arav-10q_20200930.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                  to                 

Commission file number: 001-36361

 

Aravive, Inc.

(Exact Name of Registrant as Specified in Its Charter)

 

 

Delaware

 

2834

 

26-4106690

(State or Other Jurisdiction of

Incorporation or Organization)

 

(Primary Standard Industrial

Classification Code Number)

 

 

(I.R.S. Employer

Identification Number)

River Oaks Tower

3730 Kirby Drive, Suite 1200

Houston, Texas 77098

(Address of principal executive offices)

(936) 355-1910

(Registrant’s Telephone Number, including area code)       

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common stock, par value $0.0001 per share

 

ARAV

 

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of October 30, 2020, there were 16,087,266 outstanding shares of common stock, par value $0.0001 per share, of Aravive, Inc.

 

 

 

 


 

ARAVIVE, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

PART I. FINANCIAL INFORMATION

 

Item

  

 

  

Page

1.

  

Financial Statements (unaudited):

  

 

 

  

a. Condensed Consolidated Balance Sheets at September 30, 2020 and December 31, 2019

  

3

 

  

b. Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2020 and 2019

  

4

 

 

c. Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2020 and 2019

 

5

 

  

d. Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019

  

6

 

  

e. Notes to Condensed Consolidated Financial Statements

  

7

2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

19

3.

  

Quantitative and Qualitative Disclosures About Market Risk

  

25

4.

  

Controls and Procedures

  

26

 

PART II. OTHER INFORMATION

1.

  

Legal Proceedings

  

27

1A.

  

Risk Factors

  

27

6.

  

Exhibits

  

33

 

 

Signatures

 

34

 

 

 

2

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ARAVIVE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

 

 

September 30,

 

 

December 31,

 

 

2020

 

 

2019

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

53,967

 

 

$

65,134

 

Prepaid expenses and other current assets

 

1,469

 

 

 

3,079

 

Total current assets

 

55,436

 

 

 

68,213

 

Restricted cash

 

2,430

 

 

 

2,423

 

Property and equipment, net

 

561

 

 

 

1,808

 

Operating lease right-of-use assets

 

2,651

 

 

 

8,697

 

Intangible asset, net

 

126

 

 

 

219

 

Other assets

 

26

 

 

 

761

 

Total assets

$

61,230

 

 

$

82,121

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

1,693

 

 

$

1,078

 

Accrued liabilities

 

1,469

 

 

 

1,497

 

Operating lease obligation, current portion

 

1,715

 

 

 

2,393

 

Total current liabilities

 

4,877

 

 

 

4,968

 

Contingent payable

 

295

 

 

 

264

 

Operating lease obligation

 

6,692

 

 

 

7,840

 

Total liabilities

 

11,864

 

 

 

13,072

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders' equity

 

 

 

 

 

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized at

   September 30, 2020 and December 31, 2019; 16,087,266 and 15,001,795 shares

   issued and outstanding at September 30, 2020 and December 31, 2019, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

545,972

 

 

 

539,158

 

Accumulated deficit

 

(496,608

)

 

 

(470,111

)

Total stockholders' equity

 

49,366

 

 

 

69,049

 

Total liabilities and stockholders’ equity

$

61,230

 

 

$

82,121

 

 

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

 

 

3

 


 

ARAVIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

(in thousands, except per share data)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Grant revenue

$

 

 

$

 

 

$

 

 

$

4,753

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

5,070

 

 

 

3,840

 

 

 

11,085

 

 

 

10,325

 

General and administrative

 

2,715

 

 

 

3,158

 

 

 

9,866

 

 

 

11,039

 

Loss on impairment of long-lived assets

 

2,914

 

 

 

 

 

 

5,784

 

 

 

 

Total operating expenses

 

10,699

 

 

 

6,998

 

 

 

26,735

 

 

 

21,364

 

Loss from operations

 

(10,699

)

 

 

(6,998

)

 

 

(26,735

)

 

 

(16,611

)

Interest income

 

8

 

 

 

232

 

 

 

251

 

 

 

811

 

Other income (expense), net

 

31

 

 

 

624

 

 

 

(13

)

 

 

1,910

 

Net loss

$

(10,660

)

 

$

(6,142

)

 

$

(26,497

)

 

$

(13,890

)

Net loss per share - basic and diluted

$

(0.66

)

 

$

(0.54

)

 

$

(1.69

)

 

$

(1.23

)

Weighted-average common shares used to compute

   basic and diluted net loss per share

 

16,055

 

 

 

11,285

 

 

 

15,658

 

 

 

11,280

 

 

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

 

4

 


 

ARAVIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(unaudited)

(in thousands, except share data)

 

 

Three and Nine Months Ended

 

 

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2020

 

 

15,001,795

 

 

$

2

 

 

$

539,158

 

 

$

(470,111

)

 

$

69,049

 

Issuance of common stock upon exercise of

   options

 

 

5,645

 

 

 

 

 

 

33

 

 

 

 

 

 

33

 

Issuance of common stock under employee

   benefit plans

 

 

8,492

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

717

 

 

 

 

 

 

717

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,796

)

 

 

(10,796

)

Balances at March 31, 2020

 

 

15,015,932

 

 

 

2

 

 

 

539,908

 

 

 

(480,907

)

 

 

59,003

 

Issuance of common stock in private placement, net of issuance costs of $78

 

 

931,098

 

 

 

 

 

 

4,922

 

 

 

 

 

 

4,922

 

Issuance of common stock upon exercise of

   options

 

 

13,844

 

 

 

 

 

 

53

 

 

 

 

 

 

53

 

Issuance of common stock under employee

   benefit plans

 

 

35,303

 

 

 

 

 

 

22

 

 

 

 

 

 

22

 

Stock-based compensation

 

 

 

 

 

 

 

 

488

 

 

 

 

 

 

488

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,041

)

 

 

(5,041

)

Balances at June 30, 2020

 

 

15,996,177

 

 

 

2

 

 

 

545,393

 

 

 

(485,948

)

 

 

59,447

 

Issuance of common stock upon exercise of

   options

 

 

91,089

 

 

 

 

 

 

203

 

 

 

 

 

 

203

 

Stock-based compensation

 

 

 

 

 

 

 

 

376

 

 

 

 

 

 

376

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(10,660

)

 

 

(10,660

)

Balances at September 30, 2020

 

 

16,087,266

 

 

$

2

 

 

$

545,972

 

 

$

(496,608

)

 

$

49,366

 

 

 

Three and Nine Months Ended

 

 

 

September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balances at January 1, 2019

 

 

11,266,151

 

 

$

1

 

 

$

510,509

 

 

$

(450,565

)

 

$

59,945

 

Issuance of common stock under employee

   benefit plans

 

 

10,349

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

1,048

 

 

 

 

 

 

1,048

 

Cumulative-effect adjustment to equity due to

   adoption of ASU 2016-02

 

 

 

 

 

 

 

 

 

 

 

(1,328

)

 

 

(1,328

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,704

)

 

 

(4,704

)

Balances at March 31, 2019

 

 

11,276,500

 

 

 

1

 

 

 

511,557

 

 

 

(456,597

)

 

 

54,961

 

Issuance of common stock upon exercise of

   options

 

 

2,000

 

 

 

 

 

 

2

 

 

 

 

 

 

2

 

Issuance of common stock under employee

   benefit plans

 

 

6,080

 

 

 

 

 

 

11

 

 

 

 

 

 

11

 

Stock-based compensation

 

 

 

 

 

 

 

 

941

 

 

 

 

 

 

941

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,044

)

 

 

(3,044

)

Balances at June 30, 2019

 

 

11,284,580

 

 

 

1

 

 

 

512,511

 

 

 

(459,641

)

 

 

52,871

 

Issuance of common stock under employee

   benefit plans

 

 

384

 

 

 

 

 

 

1

 

 

 

 

 

 

1

 

Stock-based compensation

 

 

 

 

 

 

 

 

800

 

 

 

 

 

 

800

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(6,142

)

 

 

(6,142

)

Balances at September 30, 2019

 

 

11,284,964

 

 

$

1

 

 

$

513,312

 

 

$

(465,783

)

 

$

47,530

 

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

5

 


 

ARAVIVE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

(in thousands)

 

 

Nine Months Ended

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

2020

 

 

2019

 

Cash flows from operating activities

 

 

 

 

 

 

 

Net loss

$

(26,497

)

 

$

(13,890

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

1,602

 

 

 

373

 

Impairment of long-lived assets

 

5,784

 

 

 

 

Stock-based compensation expense

 

1,581

 

 

 

2,789

 

Write-off lease receivable/prepaid commission assets

 

1,383

 

 

 

 

Changes in assets and liabilities

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

962

 

 

 

(2,892

)

Accounts payable

 

615

 

 

 

1,938

 

Deferred revenue

 

 

 

 

(146

)

Accrued and other liabilities

 

(1,823

)

 

 

(181

)

Net cash used in operating activities

 

(16,393

)

 

 

(12,009

)

Cash flows from financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock in connection with employee benefit plans

 

311

 

 

 

14

 

Proceeds from issuance of common stock in private placement

 

4,922

 

 

 

 

Net cash provided by financing activities

 

5,233

 

 

 

14

 

Net change in cash, cash equivalents, and restricted cash

 

(11,160

)

 

 

(11,995

)

Cash, cash equivalents, and restricted cash at beginning of period

 

67,557

 

 

 

59,388

 

Cash, cash equivalents, and restricted cash at end of period

$

56,397

 

 

$

47,393

 

 

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

 

 

6

 


 

ARAVIVE, INC

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

 

1. Formation and Business of the Company

Aravive, Inc. (“Aravive” or the “Company”) was incorporated on December 10, 2008 in the State of Delaware. Aravive is a clinical-stage oncology company developing transformative treatments designed to halt the progression of life-threatening diseases. Prior to its merger with Aravive Biologics, Inc. (the “Merger”), Aravive (then known as Versartis, Inc.) was an endocrine-focused biopharmaceutical company that was developing a long-acting recombinant human growth hormone for the treatment of growth hormone deficiency. The “Company” refers to Aravive as a combined company following the completion of the Merger with Aravive Biologics, Inc. (“Private Aravive”). The Merger became effective on October 12, 2018. On October 15, 2018, Versartis, Inc. changed its name to Aravive, Inc.

The Company’s lead product candidate, AVB-500, is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway by binding GAS6. By capturing serum GAS6, AVB-500 starves the AXL pathway of its signal, potentially halting the biological programming that promotes disease progression. AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression.

The Company’s current development program benefits from the availability of a proprietary serum-based biomarker that it expects will help accelerate drug development by allowing the Company to select a pharmacologically active dose.

In the Company’s completed Phase 1 clinical trial with its clinical lead product candidate, AVB-500, the Company has demonstrated proof of mechanism for AVB-500 in neutralizing GAS6. Importantly, AVB-500 had a favorable safety profile preclinically and in the first in human trial. In December 2018, the Company initiated the Phase 1b portion of a Phase 1b/2 clinical trial of AVB-500 combined with standard of care therapies in patients with platinum-resistant ovarian cancer which the Company has successfully completed in July 2020. In August 2018, the U.S. Food and Drug Administration (“FDA”) designated as a Fast Track development program the investigation of the Company’s lead development candidate, AVB-500, for platinum-resistant recurrent ovarian cancer. In January 2020, the Company announced that the FDA has cleared its Investigational New Drug (“IND”) application for investigation of AVB-500, in the treatment of its second oncology indication, clear cell renal cell carcinoma (“ccRCC”).

With the global spread of the ongoing novel coronavirus (“COVID-19”) pandemic, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its employees and business. While the Company is experiencing limited financial impacts at this time, given the global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic, the Company’s business, financial condition, results of operations and growth prospects could be materially adversely affected. As the Company advances its clinical programs, the Company is in close contact with its clinical research organizations (“CROs”) and clinical sites and is assessing the impact of COVID-19 on its studies and current timelines and costs. With the recent and rapidly evolving impact of COVID-19 on patient recruitment in clinical trials and considering patient safety and trial integrity, Aravive has decided to amend its ccRCC trial to initiate treatment at a higher dose given the safety profile seen with the 15 mg/kg dosing cohort of the platinum resistant ovarian cancer (“PROC”) trial. While this delayed first patient dosing, the overall timelines may not be significantly impacted given the higher starting dose, assuming the COVID-19 situation does not interfere with ongoing clinical studies. The Company terminated its IgA nephropathy (“IgAN”) trial, which initiated in December 2019 in order to focus on oncology. If the COVID-19 pandemic continues and persists for an extended period of time, the Company could experience significant disruptions to its clinical development timeline, which would adversely affect its business, financial condition, results of operations and growth prospects.

In July 2016, Private Aravive was approved for a $20.0 million Product Development Award from the Cancer Prevention and Research Institute of Texas (“CPRIT Grant”). The CPRIT Grant was effective as of June 1, 2016 and terminated on November 30, 2019. Private Aravive’s royalty and other obligations, including its obligation to repay the disbursed grant proceeds under certain circumstances, survive the termination of the agreement. The CPRIT Grant is subject to customary CPRIT funding conditions including a matching funds requirement where Private Aravive matched 50% of funding from the CPRIT Grant. Consequently, Private Aravive was required to raise $10.0 million in matching funds over the three-year project. Private Aravive raised all its required $10.0 million in matching funds.

Private Aravive’s award from CPRIT requires it to pay CPRIT a portion of its revenues from sales of certain products, or received from its licensees or sublicensees, at tiered percentages of revenue in the low- to mid-single digits until the aggregate amount of such payments equals 400% of the grant award proceeds, and thereafter at a rate of less than one percent for as long as Private Aravive maintains government exclusivity. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of the full amount of the grant proceeds under certain specified circumstances involving relocation of Private Aravive’s principal place of business outside Texas.

7


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

As consideration for the rights granted as part of a license agreement with Stanford University, Private Aravive is obligated to pay yearly license fees and milestone payments, and a royalty based on net sales of products covered by the patent-related rights. More specifically, Private Aravive is obligated to pay Stanford University (i) annual license payments (ii) milestone payments of up to an aggregate of $1,000,000 upon achievement of clinical and regulatory milestones, and (iii) royalties equal to a percentage (in the low single digits) of net sales of licensed products; provided that the annual license payments made will offset (and be credited against) any royalties due in such license year. In the event of a sublicense to a third party of any rights based on the patents that are solely owned by Stanford University, Private Aravive is obligated to pay royalties to Stanford University equal to a percentage of what Private Aravive would have been required to pay to Stanford University had it sold the products under sublicense itself. In addition, in such event it is required to pay to Stanford University a percent of sublicensing income. In the event of a termination, Private Aravive will be obligated to pay all amounts that accrued prior to such termination.

 

 

Unaudited Interim Financial Information

In the opinion of the Company’s management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2020 and, its results of operations for the three and nine months ended September 30, 2020 and 2019, and cash flows for the nine month period ended September 30, 2020, and 2019. The December 31, 2019 consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States of America (“GAAP”). The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying consolidated financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K filed by the Company on March 27, 2020, with the U.S. Securities and Exchange Commission (the “SEC”).

 

 

2. Summary of Significant Accounting Policies

Basis of Presentation and Use of Estimates

The accompanying consolidated financial statements have been prepared in accordance with GAAP. The preparation of the accompanying consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.

The accompanying unaudited condensed consolidated statement of financial position as of September 30, 2020 and the results of operations for the three and nine months ended September 30, 2020 and cash flows for the nine months ended September 30, 2020 include the accounts of Aravive, Inc. and its wholly-owned subsidiary Private Aravive. The accompanying unaudited condensed consolidated statement of financial position as of December 31, 2019, the results of operations for the three and nine months ended September 30, 2019, and cash flows for the nine months period ended September 30, 2019 include the accounts of Aravive, Inc. and its wholly-owned subsidiaries, Versartis Cayman Holdings Company, incorporated in 2014, Versartis GmbH, incorporated in 2015 and Private Aravive, incorporated in 2007. After 2015, the Cayman and GmbH subsidiaries became dormant. In 2019, the Cayman and GmbH subsidiaries were liquidated in their respective countries and no longer exist as of December 31, 2019. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's subsidiaries and consolidated operations.

Liquidity and Capital Resources

Since inception, the Company has incurred net losses and negative cash flows from operations. At September 30, 2020, the Company had an accumulated deficit of $496.6 million and working capital of $50.6 million. The Company expects to continue to incur losses from costs related to the development of AVB-500 and related administrative activities for the foreseeable future. As of September 30, 2020, the Company had a cash and cash equivalents balance of approximately $54.0 million consisting of cash and investments in highly liquid U.S. money market funds. While the Company believes that its existing cash and cash equivalents will be sufficient to sustain operations for at least the next 12 months from the issuance of these financial statements, based on its current business plan, the Company will need to obtain additional financing to advance its clinical development program to later stages of development and commercialize its clinical product candidate AVB-500. Although management has been successful in raising capital in the past, there can be no assurance that the Company will be successful or that any needed financing will be available in the future at terms acceptable to the Company.

8

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

Segments

The Company operates in one segment. Management uses one measurement of performance and does not segregate its business for internal reporting. All long-lived assets are maintained in the United States of America.

 

Concentration of credit risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. All of the Company’s cash and cash equivalents are held at several financial institutions that management believes are of high credit quality. Such deposits may exceed federally insured limits.

 

Risk and Uncertainties

The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, including due to the COVID-19 pandemic, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.

Products developed by the Company require clearances from the FDA, the Pharmaceuticals Medicines and Devices Agency (“PMDA”), or other international regulatory agencies prior to commercial sales. There can be no assurance that the products will receive the necessary clearances. If the Company is denied clearance, clearance is delayed or the Company is unable to maintain clearance, it could have a material adverse impact on the Company.

The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to launch and commercialize any product candidates for which it receives regulatory approval.

In March 2020, the World Health Organization declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies, and financial markets globally, potentially leading to an economic downturn. It has also disrupted the normal operations of many businesses. With the global spread of the ongoing COVID-19 pandemic in the first quarter of 2020, the Company has implemented business continuity plans designed to address and mitigate the impact of the COVID-19 pandemic on its business.  The Company anticipates that the COVID-19 pandemic will have an impact on the clinical development timeline of AVB-500.  The extent to which the COVID-19 pandemic impacts the Company’s business, the clinical development of AVB-500, the business of the Company’s suppliers and other commercial partners, the Company’s corporate development objectives and the value of and market for the Company’s common stock, will depend on future developments that are highly uncertain and cannot be predicted with confidence at this time, such as the ultimate duration of the pandemic, travel restrictions, quarantines, social distancing and business closure requirements in the United States, Europe and other countries, and the effectiveness of actions taken globally to contain and treat the disease.  The global economic slowdown, the overall disruption of global healthcare systems and the other risks and uncertainties associated with the pandemic could have a material adverse effect on our business, financial condition, results of operations and growth prospects. In addition, to the extent the ongoing COVID-19 pandemic adversely affects the Company’s business and results of operations, it may also have the effect of heightening many of the other risks and uncertainties which the Company faces.

On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act (“The Act”). The Act includes several significant business tax provisions that, among other things, eliminate the taxable income limit for certain net operating losses (NOL) and allow businesses and individuals to carry back NOLs arising in 2018, 2019, and 2020 to the five prior tax years; suspend the excess business loss rules under section 461(l); accelerate refunds of previously generated corporate alternative minimum tax (AMT) credits; generally loosen the business interest limitation under section 163(j) from 30 percent to 50 percent (special partnership rules apply); and fix the “retail glitch” for qualified improvement property in the 2017 tax code overhaul known informally as the Tax Cuts and Jobs Act (TCJA, P.L. 115-97). It also appropriated funds for the SBA Paycheck Protection Program loans that are forgivable in certain situations to promote continued employment, as well as Economic Injury Disaster Loans to provide liquidity to small businesses harmed by COVID-19.

The Company has determined, based on its preliminary analysis, that the provisions of CARES Act are not expected to impact its 2020 financial statements. The Company will monitor the updates, both to its business as well as guidance issued with respect to CARES Act that could impact the current interpretation of the issued provisions.

9

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

Cash and cash equivalents, Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At September 30, 2020 and December 31, 2019, the Company’s cash and cash equivalents were held at multiple institutions in the United States and included deposits in money market funds which were unrestricted as to withdrawal or use. Restricted cash consists of a letter of credit to secure the Company’s obligations to the landlord under the right-of-use (“ROU”) lease for the property located at 1020 Marsh Road, Menlo Park, California (the “1020 Space”).

Property and equipment, Net

Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.

Leases

The Company leases all of its office space in conducting its business. At inception, the Company determines whether an agreement represents a lease and at commencement the Company evaluates each lease agreement to determine whether the lease is an operating or financing lease.

The Company records an operating lease ROU asset and an operating lease obligation on the consolidated balance sheet when entering into a lease. ROU assets represent the Company’s ROU of the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. Lease obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term and ROU assets are calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. The lease term may include options to extend or terminate the lease and the Company includes renewal options in its calculation of the estimated lease term when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Variable lease costs and short-term lease payments not included in the lease liability are classified within operating activities in the consolidated statements of cash flows. For all lease agreements, the Company has combined lease and nonlease components. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. These expenses are recognized within operating expenses in the consolidated statements of operations.

Impairment of Long-Lived Assets

The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by the comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value (i.e. determined through estimating projected discounted future net cash flows or other acceptable methods of determining fair value) arising from the asset. There were no such impairments of long-lived assets as of December 31, 2019.

The Company accounts for the sublease with EVA Automation, Inc. (“EVA”) as an operating lease and reviews the ROU asset recorded associated with the sublease for impairment whenever events or changes in circumstances indicate that the carrying amount of the ROU asset may not be recoverable in accordance with ASC 360-10. Recoverability is measured if the lease cost for the term of the sublease exceeds the anticipated sublease income for the same period on an undiscounted basis and the Company shall treat this circumstance as an indicator that the carrying amount of the ROU asset may not be recoverable.

At the end of the first quarter ended March 31, 2020, the Company was informed by EVA, its sublease tenant, that EVA will not be in a position to pay future sublease rental payments and intends to exit the sublease. Given the uncertainty of the sublease tenant’s ability to pay the remaining sublease rental payments, the Company determined the carrying amounts of the ROU asset and leasehold improvements associated with the 1020 Marsh Road facility may not be recoverable. Accordingly, the Company performed a recoverability test, using an undiscounted cash flow analysis as of March 31, 2020. Based on the undiscounted cash flow analysis, the Company determined that the ROU and leasehold improvement assets had net carrying values that exceeded their estimated

10

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

undiscounted future cash flows. The Company then measured the impairment of the asset group using a discounted cash flow analysis of the estimated future sublease payments to be received from an expected sublessee as the Company is currently marketing the 1020 Marsh Road location for subletting. In determining the fair value of the asset group, the Company utilized current real estate market rates, time needed to sublet the building and estimated a discount rate of 9.5%. As a result of the impairment analysis, the Company recognized an impairment charge against its ROU asset of and leasehold improvement assets of $2.4 million and $0.5 million, respectively, for the quarter ended March 31, 2020.

At the end of the third quarter ended September 30, 2020, the Company continued to evaluate the estimates used in the valuation used in the first quarter of 2020. Given the continued uncertainty due to the COVID-19 shut down and the significant negative impact to the real estate market as of the end of the third quarter, the Company determined the carrying amounts of the ROU asset and leasehold improvements associated with the 1020 Marsh Road facility may not be recoverable. Accordingly, the Company performed a recoverability test, using an undiscounted cash flow analysis as of September 30, 2020. Based on the undiscounted cash flow analysis, the Company determined that the ROU and leasehold improvement assets had net carrying values that exceeded their estimated undiscounted future cash flows. The Company then measured the impairment of the asset group using a discounted cash flow analysis of the estimated future sublease payments to be received from an expected sublessee as the Company is currently marketing the 1020 Marsh Road location for subletting. In determining the fair value of the asset group, the Company utilized current real estate market estimated rates, time needed to sublet the building and estimated a discount rate of 9.5%. As a result of the impairment analysis, the Company recognized an impairment charge against its ROU asset and leasehold improvement assets of $2.4 million and $0.5 million, respectively, for the quarter ended September 30, 2020. A total of $5.8 million was reported as an impairment loss on the Company’s long-lived asset balances within the statement of operations for the nine month period ended September 30, 2020.

Fair Value of Financial Instruments

The carrying value of the Company’s cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.

Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.

The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1Unadjusted quoted prices in active markets for identical assets or liabilities;

Level 2Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3Unobservable inputs that are supported by little or no market activity for the related assets or liabilities.

The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

As of September 30, 2020 and December 31, 2019, the Company’s cash and cash equivalents consist solely of Level 1 assets. Level 1 assets are comprised of highly liquid money market funds.

11

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

Preclinical and Clinical Trial Accruals

The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and CROs that conduct and manage clinical trials on the Company’s behalf.

The Company estimates preclinical and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

Research and development

Research and development costs are charged to operations as incurred. Research and development costs include, but are not limited to, payroll and personnel expenses, laboratory supplies, consulting costs, external research and development expenses and allocated overhead, including rent, equipment depreciation, and utilities. Costs to acquire technologies to be used in research and development that have not reached technological feasibility and have no alternative future use are expensed to research and development costs when incurred.

Income taxes

The Company accounts for income taxes under the asset and liability approach. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.

The Company assesses all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and the Company will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.     

Stock-Based compensation

For stock options granted to employees, the Company recognizes compensation expense for all stock-based awards based on the grant-date estimated fair value. The value of the portion of the award that is ultimately expected to vest is recognized as expense ratably over the requisite service period. The fair value of stock options is determined using the Black-Scholes option pricing model. The determination of fair value for stock-based awards on the date of grant using an option pricing model requires management to make certain assumptions regarding a number of complex and subjective variables.

Stock-based compensation expense related to stock options granted to nonemployees is recognized based on the fair value of the stock options, determined using the Black-Scholes option pricing model, as they are earned. The awards generally vest over the time period the Company expects to receive services from the nonemployee.

Stock-based compensation expense, net of estimated forfeitures, is reflected in the condensed consolidated statements of operations as follows (in thousands):

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Operating Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

$

122

 

 

$

120

 

 

$

378

 

 

$

318

 

General and administrative

 

254

 

 

 

680

 

 

 

1,203

 

 

 

2,471

 

Total

$

376

 

 

$

800

 

 

$

1,581

 

 

$

2,789

 

 

12

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

Net Loss per Share

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and restricted stock units are considered to be potentially dilutive securities. Because the Company has reported a net loss for each of the three and nine months ended September 30, 2020 and 2019, diluted net loss per share is the same as basic net loss per common share for those periods.

Intangible Asset

Intangible assets consist of an assembled workforce which was acquired as part of the Merger. Intangible assets with definite lives are amortized based on their pattern of economic benefit over their estimated useful lives and reviewed periodically for impairment. The estimated useful life of the assembled workforce is 3 years.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”). The new guidance simplifies the accounting for income taxes by eliminating certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period, hybrid taxes and the recognition of deferred tax liabilities for outside basis differences. It also clarifies and simplifies other aspects of the accounting for income taxes.  For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2020 and interim periods within those fiscal years. Early adoption is permitted in interim or annual periods with any adjustments reflected as of the beginning of the annual period that includes that interim period. Additionally, entities that elect early adoption must adopt all the amendments in the same period. Amendments are to be applied prospectively, except for certain amendments that are to be applied either retrospectively or with a modified retrospective approach through a cumulative effect adjustment recorded to retained earnings. The Company is currently evaluating ASU 2019-12 and its impact on its condensed consolidated financial statements and financial statement disclosures.

 

3. Balance Sheet Components

Prepaid expenses and other current assets (in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Preclinical and clinical prepaid expenses

 

$

918

 

 

$

531

 

Lease receivable

 

 

 

 

 

900

 

Unbilled receivable from CPRIT

 

 

 

 

 

1,604

 

Other

 

 

551

 

 

 

44

 

Total

 

$

1,469

 

 

$

3,079

 

 

Property and equipment, net (in thousands)

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Equipment and furniture

 

$

1,416

 

 

$

1,442

 

Buildings, leasehold and building improvements

 

 

2,674

 

 

 

2,674

 

 

 

 

4,090

 

 

 

4,116

 

Less: Accumulated depreciation and amortization

 

 

(2,525

)

 

 

(2,308

)

Impairment loss

 

 

(1,004

)

 

 

 

Property and equipment, net

 

$

561

 

 

$

1,808

 

 

13

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

 

During the first quarter ended March 31, 2020 and the third quarter ended September 30, 2020, the Company determined leasehold improvements were impaired as described in Note 2. Depreciation expense was approximately $0.1 million for the three months ended September 30, 2020 and 2019, respectively and $0.2 million and $0.3 million for the nine months ended September 30, 2020 and 2019, respectively.

 

 

Accrued Liabilities (in thousands)  

 

 

 

September 30,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Payroll and related

 

$

974

 

 

$

1,248

 

Preclinical and clinical

 

 

244

 

 

 

5

 

Professional services

 

 

121

 

 

 

32

 

Other

 

 

130

 

 

 

212

 

Total

 

$

1,469

 

 

$

1,497

 

 

 

4. Fair Value Measurements

The Company’s financial instruments consist principally of cash and cash equivalents, accounts payable and accrued liabilities. The remaining financial instruments are reported on the Company’s consolidated balance sheets at amounts that approximate current fair value. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

Fair Value Measurements at

September 30, 2020

 

 

 

(unaudited)

 

 

 

Total

 

 

Level 1

 

Assets

 

 

 

 

 

 

 

 

Money market funds

 

$

52,205

 

 

$

52,205

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at

December 31, 2019

 

 

 

Total

 

 

Level 1

 

Assets

 

 

 

 

 

 

 

 

Money market funds

 

$

63,691

 

 

$

63,691

 

 

The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the periods ended September 30, 2020 or December 31, 2019.

Nonrecurring fair value measurements

As disclosed in Note 2, the Company recorded an impairment charge of approximately $5.8 million related to right-of-use and leasehold improvement assets. This impairment charge was derived using Level 3 inputs and the fair value of the long-lived assets was derived by using a discounted cash flow analysis of the 1020 Space.

 

5. Leases

In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at the 1020 Space. The lease commenced in August 2017 for a period of 87 months with one renewal option for a five-year term. The Company did not include the renewal option period as the Company determined it was not reasonably certain the lease would be renewed as of the modification date.

In October 2018, the Company executed a sublease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the sublease commenced on October 30, 2018 and expired August 31, 2020.  

In August 2020, the Company entered into a lease agreement in North Carolina for approximately 4,128 square feet for office space. The monthly lease payments will be approximately $9 thousand per month for a period of 63 months with a three-month rent abatement period.  The lease is expected to commence in the fourth quarter of 2020.

14

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

The Company’s rent expense including both short-term and variable lease components of $0.1 million associated with the facility leases was $0.6 million for the three months ended September 30, 2020 and 2019. The Company’s rent expense including both short-term and variable lease components of $0.3 million and $0.4 million associated with the facility leases was $1.9 million for the nine months ended September 30, 2020 and 2019. Cash paid for amounts included in the measurement of lease obligations for operating cash flows from operating leases for the nine months ended September 30, 2020 and 2019 was $2.0 million. As of September 30, 2020, the Company’s operating leases had a weighted average remaining lease term of 4.1 years and a weighted average discount rate of 7.75%, which approximates the Company’s incremental borrowing rate.

As of September 30, 2020, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):

 

Year Ending December 31,

 

 

 

 

2020 (3 months remaining)

 

$

325

 

2021

 

 

2,429

 

2022

 

 

2,878

 

2023

 

 

2,959

 

2024

 

 

2,524

 

Total future minimum lease payments

 

 

11,115

 

Less: discount

 

 

(2,708

)

Total operating lease obligations

 

 

8,407

 

Less current operating lease obligations

 

 

(1,715

)

Noncurrent operating lease obligations

 

$

6,692

 

 

 

1020 Marsh Sublease

In August 2018, the Company entered into an operating sublease agreement with EVA for the 1020 Space. The 1020 Space sublease commenced on October 1, 2018 for 72 months. EVA was entitled to an abatement of base rent of approximately $0.9 million for the first five full calendar months of the term of the sublease. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statement of operations. At the end of the first quarter ended March 31, 2020, the Company was informed by EVA that it will not be in a position to pay future sublease rental payments and intends to exit the sublease. For the nine months ended September 30, 2020, the Company recorded an impairment charge to long-lived assets as previously discussed in Note 2. In addition, associated with this impairment charge the Company recorded a write down totaling $1.4 million related to a straight-line sublease rent receivable balance and previously capitalized commission charges, which has been recorded in other expense within the condensed consolidated statement of operations for the nine months ended September 30, 2020. Overall, for the three and nine months ended September 30, 2020, the Company recorded sublease income associated with this sublease of $47 thousand and a loss of $13 thousand. For the three and nine months ended September 30, 2019, the Company recognized sublease income of approximately $0.6 million and $1.9 million, respectively. During the nine months ended September 30, 2020, cash received from EVA was $1.2 million, which amount was included in the change in prepaid expenses and other current assets for operating cash flows. During the three and nine months ended September 30, 2019, cash received from EVA was $0.6 million and $1.4 million, respectively.

6. Commitments and Contingencies

Purchase Commitments

The Company conducts research and development programs through a combination of internal and collaborative programs that include, among others, arrangements with contract manufacturing organizations and contract research organizations. The Company had contractual arrangements with these organizations including license agreements with milestone obligations and service agreements with obligations largely based on services performed.

In the normal course of business, the Company enters into various firm purchase commitments related to certain preclinical and clinical studies.

Contingencies

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves

15

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

claims that may be made against the Company in the future but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.  

7. Stockholders’ Equity

 

Common Stock

On April 6, 2020, the Company, entered into an investment agreement (the “Investment Agreement”), by and among the

Company, Eshelman Ventures, LLC, a North Carolina limited liability company (the “Investor”), and, solely for purposes of Article IV and Article V of the Investment Agreement, Fredric N. Eshelman, Pharm.D.

On April 8, 2020, pursuant to the Investment Agreement, the Investor purchased 931,098 shares of the Company’s unregistered common stock for an aggregate purchase price of approximately $5.0 million.  The Company recorded the amount received net of expenses of approximately $78 thousand.

 

Equity Incentive Plans

The Company’s Board of Directors (the “Board”) and stockholders approved the 2019 Equity Incentive Plan (the “2019 Plan”), which became effective on September 12, 2019. The 2019 Plan is a successor to and continuation of all prior plans including the Company’s 2014 Equity Incentive Plan and Private Aravive’s 2017 Equity Incentive Plan and the 2010 Equity Incentive Plan, as amended (the “Prior Plans”). As of September 30, 2020, the total number of shares of common stock available for issuance under the 2019 Plan was approximately 1,573,254. In addition, if the shares subject to outstanding stock options or other awards under the Prior Plans: (I) terminate or expire prior to exercise or settlement; (II) are not issued because the award is settled in cash; (III) are forfeited because of failure to vest; (IV) or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, such shares will become available for issuance under the 2019 Plan. Unless the Board provides otherwise, beginning January 1, 2020 with an expiration date of January 1, 2029, the total number of shares of common stock available for issuance will automatically increase annually on January 1 of each calendar year by 4.5% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. The 2019 Plan provides for granting of equity awards to employees, directors and consultants, including incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance awards.

Activity under the Company’s stock option plan is set forth below:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average

 

 

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

Remaining

 

 

Aggregate

 

 

 

 

 

 

 

 

Average

 

 

Contractual

 

 

Intrinsic

 

 

 

 

Number of

 

 

Exercise

 

 

Life

 

 

Value

 

 

 

 

Shares

 

 

Price

 

 

(in years)

 

 

(in thousands)

 

Balances, January 1, 2020

 

 

 

1,820,160

 

 

$

10.70

 

 

 

 

 

 

 

 

 

Options granted

 

 

 

779,460

 

 

 

9.28

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

 

(284,901

)

 

 

17.65

 

 

 

 

 

 

 

 

 

Options exercised

 

 

 

(110,578

)

 

 

2.65

 

 

 

 

 

 

 

 

 

Balances, September 30, 2020

 

 

 

2,204,141

 

 

$

9.70

 

 

 

6.0

 

 

$

4,757

 

Outstanding and expected to vest as of September 30, 2020

 

 

 

2,100,932

 

 

$

9.79

 

 

 

5.9

 

 

$

4,756

 

Exercisable as of September 30, 2020

 

 

 

1,546,264

 

 

$

10.61

 

 

 

4.7

 

 

$

4,737

 

16

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

 

The intrinsic values of outstanding, vested and exercisable options were determined by multiplying the number of shares by the difference in exercise price of the options and the fair value of the common stock.

Stock Options Granted to Employees

During the nine months ended September 30, 2020 and 2019, the Company granted stock options to officers, directors and employees to purchase shares of common stock with a weighted-average grant date fair value of $7.82 and $4.69 per share, respectively. The fair value is being expensed over the vesting period of the options, which is usually 4 years on a straight-line basis as the services are being provided. No tax benefits were realized from options and other share-based payment arrangements during the periods.

As of September 30, 2020, total unrecognized employee stock-based compensation related to stock options granted was $3.4 million, which is expected to be recognized over the weighted-average remaining vesting period of 2.9 years.

The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions:

 

 

 

September 30,

 

 

September 30,

 

 

 

2020

 

 

2019

 

Expected volatility

 

 

112.3

%

 

 

111.0

%

Risk-free interest rate

 

 

0.97

%

 

 

2.4

%

Dividend yield

 

 

0.0

%

 

 

0.0

%

Expected life (in years)

 

 

6.0

 

 

 

6.0

 

 

Restricted Stock Units 

Restricted stock units are shares of common stock which are forfeited if the employee leaves the Company prior to vesting. These stock units offer employees the opportunity to earn shares of the Company’s stock over time, rather than options that give the employee the right to purchase stock at a set price. As a result of these restricted stock units, the Company recognized $0.4 million in compensation expense during the three months ended September 30, 2019 and the amount of compensation expense recognized for the three months ended September 30, 2020 was immaterial. The Company recognized $0.3 million and $1.2 million during the nine months ended September 30, 2020 and 2019, respectively.  

 

8. Net loss per share

The following table summarizes the computation of basic and diluted net loss per share of the Company (in thousands, except per share data):

 

 

Three Months Ended

 

Nine Months Ended

 

 

September 30,

 

September 30,

 

 

2020

 

 

2019

 

2020

 

 

2019

 

Net loss

$

(10,660

)

 

$

(6,142

)

$

(26,497

)

 

$

(13,890

)

Basic and diluted net loss per share

$

(0.66

)

 

$

(0.54

)

$

(1.69

)

 

$

(1.23

)

Weighted-average shares used to compute basic and diluted net

   loss per share

 

16,055

 

 

 

11,285

 

 

15,658

 

 

 

11,280

 

 

Basic net loss per share is computed by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted net loss per common share is computed by dividing the net loss by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as-if converted method, for convertible securities, if inclusion of these is dilutive. Because the Company has reported a net loss for each of the three and nine months ended September 30, 2020 and 2019, the Company did not have dilutive common stock equivalents and therefore diluted net loss per share is the same as basic net loss per share for those periods.

The following potentially dilutive securities outstanding at the end of the nine months ending September 30, 2020 and 2019 have been excluded from the computation of diluted shares outstanding:

17

 


ARAVIVE, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (unaudited)

 

 

 

Nine Months Ended

 

 

 

September 30,

 

 

 

2020

 

 

2019

 

Options to purchase common stock

 

 

2,204,141

 

 

 

1,995,793

 

Restricted stock units

 

 

1,441