in accordance with their original schedule.
8
(b)
All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall
be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All
reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the
last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits
provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the
expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to
medical expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(c)
To the extent that any payment or benefit described in this Agreement constitutes “non-qualified
deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the
Executive’s termination of employment, then such payments or benefits shall be payable only upon the Executive’s “separation
from service.” The determination of whether and when a separation from service has occurred shall be made in accordance with
the presumptions set forth in Treasury Regulation Section 1.409A‑1(h).
(d)
The parties intend that this Agreement will be administered in accordance with Section 409A of
the Code. To the extent that any provision of this Agreement is ambiguous as to its compliance with Section 409A of the Code,
the provision shall be read in such a manner so that all payments hereunder comply with Section 409A of the Code. Each
payment pursuant to this Agreement is intended to constitute a separate payment for purposes of Treasury Regulation Section
1.409A‑2(b)(2). The parties agree that this Agreement may be amended, as reasonably requested by either party, and as may be
necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments
and benefits provided hereunder without additional cost to either party.
(e)
The Company makes no representation or warranty and shall have no liability to the Executive or
any other person if any provisions of this Agreement are determined to constitute deferred compensation subject to Section 409A
of the Code but do not satisfy an exemption from, or the conditions of, such Section.
7.
Confidential Information, Noncompetition and Cooperation.
(a)
The terms of the Confidentiality and IP Assignment Agreement (the “Restricted Covenants
Agreement”), between the Company and the Executive, attached hereto as Exhibit A, shall continue to be in full force and effect
and are incorporated by reference in this Agreement. The Executive hereby reaffirms the terms of the Restrictive Covenant
Agreement as material terms of this Agreement.
(b)
Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not
bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive’s use or
disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the
Executive’s execution of this Agreement, the Executive’s employment with the Company and
9
the performance of the Executive’s proposed duties for the Company will not violate any obligations the Executive may have to
any such previous employer or other party. In the Executive’s work for the Company, the Executive will not disclose or make use
of any information in violation of any agreements with or rights of any such previous employer or other party, and the Executive
will not bring to the premises of the Company any copies or other tangible embodiments of non-public information belonging to
or obtained from any such previous employment or other party.
(c)
Litigation and Regulatory Cooperation. During and after the Executive’s employment, the
Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence
or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired
while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness
on behalf of the Company at mutually convenient times, taking into consideration Executive’s then current business and personal
commitments. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review
relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall
reimburse the Executive for any reasonable out‑of‑pocket expenses incurred in connection with the Executive’s performance of
obligations pursuant to this Section 7(c).
(d)
Relief. The Executive agrees that it would be difficult to measure any damages caused to the
Company which might result from any breach by the Executive of the promises incorporated into or set forth in this Section 7,
and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 8 of
this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any portion of this Agreement, the
Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief
to restrain any such breach without showing or proving any actual damage to the Company. In addition, in the event the
Executive breaches this Section 7 or the provisions incorporated herein during a period when he is receiving severance payments
pursuant to Section 4 or Section 5 hereof, the Company shall have the right to suspend or terminate such severance
payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for such breach and
shall not relieve the Executive of his duties under this Agreement.
(e)
Protected Disclosures and Other Protected Action. Nothing contained in this Agreement limits the
Executive’s ability to communicate with any federal, state or local governmental agency or commission, including to provide
documents or other information, without notice to the Company.
8.
Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Executive’s employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent
permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or,
10
in the absence of such an agreement, under the auspices of the American Arbitration Association (“AAA”) in Boston,
Massachusetts in accordance with the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules
and procedures applicable to the selection of arbitrators. In the event that any person or entity other than the Executive or the
Company may be a party with regard to any such controversy or claim, such controversy or claim shall be submitted to
arbitration subject to such other person or entity’s agreement. Judgment upon the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof. This Section 8 shall be specifically enforceable. Notwithstanding the foregoing,
this Section 8 shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary
restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any other relief
shall be pursued through an arbitration proceeding pursuant to this Section 8.
9.
Consent to Jurisdiction. To the extent that any court action is permitted consistent with or to enforce Section 8
of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Massachusetts
and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the
Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
10.
Integration. This Agreement and the Restrictive Covenant Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all prior agreements between the parties concerning
such subject matter, including the Prior Agreement.
11.
Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any
tax or other amounts required to be withheld by the Company under applicable law.
12.
Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the
Executive’s death after his termination of employment but prior to the completion by the Company of all payments due to his
under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the
Company prior to his death (or to his estate, if the Executive fails to make such designation).
13.
Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or
provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
11
14.
Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the
termination of the Executive’s employment to the extent necessary to effectuate the terms contained herein.
15.
Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the
waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed
a waiver of any subsequent breach.
16.
Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be
sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing
with the Company or, in the case of the Company, at its main offices, attention of the Board.
17.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the
Executive and by a duly authorized representative of the Company.
18.
Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all
respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles thereof.
19.
Counterparts. This Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same
document.
20.
Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and
agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken
place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall
be a material breach of this Agreement.
21.
Gender Neutral. Wherever used herein, a pronoun in the masculine or feminine gender shall be considered
as including the opposite gender as well unless the context clearly indicates otherwise.
12
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.
AVROBIO, INC.
/s/ Geoff MacKay
By:
Name: Geoff MacKay
Title:
Chief Executive Officer
EXECUTIVE
/s/ Christopher Mason
Chris Mason
13
Schedule 1
Approved Activities
University College London, London, UK: Professor of Cell and Gene Therapy - De minimis GSK: Gene Therapy Advisory
Board - 1 meeting p.a.
UCB: Gene Therapy Advisory Board - I meeting p.a.
OriBiotech, London, UK: Advisory Board - 1 meeting p.a.
Cell and Gene Therapy Catapult, London, UK: SAB- 1 meeting p.a.
14
Exhibit A
Confidentiality and IP Assignment Agreement
15
AVROBIO, INC.
EMPLOYMENT AGREEMENT
Exhibit 10.20
This Employment Agreement (“Agreement”) is made as of the 4th day of December 2020, between AVROBIO, Inc., a
Delaware corporation (the “Company”), and Diana Escolar, MD (the “Executive”).
WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company
commencing on January 18, 2021, unless another date is agreed to by the parties. The Executive’s first day of employment shall
be the “Effective Date” of this Agreement; and
WHEREAS, to protect the Company’s proprietary information and goodwill, as a condition of Executive’s
employment, the Executive and the Company will become parties to the Employee Confidentiality, Assignment and
Noncompetition Agreement (the “Restrictive Covenants Agreement”), which is being provided to the Executive along with this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows:
1.
Employment.
(a)
Term. The term of this Agreement shall commence on the Effective Date and continue until
terminated in accordance with the provisions hereof (the “Term”). The Executive’s employment with the Company will be “at
will,” meaning that the Executive’s employment may be terminated by the Company or the Executive at any time and for any
reason subject to the terms of this Agreement.
(b)
Position and Duties. During the Term, the Executive shall serve as the Chief Medical Officer of
the Company, reporting to Geoff MacKay, the Company’s President and CEO (“CEO”). In such role, the Executive shall have
supervision and control over and responsibility for all clinical, medical, and regulatory affairs of the Company and shall have
such other powers and duties as may from time to time be prescribed by the Board of Directors of the Company (the “Board”),
the Chief Executive Officer of the Company (the “CEO”), or other authorized executive. The Executive shall devote her full
working time and efforts to the business and affairs of the Company. Notwithstanding the foregoing, the Executive may serve on
other boards of directors, with the approval of the Board, or engage in religious, charitable or other community activities as long
as such services and activities are disclosed to the Board and do not materially interfere with the Executive’s performance of her
duties to the Company as provided in this Agreement. For the avoidance of doubt, the Executive may continue to serve in the
roles set forth on Schedule 1 hereto without the necessity of further approval from the Board, provided that no conflicts result in
the future from the Executive’s service in such role.
2.
Compensation and Related Matters.
(a)
Base Salary. During the Term, the Executive’s annual base salary shall be $450,000. The
Executive’s base salary shall be reviewed annually by the Board or the Compensation Committee of the Board (the
“Compensation Committee”). The base salary in effect at any given time is referred to herein as “Base Salary.” The Base Salary
shall be payable in a manner that is consistent with the Company’s usual payroll practices for executive officers.
(b)
Incentive Compensation. During the Term, the Executive shall be eligible to receive cash incentive
compensation as determined by the Board or the Compensation Committee from time to time. The Executive’s initial target
annual incentive compensation shall be forty percent (40%) of her Base Salary (as in effect at any time, the “Target Annual
Incentive Compensation”). To earn incentive compensation, the Executive must be employed by the Company on the day such
incentive compensation is paid.
(c)
Expenses. The Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Executive during the Term in performing services hereunder, in accordance with the policies and
procedures then in effect and established by the Company for its senior officers.
(d)
Other Benefits. During the Term, the Executive shall be eligible to participate in or receive
benefits under the Company’s employee benefit plans in effect from time to time, subject to the terms of such
plans. Additionally, during the Term, the Executive shall be eligible to receive such benefits and perquisites as those made
available to the other employees of the Company generally.
(e)
Vacations. During the Term, the Executive shall be entitled to paid vacation in accordance with the
Company’s policies and procedures, which shall be a minimum of 20 days in addition to the Company’s paid holidays. The
Executive shall also be entitled to all paid holidays given by the Company to its executive officers.
(f)
Equity. The Executive shall also be eligible to participate in the Company’s equity incentive plan,
subject to approval by the Board or Compensation Committee. As a material inducement to the Executive entering into this
Agreement and becoming an employee of the Company, and subject to approval by the Board or Compensation Committee, the
Company will grant the Executive an option to purchase 130,000 shares of the Company’s common stock (“New Hire Award”).
The New Hire Award shall vest over four years, with twenty-five percent of the New Hire Award vesting on the one-year
anniversary of the Effective Date and the remaining shares vesting in thirty-six equal monthly installments following the one-year
anniversary of the Effective Date, subject to the Executive’s continued service relationship with the Company. The New Hire
Award shall be granted under the Company’s 2019 Inducement Plan in the form of a non-qualified stock option as an inducement
grant consistent with the requirements of NASDAQ Stock Market Rule 5635(c)(4). The New Hire Award will be governed by
the terms and conditions of an award agreement (such documents, together with any other equity awards held by the Executive
and the applicable award agreements and the Company’s applicable equity incentive plan(s), the “Equity Documents”); provided,
however, and notwithstanding anything to the contrary in the Equity Documents, Section 4(b)(ii) or
2
Section 5(a)(ii) of this Agreement (as applicable) shall apply in the event of a termination by the Company without Cause or by
the Executive for Good Reason (as such terms are defined below).
(g)
Signing Bonus. The Company will pay the Executive a one-time signing bonus of $100,000
payable in a lump sum on the date of the first payroll after the Effective Date, subject to applicable deductions and withholdings
(the “Signing Bonus”). The Signing Bonus will be subject to repayments in full if the Executive voluntarily chooses to resign
from the Company within the first twelve (12) months of the Effective Date.
(h)
Relocation Benefits. Provided that the Executive executes and delivers a Relocation Repayment
Agreement prior to the Effective Date, the Executive will be eligible for the Company’s relocation benefits (“Relocation
Benefits”), covering relocation expenses from Colorado to the Boston, Massachusetts area, as described in further detail in the
Company’s Executive Relocation Policy and Benefits Summary, a copy of which is attached as Exhibit B (the “Relocation
Policy”). Notwithstanding anything to the contrary in the Relocation Policy regarding the number of months for which executives
are eligible for temporary housing, the Executive shall be entitled to six (6) months of temporary housing, subject to the terms
and conditions of the Relocation Policy. In addition, and notwithstanding anything to the contrary in the Relocation Policy, to the
extent that any of the Relocation Benefits result in taxable income to the Executive (after taking into account any and all
offsetting deductions), the Company will pay the Executive an additional amount (the “Relocation Gross-Up”) such that the net
after-tax amount of the reimbursement of the Relocation Benefits and the Relocation Gross-Up (at the Executive’s then-current
combined state and federal marginal income tax rates, taking into account the deductibility of state and local income taxes for
federal income tax purposes and all other applicable deductions) is equal to the Relocation Benefits. [Notwithstanding the
foregoing, the Relocation Gross-Up shall not exceed $50,000. Any tax gross-up payment will be paid to the Executive no later
than sixty (60) days after which the Executive remits the related taxes.
3.
Termination. During the Term, the Executive’s employment hereunder may be terminated without any breach
of this Agreement under the following circumstances:
(a)
(b)
Death. The Executive’s employment hereunder shall terminate upon her death.
Disability. The Company may terminate the Executive’s employment if he is disabled and unable
to perform the essential functions of the Executive’s then existing position or positions under this Agreement with or without
reasonable accommodation for a period of 180 days (which need not be consecutive) in any 12-month period. If any question
shall arise as to whether during any period the Executive is disabled so as to be unable to perform the essential functions of the
Executive’s then existing position or positions with or without reasonable accommodation, the Executive may, and at the request
of the Company shall, submit to the Company a certification in reasonable detail by a physician selected by the Company to
whom the Executive or the Executive’s guardian has no reasonable objection as to whether the Executive is so disabled or how
long such disability is expected to continue, and such certification shall for the purposes of this Agreement be conclusive of the
issue. The Executive shall cooperate with any reasonable request of the physician in connection with such certification. If such
question shall arise and the Executive shall fail to submit such certification,
3
the Company’s determination of such issue shall be binding on the Executive. Nothing in this Section 3(b) shall be construed to
waive the Executive’s rights, if any, under existing law including, without limitation, the Family and Medical Leave Act of 1993,
29 U.S.C. §2601 et seq. and the Americans with Disabilities Act, 42 U.S.C. §12101 et seq.
(c)
Termination by Company for Cause. The Company may terminate the Executive’s employment
hereunder for Cause. For purposes of this Agreement, “Cause” shall mean: (i) conduct by the Executive constituting a material
act of misconduct in connection with the performance of her duties, including, without limitation, misappropriation of funds or
property of the Company or any of its subsidiaries or affiliates other than the occasional, customary and de minimis use of
Company property for personal purposes; (ii) the commission by the Executive of any felony or a misdemeanor involving moral
turpitude, material deceit or dishonesty, or fraud, or any conduct by the Executive that would reasonably be expected to result in
material injury or reputational harm to the Company or any of its subsidiaries or affiliates if he were retained in her position; (iii)
continued non-performance by the Executive of her duties hereunder (other than by reason of the Executive’s physical or mental
illness, incapacity or disability) which has continued for more than 30 days following written notice (with a reasonably detailed
summary of such alleged non-performance specified) of such non-performance from the Company’s CEO; (iv) a breach by the
Executive of any of the provisions incorporated into or contained in Section 7 of this Agreement; (v) a material violation by the
Executive of the Company’s written employment policies; or (vi) failure to cooperate with a bona fide internal investigation or an
investigation by regulatory or law enforcement authorities, after being instructed by the Company to cooperate, or the willful
destruction or failure to preserve documents or other materials known to be relevant to such investigation or the inducement of
others to fail to cooperate or to produce documents or other materials in connection with such investigation.
(d)
Termination Without Cause. The Company may terminate the Executive’s employment hereunder
at any time without Cause. Any termination by the Company of the Executive’s employment under this Agreement which does
not constitute a termination for Cause under Section 3(c) and does not result from the death or disability of the Executive under
Section 3(a) or (b) shall be deemed a termination without Cause.
(e)
Termination by the Executive. The Executive may terminate her employment hereunder at any
time for any reason, including but not limited to Good Reason. For purposes of this Agreement, “Good Reason” shall mean that
the Executive has complied with the “Good Reason Process” (hereinafter defined) following the occurrence of any of the
following events: (i) a material diminution in the Executive’s responsibilities, authority or duties or reporting relationship; (ii) a
material diminution in the Executive’s Base Salary except for across-the-board salary reductions based on the Company’s
financial performance similarly affecting all or substantially all senior management employees of the Company; (iii) a material
change in the geographic location at which the Executive provides services to the Company; or (iv) a material breach of this
Agreement by the Company. “Good Reason Process” shall mean that (i) the Executive reasonably determines in good faith that a
“Good Reason” condition has occurred; (ii) the Executive notifies the Company in writing of the first occurrence of the Good
Reason condition within 60 days of the first occurrence of such condition; (iii) the Executive cooperates in good faith with the
Company’s efforts, for a period not less than 30 days following
4
such notice (the “Cure Period”), to remedy the condition; (iv) notwithstanding such efforts, the Good Reason condition continues
to exist; and (v) the Executive terminates her employment within 60 days after the end of the Cure Period. If the Company cures
the Good Reason condition during the Cure Period, Good Reason shall be deemed not to have occurred.
(f)
Notice of Termination. Except for termination as specified in Section 3(a), any termination of the
Executive’s employment by the Company or any such termination by the Executive shall be communicated by written Notice of
Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon.
(g)
Date of Termination. “Date of Termination” shall mean: (i) if the Executive’s employment is
terminated by her death, the date of her death; (ii) if the Executive’s employment is terminated on account of disability under
Section 3(b) or by the Company for Cause under Section 3(c), the date on which Notice of Termination is given; (iii) if the
Executive’s employment is terminated by the Company under Section 3(d), the date on which a Notice of Termination is given;
(iv) if the Executive’s employment is terminated by the Executive under Section 3(e) without Good Reason, 30 days after the
date on which a Notice of Termination is given, and (v) if the Executive’s employment is terminated by the Executive under
Section 3(e) with Good Reason, the date on which a Notice of Termination is given after the end of the Cure
Period. Notwithstanding the foregoing, in the event that the Executive gives a Notice of Termination to the Company, the
Company may unilaterally accelerate the Date of Termination and such acceleration shall not result in a termination by the
Company for purposes of this Agreement.
4.
Compensation Upon Termination.
(a)
Termination Generally. If the Executive’s employment with the Company is terminated for any
reason, the Company shall pay or provide to the Executive (or to her authorized representative or estate) (i) any Base Salary
earned through the Date of Termination, unpaid expense reimbursements (subject to, and in accordance with, Section 2(c) of this
Agreement) and unused vacation that accrued through the Date of Termination on or before the time required by law but in no
event more than 30 days after the Executive’s Date of Termination; and (ii) any vested benefits the Executive may have under any
employee benefit plan of the Company through the Date of Termination, which vested benefits shall be paid and/or provided in
accordance with the terms of such employee benefit plans (collectively, the “Accrued Benefit”).
(b)
Termination by the Company Without Cause or by the Executive with Good Reason. During the
Term, if the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d), or the Executive
terminates her employment for Good Reason as provided in Section 3(e), then the Company shall pay the Executive her Accrued
Benefit. In addition, subject to the Executive signing a separation agreement in a form satisfactory to the Company containing,
among other provisions, a general release of claims in favor of the Company and related persons and entities, confidentiality,
return of property and non-disparagement provisions, a reaffirmation of all of the Executive’s Continuing Obligations, a twelve-
month post-employment noncompetition provision and a seven business-day revocation
5
period, and which provides that if the Executive breaches any of the Executive’s Continuing Obligations, all payments of the
Severance Amount shall immediately cease (the “Separation Agreement and Release”) and the Separation Agreement and
Release becoming irrevocable and fully effective and, if applicable, the Executive resigning as a member of the Board of
Directors, all within 60 days after the Date of Termination (or such shorter time period provided in the Separation Agreement and
Release):
Executive’s Base Salary (the “Severance Amount”);
(i)
the Company shall pay the Executive an amount equal to 0.75 times the sum of the
(ii)
notwithstanding anything to the contrary in any applicable option agreement or stock-
based award agreement, all time-based stock options and other time-based stock-based awards held by the Executive in
which such stock option or other stock-based award would have vested if the Executive had remained employed for an
additional nine months following the Date of Termination shall vest and become exercisable or nonforfeitable as of the
Date of Termination;
(iii)
if the Executive was participating in the Company’s group health plan immediately prior
to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for nine months or the Executive’s COBRA health continuation period, whichever ends earlier,
in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company;
(iv)
the amounts payable under Section 4(b)(i) and (iii) shall be paid out in substantially equal
installments in accordance with the Company’s payroll practice over nine months commencing within 60 days after the
Date of Termination; provided, however, that if the 60-day period begins in one calendar year and ends in a second
calendar year, the Severance Amount shall begin to be paid in the second calendar year by the last day of such 60-day
period; provided, further, that the initial payment shall include a catch-up payment to cover amounts retroactive to the
day immediately following the Date of Termination. Each payment pursuant to this Agreement is intended to constitute
a separate payment for purposes of Treasury Regulation Section 1.409A-2(b)(2); and
(v)
The Severance Amount which Executive is paid or for which Executive is eligible in any
calendar year shall be reduced by the amount of Garden Leave Pay (as defined in the Restrictive Covenants
Agreement) paid to Executive in such calendar year.
5.
Change in Control Payment. The provisions of this Section 5 set forth certain terms of an agreement reached
between the Executive and the Company regarding the Executive’s rights and obligations upon the occurrence of a Change in
Control of the Company. These provisions are intended to assure and encourage in advance the Executive’s continued attention
and dedication to her assigned duties and her objectivity during the pendency and after the occurrence of any such event. These
provisions shall apply in lieu of, and expressly
6
supersede, the provisions of Section 4(b) regarding severance pay and benefits upon a termination of employment, if such
termination of employment occurs within three months prior to or 18 months after the occurrence of the first event constituting a
Change in Control. These provisions shall terminate and be of no further force or effect beginning 18 months after the
occurrence of a Change in Control.
(a)
Change in Control. During the Term, if within three months prior to or 18 months after a Change
in Control, the Executive’s employment is terminated by the Company without Cause as provided in Section 3(d) or the
Executive terminates her employment for Good Reason as provided in Section 3(e), then, subject to the signing of the Separation
Agreement and Release by the Executive and the Separation Agreement and Release becoming irrevocable and fully effective
and, if applicable, the Executive resigning as a member of the Board of Directors, all within 60 days after the Date of Termination
(or such shorter time period provided in the Separation Agreement and Release):
(i)
the Company shall pay the Executive a lump sum in cash in an amount equal to one times
the sum of (A) the Executive’s current Base Salary (or the Executive’s Base Salary in effect immediately prior to the
Change in Control, if higher) and (B) the Executive’s Target Annual Incentive Compensation then in effect (together
the “Change in Control Payment”);
(ii)
notwithstanding anything to the contrary in any applicable option agreement or stock-
based award agreement, all time-based stock options and other time-based stock-based awards held by the Executive
shall immediately accelerate and become fully exercisable or nonforfeitable as of the Date of Termination;
(iii)
if the Executive was participating in the Company’s group health plan immediately prior
to the Date of Termination and elects COBRA health continuation, then the Company shall pay to the Executive a
monthly cash payment for twelve months or the Executive’s COBRA health continuation period, whichever ends
earlier, in an amount equal to the monthly employer contribution that the Company would have made to provide health
insurance to the Executive if the Executive had remained employed by the Company;
(iv)
The amounts payable under Section 5(a)(i) and (iii) shall be paid or commence to be paid
within 60 days after the Date of Termination; provided, however, that if the 60-day period begins in one calendar year
and ends in a second calendar year, such payment shall be paid or commence to be paid in the second calendar year by
the last day of such 60-day period; and
(v)
The Change in Control Payment which Executive is paid or for which Executive is eligible
in any calendar year shall be reduced by the amount of Garden Leave Pay (as defined in the Restrictive Covenants
Agreement) paid to Executive in such calendar year.
7
(b)
Additional Limitation.
(i)
Anything in this Agreement to the contrary notwithstanding, in the event that the amount
of any compensation, payment or distribution by the Company to or for the benefit of the Executive, whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, calculated in a manner
consistent with Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) and the applicable
regulations thereunder (the “Aggregate Payments”), would be subject to the excise tax imposed by Section 4999 of the
Code, then the Aggregate Payments shall be reduced (but not below zero) so that the sum of all of the Aggregate
Payments shall be $1.00 less than the amount at which the Executive becomes subject to the excise tax imposed by
Section 4999 of the Code; provided that such reduction shall only occur if it would result in the Executive receiving a
higher After Tax Amount (as defined below) than the Executive would receive if the Aggregate Payments were not
subject to such reduction. In such event, the Aggregate Payments shall be reduced in the following order, in each case,
in reverse chronological order beginning with the Aggregate Payments that are to be paid the furthest in time from
consummation of the transaction that is subject to Section 280G of the Code: (1) cash payments not subject to Section
409A of the Code; (2) cash payments subject to Section 409A of the Code; (3) equity-based payments and acceleration;
and (4) non-cash forms of benefits; provided that in the case of all the foregoing Aggregate Payments all amounts or
payments that are not subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c) shall be reduced before
any amounts that are subject to calculation under Treas. Reg. §1.280G-1, Q&A-24(b) or (c).
(ii)
For purposes of this Section 5(b), the “After Tax Amount” means the amount of the
Aggregate Payments less all federal, state, and local income, excise and employment taxes imposed on the Executive as
a result of the Executive’s receipt of the Aggregate Payments. For purposes of determining the After Tax Amount, the
Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation
applicable to individuals for the calendar year in which the determination is to be made, and state and local income
taxes at the highest marginal rates of individual taxation in each applicable state and locality, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such state and local taxes.
(iii)
The determination as to whether a reduction in the Aggregate Payments shall be made
pursuant to Section 5(b)(i) shall be made by a nationally recognized accounting firm selected by the Company (the
“Accounting Firm”), which shall provide detailed supporting calculations both to the Company and the Executive
within 15 business days of the Date of Termination, if applicable, or at such earlier time as is reasonably requested by
the Company or the Executive. Any determination by the Accounting Firm shall be binding upon the Company and the
Executive.
8
(c)
Definitions. For purposes of this Section 5, the following terms shall have the following meanings:
“Change in Control” shall mean any of the following:
(i)
any “person,” as such term is used in Sections 13(d) and 14(d) of the Securities Exchange
Act of 1934, as amended (the “Act”) (other than the Company, any of its subsidiaries, or any trustee, fiduciary or other
person or entity holding securities under any employee benefit plan or trust of the Company or any of its subsidiaries),
together with all “affiliates” and “associates” (as such terms are defined in Rule 12b-2 under the Act) of such person,
shall become the “beneficial owner” (as such term is defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Company representing 50 percent or more of the combined voting power of the Company’s then
outstanding securities having the right to vote in an election of the Board (“Voting Securities”) (in such case other than
as a result of an acquisition of securities directly from the Company); or
the date a majority of the members of the Board is replaced during any 12-month period
by directors whose appointment or election is not endorsed by a majority of the members of the Board before the date
of the appointment or election; or
(ii)
(iii)
the consummation of (A) any consolidation or merger of the Company where the
stockholders of the Company, immediately prior to the consolidation or merger, would not, immediately after the
consolidation or merger, beneficially own (as such term is defined in Rule 13d-3 under the Act), directly or indirectly,
shares representing in the aggregate more than 50 percent of the voting shares of the Company issuing cash or
securities in the consolidation or merger (or of its ultimate parent corporation, if any), or (B) any sale or other transfer
(in one transaction or a series of transactions contemplated or arranged by any party as a single plan) of all or
substantially all of the assets of the Company.
Notwithstanding the foregoing, a “Change in Control” shall not be deemed to have occurred for purposes of the
foregoing clause (i) solely as the result of an acquisition of securities by the Company which, by reducing the number of shares
of Voting Securities outstanding, increases the proportionate number of Voting Securities beneficially owned by any person to 50
percent or more of the combined voting power of all of the then outstanding Voting Securities; provided, however, that if any
person referred to in this sentence shall thereafter become the beneficial owner of any additional shares of Voting Securities
(other than pursuant to a stock split, stock dividend, or similar transaction or as a result of an acquisition of securities directly
from the Company) and immediately thereafter beneficially owns 50 percent or more of the combined voting power of all of the
then outstanding Voting Securities, then a “Change in Control” shall be deemed to have occurred for purposes of the foregoing
clause (i).
6.
Section 409A.
separation from service within the meaning of Section 409A of the Code, the
(a)
Anything in this Agreement to the contrary notwithstanding, if at the time of the Executive’s
9
Company determines that the Executive is a “specified employee” within the meaning of Section 409A(a)(2)(B)(i) of the Code,
then to the extent any payment or benefit that the Executive becomes entitled to under this Agreement or the Restrictive
Covenants Agreement on account of the Executive’s separation from service would be considered deferred compensation
otherwise subject to the 20 percent additional tax imposed pursuant to Section 409A(a) of the Code as a result of the application
of Section 409A(a)(2)(B)(i) of the Code, such payment shall not be payable and such benefit shall not be provided until the date
that is the earlier of (A) six months and one day after the Executive’s separation from service, or (B) the Executive’s death. If
any such delayed cash payment is otherwise payable on an installment basis, the first payment shall include a catch-up payment
covering amounts that would otherwise have been paid during the six-month period but for the application of this provision, and
the balance of the installments shall be payable in accordance with their original schedule.
(b)
All in-kind benefits provided and expenses eligible for reimbursement under this Agreement shall
be provided by the Company or incurred by the Executive during the time periods set forth in this Agreement. All
reimbursements shall be paid as soon as administratively practicable, but in no event shall any reimbursement be paid after the
last day of the taxable year following the taxable year in which the expense was incurred. The amount of in-kind benefits
provided or reimbursable expenses incurred in one taxable year shall not affect the in-kind benefits to be provided or the
expenses eligible for reimbursement in any other taxable year (except for any lifetime or other aggregate limitation applicable to
medical expenses). Such right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.
(c)
To the extent that any payment or benefit described in this Agreement or the Restrictive Covenants
Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such
payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits shall be payable
only upon the Executive’s “separation from service.” The determination of whether and when a separation from service has
occurred shall be made in accordance with the presumptions set forth in Treasury Regulation Section 1.409A‑1(h).
(d)
The parties intend that this Agreement will be administered in accordance with Section 409A of
the Code. To the extent that any provision of this Agreement or the Restrictive Covenants Agreement is ambiguous as to its
compliance with Section 409A of the Code, the provision shall be read in such a manner so that all payments hereunder comply
with Section 409A of the Code. Each payment pursuant to this Agreement or and the Restrictive Covenants Agreement is
intended to constitute a separate payment for purposes of Treasury Regulation Section 1.409A‑2(b)(2). The parties agree that this
Agreement and the Restrictive Covenants Agreement may be amended, as reasonably requested by either party, and as may be
necessary to fully comply with Section 409A of the Code and all related rules and regulations in order to preserve the payments
and benefits provided hereunder without additional cost to either party.
any other person if any provisions of this Agreement are determined
(e)
The Company makes no representation or warranty and shall have no liability to the Executive or
10
to constitute deferred compensation subject to Section 409A of the Code but do not satisfy an exemption from, or the conditions
of, such Section.
7.
Confidential Information, Nonsolicitation and Cooperation.
(a)
Restrictive Covenants Agreement. The Executive acknowledges and agrees that in consideration
and as a condition of the Executive’s employment by the Company and in exchange for, among other things, the benefits
contained in this Agreement, the Executive will enter into the Restrictive Covenants Agreement attached hereto as Exhibit A, the
terms of which are incorporated by reference as material terms of this Agreement. For purposes of this Agreement, the
obligations in this Section 7 and those that arise in the Restrictive Covenants Agreement and any other agreement relating to
confidentiality, assignment of inventions, or other restrictive covenants shall collectively be referred to as the “Continuing
Obligations.”
(b)
Third-Party Agreements and Rights. The Executive hereby confirms that the Executive is not
bound by the terms of any agreement with any previous employer or other party which restricts in any way the Executive’s use or
disclosure of information or the Executive’s engagement in any business. The Executive represents to the Company that the
Executive’s execution of this Agreement, the Executive’s employment with the Company and the performance of the Executive’s
proposed duties for the Company will not violate any obligations the Executive may have to any such previous employer or other
party. In the Executive’s work for the Company, the Executive will not disclose or make use of any information in violation of
any agreements with or rights of any such previous employer or other party, and the Executive will not bring to the premises of
the Company any copies or other tangible embodiments of non-public information belonging to or obtained from any such
previous employment or other party.
(c)
Litigation and Regulatory Cooperation. During and after the Executive’s employment, the
Executive shall reasonably cooperate with the Company in the defense or prosecution of any claims or actions now in existence
or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired
while the Executive was employed by the Company. The Executive’s full cooperation in connection with such claims or actions
shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness
on behalf of the Company at mutually convenient times, taking into consideration Executive’s then current business and personal
commitments. During and after the Executive’s employment, the Executive also shall cooperate fully with the Company in
connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review
relates to events or occurrences that transpired while the Executive was employed by the Company. The Company shall
reimburse the Executive for any reasonable out‑of‑pocket expenses incurred in connection with the Executive’s performance of
obligations pursuant to this Section 7(c).
(d)
Relief. The Executive agrees that it would be difficult to measure any damages caused to the
Company which might result from any breach by the Executive of the promises incorporated into or set forth in this Section 7,
and that in any event money damages would be an inadequate remedy for any such breach. Accordingly, subject to Section 8 of
this Agreement, the Executive agrees that if the Executive breaches, or proposes to breach, any
11
portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to seek an injunction
or other appropriate equitable relief to restrain any such breach without showing or proving any actual damage to the Company.
In addition, in the event the Executive breaches this Section 7 or the provisions incorporated herein during a period when he is
receiving severance payments pursuant to Section 4 or Section 5 hereof, the Company shall have the right to suspend or terminate
such severance payments. Such suspension or termination shall not limit the Company’s other options with respect to relief for
such breach and shall not relieve the Executive of her duties under this Agreement.
(e)
Protected Disclosures and Other Protected Action. Nothing contained in this Agreement limits the
Executive’s ability to communicate with any federal, state or local governmental agency or commission, including to provide
documents or other information, without notice to the Company.
8.
Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach
thereof or otherwise arising out of the Executive’s employment or the termination of that employment (including, without
limitation, any claims of unlawful employment discrimination whether based on age or otherwise) shall, to the fullest extent
permitted by law, be settled by arbitration in any forum and form agreed upon by the parties or, in the absence of such an
agreement, under the auspices of the American Arbitration Association (“AAA”) in Boston, Massachusetts in accordance with
the Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the
selection of arbitrators. In the event that any person or entity other than the Executive or the Company may be a party with
regard to any such controversy or claim, such controversy or claim shall be submitted to arbitration subject to such other person
or entity’s agreement. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction
thereof. This Section 8 shall be specifically enforceable. Notwithstanding the foregoing, this Section 8 shall not preclude either
party from pursuing a court action for the sole purpose of enforcing the Restrictive Covenants Agreement or obtaining a
temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate; provided that any
other relief shall be pursued through an arbitration proceeding pursuant to this Section 8.
9.
Consent to Jurisdiction. To the extent that any court action is permitted consistent with or to enforce Section 8
of this Agreement, the parties hereby consent to the jurisdiction of the Superior Court of the Commonwealth of Massachusetts
and the United States District Court for the District of Massachusetts. Accordingly, with respect to any such court action, the
Executive (a) submits to the personal jurisdiction of such courts; (b) consents to service of process; and (c) waives any other
requirement (whether imposed by statute, rule of court, or otherwise) with respect to personal jurisdiction or service of process.
10.
Integration. This Agreement and the Restrictive Covenants Agreement constitute the entire agreement
between the parties with respect to the subject matter hereof and supersede all prior agreements between the parties concerning
such subject matter, including without the limitation the Offer Letter.
12
11.
Withholding. All payments made by the Company to the Executive under this Agreement shall be net of any
tax or other amounts required to be withheld by the Company under applicable law.
12.
Successor to the Executive. This Agreement shall inure to the benefit of and be enforceable by the
Executive’s personal representatives, executors, administrators, heirs, distributees, devisees and legatees. In the event of the
Executive’s death after her termination of employment but prior to the completion by the Company of all payments due to him
under this Agreement, the Company shall continue such payments to the Executive’s beneficiary designated in writing to the
Company prior to her death (or to her estate, if the Executive fails to make such designation).
13.
Enforceability. If any portion or provision of this Agreement (including, without limitation, any portion or
provision of any section of this Agreement) shall to any extent be declared illegal or unenforceable by a court of competent
jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than
those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
14.
Survival. The provisions of this Agreement shall survive the termination of this Agreement and/or the
termination of the Executive’s employment to the extent necessary to effectuate the terms contained herein.
15.
Waiver. No waiver of any provision hereof shall be effective unless made in writing and signed by the
waiving party. The failure of any party to require the performance of any term or obligation of this Agreement, or the waiver by
any party of any breach of this Agreement, shall not prevent any subsequent enforcement of such term or obligation or be deemed
a waiver of any subsequent breach.
16.
Notices. Any notices, requests, demands and other communications provided for by this Agreement shall be
sufficient if in writing and delivered in person or sent by a nationally recognized overnight courier service or by registered or
certified mail, postage prepaid, return receipt requested, to the Executive at the last address the Executive has filed in writing
with the Company or, in the case of the Company, at its main offices, attention of the Board.
17.
Amendment. This Agreement may be amended or modified only by a written instrument signed by the
Executive and by a duly authorized representative of the Company.
18.
Governing Law. This is a Massachusetts contract and shall be construed under and be governed in all
respects by the laws of the Commonwealth of Massachusetts, without giving effect to the conflict of laws principles thereof.
19.
Counterparts. This Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be taken to be an original; but such counterparts shall together constitute one and the same
document.
13
20.
Successor to Company. The Company shall require any successor (whether direct or indirect, by purchase,
merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and
agree to perform this Agreement to the same extent that the Company would be required to perform it if no succession had taken
place. Failure of the Company to obtain an assumption of this Agreement at or prior to the effectiveness of any succession shall
be a material breach of this Agreement.
21.
Conditions. Notwithstanding anything to the contrary herein, the effectiveness of this Agreement is
conditioned on (i) successful reference and background verifications of the Executive, and (ii) the Executive’s submission of
satisfactory proof of identity and legal authorization to work in the United States, as is required for all employees. This
Agreement shall be void ab initio and of no further force or effect if the conditions set forth in this Section are not satisfied.
22.
Gender Neutral. Wherever used herein, a pronoun in the masculine or feminine gender shall be considered
as including the opposite gender as well unless the context clearly indicates otherwise.
IN WITNESS WHEREOF, the parties have executed this Agreement effective on the date and year first above written.
AVROBIO, INC.
/s/ Geoff MacKay
By:
Name: Geoff MacKay
Title:
Chief Executive Officer
04-Dec-2020
EXECUTIVE
/s/ Diana Escolar
Diana Escolar, MD
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Schedule 1
Approved Activities
15
Exhibit A
Restrictive Covenants Agreement
16
AVROBIO, INC.
2020 INDUCEMENT PLAN
Exhibit 10.25
SECTION 1. GENERAL PURPOSE OF THE PLAN; DEFINITIONS
The name of the plan is the AVROBIO, Inc. 2020 Inducement Plan (the “Plan”). The purpose of the Plan is to enable
AVROBIO, Inc., a Delaware corporation (the “Company”) and its Subsidiaries to grant equity awards to induce highly-qualified
prospective officers and employees who are Eligible Employees to accept employment and to provide them with a proprietary
interest in the Company. It is anticipated that providing such persons with a direct stake in the Company’s welfare will assure a
closer identification of their interests with those of the Company and its stockholders, thereby stimulating their efforts on the
Company’s behalf and strengthening their desire to remain with the Company. The Company intends that the Plan be reserved
for persons to whom the Company may issue securities without stockholder approval as an inducement pursuant to Rule 5635(c)
(4) of the Marketplace Rules of the Nasdaq Stock Market, Inc.
The following terms shall be defined as set forth below:
“Administrator” means either the Board or the compensation committee of the Board or a similar committee
performing the functions of the compensation committee and which is comprised of not less than two Non‑Employee Directors
who are independent.
“Award” or “Awards,” except where referring to a particular category of grant under the Plan, shall include Stock
Options, Stock Appreciation Rights, Restricted Stock Units, Restricted Stock Awards, Unrestricted Stock Awards, and Dividend
Equivalent Rights.
“Award Certificate” means a written or electronic document setting forth the terms and provisions applicable to an
Award granted under the Plan. Each Award Certificate is subject to the terms and conditions of the Plan.
“Board” means the Board of Directors of the Company.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor Code, and related rules, regulations
and interpretations.
“Consultant” means any natural person that provides bona fide services to the Company, and such services are not in
connection with the offer or sale of securities in a capital-raising transaction and do not directly or indirectly promote or maintain
a market for the Company’s securities.
“Dividend Equivalent Right” means an Award entitling the grantee to receive credits based on cash dividends that
would have been paid on the shares of Stock specified in the Dividend Equivalent Right (or other award to which it relates) if
such shares had been issued to and held by the grantee.
“Effective Date” means the date on which the Plan becomes effective as set forth in Section 18.
“Eligible Employee” means any individual who was not previously an employee or a non-employee director of the
Company or any of its Subsidiaries (or who has had a bona fide period of non-employment with the Company and its
Subsidiaries) who is hired as a full or part-time employee by the Company or one of its Subsidiaries, and for whom the Award is
being made as an inducement material to the individual’s entering into such employment.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder.
“Fair Market Value” of the Stock on any given date means the fair market value of the Stock determined in good faith
by the Administrator; provided, however, that if the Stock is admitted to quotation on the National Association of Securities
Dealers Automated Quotation System, Nasdaq Global Market, The New York Stock Exchange or another national securities
exchange, the determination shall be made by reference to the Stock’s closing price on such exchange. If there is no closing price
for such date, the determination shall be made by reference to the last date preceding such date for which there is a closing price.
“Non-Employee Director” means a member of the Board who is not also an employee of the Company or any
Subsidiary.
“Option” or “Stock Option” means any option to purchase shares of Stock granted pursuant to Section 5.
“Restricted Shares” means the shares of Stock underlying a Restricted Stock Award that remain subject to a risk of
forfeiture or the Company’s right of repurchase.
“Restricted Stock Award” means an Award of Restricted Shares subject to such restrictions and conditions as the
Administrator may determine at the time of grant.
“Restricted Stock Units” means an Award of stock units subject to such restrictions and conditions as the Administrator
may determine at the time of grant.
“Sale Event” shall mean (i) the sale of all or substantially all of the assets of the Company on a consolidated basis to an
unrelated person or entity, (ii) a merger, reorganization or consolidation pursuant to which the holders of the Company’s
outstanding voting power and outstanding stock immediately prior to such transaction do not own a majority of the outstanding
voting power and outstanding stock or other equity interests of the resulting or successor entity (or its ultimate parent, if
applicable) immediately upon completion of such transaction, (iii) the sale of all of the Stock of the Company to an unrelated
person, entity or group thereof acting in concert, or (iv) any other transaction in which the owners of the Company’s outstanding
voting power immediately prior to such transaction do not own at least a majority of the outstanding voting power of the
Company or any successor entity immediately upon completion of the transaction other than as a result of the acquisition of
securities directly from the Company.
2
“Sale Price” means the value as determined by the Administrator of the consideration payable, or otherwise to be
received by stockholders, per share of Stock pursuant to a Sale Event.
“Section 409A” means Section 409A of the Code and the regulations and other guidance promulgated thereunder.
“Service Relationship” means any relationship as a full-time employee, part-time employee, director or other advisor
(including Consultants) of the Company or any Subsidiary or any successor entity (e.g., a Service Relationship shall be deemed
to continue without interruption in the event an individual’s status changes from full-time employee to part-time employee or
Consultant).
“Stock” means the Common Stock, par value $0.0001 per share, of the Company, subject to adjustments pursuant to
Section 3.
“Stock Appreciation Right” means an Award entitling the recipient to receive shares of Stock (or cash, to the extent
explicitly provided for in the applicable Award Certificate) having a value equal to the excess of the Fair Market Value of the
Stock on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock
with respect to which the Stock Appreciation Right shall have been exercised.
“Subsidiary” means any corporation or other entity (other than the Company) in which the Company has at least a 50
percent interest, either directly or indirectly.
“Unrestricted Stock Award” means an Award of shares of Stock free of any restrictions.
SECTION 2. ADMINISTRATION OF PLAN; ADMINISTRATOR AUTHORITY TO SELECT GRANTEES AND
DETERMINE AWARDS
(a)
(b)
Administration of Plan. The Plan shall be administered by the Administrator.
Powers of Administrator. The Administrator shall have the power and authority to grant Awards consistent
with the terms of the Plan, including the power and authority:
individuals are Eligible Employees;
(i)
to select the individuals to whom Awards may from time to time be granted; provided, such
(ii)
to determine the time or times of grant, and the extent, if any, of Stock Options, Stock
Appreciation Rights, Restricted Stock Awards, Restricted Stock Units, Unrestricted Stock Awards, and Dividend Equivalent
Rights, or any combination of the foregoing, granted to any one or more grantees;
(iii)
(iv)
to determine the number of shares of Stock to be covered by any Award;
to determine and modify from time to time the terms and conditions, including restrictions, not
inconsistent with the terms of the Plan, of any Award, which terms and conditions may differ among individual Awards and
grantees, and to approve the forms of Award Certificates;
3
(v)
(vi)
may be exercised; and
to accelerate at any time the exercisability or vesting of all or any portion of any Award;
subject to the provisions of Section 5(c), to extend at any time the period in which Stock Options
(vii)
at any time to adopt, alter and repeal such rules, guidelines and practices for administration of the
Plan and for its own acts and proceedings as it shall deem advisable; to interpret the terms and provisions of the Plan and any
Award (including related written instruments); to make all determinations it deems advisable for the administration of the Plan; to
decide all disputes arising in connection with the Plan; and to otherwise supervise the administration of the Plan.
All decisions and interpretations of the Administrator shall be binding on all persons, including the Company and Plan
grantees.
(c)
Award Certificate. Awards under the Plan shall be evidenced by Award Certificates that set forth the terms,
conditions and limitations for each Award which may include, without limitation, the term of an Award and the provisions
applicable in the event employment or service of the grantee terminates.
(d)
Indemnification. Neither the Board nor the Administrator, nor any member of either or any delegate thereof,
shall be liable for any act, omission, interpretation, construction or determination made in good faith in connection with the Plan,
and the members of the Board and the Administrator (and any delegate thereof) shall be entitled in all cases to indemnification
and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, reasonable
attorneys’ fees) arising or resulting therefrom to the fullest extent permitted by law and/or under the Company’s articles or
bylaws or any directors’ and officers’ liability insurance coverage which may be in effect from time to time and/or any
indemnification agreement between such individual and the Company.
(e)
Foreign Award Recipients. Notwithstanding any provision of the Plan to the contrary, in order to comply
with the laws in other countries in which the Company and its Subsidiaries operate or have employees eligible for Awards, the
Administrator, in its sole discretion, shall have the power and authority to: (i) determine which Subsidiaries shall be covered by
the Plan; (ii) determine which Eligible Employees outside the United States are eligible to participate in the Plan; (iii) modify the
terms and conditions of any Award granted to individuals outside the United States to comply with applicable foreign laws; (iv)
establish subplans and modify exercise procedures and other terms and procedures, to the extent the Administrator determines
such actions to be necessary or advisable (and such subplans and/or modifications shall be attached to this Plan as appendices)
and subject to the Nasdaq Listing Rule 5635(c)(4) and related guidelines and interpretations; provided, however, that no such
subplans and/or modifications shall increase the share limitation contained in Section 3(a) hereof; and (v) take any action, before
or after an Award is made, that the Administrator determines to be necessary or advisable to obtain approval or comply with any
local governmental regulatory exemptions or approvals. Notwithstanding the foregoing, the Administrator may not take any
actions hereunder, and no Awards shall be granted, that would violate the Exchange Act or any other applicable United States
securities law, the Code, or any other applicable United States governing statute or law, or NASDAQ Listing Rule 5635(c).
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SECTION 3. STOCK ISSUABLE UNDER THE PLAN; MERGERS; SUBSTITUTION
(a)
Stock Issuable. The maximum number of shares of Stock reserved and available for issuance under the Plan
shall be 1,700,000 shares, subject to adjustment as provided in Section 3(b). For purposes of this limitation, the shares of Stock
underlying any Awards under the Plan that are forfeited, canceled, held back upon exercise of an Option or settlement of an
Award to cover the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance
of Stock or otherwise terminated (other than by exercise or settlement) shall be added back to the shares of Stock available for
issuance under the Plan. In the event the Company repurchases shares of Stock on the open market, such shares shall not be
added to the shares of Stock available for issuance under the Plan. Subject to such overall limitation, shares of Stock may be
issued up to such maximum number pursuant to any type or types of Award. The shares available for issuance under the Plan
may be authorized but unissued shares of Stock or shares of Stock reacquired by the Company.
(b)
Changes in Stock. Subject to Section 3(c) hereof, if, as a result of any reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other similar change in the Company’s capital stock, the
outstanding shares of Stock are increased or decreased or are exchanged for a different number or kind of shares or other
securities of the Company, or additional shares or new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Stock or other securities, or, if, as a result of any merger or consolidation, sale
of all or substantially all of the assets of the Company, the outstanding shares of Stock are converted into or exchanged for
securities of the Company or any successor entity (or a parent or subsidiary thereof), the Administrator shall make an appropriate
or proportionate adjustment in (i) the maximum number of shares reserved for issuance under the Plan, (ii) the number and kind
of shares or other securities subject to any then outstanding Awards under the Plan, (iii) the repurchase price, if any, per share
subject to each outstanding Restricted Stock Award, and (iv) the exercise price for each share subject to any then outstanding
Stock Options and Stock Appreciation Rights under the Plan, without changing the aggregate exercise price (i.e., the exercise
price multiplied by the number of Stock Options and Stock Appreciation Rights) as to which such Stock Options and Stock
Appreciation Rights remain exercisable. The Administrator shall also make equitable or proportionate adjustments in the number
of shares subject to outstanding Awards and the exercise price and the terms of outstanding Awards to take into consideration
cash dividends paid other than in the ordinary course or any other extraordinary corporate event. The adjustment by the
Administrator shall be final, binding and conclusive. No fractional shares of Stock shall be issued under the Plan resulting from
any such adjustment, but the Administrator in its discretion may make a cash payment in lieu of fractional shares.
(c)
Mergers and Other Transactions. In the case of and subject to the consummation of a Sale Event, the parties
thereto may cause the assumption or continuation of Awards theretofore granted by the successor entity, or the substitution of
such Awards with new Awards of the successor entity or parent thereof, with appropriate adjustment as to the number and kind of
shares and, if appropriate, the per share exercise prices, as such parties shall agree. To the extent the parties to such Sale Event
do not provide for the assumption, continuation or substitution of Awards, upon the effective time of the Sale Event, the Plan and
all outstanding Awards granted hereunder shall terminate. In such case, except as may be otherwise provided in
5
the relevant Award Certificate, all Options and Stock Appreciation Rights that are not exercisable immediately prior to the
effective time of the Sale Event shall become fully exercisable as of the effective time of the Sale Event, all other Awards with
time-based vesting, conditions or restrictions shall become fully vested and nonforfeitable as of the effective time of the Sale
Event, and all Awards with conditions and restrictions relating to the attainment of performance goals may become vested and
nonforfeitable in connection with a Sale Event in the Administrator’s discretion or to the extent specified in the relevant Award
Certificate. In the event of such termination, (i) the Company shall have the option (in its sole discretion) to make or provide for
a payment, in cash or in kind, to the grantees holding Options and Stock Appreciation Rights, in exchange for the cancellation
thereof, in an amount equal to the difference between (A) the Sale Price multiplied by the number of shares of Stock subject to
outstanding Options and Stock Appreciation Rights (to the extent then exercisable after taking into account any acceleration
thereunder at prices not in excess of the Sale Price) and (B) the aggregate exercise price of all such outstanding Options and
Stock Appreciation Rights (provided that, in the case of an Option or Stock Appreciation Right with an exercise price equal to or
less than the Sale Price, such Option or Stock Appreciation Right shall be cancelled for no consideration); or (ii) each grantee
shall be permitted, within a specified period of time prior to the consummation of the Sale Event as determined by the
Administrator, to exercise all outstanding Options and Stock Appreciation Rights (to the extent then exercisable) held by such
grantee. The Company shall also have the option (in its sole discretion) to make or provide for a payment, in cash or in kind, to
the grantees holding other Awards in an amount equal to the Sale Price multiplied by the number of vested shares of Stock under
such Awards.
SECTION 4. ELIGIBILITY
Grantees under the Plan will be such Eligible Employees to whom the Company may issue securities without
stockholder approval in accordance with Rules 5635(c)(4) of the Marketplace Rules of the Nasdaq Stock Market, Inc., as are
selected from time to time by the Administrator in its sole discretion.
SECTION 5. STOCK OPTIONS
(a)
Award of Stock Options. The Administrator may grant Stock Options under the Plan. Any Stock Option
granted under the Plan shall be in such form as the Administrator may from time to time approve. All Stock Options granted
under the Plan shall be non-qualified stock options.
Stock Options granted pursuant to this Section 5 shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Administrator shall deem
desirable.
(b)
Exercise Price. The exercise price per share for the Stock covered by a Stock Option granted pursuant to this
Section 5 shall be determined by the Administrator at the time of grant but shall not be less than 100 percent of the Fair Market
Value on the date of grant.
6
(c)
Option Term. The term of each Stock Option shall be fixed by the Administrator, but no Stock Option shall
be exercisable more than ten years after the date the Stock Option is granted.
(d)
Exercisability; Rights of a Stockholder. Stock Options shall become exercisable at such time or times,
whether or not in installments, as shall be determined by the Administrator at or after the grant date. The Administrator may at
any time accelerate the exercisability of all or any portion of any Stock Option. An optionee shall have the rights of a stockholder
only as to shares acquired upon the exercise of a Stock Option and not as to unexercised Stock Options.
(e)
Method of Exercise. Stock Options may be exercised in whole or in part, by giving written or electronic
notice of exercise to the Company, specifying the number of shares to be purchased. Payment of the purchase price may be made
by one or more of the following methods except to the extent otherwise provided in the Option Award Certificate:
(i)
(ii)
In cash, by certified or bank check or other instrument acceptable to the Administrator;
Through the delivery (or attestation to the ownership following such procedures as the Company
may prescribe) of shares of Stock that are not then subject to restrictions under any Company plan. Such surrendered shares shall
be valued at Fair Market Value on the exercise date;
(iii)
By the optionee delivering to the Company a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to the Company
for the purchase price; provided that in the event the optionee chooses to pay the purchase price as so provided, the optionee and
the broker shall comply with such procedures and enter into such agreements of indemnity and other agreements as the
Administrator shall prescribe as a condition of such payment procedure; or
(iv)
By a “net exercise” arrangement pursuant to which the Company will reduce the number of shares
of Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the
aggregate exercise price.
Payment instruments will be received subject to collection. The transfer to the optionee on the records of the Company or of the
transfer agent of the shares of Stock to be purchased pursuant to the exercise of a Stock Option will be contingent upon receipt
from the optionee (or a purchaser acting in the optionee’s stead in accordance with the provisions of the Stock Option) by the
Company of the full purchase price for such shares and the fulfillment of any other requirements contained in the Option Award
Certificate or applicable provisions of laws (including the satisfaction of any withholding taxes that the Company is obligated to
withhold with respect to the optionee). In the event an optionee chooses to pay the purchase price by previously-owned shares of
Stock through the attestation method, the number of shares of Stock transferred to the optionee upon the exercise of the Stock
Option shall be net of the number of attested shares. In the event that the Company establishes, for itself or using the services of
a third party, an automated system for the exercise of Stock Options, such as a system using an internet website or interactive
voice response, then the paperless exercise of Stock Options may be permitted through the use of such an automated system.
7
SECTION 6. STOCK APPRECIATION RIGHTS
(a)
Award of Stock Appreciation Rights. The Administrator may grant Stock Appreciation Rights under the
Plan. A Stock Appreciation Right is an Award entitling the recipient to receive shares of Stock (or cash, to the extent explicitly
provided for in the applicable Award Certificate) having a value equal to the excess of the Fair Market Value of a share of Stock
on the date of exercise over the exercise price of the Stock Appreciation Right multiplied by the number of shares of Stock with
respect to which the Stock Appreciation Right shall have been exercised.
(b)
Exercise Price of Stock Appreciation Rights. The exercise price of a Stock Appreciation Right shall not be
less than 100 percent of the Fair Market Value of the Stock on the date of grant.
(c)
Grant and Exercise of Stock Appreciation Rights. Stock Appreciation Rights may be granted by the
Administrator independently of any Stock Option granted pursuant to Section 5 of the Plan.
(d)
Terms and Conditions of Stock Appreciation Rights. Stock Appreciation Rights shall be subject to such
terms and conditions as shall be determined on the date of grant by the Administrator. The term of a Stock Appreciation Right
may not exceed ten years. The terms and conditions of each such Award shall be determined by the Administrator, and such
terms and conditions may differ among individual Awards and grantees.
SECTION 7. RESTRICTED STOCK AWARDS
(a)
Nature of Restricted Stock Awards. The Administrator may grant Restricted Stock Awards under the Plan. A
Restricted Stock Award is any Award of Restricted Shares subject to such restrictions and conditions as the Administrator may
determine at the time of grant. Conditions may be based on continuing employment (or other Service Relationship) and/or
achievement of pre-established performance goals and objectives. The terms and conditions of each such Award Certificate shall
be determined by the Administrator, and such terms and conditions may differ among individual Awards and grantees.
(b)
Rights as a Stockholder. Upon the grant of the Restricted Stock Award and payment of any applicable
purchase price, a grantee shall have the rights of a stockholder with respect to the voting of the Restricted Shares and receipt of
dividends; provided that if the lapse of restrictions with respect to the Restricted Stock Award is tied to the attainment of
performance goals, any dividends paid by the Company during the performance period shall accrue and shall not be paid to the
grantee until and to the extent the performance goals are met with respect to the Restricted Stock Award. Unless the
Administrator shall otherwise determine, (i) uncertificated Restricted Shares shall be accompanied by a notation on the records of
the Company or the transfer agent to the effect that they are subject to forfeiture until such Restricted Shares are vested as
provided in Section 7(d) below, and (ii) certificated Restricted Shares shall remain in the possession of the Company until such
Restricted Shares are vested as provided in Section 7(d) below, and the grantee shall be required, as a condition of the grant, to
deliver to the Company such instruments of transfer as the Administrator may prescribe.
8
(c)
Restrictions. Restricted Shares may not be sold, assigned, transferred, pledged or otherwise encumbered or
disposed of except as specifically provided herein or in the Restricted Stock Award Certificate. Except as may otherwise be
provided by the Administrator either in the Award Certificate or, subject to Section 14 below, in writing after the Award is issued,
if a grantee’s employment (or other Service Relationship) with the Company and its Subsidiaries terminates for any reason, any
Restricted Shares that have not vested at the time of termination shall automatically and without any requirement of notice to
such grantee from or other action by or on behalf of, the Company be deemed to have been reacquired by the Company at its
original purchase price (if any) from such grantee or such grantee’s legal representative simultaneously with such termination of
employment (or other Service Relationship), and thereafter shall cease to represent any ownership of the Company by the grantee
or rights of the grantee as a stockholder. Following such deemed reacquisition of Restricted Shares that are represented by
physical certificates, a grantee shall surrender such certificates to the Company upon request without consideration.
(d)
Vesting of Restricted Shares. The Administrator at the time of grant shall specify the date or dates and/or the
attainment of pre-established performance goals, objectives and other conditions on which the non-transferability of the
Restricted Shares and the Company’s right of repurchase or forfeiture shall lapse. Subsequent to such date or dates and/or the
attainment of such pre-established performance goals, objectives and other conditions, the shares on which all restrictions have
lapsed shall no longer be Restricted Shares and shall be deemed “vested.”
SECTION 8. RESTRICTED STOCK UNITS
(a)
Nature of Restricted Stock Units. The Administrator may grant Restricted Stock Units under the Plan. A
Restricted Stock Unit is an Award of stock units that may be settled in shares of Stock (or cash, to the extent explicitly provided
for in the Award Certificate) upon the satisfaction of such restrictions and conditions at the time of grant. Conditions may be
based on continuing employment (or other Service Relationship) and/or achievement of pre-established performance goals and
objectives. The terms and conditions of each such Award shall be determined by the Administrator, and such terms and
conditions may differ among individual Awards and grantees. Except in the case of Restricted Stock Units with a deferred
settlement date that complies with Section 409A, at the end of the vesting period, the Restricted Stock Units, to the extent vested,
shall be settled in the form of shares of Stock. Restricted Stock Units with deferred settlement dates are subject to Section 409A
and shall contain such additional terms and conditions as the Administrator shall determine in its sole discretion in order to
comply with the requirements of Section 409A.
(b)
Election to Receive Restricted Stock Units in Lieu of Compensation. The Administrator may, in its sole
discretion, permit a grantee to elect to receive a portion of future cash compensation otherwise due to such grantee in the form of
an award of Restricted Stock Units. Any such election shall be made in writing and shall be delivered to the Company no later
than the date specified by the Administrator and in accordance with Section 409A and such other rules and procedures
established by the Administrator. Any such future cash compensation that the grantee elects to defer shall be converted to a fixed
number of Restricted Stock Units based on the Fair Market Value of Stock on the date the compensation would otherwise have
been paid to the grantee if such payment had not been deferred as provided herein. The Administrator shall
9
have the sole right to determine whether and under what circumstances to permit such elections and to impose such limitations
and other terms and conditions thereon as the Administrator deems appropriate. Any Restricted Stock Units that are elected to be
received in lieu of cash compensation shall be fully vested, unless otherwise provided in the Award Certificate.
(c)
Rights as a Stockholder. A grantee shall have the rights as a stockholder only as to shares of Stock acquired
by the grantee upon settlement of Restricted Stock Units; provided, however, that the grantee may be credited with Dividend
Equivalent Rights with respect to the stock units underlying the grantee’s Restricted Stock Units, subject to the provisions of
Section 10 and such terms and conditions as the Administrator may determine.
(d)
Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or,
subject to Section 14 below, in writing after the Award is issued, a grantee’s right in all Restricted Stock Units that have not
vested shall automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the
Company and its Subsidiaries for any reason.
SECTION 9. UNRESTRICTED STOCK AWARDS
Grant or Sale of Unrestricted Stock. The Administrator may grant (or sell at par value or such higher purchase price
determined by the Administrator) an Unrestricted Stock Award under the Plan. An Unrestricted Stock Award is an Award
pursuant to which the grantee may receive shares of Stock free of any restrictions under the Plan. Unrestricted Stock Awards
may be granted in respect of past services or other valid consideration, or in lieu of cash compensation due to such grantee.
SECTION 10. DIVIDEND EQUIVALENT RIGHTS
(a)
Dividend Equivalent Rights. The Administrator may grant Dividend Equivalent Rights under the Plan. A
Dividend Equivalent Right is an Award entitling the grantee to receive credits based on cash dividends that would have been paid
on the shares of Stock specified in the Dividend Equivalent Right (or other Award to which it relates) if such shares had been
issued to the grantee. A Dividend Equivalent Right may be granted hereunder to any grantee as a component of an award of
Restricted Stock Units or as a freestanding award under the Plan. The terms and conditions of Dividend Equivalent Rights shall
be specified in the Award Certificate. Dividend equivalents credited to the holder of a Dividend Equivalent Right may be paid
currently or may be deemed to be reinvested in additional shares of Stock, which may thereafter accrue additional
equivalents. Any such reinvestment shall be at Fair Market Value on the date of reinvestment or such other price as may then
apply under a dividend reinvestment plan sponsored by the Company, if any. Dividend Equivalent Rights may be settled in cash
or shares of Stock or a combination thereof, in a single installment or installments. A Dividend Equivalent Right granted as a
component of an Award of Restricted Stock Units shall provide that such Dividend Equivalent Right shall be settled only upon
settlement or payment of, or lapse of restrictions on, such other Award, and that such Dividend Equivalent Right shall expire or
be forfeited or annulled under the same conditions as such other Award.
10
(b)
Termination. Except as may otherwise be provided by the Administrator either in the Award Certificate or,
subject to Section 14 below, in writing after the Award is issued, a grantee’s rights in all Dividend Equivalent Rights shall
automatically terminate upon the grantee’s termination of employment (or cessation of Service Relationship) with the Company
and its Subsidiaries for any reason.
SECTION 11. TRANSFERABILITY OF AWARDS
(a)
Transferability. Except as provided in Section 11(b) below, during a grantee’s lifetime, his or her Awards
shall be exercisable only by the grantee, or by the grantee’s legal representative or guardian in the event of the grantee’s
incapacity. No Awards shall be sold, assigned, transferred or otherwise encumbered or disposed of by a grantee other than by
will or by the laws of descent and distribution or pursuant to a domestic relations order. No Awards shall be subject, in whole or
in part, to attachment, execution, or levy of any kind, and any purported transfer in violation hereof shall be null and void.
(b)
Administrator Action. Notwithstanding Section 11(a), the Administrator, in its discretion, may provide either
in the Award Certificate regarding a given Award or by subsequent written approval that the grantee (who is an employee) may
transfer his or her Stock Options to his or her immediate family members, to trusts for the benefit of such family members, or to
partnerships in which such family members are the only partners, provided that the transferee agrees in writing with the Company
to be bound by all of the terms and conditions of this Plan and the applicable Award. In no event may an Award be transferred by
a grantee for value.
(c)
Family Member. For purposes of Section 11(b), “family member” shall mean a grantee’s child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-
law, daughter-in-law, brother-in-law, or sister-in-law, including adoptive relationships, any person sharing the grantee’s household
(other than a tenant of the grantee), a trust in which these persons (or the grantee) have more than 50 percent of the beneficial
interest, a foundation in which these persons (or the grantee) control the management of assets, and any other entity in which
these persons (or the grantee) own more than 50 percent of the voting interests.
(d)
Designation of Beneficiary. To the extent permitted by the Administrator, each grantee to whom an Award
has been made under the Plan may designate a beneficiary or beneficiaries to exercise any Award or receive any payment under
any Award payable on or after the grantee’s death. Any such designation shall be on a form provided for that purpose by the
Administrator and shall not be effective until received by the Administrator. If no beneficiary has been designated by a deceased
grantee, or if the designated beneficiaries have predeceased the grantee, the beneficiary shall be the grantee’s estate.
SECTION 12. TAX WITHHOLDING
(a)
Payment by Grantee. Each grantee shall, no later than the date as of which the value of an Award or of any
Stock or other amounts received thereunder first becomes includable in the gross income of the grantee for Federal income tax
purposes, pay to the
11
Company, or make arrangements satisfactory to the Administrator regarding payment of, any Federal, state, or local taxes of any
kind required by law to be withheld by the Company with respect to such income. The Company and its Subsidiaries shall, to the
extent permitted by law, have the right to deduct any such taxes from any payment of any kind otherwise due to the grantee. The
Company’s obligation to deliver evidence of book entry (or stock certificates) to any grantee is subject to and conditioned on tax
withholding obligations being satisfied by the grantee.
(b)
Payment in Stock. Subject to approval by the Administrator, a grantee may elect to have the Company’s
required tax withholding obligation satisfied, in whole or in part, by authorizing the Company to withhold from shares of Stock to
be issued pursuant to any Award a number of shares with an aggregate Fair Market Value (as of the date the withholding is
effected) that would satisfy the withholding amount due; provided, however, that the amount withheld does not exceed the
maximum statutory tax rate or such lesser amount as is necessary to avoid liability accounting treatment. The Administrator may
also require Awards to be subject to mandatory share withholding up to the required withholding amount. For purposes of share
withholding, the Fair Market Value of withheld shares shall be determined in the same manner as the value of Stock includible in
income of the participants. The required tax withholding obligation may also be satisfied, in whole or in part, by an arrangement
whereby a certain number of shares of Stock issued pursuant to any Award are immediately sold and proceeds from such sale are
remitted to the Company in an amount that would satisfy the withholding amount due.
SECTION 13. SECTION 409A AWARDS
To the extent that any Award is determined to constitute “nonqualified deferred compensation” within the meaning of
Section 409A (a “409A Award”), the Award shall be subject to such additional rules and requirements as specified by the
Administrator from time to time in order to comply with Section 409A. In this regard, if any amount under a 409A Award is
payable upon a “separation from service” (within the meaning of Section 409A) to a grantee who is then considered a “specified
employee” (within the meaning of Section 409A), then no such payment shall be made prior to the date that is the earlier of (i)
six months and one day after the grantee’s separation from service, or (ii) the grantee’s death, but only to the extent such delay is
necessary to prevent such payment from being subject to interest, penalties and/or additional tax imposed pursuant to Section
409A. Further, the settlement of any 409A Award may not be accelerated except to the extent permitted by Section 409A.
SECTION 14. TERMINATION OF EMPLOYMENT, TRANSFER, LEAVE OF ABSENCE, ETC.
(a)
Termination of Employment. If the grantee’s Service Relationship is with a Subsidiary and such Subsidiary
ceases to be a Subsidiary, the grantee shall be deemed to have terminated his or her Service Relationship for purposes of the
Plan.
(b)
For purposes of the Plan, the following events shall not be deemed a termination of employment:
12
Subsidiary, or from one Subsidiary to another; or
(i)
a transfer to the employment of the Company from a Subsidiary or from the Company to a
(ii)
an approved leave of absence for military service or sickness, or for any other purpose approved by
the Company, if the employee’s right to re-employment is guaranteed either by a statute or by contract or under the policy
pursuant to which the leave of absence was granted or if the Administrator otherwise so provides in writing.
SECTION 15. AMENDMENTS AND TERMINATION
The Board may, at any time, amend or discontinue the Plan and the Administrator may, at any time, amend or cancel
any outstanding Award for the purpose of satisfying changes in law or for any other lawful purpose, but no such action shall
adversely affect rights under any outstanding Award without the holder’s consent. Except as provided in Section 3(b) or 3(c),
without prior stockholder approval, in no event may the Administrator exercise its discretion to reduce the exercise price of
outstanding Stock Options or Stock Appreciation Rights or effect repricing through cancellation and re-grants or cancellation of
Stock Options or Stock Appreciation Rights in exchange for cash or other Awards. Nothing in this Section 15 shall limit the
Administrator’s authority to take any action permitted pursuant to Section 3(b) or 3(c).
SECTION 16. STATUS OF PLAN
With respect to the portion of any Award that has not been settled or exercised and any payments in cash, Stock or other
consideration not received by a grantee, a grantee shall have no rights greater than those of a general creditor of the Company
unless the Administrator shall otherwise expressly determine in connection with any Award or Awards. In its sole discretion, the
Administrator may authorize the creation of trusts or other arrangements to meet the Company’s obligations to deliver Stock or
make payments with respect to Awards hereunder, provided that the existence of such trusts or other arrangements is consistent
with the foregoing sentence.
SECTION 17. GENERAL PROVISIONS
(a)
No Distribution. The Administrator may require each person acquiring Stock pursuant to an Award to
represent to and agree with the Company in writing that such person is acquiring the shares without a view to distribution thereof.
(b)
Issuance of Stock. To the extent certificated, stock certificates to grantees under this Plan shall be deemed
delivered for all purposes when the Company or a stock transfer agent of the Company shall have mailed such certificates in the
United States mail, addressed to the grantee, at the grantee’s last known address on file with the Company. Uncertificated Stock
shall be deemed delivered for all purposes when the Company or a Stock transfer agent of the Company shall have given to the
grantee by electronic mail (with proof of receipt) or by United States mail, addressed to the grantee, at the grantee’s last known
address on file with the Company, notice of issuance and recorded the issuance in its records (which may include electronic
“book entry” records). Notwithstanding anything herein to the contrary, the Company shall not be required to issue or deliver
any evidence of book entry or certificates evidencing shares of Stock pursuant to the exercise or settlement of any Award, unless
and until the
13
Administrator has determined, with advice of counsel (to the extent the Administrator deems such advice necessary or advisable),
that the issuance and delivery is in compliance with all applicable laws, regulations of governmental authorities and, if
applicable, the requirements of any exchange on which the shares of Stock are listed, quoted or traded. Any Stock issued
pursuant to the Plan shall be subject to any stop-transfer orders and other restrictions as the Administrator deems necessary or
advisable to comply with federal, state or foreign jurisdiction, securities or other laws, rules and quotation system on which the
Stock is listed, quoted or traded. The Administrator may place legends on any Stock certificate or notations on any book entry to
reference restrictions applicable to the Stock. In addition to the terms and conditions provided herein, the Administrator may
require that an individual make such reasonable covenants, agreements, and representations as the Administrator, in its discretion,
deems necessary or advisable in order to comply with any such laws, regulations, or requirements. The Administrator shall have
the right to require any individual to comply with any timing or other restrictions with respect to the settlement or exercise of any
Award, including a window-period limitation, as may be imposed in the discretion of the Administrator.
(c)
Stockholder Rights. Until Stock is deemed delivered in accordance with Section 18(b), no right to vote or
receive dividends or any other rights of a stockholder will exist with respect to shares of Stock to be issued in connection with an
Award, notwithstanding the exercise of a Stock Option or any other action by the grantee with respect to an Award.
(d)
Other Compensation Arrangements; No Employment Rights. Nothing contained in this Plan shall prevent
the Board from adopting other or additional compensation arrangements, including trusts, and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of this Plan and the grant of Awards do not confer upon
any employee any right to continued employment with the Company or any Subsidiary.
(e)
Trading Policy Restrictions. Option exercises and other Awards under the Plan shall be subject to the
Company’s insider trading policies and procedures, as in effect from time to time.
(f)
Clawback Policy. Awards under the Plan shall be subject to the Company’s clawback policy, as in effect
from time to time.
SECTION 18. EFFECTIVE DATE OF PLAN
This Plan shall become effective immediately upon approval by the Board.
SECTION 19. GOVERNING LAW
This Plan and all Awards and actions taken thereunder shall be governed by, and construed in accordance with the
General Corporation Law of the State of Delaware as to matters within the scope thereof, and as to all other matters shall be
governed by and construed in accordance with the internal laws of the State of Delaware, applied without regard to conflict of
law principles.
DATE APPROVED BY BOARD OF DIRECTORS: December 9, 2020.
14
NON-QUALIFIED STOCK OPTION AGREEMENT
FOR COMPANY EMPLOYEES
UNDER THE AVROBIO, INC.
2020 Inducement PLAN
Name of Optionee:
No. of Option Shares:
Option Exercise Price per Share:
$
Grant Date:
Expiration Date:
Pursuant to the AVROBIO, Inc. 2020 Inducement Plan as amended through the date hereof (the “Plan”), AVROBIO,
Inc. (the “Company”) hereby grants to the Optionee named above an option (the “Stock Option”) to purchase on or prior to the
Expiration Date specified above all or part of the number of shares of Common Stock, par value $0.0001 per share (the “Stock”)
of the Company specified above at the Option Exercise Price per Share specified above subject to the terms and conditions set
forth herein and in the Plan. For the avoidance of doubt, this Stock Option is not issued under the Company’s 2018 Stock Option
and Incentive Plan, as amended from time to time, and does not reduce the share reserve under such equity plan. This Stock
Option has been granted as an inducement pursuant to Rule 5635(c)(4) of the Marketplace Rules of the Nasdaq Stock Market,
Inc. This Stock Option is not intended to be an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986,
as amended.
SECTION 1.
Exercisability Schedule. No portion of this Stock Option may be exercised until such portion shall have
become exercisable. Except as set forth below, and subject to the discretion of the Administrator to accelerate
the exercisability schedule hereunder, this Stock Option shall be exercisable with respect to the following
number of Option Shares on the dates indicated so long as Optionee continues to have a Service Relationship
with the Company or a Subsidiary on such dates:
Incremental Number of
Option Shares Exercisable
_____________ (___%)
_____________ (___%)
_____________ (___%)
_____________ (___%)
_____________ (___%)
Exercisability Date
____________
____________
____________
____________
____________
Once exercisable, this Stock Option shall continue to be exercisable at any time or times prior to the close of business
on the Expiration Date, subject to the provisions hereof and of the Plan.
SECTION 2.
Manner of Exercise.
(a)
The Optionee may exercise this Stock Option only in the following manner: from time to time on or prior to
the Expiration Date of this Stock Option, the Optionee may give written notice to the Administrator of his or her election to
purchase some or all of the Option Shares purchasable at the time of such notice. This notice shall specify the number of Option
Shares to be purchased.
Payment of the purchase price for the Option Shares may be made by one or more of the following methods: (i) in
cash, by certified or bank check or other instrument acceptable to the Administrator; (ii) through the delivery (or attestation to the
ownership) of shares of Stock that have been purchased by the Optionee on the open market or that are beneficially owned by the
Optionee and are not then subject to any restrictions under any Company plan and that otherwise satisfy any holding periods as
may be required by the Administrator; (iii) by the Optionee delivering to the Company a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the Company cash or a check payable and acceptable to
the Company to pay the option purchase price, provided that in the event the Optionee chooses to pay the option purchase price
as so provided, the Optionee and the broker shall comply with such procedures and enter into such agreements of indemnity and
other agreements as the Administrator shall prescribe as a condition of such payment procedure; (iv) by a “net exercise”
arrangement pursuant to which the Company will reduce the number of shares of Stock issuable upon exercise by the largest
whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; or (v) a combination of (i),
(ii), (iii) and (iv) above. Payment instruments will be received subject to collection.
The transfer to the Optionee on the records of the Company or of the transfer agent of the Option Shares will be
contingent upon (i) the Company’s receipt from the Optionee of the full purchase price for the Option Shares, as set forth above,
(ii) the fulfillment of any other requirements contained herein or in the Plan or in any other agreement or provision of laws, and
(iii) the receipt by the Company of any agreement, statement or other evidence that the Company may require to satisfy itself that
the issuance of Stock to be purchased pursuant to the exercise of Stock Options under the Plan and any subsequent resale of the
shares of Stock will be in compliance with applicable laws and regulations. In the event the Optionee chooses to pay the
purchase price by previously-owned shares of Stock through the attestation method, the number of shares of Stock transferred to
the Optionee upon the exercise of the Stock Option shall be net of the Shares attested to.
(b)
The shares of Stock purchased upon exercise of this Stock Option shall be transferred to the Optionee on the
records of the Company or of the transfer agent upon compliance to the satisfaction of the Administrator with all requirements
under applicable laws or regulations in connection with such transfer and with the requirements hereof and of the Plan. The
determination of the Administrator as to such compliance shall be final and binding on the Optionee. The Optionee shall not be
deemed to be the holder of, or to have any of the rights of a
2
holder with respect to, any shares of Stock subject to this Stock Option unless and until this Stock Option shall have been
exercised pursuant to the terms hereof, the Company or the transfer agent shall have transferred the shares to the Optionee, and
the Optionee’s name shall have been entered as the stockholder of record on the books of the Company. Thereupon, the Optionee
shall have full voting, dividend and other ownership rights with respect to such shares of Stock.
(c)
The minimum number of shares with respect to which this Stock Option may be exercised at any one time
shall be 100 shares, unless the number of shares with respect to which this Stock Option is being exercised is the total number of
shares subject to exercise under this Stock Option at the time.
(d)
Notwithstanding any other provision hereof or of the Plan, no portion of this Stock Option shall be
exercisable after the Expiration Date hereof.
SECTION 3.
Termination of Service Relationship. If the Optionee’s Service Relationship by the Company or a Subsidiary
(as defined in the Plan) is terminated, the period within which to exercise the Stock Option may be subject to
earlier termination as set forth below.
(a)
Termination Due to Death. If the Optionee’s Service Relationship terminates by reason of the Optionee’s
death, any portion of this Stock Option outstanding on such date, to the extent exercisable on the date of death, may thereafter be
exercised by the Optionee’s legal representative or legatee for a period of 12 months from the date of death or until the Expiration
Date, if earlier. Any portion of this Stock Option that is not exercisable on the date of death shall terminate immediately and be
of no further force or effect.
(b)
Termination Due to Disability. If the Optionee’s Service Relationship terminates by reason of the Optionee’s
disability (as determined by the Administrator), any portion of this Stock Option outstanding on such date, to the extent
exercisable on the date of such termination of Service Relationship, may thereafter be exercised by the Optionee for a period of
12 months from the date of disability or until the Expiration Date, if earlier. Any portion of this Stock Option that is not
exercisable on the date of disability shall terminate immediately and be of no further force or effect.
(c)
Termination for Cause. If the Optionee’s Service Relationship terminates for Cause, any portion of this
Stock Option outstanding on such date shall terminate immediately and be of no further force and effect. For purposes hereof,
“Cause” shall mean, unless otherwise provided in an employment agreement (or similar services agreements) between the
Company and the Optionee, a determination by the Administrator that the Optionee shall be dismissed as a result of (i) any
material breach by the Optionee of any agreement between the Optionee and the Company; (ii) the conviction of, indictment for
or plea of nolo contendere by the Optionee to a felony or a crime involving moral turpitude; or (iii) any material misconduct or
willful and deliberate non-performance (other than by reason of disability) by the Optionee of the Optionee’s duties to the
Company.
(d)
Other Termination. If the Optionee’s Service Relationship terminates for any reason other than the
Optionee’s death, the Optionee’s disability or Cause, and unless otherwise
3
determined by the Administrator, any portion of this Stock Option outstanding on such date may be exercised, to the extent
exercisable on the date of termination, for a period of three months from the date of termination or until the Expiration Date, if
earlier. Any portion of this Stock Option that is not exercisable on the date of termination shall terminate immediately and be of
no further force or effect.
The Administrator’s determination of the reason for termination of the Optionee’s Service Relationship shall be
conclusive and binding on the Optionee and his or her representatives or legatees.
SECTION 4.
SECTION 5.
SECTION 6.
SECTION 7.
SECTION 8.
SECTION 9.
Incorporation of Plan. Notwithstanding anything herein to the contrary, this Stock Option shall be subject to
and governed by all the terms and conditions of the Plan, including the powers of the Administrator set forth
in Section 2(b) of the Plan. Capitalized terms in this Agreement shall have the meaning specified in the Plan,
unless a different meaning is specified herein.
Transferability. This Agreement is personal to the Optionee, is non-assignable and is not transferable in any
manner, by operation of law or otherwise, other than by will or the laws of descent and distribution. This
Stock Option is exercisable, during the Optionee’s lifetime, only by the Optionee, and thereafter, only by the
Optionee’s legal representative or legatee.
Tax Withholding. The Optionee shall, not later than the date as of which the exercise of this Stock Option
becomes a taxable event for Federal income tax purposes, pay to the Company or make arrangements
satisfactory to the Administrator for payment of any Federal, state, and local taxes required by law to be
withheld on account of such taxable event. The Company shall have the authority to cause the required tax
withholding obligation to be satisfied, in whole or in part, by withholding from shares of Stock to be issued to
the Optionee a number of shares of Stock with an aggregate Fair Market Value that would satisfy the
withholding amount due; provided, however, that the amount withheld does not exceed the maximum
statutory tax rate or such lesser amount as is necessary to avoid adverse accounting treatment or as
determined by the Administrator.
No Obligation to Continue Service Relationship. Neither the Company nor any Subsidiary is obligated by or
as a result of the Plan or this Agreement to continue the Optionee’s Service Relationship and neither the Plan
nor this Agreement shall interfere in any way with the right of the Company or any Subsidiary to terminate
the Service Relationship of the Optionee at any time.
Integration. This Agreement constitutes the entire agreement between the parties with respect to this Stock
Option and supersedes all prior agreements and discussions between the parties concerning such subject
matter.
Data Privacy Consent. In order to administer the Plan and this Agreement and to implement or structure
future equity grants, the Company, its subsidiaries and affiliates and certain agents thereof (together, the
“Relevant Companies”) may
4
process any and all personal or professional data, including but not limited to Social Security or other
identification number, home address and telephone number, date of birth and other information that is
necessary or desirable for the administration of the Plan and/or this Agreement (the “Relevant
Information”). By entering into this Agreement, the Optionee (i) authorizes the Company to collect, process,
register and transfer to the Relevant Companies all Relevant Information; (ii) waives any privacy rights the
Optionee may have with respect to the Relevant Information; (iii) authorizes the Relevant Companies to store
and transmit such information in electronic form; and (iv) authorizes the transfer of the Relevant Information
to any jurisdiction in which the Relevant Companies consider appropriate. The Optionee shall have access to,
and the right to change, the Relevant Information. Relevant Information will only be used in accordance with
applicable law.
SECTION 10.
Notices. Notices hereunder shall be mailed or delivered to the Company at its principal place of business and
shall be mailed or delivered to the Optionee at the address on file with the Company or, in either case, at such
other address as one party may subsequently furnish to the other party in writing.
[Remainder of page intentionally blank]
5
AVROBIO, INC.
By:
Title:
The foregoing Agreement is hereby accepted and the terms and conditions thereof hereby agreed to by the
undersigned. Electronic acceptance of this Agreement pursuant to the Company’s instructions to the Optionee (including through
an online acceptance process) is acceptable.
Dated:
Optionee’s Signature
Optionee’s name and address:
6
Subsidiary
AVROBIO Inc.
AVROBIO Australia Pty Ltd
AVROBIO Securities Corporation
List of Subsidiaries
Jurisdiction of incorporation or organization
Ontario, Canada
Australia
Massachusetts
Exhibit 21.1
Exhibit 23.1
We consent to the incorporation by reference in the following Registration Statements:
Consent of Independent Registered Public Accounting Firm
(1) Registration Statement (Form S-8 No. 333-225788) pertaining to the Amended and Restated 2015 Stock Option and
Grant Plan, the 2018 Stock Option and Incentive Plan, and the 2018 Employee Stock Purchase Plan of AVROBIO, Inc.,
(2) Registration Statement (Form S-8 No. 333-230493) pertaining to the Inducement Stock Option Agreement of
AVROBIO, Inc.,
(3) Registration Statement (Form S-8 No. 333-230494) pertaining to the 2018 Stock Option and Incentive Plan and the
2018 Employee Stock Purchase Plan of AVROBIO, Inc.,
(4) Registration Statement (Form S-3 No. 333-232489) of AVROBIO, Inc.,
(5) Registration Statement (Form S-8 No. 333-234641) pertaining to the Inducement Stock Option Agreement of
AVROBIO, Inc.,
(6) Registration Statement (Form S-3 No. 333-235641) of AVROBIO, Inc.,
(7) Registration Statement (Form S-8 No. 333-235643) pertaining to the 2019 Inducement Plan and the Inducement Stock
Option Agreement of AVROBIO, Inc.,
(8) Registration Statement (Form S-8 No. 333-237203) pertaining to the 2018 Stock Option and Incentive Plan and the
2018 Employee Stock Purchase Plan of AVROBIO, Inc., and
(9) Registration Statement (Form S-8 No. 333-241400) pertaining to the 2018 Stock Option and Incentive Plan of
AVROBIO, Inc.;
of our report dated March 18, 2021, with respect to the consolidated financial statements of AVROBIO, Inc. included in this
Annual Report (Form 10-K) of AVROBIO, Inc. for the year ended December 31, 2020.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 18, 2021
CERTIFICATION 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
Exhibit 31.1
I, Geoff MacKay, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of AVROBIO, Inc.;
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;
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;
The registrant’s other certifying officer(s) 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)
(b)
(c)
(d)
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;
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;
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
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(s) 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)
(b)
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
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 18, 2021
By:
/s/ Geoff MacKay
Geoff MacKay
Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION 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
Exhibit 31.2
I, Erik Ostrowski, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of AVROBIO, Inc.;
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;
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;
The registrant’s other certifying officer(s) 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)
(b)
(c)
(d)
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;
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;
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
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(s) 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)
(b)
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
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 18, 2021
By:
/s/ Erik Ostrowski
Erik Ostrowski
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Exhibit 32.1
In connection with the Annual Report of AVROBIO, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2020 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company certifies, pursuant to 18 U.S.C. §
1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, to the best of his or her knowledge that:
(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
Date: March 18, 2021
Date: March 18, 2021
By:
By:
/s/ Geoff MacKay
Geoff MacKay
Chief Executive Officer
(Principal Executive Officer)
/s/ Erik Ostrowski
Erik Ostrowski
Chief Financial Officer
(Principal Financial Officer)