| • | delays or difficulties in enrolling patients in our clinical trials; |
| • | delays or difficulties in clinical site initiation, including difficulties in recruiting clinical site investigators and clinical site staff; |
| • | diversion of healthcare resources away from the conduct of clinical trials, including the diversion of hospitals serving as our clinical trial sites and hospital staff supporting the conduct of our clinical trials; |
| • | interruption of key clinical trial activities, such as clinical trial site monitoring, due to limitations on travel imposed or recommended by federal or state governments, employers and others; |
| • | limitations in employee resources that would otherwise be focused on the conduct of our clinical trials, including because of sickness of employees or their families or the desire of employees to avoid contact with large groups of people; |
| • | delays in receiving approval from local regulatory authorities to initiate our planned clinical trials; |
| • | delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials; |
delays in clinical sites receiving the supplies and materials needed to conduct our clinical trials;
| • | interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials; |
interruption in global shipping that may affect the transport of clinical trial materials, such as investigational drug product used in our clinical trials;
| • | changes in local regulations as part of a response to the COVID-19 outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether; |
changes in local regulations as part of a response to the COVID-19 coronavirus outbreak which may require us to change the ways in which our clinical trials are conducted, which may result in unexpected costs, or to discontinue the clinical trials altogether;
| • | delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees; and |
delays in necessary interactions with local regulators, ethics committees and other important agencies and contractors due to limitations in employee resources or forced furlough of government employees;
| • | delays in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19. |
delay in the timing of interactions with the FDA due to absenteeism by federal employees or by the diversion of their efforts and attention to approval of other therapeutics or other activities related to COVID-19; and
refusal of the FDA to accept data from clinical trials in affected geographies outside the United States.
In addition, the outbreak of the coronavirus (“COVID-19”)COVID-19 could disrupt our operations due to absenteeism by infected or ill members of management or other employees, or absenteeism by members of management and other employees who elect not to come to work due to the illness affecting others in our office or laboratory facilities, or due to quarantines. COVID-19 illness could also impact members of our Board of Directors resulting in absenteeism from meetings of the directors or committees of directors, and making it more difficult to convene the quorums of the full Board of Directors or its committees needed to conduct meetings for the management of our affairs. The global outbreak of the COVID-19 coronavirus continues to rapidly evolve. The extent to which the COVID-19 coronavirus may impact our business and clinical trials will depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spread of the disease, the duration of the outbreak, travel restrictions and social distancing in the United States and other countries, business closures or business disruptions and the effectiveness of actions taken in the United States and other countries to contain and treat the disease. Businessdisruptionscould seriously harm our future revenue and financial condition and increase costs and expenses. Our operations and those of our third-party suppliers and collaborators could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes or other extreme weather conditions, medical epidemics, labor disputes, war or other business interruptions. Any interruption could seriously harm our ability to timely proceed with any clinical programs or to supply product candidates for use in our clinical programs or during commercialization. For example, the current COVID-19 pandemic has, at points, caused an interruption in our clinical trial activities. Additionally, supply chains disruptions impact and may continue to impact our research activities. Moreover, at the end of 2021 and into 2022, tensions between the United States and Russia escalated when Russia amassed large numbers of military ground forces and support personnel on the Ukraine-Russia border and, in February 2022, Russia invaded Ukraine. In response, North Atlantic Treaty Organization, or NATO has deployed additional military forces to Eastern Europe, and the Biden administration announced certain sanctions against Russia. The invasion of Ukraine and the retaliatory measures that have been taken, or could be taken in the future, by the United States, NATO, and other countries have created global security concerns that could result in a regional conflict and otherwise have a lasting impact on regional and global economies, any or all of which could disrupt our supply chain and adversely affect our ability to conduct ongoing and future clinical trials of our product candidates. For example, currently we have plans to conduct clinical trials in Eastern European countries, and may be prevented from doing so. This could negatively impact the anticipated timing and completion of our clinical trials and/or analyses of clinical results. In addition, if any sanctions were to be imposed on China that effect the export of our clinical trial materials, our ability to complete current and future clinical trials could be adversely impacted. Reliance on government funding for our programs may impose requirements that limit our ability to take certain actions, and subject us to potential financial penalties, which could materially and adversely affect our business, financial condition and results of operations. A significant portion of our funding has been through a grant Private Aravive Biologics received from CPRIT. The CPRIT Grant (as described below) includes provisions that reflect the government’s substantial rights and remedies, many of which are not typically found in commercial contracts, including powers of the government to potentially require repayment of all or a portion of the grant award proceeds, in certain cases with interest, in the event we violate certain covenants pertaining to various matters that include any potential relocation outside of the State of Texas. Although our contract with CPRIT terminated November 30, 2019, our royalty and other obligations, including our obligation to repay the disbursed grant proceeds under certain circumstances, to maintain certain records and documentation, to notify CPRIT of certain unexpected adverse events and our obligation to use reasonable efforts to ensure that any new or expanded preclinical testing, clinical trials, commercialization or manufacturing related to any aspect to our CPRIT project take place in Texas, survive the termination of the agreement. In addition, if we relocate our principal place of business outside of Texas within the three yearthree-year period after the date of final payment of grant funds (which final payment has not yet occurred)occurred in March 2020), we are required to repay to CPRIT all grant funds received. We have received $18.4the full $20.0 million of the grant proceeds and expect to expendhave expended all of the grant award proceeds by the agreement termination date. We have recorded a CPRIT receivable balance Our award from CPRIT requires us to pay CPRIT a portion of our revenues from sales of certain products by us, or received from our licensees or sublicensees, at tiered percentages of revenue in the low- to mid-single digits until the aggregate amount of such payments equals 400% of the grant award proceeds, and thereafter at a rate of less than one percent for as long as we maintain government exclusivity, subject to our right, under certain circumstances, to make a one-time payment in a specified amount to CPRIT to terminate such payment obligations. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of some amount not to exceed the full amount of the grant proceeds under certain specified circumstances involving relocation of our principal place of business outside Texas. In order to meet the requirements that any new or expanded preclinical testing, clinical trials, commercialization or manufacturing related to any aspect of our CPRIT project take place in Texas, we will need to hire additional qualified personnel and vendors with expertise in preclinical testing, clinical research and testing, government regulation, formulation and manufacturing, sales and marketing and accounting and financing located in Texas. We will compete for qualified individuals, vendors, clinical trial sites, manufacturers with numerous biopharmaceutical companies, universities and other research institutions. Competition for such individuals is intense, and there can be no assurance that the search for such personnel will be successful, especially in light of the territorial restrictions imposed by CPRIT. 33
If we fail to maintain compliance with any such requirements that may apply to us now or in the future, we may be subject to potential liability and to termination of our contracts, including potentially the CPRIT Grant, which could result in significant expense to us. Werely on licenses to use various technologies that are material to our business and if the agreements underlying the licenses were to be terminated or if other rights that may be necessary for commercializing our intended products cannot be obtained, it would halt our ability to market our products and technology, as well as have an immediate material adverse effect on our business, operating results and financial condition. Our prospects are significantly dependent upon our license with Stanford University or the Stanford License.(the "Stanford License"). The Stanford License grants us exclusive, worldwide rights to certain existing patents and related intellectual property that cover AVB-500,batiraxcept, the lead development candidate selected from the AVB-S6 family of proteins. If we breach the terms of the Stanford License, including any failure to make minimum royalty payments required thereunder or failure to reach certain developmental milestones and by certain deadlines or other factors, including but not limited to, the failure to comply with material terms of the Stanford License, the licensor has the right to terminate the license. If we were to lose or otherwise be unable to maintain the license on acceptable terms, or find that it is necessary or appropriate to secure new licenses from other third parties, we would not be able to market our products and technology, which would likely require us to cease our current operations which would have an immediate material adverse effect on our business, operating results and financial condition. If we fail to comply with our obligations in our intellectual property licenses with third parties, we could lose license rights that are important to our business. In addition to the Stanford License, we are a party to intellectual property license agreements with third parties, and we expect to enter into additional license agreements in the future. Our existing license agreements impose, and we expect that our future license agreements will impose, various diligence, milestone payment, royalty, insurance and other obligations on us. If we fail to comply with these obligations, our licensors may have the right to terminate these agreements, in which event we may not be able to develop and market any product that is covered by these agreements. The occurrence of such events could materially harm our business and financial condition. The risks described elsewhere pertaining to our intellectual property rights also apply to the intellectual property rights that we license, and any failure by us or our licensors to obtain, maintain, defend and enforce these rights could have a material adverse effect on our business. In some cases, we do not have control over the prosecution, maintenance or enforcement of the patents that we license, and may not have sufficient ability to provide input into the patent prosecution, maintenance and defense process with respect to such patents, and our licensors may fail to take the steps that we believe are necessary or desirable in order to obtain, maintain, defend and enforce the licensed patents. We are responsible for preparing, filing, and prosecuting broad patent claims (including any interference or reexamination actions) for Stanford University’s benefit and for maintaining all licensed patents. We expect to depend on collaborations with third parties for the development and commercialization of some of our products and product candidates outside of the United States. Our prospects with respect to those products and product candidates will depend in part on the success of those collaborations. Although we are commercializing batiraxcept ourselves in the United States, we intend to seek to commercialize batiraxcept outside the United States through collaboration arrangements. For instance, we entered into the 3D Medicines Agreement under which we granted 3D Medicines an exclusive sublicense to develop and commercialize batiraxcept, in the Territory. We may not be able to derive revenue from research and development fees, license fees, milestone payments and royalties under any collaborative arrangement into which we enter. Our ability to generate revenues from these arrangements will depend on our collaborators’ abilities to successfully perform the functions assigned to them in these arrangements, including obtaining regulatory approval in the sublicensed territory, which may not be obtainable even if we obtain regulatory approval to market products in the United States. In addition, our collaborators may have the right to abandon research or development projects and terminate applicable agreements, including funding obligations, prior to or upon the expiration of the agreed upon terms. As a result, we can expect to relinquish some or all of the control over the future success of a product or product candidate that we license to a third party. Collaborations involving our products and product candidates, such as our license arrangement with 3D Medicines, may pose a number of risks, including the following: | • | collaborators have significant discretion in determining the efforts and resources that they will apply to these collaborations; |
| • | collaborators may not perform their obligations as expected or in compliance with applicable regulatory requirements; |
| • | collaborators may not pursue development and commercialization of our products and product candidates or may elect not to continue or renew development or commercialization programs based on clinical trial results, changes in the collaborators’ strategic focus or available funding, or external factors, such as an acquisition, that divert resources or create competing priorities; |
| • | collaborators may delay clinical trials, provide insufficient funding for a clinical trial program, stop a clinical trial or abandon a product candidate, use different doses that us, repeat or conduct new clinical trials or require a new formulation of a product candidate for clinical testing; |
| • | product candidates discovered in collaboration with us may be viewed by our collaborators as competitive with their own product candidates or products, which may cause collaborators to cease to devote resources to the commercialization of our product candidates; |
| • | collaborators with marketing and distribution rights to one or more products may not commit sufficient resources to the marketing and distribution of such product or products; |
| • | disagreements with collaborators, including disagreements over proprietary rights, contract interpretation or the preferred course of development, might cause delays or termination of the research, development or commercialization of products and product candidates, might lead to additional responsibilities for us with respect to products and product candidates, or might result in litigation or arbitration, any of which would be time-consuming and expensive; |
| • | collaborators may not properly maintain or defend our intellectual property rights or may use our proprietary information in such a way as to invite litigation that could jeopardize or invalidate our intellectual property or proprietary information or expose us to potential litigation; |
| • | collaborators may infringe the intellectual property rights of third parties, which may expose us to litigation and potential liability; and |
| • | collaborations may be terminated and, if terminated, may result in a need for additional capital to pursue further development or commercialization of the applicable product candidates in the applicable territories. |
Collaboration agreements may not lead to development or commercialization of products or product candidates in the most efficient manner or at all. In addition, any negative results from clinical trials conducted by any third-party collaborator, including 3D Medicines, will negatively impact our commercialization efforts despite the fact that we will not have conducted those trials. We rely extensively on our information technology systems andwhich are vulnerable to damage and interruption. We rely on our information technology systems and infrastructure to process transactions, summarize results and manage our business, including maintaining client and supplier information. Additionally, we utilize third parties, including cloud providers, to store, transfer and process data. Our information technology systems, as well as the systems of our suppliers and other partners, whose systems we do not control, are vulnerable to outages and an increasing risk of continually evolving deliberate intrusions to gain access to company sensitive information. Likewise, data security incidents and breaches by employees and others with or without permitted access to our systems pose a risk that sensitive data may be exposed to unauthorized persons or to the public. A cyber-attack or other significant disruption involving our information technology systems, or those of our vendors, suppliers and other partners, could also result in disruptions in critical systems, corruption or loss of data and theft of data, funds or intellectual property. We may be unable to prevent outages or security breaches in our systems. Loss of preclinical or clinical trial data could result in delays in regulatory approval efforts and increase costs to recover or reproduce data. We remain potentially vulnerable to additional known or yet unknown threats as, in some instances, we, our suppliers and our other partners may be unaware of an incident or its magnitude and effects. We also face the risk that we expose our vendors or partners to cybersecurity attacks. Any or all of the foregoing could adversely affect our results of operations and our business reputation. 34
Any failure to maintain the security of information relating to our customers, employees and suppliers, whether as a result of cybersecurity attacks or otherwise, could expose us to litigation, government enforcement actions and costly response measures, and could disrupt our operations and harm our reputation. In connection with the sales and marketing of our products and services, we may from time to time transmit confidential information. We also have access to, collect or maintain private or confidential information regarding our clinical trials and the patients enrolled therein, employees, and suppliers, as well as our business. Cyberattacks are rapidly evolving and becoming increasingly sophisticated. It is possible that computer hackers and others might compromise our security measures, or security measures of those parties that we do business with now or in the future, and obtain the personal information of patients in our clinical trials, vendors, employees and suppliers or our business information. A security breach of any kind, including physical or electronic break-ins, computer viruses and attacks by hackers, employees or others, could expose us to risks of data loss, litigation, government enforcement actions, regulatory penalties and costly response measures, and could seriously disrupt our operations. Any resulting negative publicity could significantly harm our reputation, which could cause us to lose market share and have an adverse effect on our results of operations. We may face particular data protection, data security and privacy risks in connection with privacy regulations. In the United States we are subject to several laws that protect the privacy of protected health information as well as data breach notification laws, the violation of which can result in penalties, criminal and civil penalties. Outside of the United States, the laws, regulations and standards in many jurisdictions apply broadly to the collection, use, and other processing of personal information. For example, in the European Union, the collection and use of personal data are governed by the provisions of the General Data Protection Regulation (the “GDPR”). The GDPR, together with national legislation, regulations and guidelines of the European Union. member states governing the processing of personal data, impose strict obligations on entities, including but not limited to: (i) accountability and transparency requirements, and enhanced requirements for obtaining valid consent from data subjects; (ii) obligations to consider data protection as any new products or services are developed and to limit the amount of personal data processed; (iii) obligations to comply with the data protection rights of data subjects; and (iv) obligations to report certain personal data breaches to governmental authorities and individuals. Data protection authorities from the different E.U. member states and other European countries may enforce the GDPR and national data protection laws differently and introduce additional national regulations and guidelines, which adds to the complexity of processing European personal data. Failure to comply with the requirements of the GDPR and national data protection laws may result in significant monetary fines and other administrative penalties (the GDPR authorizes fines for certain violations of up to 4% of global annual revenue or €20 million, whichever is greater) as well as civil liability claims from individuals whose personal data was processed. Additionally, expenses associated with compliance could reduce our operating margins. The GDPR also prohibits the transfer of personal data from the E.U. to countries outside of the E.U. unless made to a country deemed by the European Commission to provide adequate protection for personal data or accomplished by means of an approved data transfer mechanism (e.g., standard contractual clauses). Data protection authority guidance and enforcement actions that restrict companies’ ability to transfer data may increase risks relating to data transfers or make it more difficult or impossible to transfer E.U. personal data to the U.S. We currently have only one product candidate, batiraxcept, in clinical development and are dependent on the success of this product candidate,batiraxcept, which requires significant additional clinical testing before seeking regulatory approval. If our clinical product candidatebatiraxcept does not receive regulatory approval or is not successfully commercialized, our business maywill be harmed. We are currently developing one clinical product candidate, AVB-500,batiraxcept, as a potential treatment for several types of cancer and fibrosis. AVB-500Batiraxcept is currently being tested in clinical trials, and, to date, we have not had any product candidate approved for commercial sale. It is possible that we may never be able to develop a marketable product candidate. Our main focus is the development of AVB-500, for which we completed a Phase 1 clinical trial, commenced the Phase 1b portion of our planned Phase 1b/2 clinical trialbatiraxcept, for the treatment of platinum-resistant recurrent ovarian cancer, ccRCC and pancreatic cancer. We may need to engage in further dose-finding studies for AVB-500. In our Phase 1 clinical trial of AVB-500, single doses ranging from 1 mg per kg to 10 mg per kg were evaluated and repeat doses of 5 mg per kg per week (for a total of 4 doses) were evaluated. Based upon the results of our Phase 1 clinical trial, in the Phase 1b portion of our Phase 1b/2 clinical trial we initially used a 10mg per kg dose for all patients receiving AVB-500; which was increased to 15mg per kg and then to 20 mg per kg based on our exposure response analysis from the initial 31 patients in the Phase 1b clinical trial. However, our hypothesis on dose response may be incorrect and we may discover that 20mg per kg is not an adequate dose. In order for AVB-500 to successfully complete development, we may need to continue to refine its dosage, which, as occurred when we increased the dose from 10 mg per kg to 20 mg per kg, will increase our costs and slow down our product candidate development and approval process.
We expect that a substantial portion of our efforts and expenditures over the next few years will be devoted to AVB-500.batiraxcept. Accordingly, our business currently depends heavily on the successful development, regulatory approval and commercialization of AVB-500,batiraxcept, which may not receive regulatory approval or be successfully commercialized even if regulatory approval is received. The research, testing, manufacturing, labeling, approval, sale, marketing and distribution of product candidates are and will remain subject to extensive regulation by the FDA and other regulatory authorities in the United States and other countries that each have differing regulations. We are not permitted to market any product in the United States unless and until we receive approval of a BLA, from the FDA, or in any foreign countries unless and until we receive the requisite approval from regulatory authorities in such countries. We have never submitted a BLA to the FDA or comparable applications to other regulatory authorities and do not expect to be in a position to do so for the foreseeable future. Obtaining approval of a BLA is an extensive, lengthy, expensive and inherently uncertain process, and the FDA may delay, limit or deny approval of itsa product for many reasons. Our success depends largely upon our ability to advance our clinical product candidate, batiraxcept, which is in early stages of development, through the various stages of drug development. If we are unable to successfully advance or develop our clinical product candidate,batiraxcept, our business will be materially harmed. Our clinical product candidate, batiraxcept, is in early stages of clinical development, and its commercial viability remains subject to the successful outcome of future preclinical studies, clinical trials, manufacturing processes, regulatory approvals and the risks generally inherent in the development of pharmaceutical product candidates. Failure to advance the development of our clinical product candidatebatiraxcept may have a material adverse effect on our business. The long-term success of our business ultimately depends upon our ability to advance the development of our product candidatebatiraxcept through clinical trials, appropriately formulate and consistently manufacture it in accordance with strict specifications and regulations, obtain approval for sale by the FDA or similar regulatory authorities in other countries, and ultimately successfully commercialize it directly or with a strategic partner or licensee. We cannot assure investors that the results of our ongoing or future research, preclinical studies or clinical trials will support or justify the continued development of our clinical product candidatebatiraxcept or that we will ultimately receive approval from the FDA, or similar regulatory authorities in other countries, to advance the development of AVB-500.batiraxcept. 35
AVB-500Batiraxcept must satisfy rigorous regulatory standards of safety, efficacy and manufacturing before we can advance or complete its development and before it can be approved for sale by the FDA or similar regulatory authorities in other countries. To satisfy these standards, we must engage in expensive and lengthy studies and clinical trials, develop acceptable and cost effectivecost-effective manufacturing processes, and obtain regulatory approval of our clinical product candidate.batiraxcept. Despite these efforts, our clinical product candidatebatiraxcept may not:
| • | demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs or other product candidates in development to treat the same patient population; |
| • | be shown to be safe and effective in future preclinical studies or clinical trials; |
| • | have the desired therapeutic or medical effects; |
| • | be tolerable or free from undesirable or unexpected side effects; |
| • | meet applicable regulatory standards; |
demonstrate clinically meaningful therapeutic or other medical benefits as compared to a patient receiving no treatment or over existing drugs or other product candidates in development to treat the same patient population;
be shown to be safe and effective in future preclinical studies or clinical trials;
have the desired therapeutic or medical effects;
be tolerable or free from undesirable or unexpected side effects;
| • | be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or |
meet applicable regulatory standards;
| • | be successfully commercialized by us or our licensees or collaborators. |
be capable of being appropriately formulated and manufactured in commercially suitable quantities or scale and at an acceptable cost; or
be successfully commercialized by us or our licensees or collaborators.
Even if we demonstrate favorable results in preclinical studies and early-stage clinical trials, we cannot assure you that the results of late-stage clinical trials will be sufficient to support the continued development of our clinical product candidate.batiraxcept. Many, if not most, companies in the pharmaceutical and biopharmaceutical industries have experienced significant delays, setbacks and failures in all stages of development, including late-stage clinical trials, even after achieving promising results in preclinical testing or early-stage clinical trials. Accordingly, results from completed preclinical studies and early-stage clinical trials of our clinical product candidatebatiraxcept may not be predictive of the results we may obtain in future late-stage trials.trials, especially in light of the fact that the results from our clinical trials to date have been from a small number of patients and may not be replicated with a larger number of patients. Furthermore, even if the data collected from preclinical studies and clinical trials involving any of our clinical product candidatecandidates demonstrate a satisfactory safety, tolerability and efficacy profile, such results may not be sufficient to obtain regulatory approval from the FDA in the United States, or other similar regulatory agencies in other jurisdictions, which is required to market and sell the product. Clinical trials are risky, lengthy and expensive. We incur substantial expense for, and devote significant time and resources to, preclinical testing and clinical trials, yet cannot be certain that these tests and trials will demonstrate that a product candidate is effective and well-tolerated, or will ever support its approval and commercial sale. For example, clinical trials require adequate supplies of clinical trial material and sufficient patient enrollment to power the trial. Delays in patient enrollment can result in increased costs and longer development times. Even if we, or a licensee or collaborator, if applicable, successfully complete clinical trials for our clinical product candidate,batiraxcept, we or they might not file the required regulatory submissions in a timely manner and may not receive marketing approval for the clinical product candidate.batiraxcept. We cannot assure you that our clinical product candidatebatiraxcept will successfully progress further through the drug development process, or ultimately will result in an approved and commercially viable product. We have limited experience conducting clinical trials. We are an early stageearly-stage clinical stage company, and our success is dependent upon our ability to obtain regulatory approval for and commercialization of our clinical product candidate,batiraxcept, and we have not demonstrated an ability to perform the functions necessary for the approval or successful commercialization of any product candidate. The successful commercialization of any product candidate may require us to perform a variety of functions, including: | • | continuing to undertake preclinical development and successfully enroll subjects in clinical trials; |
continuing to undertake preclinical development and successfully enroll subjects in clinical trials;
| • | participating in regulatory approval processes; |
participating in regulatory approval processes;
| • | formulating and manufacturing products; and |
formulating and manufacturing products; and
| • | conducting sales and marketing activities. |
conducting sales and marketing activities.
We have limited experience conducting and enrolling subjects in clinical trials. While certain members of our management and staff have significant experience in conducting clinical trials, to date, we have only limited experience conducting clinical trials since the Merger.trials. In part because of this lack of experience, we cannot guarantee that planned clinical trials will be completed on time, if at all.all, or that we will not require changes to our trial designs. Large-scale trials require significant additional financial and management resources, monitoring and oversight, and reliance on third-party clinical investigators, consultants or contract research organizations, or CROs. Relying on third-party clinical investigators, CROs and manufacturers, which are all also subject to governmental oversight and regulations, may also cause us to encounter delays that are outside of our control. 36
If the actual or perceived therapeutic benefits, or the safety or tolerability profile of our clinical product candidate, batiraxcept, is not equal to or superior to other competing treatments approved for sale or in clinical development, we may terminate the development of our clinical product candidatebatiraxcept at any time, and our business prospects and potential profitability could be harmed. We are aware of a number of companies marketing or developing product candidates for the treatment of patients with cancer and fibrosis that are either approved for sale or further advanced in clinical development than ours, such that their time to approval and commercialization may be shorter than that for AVB-500.batiraxcept. There are currently FDA approved biological drugs that target the GAS6/AXL pathway. However, if ever approved as a treatment for cancer, AVB-500batiraxcept would indirectly compete with drugs approved to treat various types of cancer, such as those that regulate T-cell proliferation, including nivolumab, pembrolizumab, atezolizumab and other small molecule chemically manufactured drugs that target this pathway or other classes of drugs that are used for the clinical indications that ours is currently pursuing in clinic. If at any time we believe that AVB-500batiraxcept may not provide meaningful or differentiated therapeutic benefits, perceived or real, equal to or better than its competitor’s products or product candidates, or we believe that it may not have as favorable a safety or tolerability profile as potentially competitive compounds, we may delay or terminate its development. We cannot provide any assurance that the future development of AVB-500batiraxcept will demonstrate any meaningful therapeutic benefits over potentially competitive compounds currently approved for sale or in development, or an acceptable safety or tolerability profile sufficient to justify its continued development. For the Phase 1b portion of our Phase 1b/23 clinical trial in patients with platinum-resistant recurrent ovarian cancer and for the Phase 1b1b/2 clinical trial testingtrials in patients with clear cell renal carcinoma ,ccRCC or pancreatic adenocarcinoma we are administering, or plan to administer, our clinical product candidate, batiraxcept, in combination with other approved standard of care drugs. Any problems obtaining the standard of care drugs could result in a delay or interruption in our clinical trials. For the Phase 1b portioneach of our Phase 1b/2ongoing clinical trial of AVB-500 for the treatment of patients with platinum-resistant recurrent ovarian cancer,trials, we are administering our clinical product candidatebatiraxcept in combination with already approved standard of care drugs. For the Phase 1b portion of our Phase 1b/2 clinical trial of AVB-500 for the treatment of patients with clear cell renal carcinoma, our clinical trial we intend to administer our clinical product candidate in combination with an already approved standard of care drug. Therefore, our success will be dependent upon the continued use of these otherand ability to obtain the standard of care drugs. We expect that in any other clinical trials we conduct for additional indications, our clinical product candidate will also be administered in combination with drugs owned by third parties. If any of the standard of care drugs that are used in our clinical trials are unavailable while the trials are continuing, the timeliness and commercialization costs could be impacted. In addition, if any of these other drugs are determined to have safety or efficacy problems, our clinical trials and commercialization efforts would be adversely affected. If our product candidate, would requirebatiraxcept, requires or would commercially benefit from a companion diagnostic, and if we are unable to successfully validate, develop and obtain regulatory clearance or approval for such a companion diagnostic test, or experience significant delays in doing so, we may not realize the full commercial potential of our product candidates. In connection with the clinical development of AVB-500batiraxcept or other product candidates for certain indications, we may work with collaborators to develop or obtain access to in vitro companion diagnostic tests to identify patient subsets within a disease category who may derive selective and meaningful benefit from our drug candidates. Such companion diagnostics may be used during our clinical trials as well as in connection with the commercialization of our product candidates. To be successful, we or our collaborators will need to address a number of scientific, technical, regulatory and logistical challenges. The FDA and comparable foreign regulatory authorities regulate in vitro companion diagnostics as medical devices and, under that regulatory framework, will likely require the conduct of clinical trials to demonstrate the safety and effectiveness of any diagnostics we may develop, which we expect will require separate regulatory clearance or approval prior to commercialization. We may be unable to successfully validate, develop and obtain regulatory clearance or approval for any such companion diagnostic tests or may experience delays in doing so, which could materially harm or limit the commercial potential of our product candidates. Our clinical product candidate, batiraxcept, may exhibit undesirable side effects when used alone or in combination with other approved pharmaceutical products, which may delay or preclude its development or regulatory approval, or limit its use if ever approved. Throughout the drug development process, we must continually demonstrate the activity, safety and tolerability of our clinical product candidatebatiraxcept, in order to obtain regulatory approval to further advance our clinical development, or to eventually market it. Even if our clinical product candidate demonstrates adequate biologic activity and clear clinical benefit, any unacceptable side effects or adverse events, when administered alone or in the presence of other pharmaceutical products, may outweigh these potential benefits. We may observe adverse or serious adverse events or drug-drug interactions in preclinical studies or clinical trials of our clinical product candidate,batiraxcept, which could result in the delay or termination of its development, prevent regulatory approval, or limit its market acceptance if it is ultimately approved. 37
For our clinical product candidate, batiraxcept, we rely upon one third party to manufacture its drug substance. Any problems experienced by either our third-party manufacturer or our vendors could result in a delay or interruption in the supply of our clinical product candidatebatiraxcept to us until the third-party manufacturer or its vendor cures the problem or until we locate and qualify an alternative source of manufacturing and supply. For our clinical product candidate, batiraxcept, we currently rely on one third-party manufacturer located in China to manufacture our clinical product candidatebatiraxcept for our clinical studies and that manufacturer purchases materials from our third-party vendors and transports the materials necessary to produce our clinical product candidate,batiraxcept, such as the required reagents and containers. The recent outbreak of the novel strain of coronavirus hasCOVID-19 caused a widespread health crisis in several districts in China resultingwhich resulted in temporary work stoppages in many affected districts. Although our manufacturer’s facilities are not located inIf the affected districts, if thevirus or any other virus should spread to the districts in which our manufacturer’s facilities are located, we could experience delays in manufacturing and shipments of our clinical product, which could result in clinical trial delays. If the third-party manufacturer were to experience any prolonged disruption for our manufacturing, we could be forced to seek additional third partythird-party manufacturing contracts, thereby increasing our development costs and negatively impacting our timelines and any commercialization costs. If we change manufacturers at any point during the development process or after approval of a product candidate, we will be required to demonstrate comparability between the product manufactured by the old manufacturer and the product manufactured by the new manufacturer. If we are unable to do so we may need to conduct additional clinical trials with product manufactured by the new manufacturer. If our manufacturer is not able to manufacture sufficient quantities of our clinical product candidate,batiraxcept, our development activities would be impaired. In addition, the manufacturing facility where our clinical product candidate, batiraxcept, is manufactured is subject to ongoing, periodic inspection by the FDA or other comparable regulatory agencies to ensure compliance with current Good Manufacturing Practice, or cGMP. Any failure to follow and document the manufacturer’s adherence to such cGMP regulations or other regulatory requirements may lead to significant delays in the availability of clinical bulk drug substance and finished product for clinical trials, which may result in the termination of or a hold on a clinical trial, or may delay or prevent filing or approval of marketing applications for our clinical product candidate.batiraxcept. We also may encounter problems with the following: achieving adequate or clinical-grade materials that meet FDA or other comparable regulatory agency standards or specifications with consistent and acceptable production yield and costs;
| • | achieving adequate or clinical-grade materials that meet FDA or other comparable regulatory agency standards or specifications with consistent and acceptable production yield and costs; |
Our contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercialization of, our clinical product candidate;
| • | Our contract manufacturers failing to develop an acceptable formulation to support late-stage clinical trials for, or the commercialization of, our clinical product candidate, batiraxcept; |
Our contract manufacturer being unable to increase the scale of or the capacity for, or reformulate the form of our clinical product candidate, which may cause us to experience a shortage in supply, or cause the cost to manufacture our clinical product candidate to increase. We cannot assure you that our contract manufacturers will be able to manufacture our clinical product candidate at a suitable commercial scale, or that we will be able to find alternative manufacturers acceptable to us that can do so;
| • | Our contract manufacturer being unable to increase the scale of or the capacity for, or reformulate the form of our clinical product candidate, batiraxcept, which may cause us to experience a shortage in supply, or cause the cost to manufacture batiraxcept to increase. We cannot assure you that our contract manufacturers will be able to manufacture batiraxcept at a suitable commercial scale, or that we will be able to find alternative manufacturers acceptable to us that can do so; |
Our contract manufacturer placing a priority on the manufacture of other customers’ or its own products, rather than our products;
| • | Our contract manufacturer placing a priority on the manufacture of other customers’ or its own products, rather than our products; |
Our contract manufacturer or our vendors failing to perform as agreed, including failing to properly package, transport or store our clinical product candidate or its reagents, or exiting from the contract manufacturing business;
| • | Our contract manufacturer or our vendors failing to perform as agreed, including failing to properly package, transport or store batiraxcept or its reagents, or exiting from the contract manufacturing business; |
Our contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster;
| • | Our contract manufacturers’ plants being closed as a result of regulatory sanctions or a natural disaster or pandemic; |
Shortages of qualified personnel, raw materials or key contractors;
| • | Shortages of qualified personnel, raw materials or key contractors; |
Our contract manufacturers failing to obtain FDA approval for commercial scale manufacturing; and
| • | Our contract manufacturers failing to obtain FDA approval for commercial scale manufacturing; and |
Ongoing compliance with cGMP regulations and other requirements of the FDA or other comparable regulatory agencies.
| • | Ongoing compliance with cGMP regulations and other requirements of the FDA or other comparable regulatory agencies. |
If we encounter any of these problems or are otherwise delayed, or if the cost of manufacturing in the China facility is not economically feasible or we cannot find another third-party manufacturer, we may not be able to produce our clinical product candidate, batiraxcept, in a sufficient quantity to meet future demand. In addition, since we rely on a third-party manufacturer located in China, our business is subject to risks associated with doing business in China, including: adverse political and economic conditions, particularly those potentially negatively affecting the trade relationship between the United States and China;
trade protection measures, such as tariff increases, and import and export licensing and control requirements;
potentially negative consequences from changes in tax laws;
difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China;
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| • | adverse political and economic conditions, particularly those potentially negatively affecting the trade relationship between the United States and China; |
| • | trade protection measures, such as tariff increases, and import and export licensing and control requirements; |
| • | potentially negative consequences from changes in tax laws; |
| • | difficulties associated with the Chinese legal system, including increased costs and uncertainties associated with enforcing contractual obligations in China; |
| • | historically lower protection of intellectual property rights; |
| • | changes and volatility in currency exchange rates; |
| • | unexpected or unfavorable changes in regulatory requirements; |
| • | possible patient or physician preferences for more established pharmaceutical products and medical devices manufactured in the United States; and |
| • | difficulties in managing foreign relationships and operations generally. |
changes and volatility in currency exchange rates;
unexpected or unfavorable changes in regulatory requirements;
possible patient or physician preferences for more established pharmaceutical products and medical devices manufactured in the United States; and
difficulties in managing foreign relationships and operations generally.
These risks are likely to be exacerbated by our limited experience with our current products and manufacturing processes. If demand for our products materializes, we may have to invest additional resources to purchase materials, hire and train employees, and enhance our manufacturing processes. It may not be possible for us to manufacture our clinical product candidate, batiraxcept, at a cost or in quantities sufficient to make its clinical product candidate commercially viable. Any of these factors may affect our ability to manufacture our products and could reduce gross margins and profitability. Reliance on third-party manufacturers and suppliers entails risks to which we would not be subject if we manufactured our clinical product candidatebatiraxcept, itself, including: reliance on the third parties for regulatory compliance and quality assurance;
| • | reliance on the third parties for regulatory compliance and quality assurance; |
the possible breach of the manufacturing agreements by the third parties because of factors beyond our control or the insolvency of any of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and
| • | the possible breach of the manufacturing agreements by the third parties because of factors beyond our control or the insolvency of any of these third parties or other financial difficulties, labor unrest, natural disasters or other factors adversely affecting their ability to conduct their business; and |
possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of our breach of the manufacturing agreement or based on their own business priorities.
| • | possibility of termination or non-renewal of the agreements by the third parties, at a time that is costly or inconvenient for us, because of our breach of the manufacturing agreement or based on their own business priorities. |
If our contract manufacturer or its suppliers fail to deliver the required commercial quantities of our clinical product candidate, batiraxcept, required for our clinical trials and, if approved, for commercial sale, on a timely basis and at commercially reasonable prices, and we are unable to find one or more replacement manufacturers or suppliers capable of production at a substantially equivalent cost, in substantially equivalent volumes and quality, and on a timely basis, we would likely be unable to meet demand for our products and would have to delay or terminate our pre-clinical or clinical trials, and we would lose potential revenue. It may also take a significant period of time to establish an alternative source of supply for our clinical product candidatebatiraxcept and to have any such new source approved by the FDA or any applicable foreign regulatory authorities. Furthermore, any of the above factors could cause the delay or suspension of initiation or completion of clinical trials, regulatory submissions or required approvals of our clinical product candidate,batiraxcept, cause it to incur higher costs and could prevent us from commercializing our clinical product candidatebatiraxcept successfully. We may not be able to manufacture AVB-500batiraxcept in sufficient quantities for commercialization. In order to receive FDA approval of our clinical product candidate, batiraxcept, we will need to manufacture such clinical product candidate in larger quantities. Our third partythird-party manufacturer may not be willing or able to increase successfully the manufacturing capacity for our clinical product candidatebatiraxcept in a timely or economic manner, or at all. In the event FDA approval is received, we will need to increase production of our clinical product candidate.batiraxcept. Significant scale-up of manufacturing may require additional validation studies, which the FDA must review and approve. If we are unable to successfully increase the manufacturing capacity for our clinical product candidate,batiraxcept, the clinical trials as well as the regulatory approval or commercial launch of our clinical product candidatebatiraxcept may be delayed or there may be a shortage in supply. Our clinical product candidateBatiraxcept requires precise, high quality manufacturing. Failure to achieve and maintain high quality manufacturing, including the incidence of manufacturing errors, could result in patient injury or death, delays or failures in testing or delivery, cost overruns or other problems that could harm our business, financial condition and results of operations. In the event that we need to change our third-party contract manufacturer, our preclinical studies or our clinical trials, the commercialization of our clinical product candidate, batiraxcept, could be delayed, adversely affected or terminated, or such a change may result in the need for us to incur significantly higher costs, which could materially harm our business. Due to various regulatory restrictions in the United States and many other countries, as well as potential capacity constraints on manufacturing that occur from time-to-time in our industry, various stepsmaterials in the manufacturemanufacturing of our clinical product candidate isbatiraxcept are solely-sourced from certain contract manufacturers. In accordance with cGMPs, changing manufacturers may require the re-validation of manufacturing processes and procedures, and may require further preclinical studies or clinical trials to show comparability between the materials produced by different manufacturers. Changing our current or future contract manufacturers may be difficult, if not impossible for us, and could be extremely costly if we do make such a change, which could result in our inability to manufacture our clinical product candidatebatiraxcept for an extended period of time and a delay in the development of our clinical product candidate.batiraxcept. Further, in order to maintain our development timelines in the event of a change in a third-party contract manufacturer, we may incur significantly higher costs to manufacture our clinical product candidate.batiraxcept. 39
If third-party vendors, upon whom we rely to conduct our preclinical studies or clinical trials, do not perform or fail to comply with strict regulations, these studies or trials may be delayed, terminated, or fail, or we could incur significant additional expenses, which could materially harm our business. We have limited resources dedicated to designing, conducting and managing our preclinical studies and clinical trials. We have historically relied on, and intend to continue to rely on, third parties, including clinical research organizations, or CROs, consultants and principal investigators, to assist us in designing, managing, conducting, monitoring and analyzing the data from our preclinical studies and clinical trials. In addition, institution sponsored clinical trials, such as the one being conducted by M.D. Anderson Cancer that uses AVB-500batiraxcept in combination AstraZeneca Pharmaceuticals LP’s medicinal product Durvalumab, will be conducted by the institution. We rely on these vendors and individuals to perform many facets of the clinical development process on our behalf, including conducting preclinical studies, the recruitment of sites and subjects for participation in our clinical trials, maintenance of good relations with the clinical sites, and ensuring that these sites are conducting our trials in compliance with the trial protocol and applicable regulations. If these third parties fail to perform satisfactorily, or do not adequately fulfill their obligations under the terms of our agreements with them, we may not be able to enter into alternative arrangements without undue delay or additional expenditures, and therefore the preclinical studies and clinical trials of our clinical product candidate, batiraxcept, may be delayed or prove unsuccessful. Further, the FDA, the EMA, or similar regulatory authorities in other countries, may inspect some of the clinical sites participating in our clinical trials or our third-party vendors’ sites to determine if our clinical trials are being conducted according to good clinical practices, or GCPs, or similar regulations. If we or a regulatory authority determine that our third-party vendors are not in compliance with, or have not conducted our clinical trials according to applicable regulations, we may be forced to exclude certain data from the results of the trial, or delay, repeat or terminate such clinical trials. We rely on third parties to conduct, supervise and monitor our clinical trials, and if those third parties perform in an unsatisfactory manner, it may harm our business. We rely on CROs and clinical trial sites to ensure the proper and timely conduct of our clinical trials, and we expect to have limited influence over their actual performance. We also rely upon CROs to monitor and manage data for our clinical programs, as well as the execution of future nonclinical studies. We expect to control only certain aspects of our CROs’ activities. Nevertheless, we will be responsible for ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards and our reliance on the CROs does not relieve us of our regulatory responsibilities. We and our CROs will be required to comply with the Good Laboratory Practices and GCPs, which are regulations and guidelines enforced by the FDA and are also required by the Competent Authorities of the Member States of the European Economic AreaEEA and comparable foreign regulatory authorities in the form of International Conference onCouncil for Harmonization of Technical Requirements for Pharmaceuticals for Human Use guidelines for any of our product candidates that are in preclinical and clinical development. The Regulatory authorities enforce GCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our CROs fail to comply with GCPs, the clinical data generated in our clinical trials may be deemed unreliable and the FDA or comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. Accordingly, if our CROs fail to comply with these regulations or fail to recruit a sufficient number of subjects, we may be required to repeat clinical trials, which would delay the regulatory approval process.process and increase our costs. Our CROs willare not be our employees, and we willdo not control whether or not they devote sufficient time and resources to our future clinical and nonclinical programs. These CROs may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical trials, or other drug development activities which could harm our competitive position. We face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by CROs, which may reduce our trade secret protection and allow our potential competitors to access and exploit our proprietary technology. If our CROs do not successfully carry out their contractual duties or obligations, fail to meet expected deadlines, or if the quality or accuracy of the clinical data they obtain is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize any product candidate that we develops.develop. As a result, our financial results and the commercial prospects for any product candidate that it develops would be harmed, its costs could increase, and our ability to generate revenues could be delayed. If our relationship with these CROs terminate, we may not be able to enter into arrangements with alternative CROs or do so on commercially reasonable terms. Switching or adding additional CROs involves substantial cost and requires management time and focus. In addition, there is a natural transition period when a new CRO commences work. As a result, delays occur, which can materially impact our ability to meet our desired clinical development timelines. Though we intend to carefully manage our relationships with our CROs, there can be no assurance that it will not encounter challenges or delays in the future or that these delays or challenges will not have an adverse impact on our business, financial condition and prospects. 40
We may seek to selectively establish collaborations, and, if we are unable to establish them on commercially reasonable terms, it may have to alter our development and commercialization plans.
Our product development programs and the potential commercialization of our clinical product candidate will require substantial additional cash to fund expenses. For some of our product candidates we may decide to collaborate with governmental entities or additional pharmaceutical and biotechnology companies for the development and potential commercialization of our product candidates.
We face significant competition in seeking appropriate collaborators. Whether we reach a definitive agreement for a collaboration will depend, among other things, upon our assessment of the collaborator’s resources and expertise, the terms and conditions of the proposed collaboration and the proposed collaborator’s evaluation of a number of factors. Those factors may include the design or results of clinical trials, the likelihood of approval by the FDA or similar regulatory authorities outside the United States, the potential market for the subject product candidate, the costs and complexities of manufacturing and delivering such product candidate to patients, the potential of competing products, the existence of uncertainty with respect to our ownership of technology, which can exist if there is a challenge to such ownership without regard to the merits of the challenge and industry and market conditions generally. The collaborator may also consider alternative product candidates for similar indications that may be available to collaborate on and whether such a collaboration could be more attractive than the one with our product candidate.
Our future success depends on our ability to retain executive officers and attract, retain and motivate qualified personnel. We are highly dependent on our executive officers and the other principal members of our management and scientific teams. The employment of our executive officers is at-will and our executive officers may terminate their employment at any time. The loss of the services of any of our senior executive officers could impede the achievement of our research, development and commercialization objectives. We do not maintain “key person” insurance for any executive officer or employee. Recruiting and retaining qualified scientific, clinical, manufacturing and sales and marketing personnel is also critical to our success. We may not be able to attract and retain these personnel on acceptable terms given the competition among numerous pharmaceutical and biotechnology companies for similar personnel. We also experience competition for the hiring of scientific and clinical personnel from universities and research institutions. Our industry has experienced an increasing rate of turnover of management and scientific personnel in recent years. In addition, we rely on consultants and advisors, including scientific and clinical advisors, to assist it in devising our research and development and commercialization strategy. Our consultants and advisors may be employed by third parties and have commitments under consulting or advisory contracts with other entities that may limit their availability to advance our strategic objectives. If any of these advisors or consultants can no longer dedicate a sufficient amount of time to the company, our business may be harmed. Many of the other pharmaceutical companies that we compete against for qualified personnel and consultants have greater financial and other resources, different risk profiles and a longer history in the industry than we do. They also may provide more diverse opportunities and better chances for career advancement. Some of these characteristics may be more appealing to high-quality candidates and consultants than what it has to offer. If we are unable to continue to attract and retain high-quality personnel and consultants, the rate and success at which we can select and develop our clinical product candidate, batiraxcept, and our business will be limited. We will need to expand our organization, and we may experience difficulties in managing this growth, which could disrupt operations.
Our future financial performance, our ability to commercialize our clinical product candidate and our ability to compete effectively will depend, in part, on our ability to effectively manage any future growth. As of December 31, 2019, we had 17 employees. We expect to hire additional employees for our managerial, clinical, scientific and engineering, operational, manufacturing, sales and marketing teams. We may have operational difficulties in connection with identifying, hiring and integrating new personnel, especially in light of the CPRIT Grant requirements, including the requirement that we maintain our headquarters in Texas. Future growth would impose significant additional responsibilities on our management, including the need to identify, recruit, maintain, motivate and integrate additional employees, consultants and contractors. Also, 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, give rise to 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 our clinical product candidate. If we are 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.
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Our business and operations would suffer in the event of system failures.
Our computer systems and those of our service providers, including its CROs, are vulnerable to damage from computer viruses, unauthorized access, natural disasters (including hurricanes), terrorism, war and telecommunication and electrical failures. If such an event were to occur and cause interruptions in our or their operations, it could result in a material disruption of our development programs and other aspects of our business. For example, the loss of preclinical or clinical trial data from completed, ongoing or planned trials could result in delays in its 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 data or applications, or inappropriate disclosure of personal, confidential or proprietary information, we could incur liability and the further development of our clinical product candidate could be delayed.
Risks Related to Clinical Development, Regulatory Approval and Commercialization If the results from preclinical studies or clinical trials of AVB-500batiraxcept are unfavorable, we could be delayed or precluded from its further development or commercialization, which could materially harm our business. In order to further advance the development of, and ultimately receive marketing approval to sell AVB-500,batiraxcept, we must conduct extensive preclinical studies and clinical trials to demonstrate our safety and efficacy to the satisfaction of the FDA or similar regulatory authorities in other countries, as the case may be. Preclinical studies and clinical trials are expensive, complex, can take many years to complete, and have highly uncertain outcomes. Delays, setbacks, or failures can and do occur at any time, and in any phase of preclinical or clinical testing, and can result from concerns about safety, tolerability, toxicity, a lack of demonstrated biologic activity or improved efficacy over similar products that have been approved for sale or are in more advanced stages of development, poor study or trial design, and issues related to the formulation or manufacturing process of the materials used to conduct the trials. The results of prior preclinical studies or early-stage clinical trials are not predictive of the results we may observe in late-stage clinical trials, especially since the number of subjects in our Phase 1completed clinical trialtrials was small and all were healthy volunteers with larger number of subjects and with our drug candidate in combinations with standard of care may have different results.small. In many cases, product candidates in clinical development may fail to show the desired tolerability, safety and efficacy characteristics, despite having favorably demonstrated such characteristics in preclinical studies or early-stage clinical trials. In addition, we may experience numerous unforeseen events during, or as a result of, preclinical studies and the clinical trial process, which could delay or impede our ability to advance the development of, receive marketing approval for, or commercialize our clinical product candidate, batiraxcept, including, but not limited to: communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing the development of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved, including performing additional studies to answer their queries;
| • | communications with the FDA, or similar regulatory authorities in different countries, regarding the scope or design of a trial or trials, or placing the development of a product candidate on clinical hold or delaying the next phase of development until questions or issues are satisfactorily resolved, including performing additional studies to answer their queries; |
regulatory authorities or institutional review boards, or IRBs, not authorizing us to commence or conduct a clinical trial at a prospective trial site;
| • | regulatory authorities or institutional review boards ("IRBs") not authorizing us to commence or conduct a clinical trial at a prospective trial site or delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; |
enrollment in our clinical trials being delayed, or proceeding at a slower pace than we expected, because we have difficulty recruiting participants or participants drop out of our clinical trials at a higher rate than we anticipated;
| • | enrollment in our clinical trials being delayed, or proceeding at a slower pace than we expected, because we have difficulty recruiting participants or participants drop out of our clinical trials at a higher rate than we anticipated; |
our third-party contractors, upon whom we rely to conduct preclinical studies, clinical trials and the manufacturing of our clinical trial materials, failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner;
| • | our third-party contractors, upon whom we rely to conduct preclinical studies, clinical trials and the manufacturing of our clinical trial materials, failing to comply with regulatory requirements or meet their contractual obligations to us in a timely manner; |
having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks;
| • | having to suspend or ultimately terminate a clinical trial if participants are being exposed to unacceptable health or safety risks; |
regulatory authorities or IRBs requiring that we hold, suspend or terminate our preclinical studies and clinical trials for various reasons, including non-compliance with regulatory requirements; and
| • | regulatory authorities or IRBs requiring that we hold, suspend or terminate our preclinical studies and clinical trials for various reasons, including non-compliance with regulatory requirements; and |
| • | the supply or quality of material necessary to conduct our preclinical studies or clinical trials being insufficient, inadequate or unavailable. |
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Even if the data collected from preclinical studies or clinical trials involving our clinical product candidatebatiraxcept, demonstrate a satisfactory tolerability, safety and efficacy profile, such results may not be sufficient to support the submission of a BLA to obtain regulatory approval from the FDA in the United States, or other similar regulatory authorities in other foreign jurisdictions, which is required for us to market and sell its clinical product candidate.batiraxcept. Clinical trials are very expensive, time-consuming, difficult to design and implement and involve an uncertain outcome, and if they fail to demonstrate safety and efficacy to the satisfaction of the FDA, or similar regulatory authorities, we will be unable to commercialize its clinical product candidate. Ourour clinical product candidate, batiraxcept.
Batiraxcept is still in early-stage clinical development and will require extensive additional clinical testing before we are prepared to submit a BLA for regulatory approval for any indication or for any treatment regime. We cannot predict with any certainty if or when we might submit a BLA for regulatory approval for AVB-500, for which we completed a Phase 1 clinical trial in June 2018 and began the Phase 1b portion of a Phase 1b/2 clinical trial for ovarian cancer in December 2018batiraxcept, or whether any such future BLA would be approved by the FDA. Human clinical trials are very expensive and difficult to design and implement, in part because they are subject to rigorous regulatory requirements. For instance, the FDA may not agree with endpoints for any clinical trial we propose, which may delay the commencement of our clinical trials. The clinical trial process is also time-consuming. Furthermore, failure can occur at any stage of the trials, and we could encounter problems that cause us to abandon or repeat clinical trials. A product candidate in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through preclinical studies and initial clinical trials, and the results of our Phase 1 clinical trial of the clinical product candidate as well as the pre-clinical results may not be predictive of the results of our Phase 2 or Phase 3 trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, including us with respect to our phase 3 VELOCITY trial, of notwithstanding promising results in earlier trials.profiles. Moreover, preclinical and clinical data are often susceptible to multiple interpretations and analyses. Many companies that have believed their product candidates performed satisfactorily in preclinical studies and clinical trials have nonetheless failed to obtain marketing approval of their products. Success in preclinical testing and early clinical trials does not ensure that later clinical trials, which involve many more subjects and the results of later clinical trials may not replicate the results of prior clinical trials and preclinical testing. For example, in March 2022 we announced that we are seeking to revise the statistical analysis plan for our adaptive design Phase 3 trial of batiraxcept in PROC by omitting the interim analysis in the trial. The current design includes an interim analysis that would allow an additional 100 bevacizumab naïve patients to be enrolled to balance the bevacizumab populations should the interim analysis suggest additional bevacizumab naïve patients are potentially needed to increase the chance for success at the end of the trial. We may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our ability to receive marketing approval or commercialize our clinical product candidate, including that: regulators or institutional review boards may not authorize us or our investigators to commence a clinical trial or conduct a clinical trial at a prospective trial site;
believe we may have delays in reaching or fail to reach agreement on acceptable clinical trial contracts or clinical trial protocols with prospective trial sites; clinical trials of our clinical product candidate may produce negative or inconclusive results, and we may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;
can enroll the number of subjects required for clinical trials ofbevacizumab naïve patients needed to have a potentially successful study, but our clinical product candidatebelief may be larger thanincorrect, and if we anticipate; enrollment in these clinical trialsproceed with the revision to the statistical analysis plan we may be slower than we anticipate,ultimately have negative trial results or participants may drop out of these clinical trials at a higher rate than we anticipate; Our third-party contractors may failindeterminate trial results that are not able to comply with regulatory requirements or meet their contractual obligations to us in a timely manner, or at all;support BLA approval.
regulators or institutional review boards may require that we or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements or a finding that the participants are being exposed to unacceptable health risks;
the cost of clinical trials of our clinical product candidate may be greater than it anticipates; and
the supply or quality of our clinical product candidate or other materials necessary to conduct clinical trials of our clinical product candidate may be insufficient or inadequate.
If we are required to conduct additional clinical trials or other testing of our clinical product candidatebatiraxcept beyond those that we currently contemplate, if we are unable to successfully complete clinical trials of our clinical product candidatebatiraxcept or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety concerns, we may: be delayed in obtaining marketing approval for our clinical product candidate require additional funding not budgeted for;
not obtain marketing approval at all;
obtain approval for indications or patient populations that are not as broad as intended or desired;
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| • | be delayed in obtaining marketing approval for batiraxcept require additional funding not budgeted for; |
| • | not obtain marketing approval at all; |
| • | obtain approval for indications or patient populations that are not as broad as intended or desired; |
| • | obtain approval with labeling that includes significant use or distribution restrictions or safety warnings, including boxed warnings; |
| • | be subject to additional post-marketing testing requirements; or |
be subject to additional post-marketing testing requirements; or
| • | have the product removed from the market after obtaining marketing approval. |
have the product removed from the market after obtaining marketing approval.
Product development costs will also increase if we experience delays in testing or in receiving marketing approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we may have the exclusive right to commercialize our clinical product candidate, batiraxcept, could allow our competitors to bring products to market before we do, and could impair our ability to successfully commercialize our clinical product candidate,batiraxcept, any of which may harm our business and results of operations. Enrollment and retention of subjects in clinical trials is an expensive and time-consuming process and could be made more difficult or rendered impossible by multiple factors outside our control. We may encounter delays in enrolling, or be unable to enroll, a sufficient number of participants to complete any of our clinical trials.trials especially in light of the COVID-19 pandemic. Once enrolled, we may be unable to retain a sufficient number of participants to complete any of our trials. Late-stage clinical trials of our clinical product candidatebatiraxcept may require the enrollment and retention of large numbers of subjects. Subject enrollment and retention in clinical trials depends on many factors, including the size of the subject population, the nature of the trial protocol, the existing body of safety and efficacy data with respect to the trial drug, the number and nature of competing treatments and ongoing clinical trials of competing drugs for the same indication, the proximity of subjects to clinical sites and the eligibility criteria for the trial. Furthermore, any negative results we may report in clinical trials of batiraxcept, negative results reported from clinical trials conducted by our clinical product candidatecollaborators or negative results of similar product candidates may make it difficult or impossible to recruit and retain participants in other clinical trials of that same clinical product candidate. Delays or failures in planned subject enrollment or retention may result in increased costs, program delays or both, which could have a harmful effect on its ability to develop its clinical product candidate, or could render further development impossible. In addition, we expect to rely on CROs and clinical trial sites to ensure proper and timely conduct of our future clinical trials and, while we intend to enter into agreements governing our services, we will be limited in our ability to compel our actual performance in compliance with applicable regulations. Enforcement actions brought against these third parties may cause further delays and expenses related to our clinical development programs. We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively. Development of cancer treatments is highly competitive and subject to rapid and significant technological advancements. In particular, we face competition from various sources, including larger and better funded pharmaceutical, specialty pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and public and private research institutions. These competitors are focused on delivering therapeutics for the treatment of various cancers with products that are available and have gained market acceptance as the standard treatment protocol. Further, it is likely that additional drugs or other treatments will become available in the future for the treatment of certain cancers. Many of our existing or potential competitors have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of products for the treatment of cancer, as well as in obtaining regulatory approvals of those products in the United States and in foreign countries. Our current and potential future competitors also have significantly more experience commercializing drugs that have been approved for marketing. Mergers and acquisitions in the pharmaceutical and biotechnology industries could result in even more resources being concentrated among a small number of our competitors. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing, acquiring or licensing, on an exclusive basis, drugs that are more effective or less costly than any product candidate that we may develop. We will face competition from other drugs currently approved or that will be approved in the future for the treatment of the other infectious diseases we are currently targeting. Therefore, our ability to compete successfully will depend largely on our ability to: develop and commercialize product candidates that are superior to other products in the market;
demonstrate through our clinical trials that our clinical product candidate is differentiated from existing and future therapies;
attract qualified scientific and commercial personnel;
obtain patent or other proprietary protection for its clinical product candidate;
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| • | develop and commercialize product candidates that are superior to other products in the market; |
| • | demonstrate through our clinical trials that our clinical product candidate, batiraxcept, is differentiated from existing and future therapies; |
| • | attract qualified scientific and commercial personnel; |
| • | obtain patent or other proprietary protection for batiraxcept ; |
| • | obtain required regulatory approvals; |
| • | obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and |
obtain coverage and adequate reimbursement from, and negotiate competitive pricing with, third-party payors; and
| • | successfully develop and commercialize, independently or with collaborators, new product candidates. |
successfully develop and commercialize, independently or with collaborators, new product candidates.
The availability of our competitors’ products could limit the demand, and the price we are able to charge, for any product candidate we develop. The inability to compete with existing or subsequently introduced therapies would have an adverse impact on our business, financial condition and prospects. Established pharmaceutical companies may invest heavily to accelerate discovery and development of novel compounds or to in-license novel compounds that could make our product candidate less competitive. In addition, any new products that competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Accordingly, our competitors may succeed in obtaining patent protection, discovering, developing, receiving the FDA’s approval for or commercializing medicines before we do, which would have an adverse impact on our business and results of operations. Our clinical product candidate, batiraxcept,may cause adverse effects or have other properties that could delay or prevent our regulatory approval or limit the scope of any approved label or market acceptance. Adverse events caused by our clinical product candidatebatiraxcept could cause reviewing entities, clinical trial sites or regulatory authorities to interrupt, delay or halt clinical trials and could result in the denial of regulatory approval. If an unacceptable frequency or severity of adverse events are reported in our clinical trials for our clinical product candidate,batiraxcept, our ability to obtain regulatory approval for such clinical product candidate may be negatively impacted. In addition, adverse events caused by any clinical product candidate administered in combination with our product candidate could cause similar interruptions and delays, even though not caused by our clinical product candidate.batiraxcept. Furthermore, if any of our products are approved and then cause serious or unexpected side effects, a number of potentially significant negative consequences could result, including: regulatory authorities may withdraw their approval of the product candidate or impose restrictions on its distribution or other risk management measures;
| • | regulatory authorities may withdraw their approval of the product candidate or impose restrictions on its distribution or other risk management measures; |
regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;
| • | regulatory authorities may require the addition of labeling statements, such as warnings or contraindications; |
we may be required to conduct additional clinical trials;
| • | we may be required to conduct additional clinical trials; |
we could be sued and held liable for injuries sustained by patients;
| • | we could be sued and held liable for injuries sustained by patients; |
we could elect to discontinue the sale of its product candidate; and
| • | we could elect to discontinue the sale of our product candidate; and |
our reputation may suffer.
| • | our reputation may suffer. |
Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercialization. Our employees, independent contractors, principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements, which could have an adverse effect on our results of operations. We are exposed to the risk that our employees and contractors, including principal investigators, consultants, commercial collaborators, service providers and other vendors may engage in fraudulent or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or other unauthorized activities that violate the laws and regulations of the FDA and other similar regulatory bodies, including those laws that require the reporting of true, complete and accurate information to such regulatory bodies, manufacturing standards, federal and state healthcare fraud and abuse and health regulatory laws and other similar foreign fraudulent misconduct laws, or laws that require the true, complete and accurate reporting of financial information or data. Misconduct by these parties may also involve the improper use or misrepresentation of information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter third party misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting it from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business and financial results, including the imposition of significant civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
If we are not able to obtain, or if there are delays in obtaining, required regulatory approvals, we will not be able to commercialize, or will be delayed in commercializing, our clinical product candidate, batiraxcept, and our ability to generate revenue will be impaired. Our clinical product candidate
Batiraxcept and the activities associated with our development and commercialization, including our design, testing, manufacture, safety, efficacy, recordkeeping, labeling, storage, approval, advertising, promotion, sale and distribution, are subject to comprehensive regulation by the FDA and other regulatory agencies in the United States and by comparable authorities in other countries. Failure to obtain marketing approval for a clinical product candidate will prevent us from commercializing the clinical product candidate. We have not received approval to market our clinical product candidatebatiraxcept from regulatory authorities in any jurisdiction. We only have limited experience in filing and supporting the applications necessary to gain marketing approvals and expect to rely on CROs to assist us in this process. Securing regulatory approval requires the submission of extensive preclinical and clinical data and supporting information to the various regulatory authorities for each therapeutic indication to establish the clinical product candidate’s safety and efficacy. Securing regulatory approval also requires the submission of information about the product manufacturing process to, and inspection of manufacturing facilities by, the relevant regulatory authority. Our clinical product candidateBatiraxcept may not be effective, may be only moderately effective or may prove to have undesirable or unintended side effects, toxicities or other characteristics that may prevent it from obtaining marketing approval or prevent or limit commercial use. The process of obtaining marketing approvals, both in the United States and elsewhere, is expensive, may take many years and can vary substantially based upon a variety of factors, including the type, complexity and novelty of the product candidate involved. We cannot assure you that itour product candidate will ever obtain any marketing approvals in any jurisdiction. The fact that the FDA has designated the investigation of our lead development candidate for platinum-resistant recurrent ovarian cancer as a Fast Track development program, while potentially favorable, provides no assurance as to the timing or outcome of any FDA regulatory process. Fast Track status may be withdrawn if the conditions for such designation are no longer met. Changes in marketing approval policies during the development period, changes in or the enactment of additional statutes or regulations or changes in regulatory review for each submitted product application may cause delays in the approval or rejection of an application. The FDA and comparable authorities in other countries have substantial discretion in the approval process and may refuse to accept any application or may decide that our data is insufficient for approval and require additional preclinical or other studies, and clinical trials. In addition, varying interpretations of the data obtained from preclinical testing and clinical trials could delay, limit or prevent marketing approval of a product candidate. Additionally, any marketing approval we ultimately obtain may be limited or subject to restrictions or post-approval commitments that render the approved product not commercially viable. Even if we obtain FDA approval in the United States, we may never obtain approval for or commercialize our clinical product candidate, batiraxcept, in any other jurisdiction, which would limit our ability to realize each product’sproduct’s full market potential. In order to market our clinical product candidatebatiraxcept in a particular jurisdiction, we must establish and comply with numerous and varying regulatory requirements on a country-by-country basis regarding safety and efficacy. Approval by the FDA in the United States does not ensure approval by regulatory authorities in other countries or jurisdictions.jurisdictions and approval by regulatory authorities in other countries or jurisdictions does not ensure approval by the FDA. In addition, clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not guarantee regulatory approval in any other country. Approval processes vary among countries and can involve additional product candidate testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional preclinical studies or clinical trials which could be costly and time consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our clinical product candidatebatiraxcept in those countries. We do not have any product candidates approved for sale in any jurisdiction, including in international markets, and it doeswe do not have experience in obtaining regulatory approval in international markets. If we or our collaborators fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approvals in international markets are delayed, our target market will be reduced and our ability to realize the full market potential of any product candidate we develop will be unrealized. Even if we obtain regulatory approval, we will still face extensive ongoing regulatory requirements and our clinical product candidate, batiraxcept, may face future development and regulatory difficulties. Any product candidate for which we obtain marketing approval, along with the manufacturing processes, post-approval clinical data, labeling, packaging, distribution, adverse event reporting, storage, recordkeeping, export, import, advertising and promotional activities for such product candidate, among other things, will be subject to extensive and ongoing requirements of and review by the FDA and other regulatory authorities. These requirements include submissions of safety, efficacy and other post-marketing information and reports, establishment registration and drug listing requirements, continued compliance with current Good Manufacturing Practice, or cGMP requirements relating to manufacturing, quality control, quality assurance and corresponding maintenance of records and documents, requirements regarding the distribution of samples to physicians and recordkeeping and current GCP requirements for any clinical trials that we conduct post-approval. Even if marketing approval of a product candidate is granted, the approval may be subject to limitations on the indicated uses for which the product candidate may be marketed or to the conditions of approval. If our clinical product candidatebatiraxcept receives marketing approval, the accompanying label may limit the approved use of our product, which could limit sales. 46
The FDA may also impose requirements for costly post-marketing studies or clinical trials and surveillance to monitor the safety and/or efficacy of our clinical product candidate.batiraxcept. The FDA closely regulates the post-approval marketing and promotion of drugs to ensure drugs are marketed only for the approved indications and in accordance with the provisions of the approved labeling. The FDA imposes stringent restrictions on manufacturers’ communications regarding off-label use and if we do not market our clinical product candidatebatiraxcept for its approved indications, we may be subject to enforcement action for off-label marketing. Violations of the Federal Food, Drug, and Cosmetic Act relating to the promotion of prescription drugs may lead to FDA enforcement actions and investigations alleging violations of federal and state health care fraud and abuse laws, as well as state consumer protection laws. In addition, later discovery of previously unknown adverse events or other problems with our clinical product candidate,batiraxcept, manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may yield various results, including: | • | restrictions on manufacturing such clinical product candidate; |
| • | restrictions on the labeling or marketing of such clinical product candidate; |
| • | restrictions on product distribution or use; |
restrictions on manufacturing such clinical product candidate;
restrictions on the labeling or marketing
restrictions on product distribution or use;
requirements to conduct post-marketing studies or clinical trials;
| • | requirements to conduct post-marketing studies or clinical trials; |
warning letters;
withdrawal of the clinical product candidate from the market;
| • | withdrawal of the clinical product candidate from the market; |
refusal to approve pending applications or supplements to approved applications that we submit;
| • | refusal to approve pending applications or supplements to approved applications that we submit; |
recall of such clinical product candidate;
| • | recall of such clinical product candidate; |
fines, restitution or disgorgement of profits or revenues;
| • | fines, restitution or disgorgement of profits or revenues; |
suspension or withdrawal of marketing approvals;
| • | suspension or withdrawal of marketing approvals; |
refusal to permit the import or export of such clinical product candidate;
| • | refusal to permit the import or export of such clinical product candidate; |
clinical product candidate seizure; or
| • | clinical product candidate seizure; or |
injunctions or the imposition of civil or criminal penalties.
| • | injunctions or the imposition of civil or criminal penalties. |
The FDA’s policies may change and additional government regulations may be enacted that could prevent, limit or delay regulatory approval of our clinical product candidate.batiraxcept. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are not able to maintain regulatory compliance, we may lose any marketing approval that we may have obtained. Even if our clinical product candidate, batiraxcept, receives marketing approval, we may fail to achieve market acceptance by physicians, patients, third-party payors or others in the medical community necessary for commercial success. If our clinical product candidatebatiraxcept receives marketing approval, we may nonetheless fail to gain sufficient market acceptance by physicians, patients, third-party payors and others in the medical community. If we do not achieve an adequate level of acceptance, we may not generate significant revenues and become profitable. The degree of market acceptance, if approved for commercial sale, will depend on a number of factors, including but not limited to: the efficacy and potential advantages compared to alternative treatments;
| • | the efficacy and potential advantages compared to alternative treatments; |
effectiveness of sales and marketing efforts;
| • | effectiveness of sales and marketing efforts; |
the cost of treatment in relation to alternative treatments;
| • | the cost of treatment in relation to alternative treatments; |
our ability to offer our clinical product candidate for sale at competitive prices;
| • | our ability to offer batiraxcept for sale at competitive prices; |
the convenience and ease of administration compared to alternative treatments;
| • | the convenience and ease of administration compared to alternative treatments; |
the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies;
| • | the willingness of the target patient population to try new therapies and of physicians to prescribe these therapies; |
the willingness of the medical community to offer customers our product candidate option in addition to or in the place of our clinical product candidate;
| • | the willingness of the medical community to offer customers our product candidate option in addition to or in the place of batiraxcept ; |
the strength of marketing and distribution support;
| • | the strength of marketing and distribution support; |
the availability of third party coverage and adequate reimbursement;
| • | the availability of third-party coverage and adequate reimbursement; |
the prevalence and severity of any side effects; and
| • | the prevalence and severity of any side effects; and |
any restrictions on the use of our product together with other medications.
| • | any restrictions on the use of our product together with other medications. |
47
Because we expect sales of our clinical product candidateall of batiraxcept to be based on the same mechanism of action, the failure of our first product candidate to achieve market acceptance would harm our business and could require us to seek additional financing sooner than we otherwise planned. The insurance coverage and reimbursement status of newly-approved products is uncertain. Our product candidates may become subject to unfavorable pricing regulations, third-party coverage and reimbursement practices, or healthcare reform initiatives, which would harm our business. Failure to obtain or maintain adequate coverage and reimbursement for new or current products could limit our ability to market those products and decrease our ability to generate revenue. The regulations that govern marketing approvals, pricing, coverage, and reimbursement for new drugs vary widely from country to country. In the United States, recently enacted legislation may significantly change the approval requirements in ways that could involve additional costs and cause delays in obtaining approvals. Some countries require approval of the sale price of a drug before it can be marketed. In many countries, the pricing review period begins after marketing or product licensing approval is granted. In some foreign markets, prescription pharmaceutical pricing remains subject to continuing governmental control even after initial approval is granted. As a result, we might obtain marketing approval for a product in a particular country, but then be subject to price regulations that delay our commercial launch of the product, possibly for lengthy time periods, and negatively impact the revenue we are able to generate from the sale of the product in that country. Adverse pricing limitations may hinder our ability to recoup our investment in one or more product candidates, even if any product candidates we may develop obtain marketing approval. Our ability to successfully commercialize our product candidates also will depend in part on the extent to which coverage and adequate reimbursement for these products and treatments will be available from government health administration authorities, private health insurers, and other organizations. Government authorities and third-party payors, such as private health insurers and health maintenance organizations, decide which medications they will pay for and establish reimbursement levels. The availability of coverage and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford treatments such as gene therapy products. Sales of these or other product candidates that we may identify will depend substantially, both domestically and abroad, on the extent to which the costs of our product candidates will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If coverage and adequate reimbursement is not available, or is available only to limited levels, we may not be able to successfully commercialize our product candidates. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing sufficient to realize a sufficient return on our investment. The availability and extent of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive treatments. Sales of our clinical product candidatebatiraxcept that receive marketing approval will depend substantially, both in the United States and internationally, on the extent to which the costs of our clinical product candidatebatiraxcept will be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement is not available, or is available only on a limited basis, we may not be able to successfully commercialize our clinical product candidate.batiraxcept. Even if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain adequate pricing that will allow it to realize a sufficient return on our investment. Outside the United States, international operations are generally subject to extensive governmental price controls and other market regulations, and we believe the increasing emphasis on cost-containment initiatives in Europe, Canada, China and other countries may cause us to price our clinical product candidatebatiraxcept on less favorable terms that we currently anticipate. In many countries, particularly the countries of the European Union, the prices of medical products are subject to varying price control mechanisms as part of national health systems. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product. To obtain reimbursement or pricing approval in some countries, we may be required to conduct a clinical trial that compares the cost-effectiveness of our clinical product candidatebatiraxcept to other available therapies. In general, the prices of products under such systems are substantially lower than in the United States. Other countries allow companies to fix their own prices for products but monitor and control company profits. Additional foreign price controls or other changes in pricing regulation could restrict the amount that it is able to chargebe charged for its clinical product candidate.candidates. Accordingly, in markets outside the United States, the reimbursement for its products may be reduced compared with the United States and may be insufficient to generate commercially reasonable revenues and profits. Moreover, increasing efforts by governmental and third-party payors, in the United States and internationally, to cap or reduce healthcare costs may cause such organizations to limit both coverage and level of reimbursement for newly approved products and, as a result, they may not cover or provide adequate payment for its clinical product candidate.candidates. We expect to experience pricing pressures in connection with the sale of our clinical product candidatebatiraxcept due to the trend toward managed healthcare, the increasing influence of health maintenance organizations and additional legislative changes. The downward pressure on healthcare costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected for new products entering the marketplace. 48
If we fail to comply with state and federal healthcare regulatory laws, we could face substantial penalties, damages, fines, disgorgement, exclusion from participation in governmental healthcare programs, and the curtailment of its operations, any of which could harm our business. Although we do not provide healthcare services or submit claims for third party reimbursement, we are subject to healthcare fraud and abuse regulation and enforcement by federal and state governments which could significantly impact our business. The laws that may affect our ability to operate include, but are not limited to: | • | the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral of an individual for, or the purchase, lease, order or recommendation of, any good, facility, item or service for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of this statute or specific intent to violate it; |
| • | the civil FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government; |
the federal anti-kickback statute, which prohibits, among other things, persons and entities from knowingly and willfully soliciting, receiving, offering, or paying remuneration, directly or indirectly, in cash or in kind, in exchange for or to induce either the referral
the civil False Claims Act, or FCA, which prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other third-party payors that are false or fraudulent; knowingly making using, or causing to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the government; or knowingly making, using, or causing to be made or used, a false record or statement to avoid, decrease or conceal an obligation to pay money to the federal government;
the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent;
| • | the criminal FCA, which imposes criminal fines or imprisonment against individuals or entities who make or present a claim to the government knowing such claim to be false, fictitious or fraudulent; |
HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
| • | HIPAA, which created federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters; |
the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental program;
| • | the federal civil monetary penalties statute, which prohibits, among other things, the offering or giving of remuneration to a Medicare or Medicaid beneficiary that the person knows or should know is likely to influence the beneficiary’s selection of a particular supplier of items or services reimbursable by a Federal or state governmental program; |
the federal physician sunshine requirements under the Affordable Care Act, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and
| • | the federal physician sunshine requirements under the ACA, which require certain manufacturers of drugs, devices, biologics, and medical supplies to report annually to the U.S. Department of Health and Human Services information related to payments and other transfers of value to physicians, other healthcare providers, and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members; and |
state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures.
| • | state and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws that may apply to items or services reimbursed by any third-party payor, including commercial insurers; state laws that require pharmaceutical companies to comply with the device industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws that require device manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures. |
Further, the Affordable Care Act,ACA, among other things, amended the intent requirements of the federal anti-kickback statute and certain criminal statutes governing healthcare fraud. A person or entity can now be found guilty of violating the statute without actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care ActACA provided that the government may assert that a claim including items or services resulting from a violation of the federal Anti- Kickback Statute constitutes a false or fraudulent claim for purposes of the FCA. Moreover, while it does not submit claims and its customers make the ultimate decision on how to submit claims, from time to time, we may provide reimbursement guidance to our customers. If a government authority were to conclude that we provide improper advice to our customers or encouraged the submission of false claims for reimbursement, we could face action against us by government authorities. Any violations of these laws, or any action against us for violation of these laws, even if we successfully defend against it, could result in a material adverse effect on our reputation, business, results of operations and financial condition. We have entered into consulting and scientific advisory board arrangements with physicians and other healthcare providers. Compensation for some of these arrangements includes the provision of stock options. While we have worked to structure our arrangements to comply with applicable laws, because of the complex and far-reaching nature of these laws, regulatory agencies may view these transactions as prohibited arrangements that must be restructured, or discontinued, or for which we could be subject to other significant penalties. We could be adversely affected if regulatory agencies interpret our financial relationships with providers who influence the ordering of and use our products to be in violation of applicable laws. The scope and enforcement of each of these laws is uncertain and subject to rapid change in the current environment of healthcare reform, especially in light of the lack of applicable precedent and regulations. Federal and state enforcement bodies have recently increased their scrutiny of interactions between healthcare companies and healthcare providers, which has led to a number of investigations, prosecutions, convictions and settlements in the healthcare industry. 49
Responding to investigations can be time- and resource-consuming and can divert management’s attention from the business. Additionally, as a result of these investigations, healthcare providers and entities may have to agree to additional onerous compliance and reporting requirements as part of a consent decree or corporate integrity agreement. Any such investigation or settlement could increase our costs or otherwise have an adverse effect on itsour business. Product liability lawsuits against us could cause us to incur substantial liabilities and could limit the commercialization of any product candidates we may develop. We face an inherent risk of product liability exposure related to the testing of our clinical product candidatebatiraxcept in human clinical trials and will face an even greater risk if we commercially sell any products that we may develop after approval. Any adverse reactions in our clinical trials could be deemed to be related to our clinical product candidatebatiraxcept and could result in claims from these injuries and we could incur substantial liabilities. Regardless of merit or eventual outcome, liability claims may result in: | • | decreased demand for any product candidates that we may develop; |
| • | injury to our reputation and significant negative media attention; |
| • | withdrawal of clinical trial participants; |
| • | significant costs to defend any related litigation; |
| • | substantial monetary awards to trial subjects or patients; |
decreased demand for any product candidates that we may develop;
injury to our reputation and significant negative media attention;
withdrawal of clinical trial participants;
significant costs to defend any related litigation;
substantial monetary awards to trial subjects or patients;
| • | the inability to commercialize any products we may develop. |
loss of revenue; and
the inability to commercialize any products we may develop.
Although we maintain product liability insurance coverage in the amount of up to $10 million per claim and in the aggregate, we may not be adequate to cover all liabilities that we may incur. We anticipate that we will need to increase our insurance coverage as we continue clinical trials and if we successfully commercialize any products. Insurance coverage is increasingly expensive. We may not be able to maintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that may arise. If we are unable to establish sales, marketing and distribution capabilities either on our own or in collaboration with third parties, we may not be successful in commercializing our clinical product candidate, batiraxcept,if approved. We do not have any infrastructure for the sales, marketing or distribution of our clinical product candidate,batiraxcept, and the cost of establishing and maintaining such an organization may exceed the cost-effectiveness of doing so. In order to market any product candidate that may be approved, we must build our sales, distribution, marketing, managerial and other non-technical capabilities or make arrangements with third parties to perform these services. To achieve commercial success for any product candidate for which we have obtained marketing approval, we will need a sales and marketing organization. We expect to build a focused sales, distribution and marketing infrastructure to market any other product candidates in the United States, if approved. There are significant expenses and risks involved with establishing our own sales, marketing and distribution capabilities, including our ability to hire, retain and appropriately incentivize qualified individuals, generate sufficient sales leads, provide adequate training to sales and marketing personnel, and effectively manage a geographically dispersed sales and marketing team. Any failure or delay in the development of our internal sales, marketing and distribution capabilities could delay any product candidate launch, which would adversely impact commercialization. Factors that may inhibit our efforts to commercialize our clinical product candidatebatiraxcept on our own include: Our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel;
| • | Our inability to recruit, train and retain adequate numbers of effective sales and marketing personnel; |
the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to administer our products; and
| • | the inability of sales personnel to obtain access to physicians or attain adequate numbers of physicians to administer our products; and |
unforeseen costs and expenses associated with creating an independent sales and marketing organization.
| • | unforeseen costs and expenses associated with creating an independent sales and marketing organization. |
We intend to pursue collaborative arrangements regarding the sale and marketing of our clinical product candidate,batiraxcept, if approved, for certain international markets; however, we may not be able to establish or maintain such collaborative arrangements, if able to do so, that our collaborators may not have effective sales. To the extent that we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third parties, and there can be no assurance that such efforts will be successful. If we are unable to build our own sales force in the United States or negotiate a collaborative relationship for the commercialization of our clinical product candidatebatiraxcept outside the United States we may be forced to delay the potential commercialization or reduce the scope of our sales or marketing activities. We may have to enter into arrangements with third parties or otherwise at an earlier stage than we would otherwise choose and we may be required to relinquish rights to our intellectual property or otherwise agree to terms unfavorable to us, any of which may have an adverse effect on our business, operating results and prospects. 50
We may be competing with many companies that currently have extensive and well-funded marketing and sales operations. Without an internal team or the support of a third party to perform marketing and sales functions, we may be unable to compete successfully against these more established companies. If we obtain approval to commercialize our clinical product candidate, batiraxcept outside of the United States, a variety of risks associated with international operations could harm our business. If our clinical product candidate is approved for commercialization, we intend to enter into agreements with third parties to market them in certain jurisdictions outside the United States.States such as we have with 3D Medicine. We expect that we will be subject to additional risks related to international operations or entering into international business relationships, including: | • | different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries; |
| • | reduced protection for intellectual property rights; |
| • | unexpected changes in tariffs, trade barriers and regulatory requirements; |
| • | economic weakness, including inflation, or political instability in particular foreign economies and markets; |
| • | compliance with tax, employment, immigration and labor laws for employees living or traveling abroad; |
| • | foreign reimbursement, pricing and insurance regimes; |
different regulatory requirements for drug approvals and rules governing drug commercialization in foreign countries;
reduced protection for intellectual property rights;
unexpected changes in tariffs, trade barriers and regulatory requirements;
economic weakness, including inflation, or political instability in particular foreign economies and markets;
| • | foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country; |
compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;
| • | workforce uncertainty in countries where labor unrest is more common than in the United States; |
foreign reimbursement, pricing and insurance regimes;
| • | potential noncompliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions; |
foreign taxes;
| • | product shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and |
foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;
| • | business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires. |
workforce uncertainty in countries where labor unrest is more common than in the United States;
potential noncompliance with the U.S. Foreign Corrupt Practices Act of 1977, as amended, the U.K. Bribery Act 2010 and similar anti-bribery and anticorruption laws in other jurisdictions;
product shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad; and
business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.
We have no prior experience in these areas. In addition, there are complex regulatory, tax, labor and other legal requirements imposed by both the European Union and many of the individual countries in Europe as well as China with which we will need to comply. Recently enacted and future legislation may increase the difficulty and cost for us to obtain marketing approval of and commercialize our clinical product candidate, batiraxcept, and affect the prices we may obtain. In the United States and some foreign jurisdictions, there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare system that could, among other things, prevent or delay marketing approval of our clinical product candidate, restrict or regulate post-approval activities and affect our ability to profitably sell any product candidate for which we obtain marketing approval. Changes in regulations, statutes or the interpretation of existing regulations could impact our business in the future by requiring, for example: (i) changes to our manufacturing arrangements, (ii) additions or modifications to product labeling, (iii) the recall or discontinuation of our products or (iv) additional record-keeping requirements. If any such changes were to be imposed, they could adversely affect our business, financial condition and results of operations. Among policy makers in the United States and elsewhere, there is significant interest in promoting changes in healthcare systems with the stated goals of containing healthcare costs, improving quality and/or expanding access. In the United States, the pharmaceutical industry has been a particular focus of these efforts and has been significantly affected by major legislative initiatives. In March 2010, the Affordable Care Act, or ACA was passed, which substantially changed the way healthcare is financed by both the government and private insurers, and significantly impacts the U.S. pharmaceutical industry. The ACA, among other things, subjects biological products to potential competition by lower-cost biosimilars, addresses a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted or injected, increases the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and extends the rebate program to individuals enrolled in Medicaid managed care organizations, establishes annual fees and taxes on manufacturers of certain branded prescription drugs, and creates a new Medicare Part D coverage gap discount program, in which manufacturers must agree to offer point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for the manufacturer’s outpatient drugs to be covered under Medicare Part D. Some of the provisions of the ACA have yet to be fully implemented, while certain provisions have been subject to judicial and Congressional challenges. Congress has considered legislation that would repeal or repeal and replace all or part of the ACA, and it is unclear how such challenges and other efforts to repeal and replace the Affordable Care ActACA will impact the Affordable Care ActACA and our business. 51
There have been, and likely will continue to be, legislative and regulatory proposals at the foreign, federal and state levels directed at broadening the availability of healthcare and containing or lowering the cost of healthcare. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability, or commercialize our products. Such reforms could have an adverse effect on anticipated revenue from product candidates that we may successfully develop and for which we may obtain regulatory approval and may affect our overall financial condition and ability to develop product candidates. We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and state governments will pay for healthcare products, which could result in reduced demand for our clinical product candidatebatiraxcept or additional pricing pressures. Any reduction in reimbursement from Medicare or other government programs may result in a similar reduction in payments from private payors. Risks Related to Our Intellectual Property If we are unable to obtain and maintain patent protection for our clinical product candidate, batiraxcept, or if the scope of the patent protection obtained is not sufficiently broad, we may not be able to compete effectively in our markets. We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our drug development programs and clinical product candidate. Our success depends in large part on our ability to obtain and maintain patent protection in the United States and other countries. We seek to protect our proprietary position by filing patent applications in the United States and abroad related to our development programs and clinical product candidate. The patent prosecution process is expensive and time-consuming, and we may not be able to file and prosecute all necessary or desirable patent applications at a reasonable cost or in a timely manner. It is also possible that we will fail to identify patentable aspects of our research and development output before it is too late to obtain patent protection. The patent applications that we own or in-license may fail to result in issued patents with claims that cover our product candidates in the United States or in other countries. There is no assurance that all potentially relevant prior art that could invalidate our patents or that could prevent our pending patent applications from issuing as patents have been found. Even if patents do successfully issue, third parties may challenge their validity, enforceability or scope, which may result in such patents being narrowed, invalidated, or held unenforceable. Any successful challenge to these patents or any other patents owned by or licensed to us could deprive us of rights necessary for the successful commercialization of our product candidates or companion diagnostic that we may develop. Further, if we encounter delays in regulatory approvals, the period of time during which we could market a product candidate and companion diagnostic under patent protection could be reduced. If the patent applications we hold with respect to our platform technology and clinical product candidate fail to issue, if their breadth or strength of protection is threatened, or if they fail to provide meaningful exclusivity for our clinical product candidate,batiraxcept, it could dissuade companies from collaborating with us to develop future product candidates and threaten our ability to commercialize future drugs. Any such outcome could harm our business. The patent position of biotechnology and pharmaceutical companies generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than U.S. law does. Publications of discoveries in scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases not at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in patents being issued that protect our technology or product candidates, in whole or in part, or which effectively prevent others from commercializing competitive technologies. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection. Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of ours issued patents. In 2011, the Leahy-Smith America Invents Act or the Leahy-Smith Act,(the "Leahy-Smith Act"), was signed into law. The Leahy-Smith Act includes a number of significant changes to United States patent law. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The U.S. Patent Office recently developed new regulations and procedures to govern administration of the Leahy-Smith Act, and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective in 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patents, all of which could have an adverse effect on our business and financial condition. 52
Moreover, we may be subject to a third party pre-issuance submission of prior art to the U.S. Patent and Trademark Office, or USPTO, or become involved in derivation, reexamination, inter partes review, post-grant review or interference proceedings challenging our patent rights or the patent rights of others. In other countries, we may be subject to or become involved in opposition proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission or proceeding could reduce the scope of, or invalidate, our patent rights, allow third parties to commercialize our technology or product candidates and compete directly with us, without payment to us, or result in our inability to manufacture or commercialize product candidates without infringing third-party patent rights. In addition, if the breadth or strength of protection provided by our patents and patent applications is threatened, it could dissuade companies from collaborating with us to license, develop or commercialize current or future product candidates. The issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, and its owned and licensed patents may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and product candidates. Moreover, patents have a limited lifespan. In the United States and other countries, the natural expiration of a patent is generally 20 years after it is filed. Various extensions may be available; however, the life of a patent, and the protection it affords, is limited. Without patent protection for our current or future product candidates, we may be open to competition from generic versions of such product candidates. Given the amount of time required for the development, testing and regulatory review of new product candidates, patents protecting such candidates might expire before or shortly after such candidates are commercialized. As a result, we owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing product candidates similar or identical to ours. We may be involved in lawsuits to protect or enforce our patents, the patents of our licensors or our other intellectual property rights, which could be expensive, time consuming and unsuccessful. Competitors and other third parties may infringe or otherwise violate our patents, the patents of our licensors, of our licensees or our other intellectual property rights. To counter infringement or unauthorized use, we may be required to file legal claims, which can be expensive and time-consuming. In addition, in an infringement proceeding, a court may decide that a patent of ours or our licensors is not valid or is unenforceable, or may refuse to stop the other party from using the technology at issue on the grounds that such patents do not cover the technology in question. An adverse result in any litigation or defense proceedings could put one or more of our patents at risk of being invalidated or interpreted narrowly and could put our patent applications at risk of not issuing. The initiation of a claim against a third party may also cause the third party to bring counter claims against us such as claims asserting that our patents are invalid or unenforceable. In patent litigation in the United States, defendant counterclaims alleging invalidity or unenforceability are commonplace. Grounds for a validity challenge could be an alleged failure to meet any of several statutory requirements, including lack of novelty, obviousness, nonenablement or lack of statutory subject matter. Grounds for an unenforceability assertion could be an allegation that someone connected with prosecution of the patent withheld relevant material information from the USPTO, or made a materially misleading statement, during prosecution. Third parties may also raise similar validity claims before the USPTO in post-grant proceedings such as inter partes review, or post-grant review, or oppositions or similar proceedings outside the United States, in parallel with litigation or even outside the context of litigation. The outcome following legal assertions of invalidity and unenforceability is unpredictable. We cannot be certain that there is no invalidating prior art, of which we and the patent examiner were unaware during prosecution. For the patents and patent applications that we have licensed, we may have limited or no right to participate in the defense of any licensed patents against challenge by a third party. If a defendant were to prevail on a legal assertion of invalidity or unenforceability, we would lose at least part, and perhaps all, of any future patent protection on our current or future product candidates. Such a loss of patent protection could harm our business. We may not be able to prevent, alone or with our licensors or licensees, misappropriation of our intellectual property rights, particularly in countries where the laws may not protect those rights as fully as in the United States. Our business could be harmed if in litigation the prevailing party does not offer us a license on commercially reasonable terms. Any litigation or other proceedings to enforce our intellectual property rights may fail, and even if successful, may result in substantial costs and distract our management and other employees. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of our confidential information could be compromised by disclosure during this type of litigation. There could also be public announcements of the results of hearings, motions or other interim proceedings or developments. If securities analysts or investors perceive these results to be negative, it could have an adverse effect on the price of our common stock. 53
Changes in U.S. patent law could diminish the value of patents in general, thereby impairing our ability to protect our clinical product candidate.candidate, batiraxcept. The United States has recently enacted and implemented wide-ranging patent reform legislation. The United States Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstances or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard to our ability to obtain patents in the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on actions by the U.S. Congress, the federal courts, and the USPTO, the laws and regulations governing patents could change in unpredictable ways that would weaken our ability to obtain new patents or to enforce patents that we have licensed or that we might obtain in the future. If a third party claims we are infringing on their intellectual property rights, we could incur significant expenses, or be prevented from further developing or commercializing our clinical product candidate, batiraxcept, which could materially harm our business. Our success will also depend on our ability to operate without infringing the patents and other proprietary intellectual property rights of third parties. This is generally referred to as having “freedom to operate.” We have not conducted an in-depth freedom to operate search which would be time consuming and costly. The biotechnology and pharmaceutical industries are characterized by extensive litigation regarding patents and other intellectual property rights. The defense and prosecution of intellectual property claims, interference proceedings and related legal and administrative proceedings, both in the United States and internationally, involve complex legal and factual questions. As a result, such proceedings are lengthy, costly and time-consuming, and their outcome is highly uncertain. We may become involved in protracted and expensive litigation in order to determine the enforceability, scope and validity of the proprietary rights of others, or to determine whether we have freedom to operate with respect to the intellectual property rights of others. For example, we are aware of U.S. Patent Nos. 8,168,415 and 8,920,799, which claim AXL fusion proteins and their use in treating cancer. In the event that one of these patents or another patent is successfully asserted against our GAS6-AXL program in the future, we may be unable to market the product, absent a license from the patentee, which may not be available on commercially reasonable terms, if at all. Patent applications in the United States are, in most cases, maintained in secrecy until approximately 18 months after the patent application is filed. The publication of discoveries in the scientific or patent literature frequently occurs substantially later than the date on which the underlying discoveries were made. Therefore, patent applications relating to product candidates similar to ours may have already been filed by others without our knowledge. In the event that a third party has also filed a patent application covering our clinical product candidate,batiraxcept, we may have to participate in an adversarial proceeding, such as an interference proceeding, in the U.S. Patent and Trademark Office, or USPTO, or similar proceedings in other countries, to determine the priority of invention. In the event an infringement claim is brought against us, we may be required to pay substantial legal fees and other expenses to defend such a claim and, if we are unsuccessful in defending the claim, we may be prevented from pursuing the development and commercialization of a product candidate and may be subject to injunctions and/or damage awards. In the future, the USPTO or a foreign patent office may grant patent rights covering our clinical product candidatebatiraxcept to third parties. Subject to the issuance of these future patents, the claims of which will be unknown until issued, we may need to obtain a license or sublicense to these rights in order to have the appropriate freedom to further develop or commercialize them. Any required licenses may not be available to us on acceptable terms, if at all. If we need to obtain such licenses or sublicenses, but isare unable to do so, we could encounter delays in the development of our clinical product candidate,batiraxcept, or be prevented from developing, manufacturing and commercializing our clinical product candidatebatiraxcept at all. If it is determined that we have infringed an issued patent and do not have freedom to operate, we could be subject to injunctions, and/or compelled to pay significant damages, including punitive damages. In cases where we have in-licensed intellectual property, our failure to comply with the terms and conditions of such agreements could harm our business. It is becoming common for third parties to challenge patent claims on any successfully developed product candidate or approved drug. If we or our licensees or collaborators become involved in any patent litigation, interference or other legal proceedings, we could incur substantial expense, and the efforts and attention of our technical and management personnel could be significantly diverted. A negative outcome of such litigation or proceedings may expose us to the loss of our proprietary position or to significant liabilities, or require us to seek licenses that may not be available from third parties on commercially acceptable terms, if at all. We may be restricted or prevented from developing, manufacturing and selling our clinical product candidatebatiraxcept in the event of an adverse determination in a judicial or administrative proceeding, or if we fail to obtain necessary licenses. We may not be able to protect our intellectual property rights throughout the world, which could impair our business. Filing, prosecuting and defending patents covering our clinical product candidatebatiraxcept throughout the world would be prohibitively expensive. Competitors may use our technologies in jurisdictions where we have not obtained patent protection to develop their own products and, further, may export otherwise infringing products to territories where we may obtain patent protection, but where patent enforcement is not as strong as that in the United States. These other products may compete with our clinical product candidatebatiraxcept in jurisdictions where we do not have any issued or licensed patents and any future patent claims or other intellectual property rights may not be effective or sufficient to prevent them from so competing. 54
Our reliance on third parties requires us to share our trade secrets, which increases the possibility that a competitor will discover them or that our trade secrets will be misappropriated or disclosed. We seek to protect our proprietary technology in part by entering into confidentiality agreements with third parties and, if applicable, material transfer agreements, consulting agreements or other similar agreements with our advisors, employees, third-party contractors and consultants prior to beginning research or disclosing proprietary information. These agreements typically limit the rights of the third parties to use or disclose our confidential information, including our trade secrets. Despite the contractual provisions employed when working with third parties, the need to share trade secrets and other confidential information increases the risk that such trade secrets become known by our competitors, are inadvertently incorporated into the technology of others, or are disclosed or used in violation of these agreements. Given that our proprietary position is based, in part, on our know-how and trade secrets, a competitor’s discovery of our trade secrets or other unauthorized use or disclosure would impair our competitive position and may have an adverse effect on our business and results of operations. In addition, these agreements typically restrict the ability of our advisors, employees, third-party contractors and consultants to publish data potentially relating to our trade secrets, although our agreements may contain certain limited publication rights. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of our agreements with third parties, independent development or publication of information by any of our third-party collaborators. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business. Obtaining and maintaining our patent protection depends on compliance with various procedural, document submissions, fee payment and other requirements imposed by governmental patent agencies, and our patent protection could be reduced or eliminated fornon-compliance with these requirements. Periodic maintenance fees on any issued patent are due to be paid to the USPTO and foreign patent agencies in several stages over the lifetime of the patent. The USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary fee payments and other similar provisions during the patent application process. While an inadvertent lapse can in many cases be cured by payment of a late fee or by other means in accordance with the applicable rules, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. Non-compliance events that could result in abandonment or lapse of a patent or patent application include, but are not limited to, failure to respond to official actions within prescribed time limits, non-payment of fees and failure to properly legalize and submit formal documents. If uswe and our licensors fail to maintain the patents and patent applications covering our clinical product candidate,batiraxcept, our competitive position would be adversely affected. Intellectual property rights do not necessarily address all potential threats to our competitive advantage. The degree of future protection afforded by our intellectual property rights is uncertain because intellectual property rights have limitations, and may not adequately protect our business or permit us to maintain our competitive advantage. The following examples are illustrative: Others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we license;
| • | Others may be able to make products that are similar to our product candidates but that are not covered by the claims of the patents that we license; |
Our licensors or collaborators might not have been the first to make the inventions covered by an issued patent or pending patent application;
| • | Our licensors or collaborators might not have been the first to make the inventions covered by an issued patent or pending patent application; |
Our licensors or collaborators might not have been the first to file patent applications covering an invention;
| • | Our licensors or collaborators might not have been the first to file patent applications covering an invention; |
Others may independently develop similar or alternative technologies or duplicate any of our or our licensors’ technologies without infringing our intellectual property rights;
| • | Others may independently develop similar or alternative technologies or duplicate any of our or our licensors’ technologies without infringing our intellectual property rights; |
Pending patent applications may not lead to issued patents;
| • | Pending patent applications may not lead to issued patents; |
Issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors;
| • | Issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable, as a result of legal challenges by our competitors; |
Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
| • | Our competitors might conduct research and development activities in countries where we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets; |
We may not develop or in-license additional proprietary technologies that are patentable; and
| • | We may not develop or in-license additional proprietary technologies that are patentable; and |
The patents of others may have an adverse effect on our business.
| • | The patents of others may have an adverse effect on our business. |
Should any of these events occur, they could significantly harm our business, results of operations and prospects. 55
We may be subject to claims that our employees have wrongfully used or disclosed alleged trade secrets of their former employers. Many of our employees, including our senior management, were previously employed at other biotechnology or pharmaceutical companies. These employees typically executed proprietary rights, non-disclosure and non-competition agreements in connection with their previous employers. Although we try to ensure that our employees do not use the proprietary information or know-how of others in their work for us, we may be subject to claims that we or these employees have used or disclosed intellectual property, including trade secrets or other proprietary information, of any such employee’s former employer. We are not aware of any threatened or pending claims related to these matters, but in the future litigation may be necessary to defend against such claims. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management. Risks Related to the ownership of our common stock Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future, and as a result, investors in our common stock could incur substantial losses. Our stock price has fluctuated in the past, has recently been volatile and may be volatile in the future. From January 1, 20152021 through December 31, 20192021 the reported sale price of our common stock has fluctuated between $3.07$2.19 and $144.00$9.24 per share. Following the announcement of the failure of our Phase 3 clinical trial to meet its primary endpoint in September 2017, our stock price declined substantially. In addition, the recent outbreak of the novel strain of coronavirus (COVID-19)ongoing COVID-19 pandemic has caused broad stock market and industry fluctuations, including a significant decline in our stock price.fluctuations. The stock market in general and the market for biotechnology companies in particular have experienced extreme volatility that has often been unrelated to the operating performance of particular companies. As a result of this volatility, investors may experience losses on their investment in our common stock. The market price for our common stock may be influenced by many factors, including the following: investor reaction to our business strategy;
the success of competitive products or technologies;
results of clinical studies of AVB-500 or future product candidates or those of our competitors;
regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products;
introductions and announcements of new products by us, results of clinical trials, our commercialization partners, or our competitors, and the timing of these introductions or announcements;
actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms;
variations in our financial results or those of companies that are perceived to be similar to us;
the success of our efforts to acquire or in-license additional products or product candidates;
developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners;
developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner;
announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products;
our ability or inability to raise additional capital and the terms on which we raise it;
the recruitment or departure of key personnel;
changes in the structure of healthcare payment systems;
market conditions in the pharmaceutical and biotechnology sectors;
declines in the market prices of stocks generally;
actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally;
trading volume of our common stock;
sales of our common stock by us or our stockholders;
56
| • | investor reaction to our business strategy; |
| • | the success of competitive products or technologies; |
| • | results of clinical studies of batiraxcept or future product candidates or those of our competitors; |
| • | regulatory or legal developments in the United States and other countries, especially changes in laws or regulations applicable to our products; |
| • | introductions and announcements of new products by us, results of clinical trials, our commercialization partners, or our competitors, and the timing of these introductions or announcements; |
| • | actions taken by regulatory agencies with respect to our products, clinical studies, manufacturing process or sales and marketing terms; |
| • | variations in our financial results or those of companies that are perceived to be similar to us; |
| • | the success of our efforts to acquire or in-license additional products or product candidates; |
| • | developments concerning our collaborations, including but not limited to those with our sources of manufacturing supply and our commercialization partners; |
| • | developments concerning our ability to bring our manufacturing processes to scale in a cost-effective manner; |
| • | announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments; |
| • | developments or disputes concerning patents or other proprietary rights, including patents, litigation matters and our ability to obtain patent protection for our products; |
| • | our ability or inability to raise additional capital and the terms on which we raise it; |
| • | the recruitment or departure of key personnel; |
| • | changes in the structure of healthcare payment systems; |
| • | market conditions in the pharmaceutical and biotechnology sectors; |
| • | declines in the market prices of stocks generally; |
| • | actual or anticipated changes in earnings estimates or changes in stock market analyst recommendations regarding our common stock, other comparable companies or our industry generally; |
| • | trading volume of our common stock; |
| • | sales of our common stock by us or our stockholders; |
| • | general economic, industry and market conditions; |
| • | other events or factors, including those resulting from such events, or the prospect of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the ongoing COVID-19 pandemic, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability; and |
| • | the other risks described in this “Risk factors” section. |
other events or factors, including those resulting from such events, or the prospect
Table of such events, including war, terrorism and other international conflicts, public health issues including health epidemics or pandemics, such as the recent outbreak of the novel coronavirus (COVID-19), and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in the United States or elsewhere, could disrupt our operations, disrupt the operations of our suppliers or result in political or economic instability; andContents the other risks described in this “Risk factors” section.
These broad market and industry factors may seriously harm the market price of our common stock, regardless of our operating performance. Since the stock price of our common stock has fluctuated in the past, has been recently volatile and may be volatile in the future, investors in our common stock could incur substantial losses. In the past, following periods of volatility in the market, securities class-action litigation has often been instituted against companies. Such litigation, if instituted against us, could result in substantial costs and diversion of management’s attention and resources, which could materially and adversely affect our business, financial condition, results of operations and growth prospects. Our executive officers, directors, and entities under our control, and principal stockholders will continue to maintain the ability to control or significantly influence all matters submitted to stockholders for approval. As of December 31, 2019,March 25, 2022, our executive officers, directors and entities under ourtheir control, and principal stockholders, in the aggregate, owned shares representing approximately 25.9%31.8% of our common stock. Dr. Fredric N. Eshelman, our Executive Chairman beneficially owns 19.99% of our common stock. As a result, if these stockholders were to choose to act together, theyDr. Eshelman acting on his own, would be able to control or significantly influence all matters submitted to our stockholders for approval, as well as our management and affairs. For example, these stockholders, if they choose to act together,Dr. Eshelman will control or significantly influence the election of directors and approval of any merger, consolidation or sale of all or substantially all of our assets. This concentration of voting power could delay or prevent an acquisition of our company on terms that other stockholders may desire. We incur significant costs as a result of operating as a public company, and our management devotes substantial time to new compliance initiatives. As a public company, we have incurred and will continue to incur significant legal, accounting and other expenses that we did not incur as a private company. We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, the other rules and regulations of the Securities and Exchange Commission, or SEC, and the rules and regulations of The Nasdaq Global Select Market, or Nasdaq. Compliance with the various reporting and other requirements applicable to public companies requires considerable time and attention of management. For example, the Sarbanes-Oxley Act and the rules of the SEC and national securities exchanges have imposed various requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls. Our management and other personnel are devoting and will continue to need to devote a substantial amount of time to these compliance initiatives. These rules and regulations will continue to increase our legal and financial compliance costs and will make some activities more time-consuming and costly. The impact of these events could also make it more difficult for us to attract and retain qualified personnel to serve on our board of directors, our board committees, or as executive officersofficers. The Sarbanes-Oxley Act requires, among other things, that we maintain effective internal control over financial reporting and disclosure controls and procedures. In particular, we must perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act. In addition, we will be required to have our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting beginning with our annual report on Form 10-K following the date on which we are once again an accelerated filer and are no longer an emerging growth company. Our compliance with Section 404 of the Sarbanes-Oxley Act will require that we incur substantial accounting expense and expend significant management efforts. If we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities, which would require additional financial and management resources. Our ability to successfully implement our business plan and comply with Section 404 requires us to be able to prepare timely and accurate consolidated financial statements. We expect that we will need to continue to improve existing, and implement new operational and financial systems, procedures and controls to manage our business effectively. Any delay in the implementation of, or disruption in the transition to, new or enhanced systems, procedures or controls, may cause our operations to suffer and we may be unable to conclude that our internal control over financial reporting is effective and to obtain an unqualified report on internal controls from our auditors as required under Section 404 of the Sarbanes-Oxley Act. This, in turn, could have an adverse impact on trading prices for our common stock, and could adversely affect our ability to access the capital markets. 57
For
We are currently a “smaller reporting company,” as defined in the years ended December 31, 2018Exchange Act and 2019, we were an “emerging growth company,” and availed ourselveshave elected to take advantage of certain of the reduced disclosure requirements applicablescaled disclosures available to emerging growth companiessmaller reporting companies. As
We are currently a “smaller reporting company,” as defined in the Exchange Act and have elected to take advantage of December 31, 2019,certain of the scaled disclosures available to smaller reporting companies. To the extent that we are no longer an emerging growth companycontinue to qualify as a “smaller reporting company” as such term is defined in Rule 12b-2 under the Jumpstart Our Business StartupsExchange Act, enacted in April 2012 (“JOBS ACT”). However, for the years ended December 31, 2019 and 2018 we were an emerging growth company. As an emerging growth company and for so long as we continuedcertain exemptions are available to be an emerging growth company, we were permitted to and did rely on exemptionsus from certain disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include: not being required to complya “smaller reporting company,” including exemption from compliance with the auditor attestation requirements in the assessment ofpursuant to SOX and reduced disclosure about our internal control over financial reporting;
not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;
| •
| reduced disclosure obligations regarding executive compensation; and
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exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute paymentsarrangements.
As a result, the information we provide stockholders will be different than the information that is available with respect to other public companies. In this Annual Report on Form 10-K, we have not previously approved. We have chosen to take advantage of some, but notincluded all of the available exemptions. Asexecutive compensation related information that would be required if we were not a resultsmaller reporting company, nor have we included all of these scaled regulatory requirements, our disclosure maythe quantitative and qualitative disclosures about market risk that would be more limited than that of other public companies andrequired if we were not a smaller reporting company. We cannot predict whether investors may not have the same protections afforded to shareholders of such companies. In addition, investors maywill find our common stock less attractive sinceif we reliedrely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and the price of our common stock price may be more volatile.
We ceased to be an “emerging growth company,” which means we will no longer be able to take advantage
Table of certain reduced disclosure requirements in our public filings.We ceased to be an “emerging growth company,” as defined in the JOBS Act, on December 31, 2019. As a result, we anticipate that costs and compliance initiatives will increase as a result of the fact that we ceased to be an “emerging growth company.” In particular, we are now, or will be, subject to certain disclosure requirements that are applicable to other public companies that had not been applicable to us as an emerging growth company. These requirements include:
compliance with the auditor attestation requirements in the assessment of our internal control over financial reporting once we are an accelerated filer or large accelerated filer; Contentscompliance 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;
full disclosure and analysis obligations regarding executive compensation; and
compliance with regulatory requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved.
There can be no assurance that we will be able to comply with the applicable regulations in a timely manner, if at all.
An active trading market for our common stock may not be maintained, or we may fail to satisfy applicable Nasdaq listing requirements. Our common stock is currently traded on Nasdaq, but we can provide no assurance that we will be able to maintain an active trading market for our shares on Nasdaq or any other exchange in the future. The fact that a significant portion of our outstanding shares of common stock is closely held by a few individuals, results in it being more difficult for us to maintain an active trading market. If there is no active market for our common stock, it may be difficult for our stockholders to sell shares without depressing the market price for the shares or at all, our stock price could decline, and we may be unable to maintain compliance with applicable Nasdaq listing requirements. If securities or industry analysts do not publish research, or publish inaccurate or unfavorable research, about our business, our stock price and trading volume could decline. The trading market for our common stock depends, in part, on the research and reports that securities or industry analysts publish about us or our business. The analysts that cover us may cease to publish research on our company at any time in their discretion. If one or more of these analysts cease coverage of our company, or fail to publish reports on us regularly, demand for our common stock could decrease, which might cause our stock price and trading volume to decline. In addition, if one or more of the analysts who cover us downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If our operating results fail to meet the forecast of analysts, our stock price would likely decline. 58
Provisions in our corporate charter documents and under Delaware law could make an acquisition of us more difficult and may prevent attempts by our stockholders to replace or remove our current management. Provisions in our corporate charter and our bylaws may discourage, delay or prevent a merger, acquisition or other change in control of us that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock, thereby depressing the market price of our common stock. In addition, these provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt by our stockholders to replace current members of our management team. Among others, these provisions include the following: our board of directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control;
| • | our board of directors is divided into three classes with staggered three-year terms which may delay or prevent a change of our management or a change in control; |
our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors;
| • | our board of directors has the right to elect directors to fill a vacancy created by the expansion of the board of directors or the resignation, death or removal of a director, which prevents stockholders from being able to fill vacancies on our board of directors; |
our stockholders are not able to act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock are not able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president;
| • | our stockholders are not able to act by written consent or call special stockholders’ meetings; as a result, a holder, or holders, controlling a majority of our capital stock are not able to take certain actions other than at annual stockholders’ meetings or special stockholders’ meetings called by the board of directors, the chairman of the board, the chief executive officer or the president; |
our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates;
| • | our certificate of incorporation prohibits cumulative voting in the election of directors, which limits the ability of minority stockholders to elect director candidates; |
our stockholders are required to provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and
| • | our stockholders are required to provide advance notice and additional disclosures in order to nominate individuals for election to the board of directors or to propose matters that can be acted upon at a stockholders’ meeting, which may discourage or deter a potential acquiror from conducting a solicitation of proxies to elect the acquiror’s own slate of directors or otherwise attempting to obtain control of our company; and |
our board of directors are able to issue, without stockholder approval, shares of undesignated preferred stock, which makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us.
| • | our board of directors are able to issue, without stockholder approval, shares of undesignated preferred stock, which makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. |
Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which prohibits a person who owns in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which the person acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner. Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for certain disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for any derivative action or proceeding brought on behalf of the Company, any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law or any action asserting a claim governed by the internal affairs doctrine. This forum selection provision does not apply to suits brought to enforce a duty or liability created by the Securities Act or the Exchange Act or any claim for which the federal courts have exclusive jurisdiction. This forum selection provision may limit a stockholder’s ability to bring certain claims in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims, although our stockholders will not be deemed to have waived our compliance with federal securities laws and the rules and regulations thereunder. If a court were to find this forum selection provision to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could adversely affect our business and financial condition. Our employment arrangements with our executive officers may require us to pay severance benefits to any of those persons who are terminated in connection with a change in control of us, which could harm our financial condition or results. Certain of our executive officers are parties to employment or other agreements or participants under plans that contain change in control and severance provisions providing for aggregate cash payments for severance and other benefits and acceleration of vesting of stock options in the event of a termination of employment in connection with a change in control of us. The accelerated vesting of options could result in dilution to our existing stockholders and harm the market price of our common stock. The payment of these severance benefits could harm our financial condition and results. In addition, these potential severance payments may discourage or prevent third parties from seeking a business combination with us. Because we do not anticipate paying any cash dividends on our common stock in the foreseeable future, capital appreciation, if any, will be our stockholders’stockholders’ sole source of gain. We have never declared or paid cash dividends on our common stock. We currently intend to retain all of our future earnings, if any, to finance the growth and development of our business. In addition, the terms of existing or any future debt agreements may preclude us from paying dividends. As a result, capital appreciation, if any, of our common stock will be our stockholders’ sole source of gain for the foreseeable future. 59
Item1B. UnresolvedUnresolved Staff Comments. None
Item2. Properties. We do not own any real property and lease facilities in Palo Alto andMorrisville, North Carolina, Menlo Park, California and Houston, Texas. Our principal executive offices are located in Houston, Texas where we occupy office space pursuant to the terms of a lease agreement that expires on July 31, 2020,2022, which will automatically renew each year for a one yearone-year term, unless a three monththree-month notice is given to cancel. Our rent under the lease is approximately $3,000$1,000 per month. In March 2017, we entered into an operating facility lease agreement with Bohannon Associates, a California partnership, dated March 17, 2017 (the “Master Lease”) for approximately 34,500 rentable square feet of office space located at 1020 Marsh Road, Menlo Park, California and for approximately 17,400 rentable square feet located at 1060(the “1020 Marsh Road. In September 2017, we opted out of our intent to occupy 1060 Marsh Road.Facility”). The lease for the 1020 Marsh RoadFacility commenced in August 2017 for a period of 86 months with one renewal option for a five-year term. Future base rent and additional rent we owedowe over the lease termsterm as of December 31, 20192021 is $13.0$8.3 million. On September 14, 2018,August 1, 2021, the Subleasesublease dated August 21, 2018June 8, 2021 (the “Sublease Agreement”) by and between us and EVA Automation,Grail, Inc., or Grail (“Subtenant”) became effective, whereby we agreed to sublease to Subtenant all of the approximately 34,500 rentable square feet of office space at the 1020 Marsh Road, Menlo Park, California Facility currently leased pursuant to the Master Lease. The sublease commenced on OctoberAugust 1, 20182021 and the term of the sublease iswas through October 31, 2024, unless the Master Lease iswas terminated earlier due to a breach by Subtenant. Future base rent and additionalBase rent Subtenant shallwas obligated to pay to the Company over the sublease termus as of December 31, 2019 is $13.02021 was $6.7 million. In October 2018, we executed a lease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the lease commenced on October 30, 2018 and expiresexpired August 31, 2020. As In August 2020, we entered into an operating facility lease agreement with Perimeter Center 7 Pack, LLC dated August 14, 2020 for approximately 4,128 square feet of office space at 1800 Perimeter Park Suite 130, Morrisville, North Carolina. Future base rent we owe over the lease term as of December 31, 2019 the obligation for us under this lease was approximately $0.12021 is $0.5 million. We believe that our existing facilities are adequate for our current needs.
Item3. Legal Proceedings. We are not currently subject to any material legal proceedings. From time to time, we may be subject to various legal proceedings and claims that arise in the ordinary course of its business activities. Litigation, regardless of the outcome, could have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.
Item4. Mine Safety Disclosures. Not Applicable 60
PART II Item5. Market for Registrant’sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market for Registrant’sRegistrant’s Common Equity Since October 16, 2018, our common stock has been listed on The Nasdaq Global Select Market under the symbol “ARAV”. Prior to that, from March 21, 2014 until October 16, 2018, our common stock traded on The Nasdaq Global Select Market under the symbol “VSAR”. In connection with the completion of the Merger, on October 15, 2018, our amended and restated certificate of incorporation was amended to effect, on October 16, 2018, a reverse split of our common stock at a ratio of 1-for-6. Holders On March 16, 2020,25, 2022, there were 3226 stockholders of record of our common stock, one of which was Cede & Co., a nominee for Depository Trust Company, or DTC. All of the shares of our common stock held by brokerage firms, banks and other financial institutions as nominees for beneficial owners are deposited into participant accounts at DTC and are therefore considered to be held of record by Cede & Co. as one stockholder. Dividend Policy We have not paid dividends on our common stock. We currently intend to retain any earnings for use in the development and expansion of our business. We, therefore, do not anticipate paying cash dividends on our common stock in the foreseeable future. Sales of Unregistered Equity Securities There were no unregistered sales of equity securities by us during the year ended December 31, 2019.2021 that were not previously disclosed in our filings with the SEC. Performance Graph We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
Item 6. Selected Financial Data.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item. Item6. [Reserved] 61
Item Item7. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. This discussion and other parts of this Form 10-K contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this Form 10-K entitled “Risk“Risk Factors.” Recent Developments
On December 2, 2019, we closed an underwritten public offering in which we issued and sold 3,633,334 shares of our common stock for which we received gross proceeds of approximately $27.3 million pursuant to the terms of a Purchase Agreement with Piper Jaffray & Co. and Cantor Fitzgerald & Co., as representatives of the several underwriters named therein, that we entered into on November 27, 2019.
Overview We are a clinical-stage biopharmaceuticaloncology company developing transformative treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis. Prior to the Merger we were an endocrine-focused biopharmaceutical company that was developing a long-acting recombinant human growth hormone for the treatment of growth hormone deficiency. Our lead product candidate, AVB-500,batiraxcept (formerly AVB-500), is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway. By capturing serum GAS6, AVB-500batiraxcept starves the AXL pathway of its signal, potentially halting the biological programming that promotes disease progression. AXL receptor signaling plays an important role in multiple types of malignancies by promoting metastasis, cancer cell survival, resistance to treatments, and immune suppression. The GAS6-AXL signaling pathway also plays a significant role in fibrogenesis. Our current development program benefits from the availability of a proprietary serum-based biomarker that we expect will help acceleratehas accelerated batiraxcept drug development and reduce risk by allowing us to select a pharmacologically active dose.dose and may potentially identify the cancer patients that have the best chance of responding to batiraxcept. In our completed Phase 1 clinical trial in healthy volunteers with our clinical lead product candidate, AVB-500,batiraxcept, we have demonstrated proof of mechanism for AVB-500batiraxcept in neutralizing GAS6. Importantly, AVB-500batiraxcept had a favorable safety profile preclinically and in the first in human trial. In December 2018, we initiated thetrial and Phase 1b portion of a Phase 1b/2 clinical trial of AVB-500 combined with standard of care therapies in patients with platinum-resistant ovarian cancer and are currently enrolling the expansion cohort in the Phase 1b. patients. In August 2018, the FDA designated as a Fast Track development program the investigation of our lead development candidate, AVB-500,batiraxcept, for platinum-resistant recurrent ovarian cancer. In JanuaryDecember 2018, we initiated our Phase 1b clinical trial of batiraxcept combined with standard of care therapies in patients with PROC, for which we reported results in July 2020. In April 2020, we entered into a license and collaboration agreement with WuXi, the objective of which is to identify and develop novel high-affinity bispecific antibodies against CCN2, also known as CTGF, implicated in cancer and fibrosis and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to generate a best-in-class therapeutic targeting desmoplasia and tumor growth for initial investigation in the clinic in 2023. In November 2020, we entered into 3D Medicines Agreement, whereby we granted 3D Medicines an exclusive license to develop and commercialize products that contain batiraxcept as the sole drug substance, for the diagnosis, treatment or prevention of human oncological diseases, in the Territory. During the fourth quarter of 2020, we initiated our Phase 1b portion of the Phase 1b/2 trial of batiraxcept in ccRCC and we dosed our first patient in the trial in March 2021. During the first quarter 2021, we initiated our registrational Phase 3 trial of batiraxcept in PROC and we dosed our first patient in the trial in April 2021.This global, randomized, double-blind, placebo-controlled adaptive trial is designed to evaluate efficacy and safety of batiraxcept at a dose of 15 mg/kg in combination with PAC versus PAC alone. As noted previously, we have experienced delays in patient enrollment due to the COVID-19 pandemic. In May 2021, we announced thatexpansion of batiraxcept development programs into first line pancreatic adenocarcinoma ("PA") with the FDA has clearedgoal of initiating the trial by end of 2021. We dosed our Investigational New Drug (IND) applicationfirst patient in August 2021. In June 2021, we announced positive initial safety, pharmacokinetic, and pharmacodynamic results from the batiraxcept Phase 1b portion of the Phase 1b/2 clinical trial in ccRCC. In October 2021, the EMA granted orphan drug designation for investigation of AVB-500, inbatiraxcept for the treatment of ovarian cancer, following a recommendation from the Committee for Orphan Medicinal Products. In November 2021, we announced positive preliminary data from our second oncology indication, clear cell renal cell carcinoma (ccRCC).Phase 1b trial evaluating batiraxcept in combination with cabozantinib for treatment of ccRCC. In March 2022, we announced updated positive data and new biomarker data from our Phase 1b trial of batiraxcept in ccRCC. As we advance our clinical programs, we are in close contact with our CROs and clinical sites and are continually assessing the impact of COVID-19 on our studiesplanned trials and current timelines and costs. With We have experienced delays in patient enrollment due to the recentCOVID-19 pandemic. To date, we are on track to meet all of our recently announced clinical milestones. If the COVID-19 pandemic continues and rapidly evolving impactpersists for an extended period of COVID-19 ontime or increases in severity, we could experience significant disruptions to our clinical development timelines and, if we experience delays in patient enrollment and deems it necessary or advisable to improve patient recruitment by, among other things, opening additional clinical sites, we could incur increased clinical program expenses. Any such disruptions or delays would, and any such increased clinical program expenses could, adversely affect our business, financial condition, results of operations and growth prospects. Recent Clinical Developments In January 2022, we announced that we had dosed the first patient in clinical trialsthe Phase 2 portion of the Phase 1b/2 study of batiraxcept in combination with cabozantinib for treatment of ccRCC. In January 2022, we entered into an investment agreement (the “Investment Agreement”) with Eshelman Ventures, LLC and, considering patientsolely for purposes of Article IV and Article V of the Investment Agreement, Dr.. Eshelman relating to the issuance of a pre-funded warrant to purchase up to 4,545,455 shares of our common stock, par value $0.0001 per share, at a price of $2.20 per share, which was the consolidated closing bid price of our common stock on Nasdaq on December 31, 2021, for an aggregate purchase price of $10 million. The closing of the transaction occurred on January 5, 2022. Pursuant to the terms of the Investment Agreement, we were required to file a registration statement registering the shares of common stock underlying the pre-funded warrant. The registration statement was filed on January 5, 2022 and declared effective by the SEC on January 18, 2022. In March 2022, we announced updated safety and clinical activity data from the 26 patients from the Phase Ib trial integrity,evaluating batiraxcept in combination with cabozantinib for treatment of ccRCC. We also announced updated clinical activity for 13 patients in a trial evaluating batiraxcept in combination with gemcitabine and nab-paclitaxel in patients with advanced or metastatic pancreatic adenocarcinoma eligible to receive gemcitabine and nab-paclitaxel as first-line treatment. Recent Financial Developments On March 31, 2022, we closed a registered direct offering of our common stock with a single healthcare-focused institutional investor and Eshelman Ventures, LLC, pursuant to which we issued 3,185,216 shares of common stock, 1,665,025 pre-funded warrants and common stock warrants to purchase up to 4,850,241 shares of common stock in a registered direct offering priced at-the-market under Nasdaq rules. The purchase price per share and accompanying common stock warrant was $2.005 for the institutional investor and $2.325 for Eshelman Ventures, LLC. The purchase price per pre-funded warrant and accompanying common stock warrant was $2.004 for the institutional investor. The net proceeds from the offering was $9.3 million, after deducting underwriting discounts, commission and offering expenses. The common stock warrants issued to the institutional investor are exercisable immediately, will expire five years from the exercisable date and will have decidedan exercise price of $1.88 per share. The common stock warrants issued to amendEshelman Ventures, LLC will be exercisable upon the approval by our clear cell renal cell carcinoma (ccRCC) trial to initiate treatment at a higher dose given the safety profile seen with the 15 mg/kg dosing cohortstockholders of the platinum resistant ovarian cancer (PROC) trialexercise of previously issued securities, will expire five years following the exercise date and will have an exercise price of $2.20 per share. We could receive additional gross proceeds of $9.4 million, if the initiation of the 20 mg/kg dosing cohort. While this may delay 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. We will pause new enrollment in its IgA nephropathy (IgAN) trial until the risk of unnecessary exposure of patients to COVID-19 is decreased.warrants are fully exercised. Important Note This Management’s Discussion and Analysis of Financial Condition and Results of Operations includes a discussion of our operations for the years ended December 31, 20192021 and December 31, 2018, which reflects the operations of Private Aravive, for the entire year ended December 31, 2019 but only a portion of the year for the year ended December 31, 2018 due to the fact that the Merger was consummated in October 2018. Accordingly, the results of operations reported for the years ended December 31, 2019 and 2018, in this Management’s Discussion and Analysis are not comparable.2020. Due to the substantial changes in our assets, liabilities and operations resulting from the completion of the Merger on October 12, 2018, our historical financial results do not provide a reasonable basis from which to predict the merged company’s future financial results or condition.
62
References in this report to “we,” “us,” “our” and similar first-person expressions refer to Aravive, Inc. (formerly known as Versartis, Inc.) and its subsidiaries, including Private Aravive. References to “Versartis, Inc.” or “Private Aravive” refer to those respective companies prior to the completion of their merger in October 2018. Financial overview Revenue To date, we have not generated any revenue from commercial sales of any of our product candidates. However, we generated grant revenue of $4.8 and $1.4 million for the years ended December 31, 20192021 and 2018, respectively,2020, we generated approximately $7.4 million and $5.7 million from our CPRIT Grant.the 3D Medicine Agreement, which represents a portion of initial signing and milestone payments received from 3D Medicines that is recognized at the time of the receipt and a portion of the payments that is deferred and recognized over the PROC trial period. In the future, we may generate revenue from a variety of sources, including product sales if we develop products which are approved for sale, license fees, milestones, research and development and royalty payments in connection with strategic collaborations or government contracts, or licenses of our intellectual property. Research and development expenses We recognize both internal and external research and development expenses as incurred. Our external research and development expenses consist primarily of: the cost of acquiring and manufacturing clinical trial and other materials, including expenses incurred under agreements with contract manufacturing organizations;
| • | the cost of acquiring and manufacturing clinical trial and other materials, including expenses incurred under agreements with contract manufacturing organizations; |
expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials;
| • | expenses incurred under agreements with contract research organizations, investigative sites, and consultants that conduct our clinical trials; |
other costs associated with development activities, including additional studies; and
| • | other costs associated with development activities, including additional studies; and |
Facility costs, including rent.
Internal research and development costs consist primarily of salaries and related fringe benefit costs for our employees (such as workers’ compensation and health insurance premiums), stock-based compensation charges and travel costs. General and administrative expenses General and administrative expenses consist principally of personnel-related costs, professional fees for legal, consulting, audit and tax services, rent and other general operating expenses not included in research and development. Other income (expense), net Other income (expense), net is primarily comprised of sublease income for our 1020 Marsh propertyFacility lease and gains and losses on foreign currency transactions related to third party contracts with foreign-based contract manufacturing organizations. 63
Results of operations Comparison of the years ended December 31, 20192021 and 20182020 The following table summarizes our net loss during the periods indicated (in thousands, except percentages): | | | | | Increase/ | | | | Year Ended | | | | | | | | | Year Ended December 31, | | | (Decrease) | | | | December 31, | | | Increase/ | | | | 2019 | | | 2018 | | | | | | | | | | | | 2021 | | | 2020 | | | (Decrease) | | Revenue: | | | | | | | | | | | | | | | | | | | Grant revenue | | $ | 4,753 | | | $ | 1,371 | | | $ | 3,382 | | | | 247 | % | | | Total revenue | | | 4,753 | | | | 1,371 | | | | 3,382 | | | | 247 | % | | | Collaboration revenue | | | $ | 7,442 | | | $ | 5,685 | | | $ | 1,757 | | | 31 | % | Operating expenses: | | | | | | | | | | | | | | | | | | | Research and development | | | 12,836 | | | | 11,075 | | | | 1,761 | | | | 16 | % | | | 37,541 | | | 17,620 | | | 19,921 | | | 113 | % | Write-off of acquired in-process research and development | | — | | | | 38,313 | | | | (38,313 | ) | | NM | | (1) | | General and administrative | | | 13,691 | | | | 27,395 | | | | (13,704 | ) | | | -50 | % | | | 10,550 | | | 13,065 | | | (2,515 | ) | | -19 | % | Loss on impairment of long-lived assets | | | | — | | | | 5,784 | | | | (5,784 | ) | | | | Total operating expenses | | | 26,527 | | | | 76,783 | | | | (50,256 | ) | | | -65 | % | | | | 48,091 | | | | 36,469 | | | | 11,622 | | | 32 | % | Loss from operations | | | (21,774 | ) | | | (75,412 | ) | | | (53,638 | ) | | | -71 | % | | | (40,649 | ) | | (30,784 | ) | | 9,865 | | | -32 | % | Interest income | | | 1,022 | | | | 989 | | | | 33 | | | | 3 | % | | | 37 | | | 255 | | | (218 | ) | | -85 | % | Interest expense | | — | | | | (2,429 | ) | | | 2,429 | | | NM | | (1) | | Other income (expense), net | | | 2,534 | | | | 519 | | | | 2,015 | | | | 388 | % | | | 1,461 | | (14 | ) | | 1,475 | | (1 | ) | | | | | | | | | | | | Net loss | | $ | (18,218 | ) | | $ | (76,333 | ) | | $ | (58,115 | ) | | | -76 | % | | | $ | (39,151 | ) | | $ | (30,543 | ) | | $ | 8,608 | | | -28 | % |
(1) | (1)Not meaningful.
| Not meaningful.
|
Grant
Collaboration revenue In 2018,November 2020, we completedentered into the Merger with Private Aravive. Private Aravive has a grant with CPRIT. Grant3D Medicines Agreement. Collaboration revenue increased by $3.4 was approximately $7.4 million or 247%, to $4.8and $5.7 million in 2019 from $1.4 million from the same period in 2018 and was derived solely from the CPRIT Grant for the researchyears ended December 31, 2021 and development of AVB-500. The increase was primarily due to one quarter of activity in 2018 as compared to two quarters of activity in 2019. Recognition of Grant revenue was completed as of the end of the second quarter of 2019 as we have recognized the full amount related to the contract.2020, respectively. Research and development expense Research and development expense increased by $1.8$19.9 million, or 16%113%, to $12.8$37.5 million in 20192021 from $11.1$17.6 million for the same period in 2018.2020. The increase was primarily due to increased expenses incurredthe continued progress of our clinical programs, including our Phase 3 trial of batiraxcept in PROC, our Phase 1b/2 trial of batiraxcept in ccRCC, and our Phase 1 trial of batiraxcept in pancreatic cancer. The increase in research and development expense was also driven by an increase in our compensation expense as we further built out research and development teams to manage our ongoing clinical trials. The initiation and advancement of our Phase 3 trial of batiraxcept in PROC is the clinical, pre-clinical and manufacturing activities of AVB-500most significant driver to the increase in 2019expense in 2021 when compared to the continued winddown expensessame period in 2018 relating2020. There were also increased manufacturing activities during 2021 due to the somavaratan program which was terminated followinginitiation of the Phase 3 VELOCITY trial failure.PROC trial. In 2018, we also had a large write-off of our in-process research and development intangible asset of $38.3 million, presented separately in the consolidated statements of operations for the year ended December 31, 2018, related to the Merger with Private Aravive which is considered to be part of our research and development expense. For the period from October 13, 2018 through December 31, 2018, research and development costs mostly related to AVB-500 clinical trials along with additional costs incurred with winding down our somavaratan program.
General and administrative expense General and administrative expense decreased by $13.7$2.5 million, or 50%19%, to $13.7$10.6 million in 20192021 from $27.4$13.1 million for the same period in 2018.2020. The decrease was primarily driven by a smaller workforce, absencelower stock-based compensation expense along with reduced rent expense, legal and consulting fees. Loss on impairment of Merger related costs and other operating expenses as a resultlong-lived assets We incurred non-cash charges for impairment of the terminationour long-lived assets of the somavaratan program following the Phase 3 VELOCITY trial failure. The decrease is partially offset by an increase in our operating lease expenses in 2019 related to the adoption of the new lease accounting standard. Interest expense
Interest expense decreased primarily due to interest charges$5.8 million for 2020 related to our build-to-suit lease obligationformer sublease tenant's inability to pay future sublease rental payments as compared to no charges in 2018 which was accounted for differently in 2019 due to the adoption of the new lease accounting standard.2021.
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Other income (expense), net Other income, improvedincreased by $2.0approximately $1.5 million, or 388%, to $2.5approximately $1.5 million other income net in 20192021 from $0.5 million$14 thousand of other incomeexpense for the same period in 2018.2020. The increase in other income primarily relates toour sublease income recorded for all of 2019received from our new Subtenant with no write-down incurred in 2021 as compared to a portionthe failure to receive sublease income in 2020 from our prior sublease tenant, which was offset by the write-down of $1.4 million related to our sublease receivable balance and previously capitalized commission charges due to the fourth quarter fordefault in 2020 and 2021 by the same period in 2018.prior sublease tenant under its sublease with us. Liquidity and capital resourcesCapital Resources Since our inception and through December 31, 2019,2021, we have financed our operations through private placements of our equity securities, public offerings of our common stock, debt financing, CPRIT grant proceeds, and our initial public offering in 2014 along with additionalsales of common stock offerings in January 2015, October 2016, and December 2019through our at-the-market facility as well as a $40.0 million upfront paymentpayments received from a license agreement with Teijin.agreements. At December 31, 2019,2021, we had an accumulated deficit of approximately $470.1$539.8 million and working capital of $63.3$44.8 million, primarily as a result of research and development and general and administrative expenses. At December 31, 2019,2021, we had cash and cash equivalents of approximately $65.1$59.4 million, a majority of which is invested in money market funds at several highly rated financial institutions. As a result of the Merger with Private Aravive, we acquired approximately $5.3 million of additional cash During 2020 and cash equivalents, and as a merged company2021, our primary usesources of funding have been grant revenue from our CRIT Grant, revenue from 3D Medicines and proceeds from the sale of our capital has been to fund our clinical development programs, specifically for our product candidate AVB-500. For the year ended December 31, 2019,common stock, par value $0.0001 per share. In March 2020, we have received approximately $3.0$1.6 million of additional funding from our CPRIT Grant. AtGrant related to a receivable balance recorded at December 31, 2019,2019. In November 2020, June 2021 and August 2021, we have an unbilled receivable balancereceived $12 million, $6 million and $3 million, respectively, in upfront and milestone payments from 3D Medicines pursuant to the 3D Medicines Agreement with them. On February 18, 2021, we received approximately $21 million from the CPRIT Grantpurchase by Eshelman Ventures of $1.62,875,000 shares of our common stock. In September 2020, we filed a shelf registration statement on Form S-3 with the SEC which was declared effective by the SEC on November 20, 2020. On September 4, 2020, we entered into an equity distribution agreement (the "Equity Distribution Agreement"), with Piper Sandler and Cantor Fitzgerald, to sell shares of our common stock, par value $0.0001 per share, from time to time, through an “at the market offering” program having an aggregate offering price of up to $60,000,000 through which Piper Sandler and Cantor Fitzgerald will act as sales agents. During the year ended December 31, 2021, we sold 1,432,627 shares of common stock for net proceeds of $9.8 million includedunder the Equity Distribution Agreement and subsequent to December 31, 2021 through March 15, 2022, we sold 54,763 shares of common stock for net proceeds of $0.1 million under the Equity Distribution Agreement. On January 5, 2022, we received approximately $10.0 million from the purchase by Eshelman Ventures, LLC of pre-funded warrants to purchase up to 4,545,455 shares of our common stock. In March 2022, we received approximately $9.3 million in other current assets.net proceeds, in the aggregate, from the purchase by Eshelman Ventures, LLC and a single healthcare-focused institutional investor of 3,185,216 shares of our common stock, 1,665,025 pre-funded warrants and warrants to purchase up to 4,850,241 shares of our common stock in a registered direct offering. As of December 31, 2021, we had cash and cash equivalents of approximately $59.4 million, which does not include approximately $19.3 million received subsequent to year end from the investments made by Eshelman Ventures and a single healthcare-focused institutional investor. We believe that our existing cash and cash equivalents will be sufficient to sustain operations into the first quarter of 2023 and that we will need to obtain additional financing in order to pursueadvance our clinical development programs,program to later stages of development, build out our pipeline and fund operations for the foreseeable future and we will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing. These factors raised substantial doubt about our ability to continue as a going concern. The consolidated financial statements included in this annual report do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should we be unable to continue as a going concern. Although management has been successful in raising capital in the past, there can be no assurance that we will be successful or that any needed financing will be available in the future at terms acceptable to us. Our failure to raise capital as and when needed could have a negative impact on our financial condition and our ability to pursue our business strategies. We anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including: the rate of progress and cost of our clinical studies;
the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities;
| • | the rate of progress and cost of our clinical studies; |
the cost of preparing to manufacture on a larger scale;
| • | the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities; |
the costs of commercialization activities if any future product candidate is approved, including product sales, marketing, manufacturing and distribution;
| • | the cost of preparing to manufacture on a larger scale; |
the degree and rate of market acceptance of any products launched by us or future partners;
| • | the costs of commercialization activities if any future product candidate is approved, including product sales, marketing, manufacturing and distribution; |
the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights;
| • | the degree and rate of market acceptance of any products launched by us or future partners; |
our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and
| • | the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; |
the emergence of competing technologies or other adverse market developments.
| • | our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and |
| • | the emergence of competing technologies or other adverse market developments. |
If we are unable to raise additional funds when needed, we may be required to delay, reduce, or terminate some or all of our development programs and clinical trials. We may also be required to sell or license to others technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves. Cash flows The following table sets forth the primary sources and uses of cash and cash equivalents for each of the periods presented below: | | | Year Ended | | | | Year Ended December 31, | | | December 31, | | | | 2019 | | | 2018 | | | 2021 | | | 2020 | | | | (In thousands) | | | (In thousands) | | Net cash (used in) provided by: | | | | | | | | | | Operating activities | | $ | (17,081 | ) | | $ | (29,257 | ) | | $ | (32,177 | ) | | $ | (12,169 | ) | Investing activities | | — | | | | 3,168 | | | Financing activities | | | 25,250 | | | | 1,948 | | | | 31,061 | | | | 7,583 | | Net increase (decrease) in cash, cash equivalents and restricted cash | | $ | 8,169 | | | $ | (24,141 | ) | | Net decrease in cash and cash equivalents | | | $ | (1,116 | ) | | $ | (4,586 | ) |
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Cash used in operating activities Net cash used in operating activities was $17.1$32.2 million and $29.3$12.2 million in 2019during the years ended December 31, 2021 and 2018,2020, respectively, which was primarily due to the use of funds in our operations related to the development of AVB-500,batiraxcept, our product candidate. Cash used in operating activities in 2019 decreased significantly2021 increased compared to 2018the year ended December 31, 2020 due primarily to the terminationramp up in our Phase 3 trial of a number of supplier contracts that occurredbatiraxcept in 2018 partially offset by the receipt of CPRIT Grant funds of approximately $3.0 million. Cash used in operating activities in 2018 of $29.3 million reflects a net loss of $76.3 million and was mostlyPROC along with continuing costs related to operational expenses. This loss was reduced by some large noncash amounts related to the write-offour trial of acquired in-process researchour second oncology indication, ccRCC and development, or IPR&D and stock-based compensation expense.our new third oncology indication, pancreatic adenocarcinoma. Cash provided by investing activities Net cash provided by investing activities was $3.2 million in 2018 primarily related to cash received upon the Merger offset by cash paid to acquire IPR&D.
Net cash from investing activities in 2019during the years ended December 31, 2021 and 2020 was zero. Cash provided by financing activities Net cash provided by financing activities was $25.3$31.1 million and $2.0$7.6 million in 2019 and 2018, respectively. The increase in cash provided by financing activities primarily relates to proceeds received from issuance of our common stock in a public offering which was completed in December of 2019. As ofduring the years ended December 31, 2019, we had cash2021 and cash equivalents of approximately $65.1 million. We believe that our existing cash and cash equivalents will be sufficient2020, respectively. Financing activities related to sustain operations for at least the next 12 months from the issuance of these financial statements as we continue the development of AVB-500. We will need to obtain additional financing to advance our clinical development program to later stages of development and fund operations for the foreseeable future and we will continue to seek funds through equity or debt financings, collaborative or other arrangements with corporate sources, or through other sources of financing.
Off-balance sheet arrangements
Since our inception, we have not engaged in any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.
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JOBS Act accounting election
The Jumpstart Our Business Startups Act of 2012, or the JOBS Act, permits an “emerging growth company” to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. For the year ended December 31, 2019, we chose2021 included a registered direct offering with proceeds of $20.9 million along with at the market offering proceeds of $9.8 million. Financing activities related to “opt out” of this provision and, as a result, we complied with new or revised accounting standards as required when they were adopted. As ofthe year ended December 31, 2019, we are no longer an emerging growth company.2020 included a private placement offering with proceeds of $5.0 million in April 2020 along with at the market offering proceeds of $2.3 million.
Critical accounting policies, significant judgmentsAccounting Policies, Significant Judgments and useUse of estimatesEstimates The Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, (“U.S. GAAP”). The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses. On an ongoing basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates. Collaboration Revenue Collaboration revenue for 2021 and 2020 has been generated through our collaboration and license agreement which is within the scope of ASC 606. Under ASC 606, we recognize revenue when our customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that we determine are within the scope of ASC 606, we perform the following five steps: | (i) | identify the contract(s) with a customer; |
| (ii) | identify the performance obligations in the contract; |
| (iii) | determine the transaction price; |
| (iv) | allocate the transaction price to the performance obligations in the contract; and |
| (v) | recognize revenue when (or as) the entity satisfies a performance obligation. |
We only apply the five-step model to contracts when it is probable that the entity will collect the consideration we are entitled to in exchange for the goods or services we transfer to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Our collaboration and license agreement contains multiple elements including (i) intellectual property licenses and (ii) research and development services. Consideration received under these arrangements may include upfront payments, research and development funding, cost reimbursements, milestone payments, payments for product sales and royalty payments. In February 2016,determining the FASB issued ASU No. 2016-02, “Leases (Topic 842)” (“ASU 2016-02”). The amendments in this update create Topic 842, Leases, and supersedeappropriate amount of revenue to be recognized as we fulfill our obligations under the leases requirements in Topic 840, Leases. Topic 842 specifiesagreement, we implement the five-step model noted above. As part of the accounting for leases. The objectivethe arrangement, we must develop assumptions that require judgment to determine whether the individual promises should be accounted for as separate performance obligations or as a combined performance obligation, and to determine the stand-alone selling price for each performance obligation identified in the contract. A deliverable represents a separate performance obligation if both of Topic 842 is to establish the principlesfollowing criteria are met: (i) the customer can benefit from the good or service either on its own or together with other resources that lessees and lessors shall apply to report useful information to users of financial statements about the amount, timing, and uncertainty of cash flows arising from a lease. The main difference between Topic 842 and Topic 840 is the recognition of lease assets and lease liabilities for those leases classified as operating leases under Topic 840. Topic 842 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similarreadily available to the classification criteria for distinguishing between capital leasescustomer, and operating leases(ii) the entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the previous lease guidance. The resultcontract. We use key assumptions to determine the stand-alone selling price, which may include forecasted revenues, development timelines, estimated costs to be incurred, discount rates, and probabilities of retaining a distinction between finance leasestechnical and operating leases is that under the lessee accounting model in Topic 842, the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. The amendments in ASU 2016-02 became effective for us on January 1, 2019, we wrote off our previously recorded build-to-suit asset as a result of adoption and recorded a right-of-use asset for our existing leases. The full adoption impact of the ASU 2016-02 is illustrated in the accompanying consolidated financial statements.regulatory success. Grant Revenue
Revenues from the CPRIT Grant are recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the award have been met for collection. Proceeds received prior to the costs being incurred or the conditions of the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met. As of December 31, 2019, the Company had an unbilled receivable from CPRIT of $1.6 million, which is reflected in prepaid expenses and other current assets on the accompanying consolidated balance sheet.
Research and development expenseDevelopment Expense Research and development costs are expensed as incurred. Research and development expense includes payroll and personnel expenses; consulting costs; external contract research and development expenses; and allocated overhead, including rent and utilities, and relate to both company-sponsored programs as well as costs incurred pursuant to reimbursement arrangements. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and capitalized and recognized as an expense as the goods are delivered or the related services are performed. As part of the process of preparing our consolidated financial statements, we are required to estimate our accrued research and development expenses. This process involves reviewing contracts and purchase orders, reviewing the terms of our license agreements, communicating with our applicable personnel to identify services that have been performed on our behalf, and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of actual cost. The majority of our service providers invoice us monthly in arrears for services performed. We make estimates of our accrued expenses as of each consolidated balance sheet date in our consolidated financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees to: contract manufacturers in connection with the production of clinical trial materials;
contract research organizations and other service providers in connection with clinical studies;
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| • | contract manufacturers in connection with the production of clinical trial materials; |
| • | contract research organizations and other service providers in connection with clinical studies; |
| • | investigative sites in connection with clinical studies; |
| • | vendors in connection with preclinical development activities; and |
vendors in connection with preclinical development activities; and
| • | professional service fees for consulting and related services. |
professional service fees for consulting and related services.
We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple research institutions and contract research organizations that conduct and manage clinical studies on our behalf. The financial terms of these agreements are subject to negotiation, vary from contract to contract, and may result in uneven payment flows and expense recognition. Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual accordingly. Our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in our reporting changes in estimates in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred. However, due to the nature of these estimates, we cannot assure you that we will not make changes to our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activity. Right-of-Use Lease Accounting The Company adopted ASC 842 on January 1, 2019. For the periods prior to January 1, 2019, our leases were accounted for under ASC 840. We lease all of our office space in conducting our business. At inception, we determine whether an agreement represents a lease and at commencement we evaluate each lease agreement to determine whether the lease is an operating or financing lease. As described below under "Recent Accounting Pronouncements”, in our consolidated financial statements included elsewhere in the Annual Report on Form 10-K, we adopted ASU 2016-02. We elected to adopt the standard on January 1, 2019 using the alternative transition method provided by ASU 2018-11 whereby we recorded right-of-use (“ROU”) assets and lease liabilities for our existing leases as of January 1, 2019, as well as a cumulative-effect adjustment to accumulated deficit of initially applying the new standard as of January 1, 2019.
The new standard provides a number of optional practical expedients in transition. We have elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. We have elected the practical expedient allowing the use-of-hindsight which doesn’t require us to reassess the lease term of its leases based on all facts and circumstances through the effective date.
The new guidance also provides practical expedients for ongoing lease accounting. We have elected the recognition exemption for short-term lease for all leases that qualify. Under this exemption, we will not recognize ROU assets or lease liabilities on the consolidated balance sheet for those leases that qualify as a short-term lease, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. We have also elected the practical expedient to not separate lease and non-lease components for all equipment and real-estate leases.
With the adoption of ASU 2016-02, we recorded an operating lease right-of-use asset and an operating lease obligation on the consolidated balance sheet. ROU assets represent our ROU of the underlying asset for the lease term and the lease obligation represents our commitment to make the lease payments arising from the lease. ROU obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term and ROU assets are calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses. As our leases do not provide an implicit rate, we have used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. The lease term may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. For all lease agreements we have combined lease and non-lease components. Leases with an initial term of 12 months or less are not recorded on the balance sheet.
Prior to our adoption of ASU 2016-02, when our lease agreements contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, we recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the consolidated statements of operations over the term of each lease.
The most significant estimates used by management in accounting for right-of-use leases and the impact of these estimates are as follows: Economic life- Our estimated economic life of the building considers life added back due to tenant improvements.
Incremental borrowing rate- We estimate our incremental borrowing rate. For build-to-suit leases recorded on our consolidated balance sheets with a related build-to-suit lease obligation, the incremental borrowing rate is used in allocating our rental payments between interest expense and ground rent expense.
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| • | Fair market value of leased asset- The fair market value of a build-to-suitLease term - We estimate our lease property isterm and lease obligation based upon our signed commitment to make the lease payments arising from our leases. We consider any lease extensions and if we determine those extensions are reasonably certain that we will exercise that option those extensions, if any, are included in the lease term.
|
| • | Incremental borrowing rate - Our leases do not provide an implicit rate, we use an estimated incremental borrowing rate based on replacement cost of the pre-construction shell and comparable market data. Fair market value is usedinformation available at the lease inception in determining the amountpresent value of the property asset and related build-to-suit lease obligation to be recognized on our consolidated balance sheet for build-to-suit leases.payments. |
|
Stock-based compensation expenseCompensation Expense For the years ended December 31, 20192021 and 2018,2020, stock-based compensation expense was $3.4$2.3 million and $16.1$2.0 million, respectively. As of December 31, 2019,2021, we had approximately $2.0$3.6 million of total unrecognized compensation expense, which we expect to recognize over a weighted-average period of approximately 2.82.6 years. The intrinsic value of all outstanding stock options as of December 31, 20192021 was approximately $16.3$1.6 million, of which all related to vested options. We expect to continue to grant equity incentive awards in the future as we seek to retain our existing employees. Stock-based compensation costs related to stock options granted to employees are measured at the date of grant and to the options assumed in connection with the Merger are measured at the date of the Merger based on the estimated fair value of the award, net of estimated forfeitures. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option-pricing model. The grant date fair value of stock-based awards is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the award. Stock options we grant to employees generally vest over four years. The fair value of options assumed in connection with the Merger were determined using the Black-Scholes option-pricing model with assumptions derived immediately following the completion of the Merger and were recognized as operating expenses in the 2018 consolidated statement of operations. The Black-Scholes option-pricing model requires the use of highly subjective assumptions to estimate the fair value of stock-based awards. If we had made different assumptions, our stock-based compensation expense, net loss and net loss per share of common stock could have been significantly different. These assumptions include: | • | Expected volatility: The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected term of our stock options. |
| • | Expected term: We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in estimating the fair value-based measurement of our options. Therefore, we have opted to use the “simplified method” for estimating the expected term of options. |
| • | Risk-free rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity. |
| • | Expected dividend yield: We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero. |
Expected volatility: Beginning in 2018, we had enough historical stock price information in order to value the options assumed in the Merger. We continue to utilize our historical stock prices in order to estimate the expected volatility.
Expected term: We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in estimating the fair value-based measurement
Risk-free rate: The risk-free interest rate is based on the yields of U.S. Treasury securities with maturities similar to the expected time to liquidity.
Expected dividend yield: We have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future. Consequently, we used an expected dividend yield of zero.
See Note 89 to our audited consolidated financial statements included elsewhere in this annual report on Form 10-K for information concerning certain of the specific assumptions used in applying the Black-Scholes option-pricing model to determine the estimated fair value of employee stock options assumed in the Merger and granted in 2019.options. In addition to the assumptions used in the Black-Scholes option-pricing model, we must also estimate a forfeiture rate to calculate the stock-based compensation expense for our awards. We will continue to use judgment in evaluating the expected volatility, expected terms, and forfeiture rates utilized for our stock-based compensation expense calculations on a prospective basis. Income taxesTaxes We file U.S. federal income tax returns, Texas, California and Californiaother various state tax returns. To date, we have not been audited by the Internal Revenue Service or any state income tax authority; however, all tax years remain open for examination by federal and state tax authorities. We use the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial reporting and the tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We assess the likelihood that the resulting deferred tax assets will be realized. A valuation allowance is provided when it is deemed more likely than not that some portion or all of a deferred tax asset will not be realized. 69
As of December 31, 2019,2021, our total gross deferred tax assets were $17.8$23.6 million. Due to our lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal and state tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. We have performed an analysis to determine whether an “ownership change” occurred from inception up to the Private Aravive'sAravive Biologics acquisition date. Based on this analysis during 2018, management determined that both Versartis, Inc. and Private Aravive Biologics did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. As such,During the net operating loss carryforwardsyears ended December 31, 2021 and 2020, no additional ownership changes were noted. Recent Accounting Pronouncements Recently issued accounting pronouncements that we have been reduced by $306 million. The tax credit carryforwards have been reduced by $39.5 million. The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earningsadopted or are currently evaluating are described in detail within “Note 2—Summary of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the estimated transition tax, re-measuring our U.S. deferred tax assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities.
Accordingly, we remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount relatedSignificant Accounting Policies” to the re-measurement of our deferred tax balance is a reduction of approximately $33 million. Due to the corresponding valuation allowance fully offsetting deferred taxes, there is no income statement impact.accompanying consolidated financial statements included elsewhere in this Annual Report on Form 10K.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In Q4 2019, we completed our analysis within the measurement period in accordance with SAB 118 and found no change to the provisional amount on 2019 tax provision.
Item7A. Quantitative and Qualitative Disclosures About Market Risk. The Company is
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and isare not required to provide the information required under this item. 70
Item Item8. Financial Statements and Supplementary Data.
The following consolidated financial statements of the registrant, related notes and reports of independent registered public accounting firms are set forth beginning on page F-1 of this report.
Item9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None
Item9A. Controls and Procedures. (a) Evaluation of Disclosure Controls and Procedures An evaluation as of December 31, 20192021 was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our “disclosure controls and procedures,” which are defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission'sSEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2019.2021. (b) Management's Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Our internal control system is designed to provide reasonable assurance regarding the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles. All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable assurance that the objectives of the internal control system are met. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting, based on criteria established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its 2013 Internal Control-Integrated Framework. Based on our evaluation, we concluded that our internal control over financial reporting was effective as of December 31, 2019.2021. As of December 31, 2019,2021, we are a non-accelerated filer, our independent registered accounting firm is not required to issue an attestation report on our internal control over financial reporting. (c) Changes in Internal Control over Financial Reporting Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2019,2021, and has concluded that there was no change during such period that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. 71
Item Item9B. Other Information
Mr. Shah
On March 26, 2020, we entered into an offer letter with Mr. Shah that superseded the offer letter with private Aravive and provides that if we terminate his employment for any reason other than cause or permanent disability, or a qualifying termination and not in connection with a change in control, if Mr. Shah (i) executes and does not revoke a release of claims within 60 days following the date he terminates employment with us and, (ii) returns all of our property in his possession he will be entitled to (a) nine months of salary continuation payments (b) if he timely elects to continue his health insurance coverage under COBRA, we will pay a portion of his monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date he terminates employment with us. In addition, he will be entitled to (c) 12 months accelerated vesting of stock options and RSUs awarded to Mr. Shah and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company. In addition, if during the twelve month period commencing on the closing date of a Change in Control we terminate his employment for any reason other than Cause, death or Disability or he resigns for Good Reason, pursuant to the Severance Plan, all unvested equity awards will immediately vest, subject to certain restriction. Mr. Shah would receive a “Severance Multiplier” of 12 under the Severance Plan, which will entitle him to: cash severance equivalent to 12 multiplied by the sum of his monthly base salary and monthly annual bonus target; up to 12 months’ payment of health insurance coverage and up to 12 months to exercise vested stock options. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Mr. Shah would be eligible for full accelerated vesting of his outstanding stock options and RSUs. The foregoing summary of the material provisions of the offer letter is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of which is filed as Exhibit 10.69 to this Annual Report on Form 10-K and is incorporated herein by reference.
Dr. McIntyre
On March 26, 2020, we entered into an offer letter with Dr. McIntyre that superseded the offer letter with private Aravive and provides that if we terminate her employment for any reason other than cause or permanent disability, or a qualifying termination and not in connection with a change in control, if Dr. McIntyre (i) executes and does not revoke a release of claims within 60 days following the date she terminates employment with us and (ii) returns all of our property in his possession she will be entitled to (a) nine months of salary continuation payments (b) if she timely elects to continue her health insurance coverage under COBRA, we will pay a portion of her monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date she terminates employment with us. In addition, she will be entitled to (c) 12 months accelerated vesting of stock options and RSUs awarded to Dr. McIntyre and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Change in Control Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company. In addition, if during the twelve month period commencing on the closing date of a Change in Control we terminate her employment for any reason other than Cause or death or disability or she resigns for Good Reason, all unvested equity awards will immediately vest, subject to certain restriction. Dr. McIntyre would receive a “Severance Multiplier” of 12 under the Severance Plan, which will entitle her to: cash severance equivalent to 12 multiplied by the sum of her monthly base salary and monthly annual bonus target; up to 12 months’ payment of health insurance coverage and up to 12 months to exercise vested stock options. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Dr. McIntyre would be eligible for full accelerated vesting of her outstanding stock options and RSUs. The foregoing summary of the material provisions of the offer letter is not complete and is qualified in its entirety by reference to the full text of such agreement, a copy of which is filed as Exhibit 10.70 to this Annual Report on Form 10-K and is incorporated herein by reference.None
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PART IIIItem 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspection
Not Applicable PART III Item10. Directors, Executive Officers and Corporate Governance. BOARD OF DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The following table sets forth information concerning our directors and executive officers, including their ages as of March 16, 2020.21, 2022. There are no family relationships among any of our directors or executive officers. Name | | Age | | Position(s) | Rekha Hemrajani Fredric N. Eshelman, Pharm. D.(1)
| | 73 | | 50Executive Chairman of the Board of Directors
| Gail McIntyre, Ph.D.(2) | | 59 | | President, Chief Executive Officer and Director | Jay P. Shepard (2)
| | 62
| | Chairman of the Board of Directors
| Vinay Shah (3) | | 59 | 57
| | Chief Financial Officer | Gail McIntyre,Leonard Scott Dove, Ph.D.(4)
| | 49 | 57
| | Chief ScientificOperating Officer | Srinivas Akkaraju, M.D., Ph.D.
| | 52
| | Director
| Amato Giaccia, Ph.D. | | 63 | 61
| | Director
| Robert E. Hoffman
| | 54
| | Director
| Raymond Tabibiazar , M.D.
| | 49
| | Director | Eric Zhang | | 40 | 38
| | Director | John A. Hohnecker, M.D. | | 62 | | Director | Michael W. Rogers | | 62 | | Director | Peter T.C. Ho, M.D., Ph.D. | | 60 | | Director | Sigurd C. Kirk | | 55 | | Director |
(1) | Ms. HemrajaniDr. Eshelman was appointed as our company’s Executive Chairman on January 3, 2022 and has served as the non-executive Chairman of our Board since April 8, 2020.
|
(2) | Dr. McIntyre was appointed President and Chief Executive Officer and director effective January 9, 2020 upon Mr. Shepard’s transition from an executive officer to his current position as Chairman of the board of directors. |
(2)
| Mr. Shepard served as our President and Chief Executive Officer from May 2015 until January 9, 2020 when he resigned as President and Chief Executive Officer and was named Chairman of the board of directors.
|
(3)
| Mr. Shah has served as our Chief Financial Officer since October 12, 2018.
|
(4)
| April 8, 2020. Dr. McIntrye hasMcIntyre served as our Chief Scientific Officer sincefrom February 12, 2019.2019 until her appointment as Chief Executive Officer. |
(3) | Mr. Shah has served as our Chief Financial Officer since October 12, 2018. |
Rekha Hemrajani, President,
(4) | Dr. Dove has served as our Chief Operating Officer since March 21, 2022. |
Fredric N. Eshelman, Pharm. D, Chairman of the Board of Directors Dr. Eshelman was appointed the Executive Chairman of our company on January 3, 2022 and has served as the non-executive Chairman of the Board of Directors since April 8, 2020. Dr. Eshelman is the Founder of Eshelman Ventures, LLC, an investment company primarily interested in healthcare companies. Previously, he founded and served as Chairman and Chief Executive Officer of Pharmaceutical Product Development, Inc. (PPDI) prior to the sale of the company to private equity interests. After PPD, he served as founding chairman and was the largest shareholder of Furiex Pharmaceuticals, Inc. (FURX), a company which in-licensed and rapidly developed new medicines. Furiex was sold to Forest Laboratories Inc. (which was later acquired by Actavis) in 2014. His career has also included positions as SVP development and board member of the former Glaxo, Inc., as well as management positions with Beecham Laboratories and Boehringer Mannheim Pharmaceuticals. Dr. Eshelman is also a member of the Board of Directors of, Amplitude Healthcare Acquisition Corp. (Nasdaq: AMHC) and Eyenovia Inc. (Nasdaq:EYEN). He is currently chairman of several biotech companies and previously was chairman of The Medicines Company (MDCO) and was on the board of Bausch Health (BHC) G1 Therapeutics, Inc. (Nasdaq: GTHX). Dr. Eshelman has served on the executive committee of the Medical Foundation of North Carolina and was appointed by the North Carolina General Assembly to serve on the Board of Governors for the state's multi-campus university system (chair of audit committee), as well as the North Carolina Biotechnology Center. In addition, he chairs the board of visitors for the School of Pharmacy at University of North Carolina at Charlotte (UNC-CH). The school was named the UNC Eshelman School of Pharmacy in recognition of his many contributions to the school and the profession. He has received many awards including the Davie and Distinguished Service Awards from UNC, outstanding alumnus from both the UNC and University of Cincinnati schools of pharmacy, Life Science Leadership Award (CED) and the North Carolina Biotech Hall of Fame. Dr. Eshelman received the doctor of pharmacy from the University of Cincinnati, completed a residency at Cincinnati General Hospital, and received a BS Pharm from UNC-CH. He completed the OPM program at Harvard Business School. Dr. Eshelman also received an honorary doctor of science from UNC-CH. We believe Dr. Eshelman is qualified to serve as a member of our Board of Directors based on his experience in the life sciences, biotechnology and pharmaceutical industries and for his knowledge of corporate development matters. Gail Mclntyre, Ph.D., Chief Executive Officer and Director Ms. Hemrajani
Dr. McIntyre has served as our President and Chief Executive Officer and a member our board of directors since January 9, 2020. From March 2019 to September 2019, she served as the Chief Operating Officer and Chief Financial Officer of Arcus Biosciences (NYSE: RCUS), a biotechnology company, where she had responsibility for corporate strategy, business and corporate development, finance, investor relations, corporate communications, strategic planning and human resources. From March 2016 to March 2019, Ms. Hemrajani was the Chief Operating Officer of FLX Bio, Inc. (now named RAPT Therapeutics, Inc. (NASDAQ: RAPT)), a biotechnology company, where she was responsible for corporate strategy and development, investor and media relations, corporate communications, finance and strategic marketing. From February 2015 to March 2016, Ms. Hemrajani was the Chief Financial Officer and Senior Vice President of Business and Financial Operations at 3-V Biosciences, Inc. (now Sagimet Biosciences, Inc.), a privately held biotechnology company, with responsibility for corporate strategy, corporate development, finance, investor relations and G&A operations. From November 2013 to February 2015, Ms. Hemrajani advised privately held companies on strategic corporate development and financing activities through her consulting firm, Ravinia Consulting. Previously, Ms. Hemrajani was Vice President, Head of Licensing and Mergers and Acquisitions at Onyx Pharmaceuticals, Inc., a biotechnology company, and Vice President of Business Development at Exelixis, Inc., a biotechnology company. Ms. Hemrajani began her career in investment banking at firms such as Credit Suisse, First Boston and Lehman Brothers, where she focused on the biopharmaceutical and healthcare sector. Since May 2019, Ms. Hemrajani has also served as a member of the Board of Directors and the audit committee of the Board of Directors of Adverum Biotechnologies, Inc. (Nasdaq: ADVM), a clinical-stage gene therapy company. We believe Ms. Hemrajani is able to make valuable contributions to the board of directors due to her extensive knowledge of the biopharmaceutical industry and her prior and current experience as an executive officer.
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Jay P. Shepard, Chairman of the Board of Directors
Mr. Shepard has served as the Chairman of the board of directors since January 9, 2020, served as our President and Chief Executive Officer from May 2015 until January 9,since April 8, 2020 and as a member of the board of directors since December 2013. From December 2013 to May 2015, Mr. Shepard also served as the chairman of the board of directors. Until May 2015, Mr. Shepard was an Executive Partner at Sofinnova Ventures, or Sofinnova, a venture capital firm focused on the healthcare industry, which he joined as an Executive in Residence in 2008. Mr. Shepard previously served as President and Chief Executive Officer and was a member of the board of directors of NextWave Pharmaceuticals, Inc., a specialty pharmaceutical company developing and commercializing unique pediatric products utilizing proprietary drug delivery technology that was acquired by Pfizer, Inc. in November 2012, from January 2010 to November 2012. From December 2005 to October 2007, Mr. Shepard served as President and Chief Executive Officer and a member of the board of directors of Ilypsa, Inc., a biopharmaceutical company pioneering novel non-absorbed polymeric drugs for renal and metabolic disorders that was acquired by Amgen in July 2007. Mr. Shepard has served on the board of directors of numerous public and private companies, including Ilypsa, Inc., Relypsa, Inc., Intermune, Inc., Bullet Biotechnology, Inc., Marinus Pharmaceuticals, Inc., and Durect Corporation. Currently, Mr. Shepard serves on the board of directors of Esperion Therapeutics, Inc., a pharmaceutical company, and of the Christopher & Dana Reeve Foundation. Mr. Shepard holds a B.S. in Business Administration from the University of Arizona.
We believe Mr. Shepard is able to make valuable contributions to the board of directors due to his extensive knowledge of the biopharmaceutical industry and his prior and current experience as an executive officer, including as the former Chief Executive Officer of our company.
Vinay Shah, Chief Financial Officer
Mr. Shah has servedFebruary 2019 until her appointment as our Chief FinancialExecutive Officer, since the Merger was completed on October 12, 2018. Mr. Shah also served as the Chief Financial Officer of Private Aravive since 2010, initially as a consultant and from 2017 as an employee. Mr. Shah brings more than 18 years of financial management experience in the medical device and biopharmaceutical industries to our company. From 2008 until 2016, he served in various positions at Pacira Pharmaceuticals Inc., a specialty pharmaceutical company, including Executive Director of Finance and Executive Director of Strategy Analytics, initially as a consultant and since 2010 as an employee. Before Pacira Pharmaceuticals Inc., Mr. Shah worked for Cardinal Health’s medical device group in various finance management positions. The group was subsequently consolidated and spun off as CareFusion and then sold to Becton, Dickinson and Company. His prior work experience includes positions at Pricewaterhouse Coopers LLP and KPMG in India and the Middle East. Mr. Shah received a Bachelor of Commerce degree from Ranchi University in India. He is a Chartered Accountant from the Institute of Chartered Accountants in India and has an MBA from W.P. Carey School of Business at Arizona State University.
Gail Mclntyre, Ph.D., Chief Scientific Officer
Dr. McIntrye has served as our Chief Scientific Officer since February 2019.Officer. Dr. McIntyre also served as our Senior Vice President of Research and Development from the Merger until February 2019 and served as Private Aravive’sAravive Biologics’ Senior Vice President of Research and Development from January 2017 to October 2018 and a consultant to Private Aravive Biologics from August 2016 until January 2017. Having brought multiple drugs to market, Dr. McIntyre has more than 20 years of experience in drug development, strategic business development, licensing and M&A activities. Dr. McIntyre has served as a principal at IntelliDev Consulting, LLC providing consulting services to several biotechnology companies for three years, while also serving as VP of Development for Meryx, Inc. from January 2014 until January 2016. Prior to that, Dr. McIntyre held the position of senior vice president of research at Furiex Pharmaceuticals, Inc. and previously served as head of Pharmaceutical Product Development LLC’s (PPD) compound partnering business. At both Furiex and PPD, she strategized and managed all preclinical and clinical activities for drug development programs and was responsible for identification of new partnering opportunities and technical due diligence for both in-licensing opportunities and new business acquisitions. At PPD, she led the partnering and the in-licensing of Alogliptin from Syrrx, Inc. at preIND stage and the licensing to Takeda at Phase 2. She was instrumental to the licensing of Dapoxetine to what is currently Johnson & Johnson and then The Menarini Group. She played a pivotal role in the $1.1 billion acquisition of Allergan in 2014 and successfully negotiated with CSS on scheduling for Viberzi, in addition to driving all aspects of development. Dr. McIntyre has authored more than 30 regulatory submissions and is a board-certified toxicologist. Her experience covers multiple therapeutic areas including oncology (including immune-oncology), infectious diseases, central nervous system, gastrointestinal, and metabolic/endocrine as well as various therapies including small drugs, treatment vaccines, antibodies, immunoconjugates and peptide mimetics. Dr. McIntyre is also board certified in Clinical Pathology (hematology and clinical chemistry) by the American Society of Clinical Pathology. Dr. McIntyre received her B.A. in Biology from Merrimack College. She earned M.S. and Ph.D. degrees in Biochemistry and Biophysics from the University of North Carolina at Chapel Hill.
Srinivas Akkaraju, M.D., Ph.D., Director
Dr. Akkaraju has served as a member of the board of directors since July 2013. Dr. Akkaraju previously served as a member of the board of directors from February 2011 to February 2013. Since June 2016, Dr. Akkaraju has been a managing member of Samsara BioCapital GP, LLC, the general partner of Samsara BioCapital LP. From February 2016 until June 2016, Dr. Akkaraju was a Senior Advisor of Sofinnova Ventures. From April 2013 to February 2016, Dr. Akkaraju served as a Managing General Partner at Sofinnova Ventures. Prior to joining Sofinnova, Dr. Akkaraju was a Managing Director at New Leaf Venture Partners, or New Leaf, from January 2009 to April 2013. From September 2006 to December 2008, Dr. Akkaraju served as a managing director at Panorama Capital, LLC, a private equity firm founded by the former venture capital investment team of J.P. Morgan Partners, LLC, or JPMP, a private equity division of JPMorgan Chase & Co. From April 2001 to September 2006, Dr. Akkaraju was a part of the health care
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investment team at JPMP, most recently as Partner. Dr. Akkaraju has served on the boards of directors of numerous public and private companies, including Synageva BioPharma Corp., Barrier Therapeutics, Inc. aTyr Pharma, Inc., ZS Pharma, Inc. and EyeTech Pharmaceuticals Inc., all of which are or were publicly traded biotechnology companies, and Amarin Corporation plc, a foreign publicly traded biotechnology company, and currently serves on the boards of directors of Intercept Pharmaceuticals, Inc., Syros Pharmaceuticals, Inc., Principia Biopharma Inc. and Seattle Genetics, Inc, all of which are publicly traded companies. Dr. Akkaraju holds a B.A. in Biochemistry and Computer Science from Rice University and an M.D. and Ph.D. in Immunology from Stanford University School of Medicine.
We believe that Dr. AkkarajuMcIntyre is able to make valuable contributions to the boardBoard of directorsDirectors due to hisher clinical and leadership experience investing in the healthcare and pharmaceutical industries. Vinay Shah, Chief Financial Officer Mr. Shah has served as our Chief Financial Officer since the Merger was completed on October 12, 2018. Mr. Shah also served as the Chief Financial Officer of Aravive Biologics since 2010, initially as a consultant and from 2017 as an employee. Mr. Shah brings more than 18 years of financial management experience in the medical device and biopharmaceutical industries to our company. From 2008 until 2016, he served in various positions at Pacira Pharmaceuticals Inc., a specialty pharmaceutical company, including Executive Director of Finance and Executive Director of Strategy Analytics, initially as a consultant and since 2010 as an employee. Before Pacira Pharmaceuticals Inc., Mr. Shah worked for Cardinal Health’s medical device group in various finance management positions. The group was subsequently consolidated and spun off as CareFusion and then sold to Becton, Dickinson and Company. His prior work experience includes positions at Pricewaterhouse Coopers LLP and KPMG in India and the Middle East. Mr. Shah received a Bachelor of Commerce degree from Ranchi University in India. He is a Chartered Accountant from the Institute of Chartered Accountants in India and has an MBA from W.P. Carey School of Business at Arizona State University. Leonard Scott Dove, Ph.D., Chief Operating Officer Dr. Dove has served as our Chief Operating Officer since March 21, 2022. Previously, from November 2017 until March 2022, Dr. Dove served as Senior Vice President and General Manager of PPD, Inc. (“PPD”), a Thermo Fisher Scientific company (NYSE: TMO), where he provided strategic direction and oversight of PPD’s Early Development Services business unit. In this role, Dr. Dove was responsible for the organizational design and executive management of early phase CRO operations. PPD is a leading global provider of clinical research services to the biopharma and biotech industry. Prior to joining PPD, from August 2015 to November 2017, Dr. Dove was an Executive Director of Clinical Development with Allergan, Inc. (“Allergan”) in a contract capacity serving as global clinical development leader for Viberzi®/Truberzi® (eluxadoline). At Allergan, he negotiated marketing approvals, labeling, and post-marketing requirements for eluxadoline as a directortreatment for companiesirritable bowel syndrome, while overseeing the development and operational execution of its label expansion and lifecycle management clinical strategy. Dr. Dove previously oversaw the development of eluxadoline as program leader at Furiex Pharmaceuticals, Inc., managing the program through successful NDA submission until the acquisition of Furiex by Actavis plc (now Allergan). Dr. Dove received his B.S. in the biotechnologybiochemistry and healthcare industries.a doctorate in pharmacology from Texas A&M University. Amato Giaccia, Ph.D., Director Dr. Giaccia has served as a member of the board of directors since the Merger was completed on October 12, 2018. Prior to the closing date of the Merger, he also served as a member of the board of directors of Private Aravive from August 2010 to October 2018 and as Acting Chief Scientific Officer of Private Aravive from January 2017 until the Merger was completed on October 12, 2018. Dr. Giaccia also served as Professor of Radiation Oncology, Associate Chair for Research & Director of the Division of Radiation & Cancer Biology in the Department of Radiation Oncology at Stanford University School of Medicine, a position he has held since 2011 and has been a Director of Oxford Institute of Radiation Oncology since January 2019. He is also the Associate Director for Basic Science and leader of the Radiation Biology Program in Stanford Cancer Institute. He has also served as the Director of the Cancer Biology Interdisciplinary Graduate Program and is currently the “Jack, Lulu and Sam Willson Professor in Cancer Biology” in the Stanford University School of Medicine. He received his Ph.D. from the University of Pennsylvania. We believe that Dr. Giaccia is able to make valuable contributions to the board of directors due to his extensive scientific and medical knowledge and experience and his familiarity with Aravive’s technology as the leader of the laboratory in which it originated. Robert E. Hoffman, Director
Mr. Hoffman has served as a member
Table of the board of directors since the Merger was completed on October 12, 2018. Since April 2017, Mr. Hoffman has served as Chief Financial Officer and Senior Vice President, Finance at Heron Therapeutics, Inc., a biotechnology company. From September 2016 to April 2017, Mr. Hoffman served as Executive Vice President and Chief Financial Officer of Innovus Pharmaceuticals, Inc., a biopharmaceutical company. Prior to joining Innovus Pharmaceuticals, Inc., Mr. Hoffman served as Chief Financial Officer of AnaptysBio, Inc., a biopharmaceutical company, from 2015 until 2016. In 1997, he was part of the founding management team of Arena Pharmaceuticals, Inc., a biopharmaceutical company, ultimately serving as Senior Vice President, Finance and Chief Financial Officer until March 2011, and then again from August 2011 until July 2015. From March 2011 to August 2011, Mr. Hoffman served as Chief Financial Officer of Polaris Group, a biopharmaceutical company. Mr. Hoffman is a member of the board of directors of Kura Oncology, Inc., a biopharmaceutical company, DelMar Pharmaceuticals, Inc., a biopharmaceutical company and ASLAN Pharmaceuticals, Inc., a biotechnology company. Previously, Mr. Hoffman was a member of the board of directors of Combimatrix Corporation, a molecular diagnostics company, from July 2013 to November 2017, and MabVax Therapeutics Holdings, Inc., a biopharmaceutical company, from September 2014 to June 2017. He also is a member of the Financial Accounting Standards Board’s Small Business Advisory Committee and is a member of the steering committee of the Association of Bioscience Financial Officers. Mr. Hoffman received his B.B.A. from St. Bonaventure University and is licensed as a C.P.A. (inactive) in the State of California.We believe Mr. Hoffman is able to make valuable contributions to the board of directors due to his vast experience in finance and accounting and is qualified as a result of his general business experience and his status as an audit committee financial expert.
Raymond Tabibiazar, M.D., Director
Dr. Tabibiazar has served as a member of the board of directors since the Merger was completed on October 12, 2018. Dr. Tabibiazar is Private Aravive’s founder and served as the Chairman of Private Aravive’s board of directors and as Private Aravive’s President and Chief Executive Officer from its inception in 2007 to April 2017 and as Executive Chairman since May 2017. In addition to his role at Private Aravive, since April 2010 Dr. Tabibiazar also is the Managing Director of 525 Ventures, a life sciences strategic consulting company working with both public and private biopharmaceutical firms. Dr. Tabibiazar also served from October 2018 until April 2019 as Senior Vice President of Twist Bioscience, Inc., a Nasdaq-listed public company that manufactures synthetic DNA for clients in the biotechnology industry and from January 2016 until October 2018 as an advisor to Twist Bioscience, Inc. Prior to founding Private Aravive, Dr. Tabibiazar was a Venture Partner at Bay City Capital LLC, a large venture capital firm in the Bay Area. Prior to that, Dr. Tabibiazar served as the Chief Scientific Officer of Aviir, Inc., a molecular diagnostic company, as well as Vice President of Translational Research of VIA Pharmaceuticals, Inc., a cardiometabolic therapeutic company. Before moving to industry, Dr. Tabibiazar was a practicing cardiologist and an adjunct clinical instructor in medicine at Stanford University. Dr. Tabibiazar received his medical degree from Harvard Medical School and trained as an internist and cardiologist at Stanford University, while also receiving finance education at Stanford Business School. Dr. Tabibiazar received board certifications in Internal Medicine, Cardiovascular Medicine, Nuclear Medicine, and Cardiovascular Imaging.
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We believe that Dr. Tabibiazar is able to make valuable contributions to the board of directors due to his clinical and leadership experience in the healthcare and pharmaceutical industries.
Eric Zhang, Director Mr. Zhang has served as a member of the board of directors since the Merger was completed on October 12, 2018. Prior to the closing date of the Merger, he also served as a member of the board of directors of Private Aravive Biologics from June 2016 to October 2018. Mr. Zhang is the Managing Partner of New Era Technologies Management Ltd., a company he founded in 2016, which is a multi-strategy investor in biotechnology and applied physical sciences companies. From 2013 until 2016, when he founded New Era Technologies Management Ltd, Mr. Zhang was the manager of his family office investments. Mr. Zhang joined J.P. Morgan’s China Investment Banking team in Hong Kong in 2006. In the subsequent seven years, Mr. Zhang worked for Macquarie Capital and Barclays Capital in Hong Kong, responsible for covering clients in the healthcare and technology sectors in the Greater China region. Mr. Zhang received a Bachelor of Commerce and BA in Economics from Queen’s University in Kingston, Canada. We believe that Mr. Zhang is able to make valuable contributions to the board of directors due to his extensive experience as an investor in and director of our company and other biotechnology companies. John A. Hohneker, M.D., Director Dr. Hohneker has served as a member of the Board of Directors since May 12, 2021. Dr. Hohneker has 30 years of drug development and leadership experience within the biotech and pharmaceutical industry. Dr. Hohneker served as President and Chief Executive Officer of Anokion SA, a biotechnology company, from January 2018 to January 2021. Prior to joining Anokion SA, Dr. Hohneker was President of Research and Development at FORMA Therapeutics Inc., a biotechnology company, from August 2015 to January 2018. From 2001 to 2015, Dr. Hohneker held roles of increasing responsibility at Novartis AG, most recently as Senior Vice President and Global Head of Development, Immunology and Dermatology. Prior to joining Novartis, he held positions of increasing responsibility at Glaxo Wellcome and its legacy company, Burroughs Wellcome. Since January 2021, Dr. Hohneker has served on the Board of Directors of Evelo Biosciences, Inc., a publicly-traded company. From January to November 2017, he served on the Board of Directors of Dimension Therapeutics Inc., a biotechnology company, until it was acquired by Ultragenyx Pharmaceutical Inc. Dr. Hohneker received a bachelor’s degree in chemistry from Gettysburg College and an M.D. from the University of Medicine and Dentistry of New Jersey at Rutgers Medical School. He completed his internship and residency in internal medicine and his fellowship in medical oncology, all at the University of North Carolina at Chapel Hill. We believe Dr. Hohneker is qualified to serve as a member of our Board of Directors based on his experience in the pharmaceutical and biotech industries. Michael Rogers, Director Mr. Rogers has served as a member of the board of directors since September 15, 2020. Mr. Rogers most recently served as Chief Financial Officer at Aerpio Pharmaceuticals, Inc. (Nasdaq: ARPO) from November 2017 to October 15, 2019. Prior to Aerpio Pharmaceuticals, Inc., he served as Chief Financial Officer at Acorda Therapeutics, Inc. (Nasdaq: ACOR) from 2013 to 2016 and held executive and leadership positions at BG Medicine, Indevus Pharmaceuticals (acquired by Endo Pharmaceuticals), Advanced Health Corporation and Autoimmune. Mr. Rogers currently serves as a member of the Board of Directors for Akebia Therapeutics (Nasdaq Global Market: AKBA), with previous advisory experience at Keryx Biopharmaceuticals, Eyepoint Pharmaceuticals and Coronado Biosciences. Earlier in his career, Mr. Rogers was an investment banker at Lehman Brothers and PaineWebber, where he focused on life sciences companies. He earned his M.B.A. from the Darden School of Business at the University of Virginia and received his bachelor’s degree from Union College. We believe that Mr. Rogers is able to make valuable contributions to the board of directors due to his extensive public company experience as an officer and director of biotechnology companies. Peter T. C. Ho, M.D., Ph.D., Director Dr. Ho has served as a member of the Board of Directors since May 12, 2021. Dr. Ho has more than 25 years of biotechnology and pharmaceutical industry experience in numerous operational roles. Dr. Ho served as the Chief Medical Officer of Boston Pharmaceuticals, Inc. from 2018 until 2020. From September 2014 until 2017, Dr. Ho served in various roles at Epizyme, Inc., a commercial stage biopharmaceutical company, including as Executive Vice President and Chief Medical Officer from September 2015 until December 31, 2017 and Chief Development Officer from September 2014 to September 2015. Dr. Ho served as Chief Executive Officer of Metastagen Inc., a pharmaceutical preparation company that he co-founded, from February 2013 until September 2014, as President of BeiGene Ltd., a biopharmaceutical company based in Beijing, China that he co-founded, from October 2010 to December 2012, as Vice President of Oncology Development at Johnson & Johnson from September 2008 to September 2010 and, prior to that, as Senior Vice President of the Oncology Center of Excellence for Drug Development at GlaxoSmithKline. Dr. Ho currently serves on the Scientific Advisory Board of Accent Therapeutics, Inc. and is a Senior Scientific and Medical Advisor to Overland Pharmaceuticals (US) Inc., D3 Bio, Inc., based in Hong Kong, and M4K Pharma, based in Toronto, CA. Over his career, Dr. Ho has been directly responsible for the first-in-human dosing of 19 anticancer agents and has overseen the development of over 60 hematology and oncology compounds in all phases of clinical trials. His work has contributed to eleven NCE or biologics approvals to date: Gleevec®; Arranon®; Tykerb®; Promacta®; Votrient®; Synribo®; Tafinlar®; Mekinist®; Sylvant®; Rydap®, and Tazverik®. Dr. Ho is currently an Adjunct Associate Professor in the Division of Chemical Biology and Medicinal Chemistry at the Eshelman School of Pharmacy, University of North Carolina. Dr. Ho received his M.D. and Ph.D. (pharmacology) degrees from Yale University and then completed a pediatrics residency at The Children's Hospital of Boston followed by clinical fellowships in pediatric hematology/oncology at the Dana-Farber Cancer Institute and in clinical oncology and regulatory sciences jointly through the U.S. FDA and the National Cancer Institute. He received his bachelor’s degree in Biology at Johns Hopkins University. We believe Dr. Ho is qualified to serve as a member of our Board of Directors based on his experience in the pharmaceutical and biopharmaceutical industries. Sigurd C. Kirk, Director Mr. Kirk has served as a member of the Board of Directors since May 12, 2021. Mr. Kirk is a senior corporate business development executive with more than 15 years of pharmaceutical experience in the areas of branded biopharmaceutical, medical device and generic products. From 2009 until its acquisition by AbbVie Inc. in May 2020, Mr. Kirk held various positions at Allergan plc. (formerly Actavis). From May 2012 until May 2020, Mr. Kirk was Executive Vice President, Corporate Business Development at Allergan plc., where he was a member of the 12-person Executive Leadership Team. He was an integral member assessing development and commercial opportunities, leading due diligence, as well as negotiating and transacting key legal and financial terms. Mr. Kirk also served as Senior Vice President, Global Controller and Chief Accounting Officer for Barr Pharmaceuticals, Inc. from 2003 until 2009. Mr. Kirk started his career at Deloitte & Touche as an Audit Manager, earning his CPA certification. Mr. Kirk received his Bachelor of Business Administration degree from Pace University. We believe Mr. Kirk is qualified to serve as a member of our Board of Directors based on his experience in the pharmaceutical and biopharmaceutical industries. TERM AND NUMBER OF DIRECTORS The board of directors currently consists of seven (7)eight (8) directors and is divided into three classes. Each class serves for a term of three years, with the terms of office of the respective classes expiring in successive years. Directors in Class I (Dr. Akkaraju, Mr. HoffmanEshelman and Dr. Tabibiazar)Sigurd Kirk) will stand for election at the 20212024 meeting of stockholders, directors in Class II ((Dr. Giaccia, Dr. Hohneker and Mr. Shepard and Dr. Giaccia )Rogers) will stand for election at the 20222025 Annual Meeting and directors in Class III (Ms. Hemrajani(Dr. McIntyre, Dr. Ho and Mr. Zhang) will stand for election at the 20202023 annual meeting of stockholders. Vacancies on the board of directors may be filled only by persons elected by a majority of the remaining directors. A director elected by the board of directors to fill a vacancy in a class, including vacancies created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is duly elected and qualified. Information Regarding the Board of Directors and Corporate Governance Independence of the Board of Directors Our common stock is listed on the Nasdaq Global Select Market or the Nasdaq. Under the Nasdaq listing standards, independent directors must comprise a majority of a listed company’s board of directors and all members of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee must be independent. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Exchange Act and Compensation Committee members must also satisfy the independence criteria set forth in Rule 10C-1 under the Exchange Act. Under the Nasdaq listing standards, a director will only qualify as an “independent director” if, in the opinion of that company’s board of directors, that person does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. In order to be considered to be independent for purposes of Rule 10A-3, a member of an Audit Committee of a listed company may not, other than in his or her capacity as a member of the Audit Committee, the board of directors, or any other board committee: (i) accept, directly or indirectly, any consulting, advisory or other compensatory fee from the listed company or any of its subsidiaries, or (ii) be an affiliated person of the listed company or any of its subsidiaries. The board of directors undertook a review of the independence of the members of the board of directors and considered whether any director has a material relationship with our company that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, the board of directors has determined that all of our current directors, except Ms. Hemrajani,Dr. Eshelman due to his position as Executive Chairman and Dr. McIntyre, due to her current position as President and Chief Executive Officer of our company, and Mr. Shepard, due to his prior position as President and Chief Executive Officer of our company, is “independent” as that term is defined under the rules of Nasdaq. As a result, Dr. Akkaraju,Giaccia, Dr. Giaccia,Hohneker, Dr. Ho, Mr. Hoffman, Dr. TabibiazarKirk, Mr. Rogers, and Mr. Zhang are deemed to be “independent” as that term is defined under the rules of Nasdaq.
In making these determinations, the board of directors considered the current and prior relationships that each non-employee director has with our company and all other facts and circumstances the board of directors deemed relevant in determining their independence, including the beneficial ownership of capital stock by each non-employee director, and the transactions involving them described in Item 13 of this Amendment “Certain Relationships and Related-Party Transactions, Director Independence.” 76
INFORMATION REGARDING COMMITTEES OF THE Board of DirectorsBOARD OF DIRECTORS The board of directors has the authority to appoint committees to perform certain management and administration functions. As disclosed above, the board of directors has established an Audit Committee, a Compensation Committee and Nominating and Corporate Governance Committee. The board of directors may establish other committees to facilitate the management of our company’s business. The composition and functions of each committee are described below. Members serve on these committees until their resignation or until otherwise determined by the board of directors.
All of the committees comply with all applicable requirements of the Sarbanes-Oxley Act of 2002, Nasdaq, and SEC, rules and regulations as further described below. The charters for each of these committees are available on our website at www.aravive.com. Information contained on or accessible through our website is not a part of this Annual Report on Form 10-K and the inclusion of such website address in this Annual Report on Form 10-K is an inactive textual reference only. Committees of the Board of Directors The table set forth below shows the directors who are currently members or Chairman of each of the Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. From time to time, the board of directors may also establish ad hoc committees to address particular matters. Name | | Audit | | Compensation | | Nominating and Corporate Governance | Rekha Hemrajani*Gail McIntyre*
| | | | | | | Jay P. Shepard*Fredric N. Eshelman, Pharm. D.***
| | | | | | | | | | | Srinivas Akkaraju, M.D., Ph.D.
| | X
| | | | X
| Amato Giaccia, Ph.D. | | X | | X | | | | | | X** | Robert E. HoffmanMichael W. Rogers
| | | X** | | X
| | X
| Raymond Tabibiazar, M.D.
| | | | X** | | | Eric Zhang | | X | | | | | John A. Hohneker, M.D. | | | | X | | | Peter T. C. Ho, M.D., Ph.D. | | | | | | X | Sigurd Kirk | | X | | | | |
| | | |
* | Ms. HemrajaniDr. McIntyre joined the board of directors effective January 9,April 8, 2020 as a Class III member. She is not a member of any of the committees of the board of director.directors.
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**Committee Chairman
| Committee Chairman
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*** | Mr. ShepardDr. Eshelman serves as the Executive Chairman of the board of directors effective January 9, 2020 replacing Dr. Akkaraju. and is not a member of any committees.
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Below is a description of each committee of the board of directors. Audit Committee Messr. Hoffman and
Messrs. Rogers, Kirk, Zhang and Dr. AkkarajuGiaccia currently serve as members of the Audit Committee. The board of directors has determined that Messrs. Hoffman andRogers, Kirk, Zhang and Dr. AkkarajuGiaccia are each “independent” in accordance with the Nasdaq Stock Market definition of independence. The board of directors has determined that each of Messrs. Hoffman andRogers, Kirk, Zhang and Dr. AkkarajuGiaccia has the related financial management expertise within the meaning of the Nasdaq Stock Market rules, as well as all membersand that each of the Audit CommitteeMessrs. Rogers, Kirk and Zhang are “financially literate”“financial experts” under the applicable rules and regulations of the SEC and Nasdaq. The primary purpose of the Audit Committee is to act on behalf of the board of directors in fulfilling the board of directors’ oversight responsibilities with respect to our corporate accounting and financial reporting processes, systems of internal control over financial reporting and audits of financial statements, as well as the quality and integrity of our financial statements and reports and the qualifications, independence and performance of the registered public accounting firm or firms engaged as our independent outside auditors for the purpose of preparing or issuing an audit report or performing audit services. Specific responsibilities of the Audit Committee include: evaluating the performance of and assessing the qualifications of the independent auditors;
determining and approving the engagement of the independent auditors;
determining whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors;
reviewing and approving the retention of the independent auditors to perform any proposed permissible non-audit services;
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| • | evaluating the performance of and assessing the qualifications of the independent auditors; |
| • | determining and approving the engagement of the independent auditors; |
| • | determining whether to retain or terminate the existing independent auditors or to appoint and engage new independent auditors; |
| • | reviewing and approving the retention of the independent auditors to perform any proposed permissible non-audit services; |
| • | monitoring the rotation of partners of the independent auditors on our audit engagement team as required by law; |
reviewing and approving or rejecting transactions between us and any related persons;
| • | reviewing and approving or rejecting transactions between us and any related persons; |
conferring with management and the independent auditors regarding the effectiveness of internal controls over financial reporting;
| • | conferring with management and the independent auditors regarding the effectiveness of internal controls over financial reporting; |
establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and
| • | establishing procedures, as required under applicable law, for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters and the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters; and |
| • | meeting to review our annual audited financial statements and quarterly financial statements with management and the independent auditor. |
meeting to review our annual audited financial statements and quarterly financial statements with management and the independent auditor.
The Audit Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Audit Committee. Compensation Committee Dr. Giaccia, Dr. Hohneker and Mr. Rogers currently serve as members of the Compensation Committee, each of whom the board of directors has determined is independent in accordance Rule 10C-1 under the Exchange Act and the Nasdaq definition of independence and that each is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act. The primary purpose of the Compensation Committee is to discharge the responsibilities of the board of directors to oversee compensation policies, plans and programs and to review and determine the compensation to be paid to the executive officers, directors and other senior management, as appropriate. Specific responsibilities of the Compensation Committee include: | • | reviewing and approving, or recommending that the independent members of the board of directors approve, goals and objectives relevant to the compensation of executive officers, and evaluating performance in light of such goals and objectives, including reviewing and approving employment, severance, change in control provisions and other compensatory arrangements; |
| • | reviewing and approving the compensation of the directors; |
| • | overseeing the administration of equity incentive plans and approve grants and awards; |
| • | reviewing and making recommendations to the board of directors regarding the adoption, amendment and termination of our equity incentive plans; |
| • | assessing the independence of independent compensation consultants, legal counsel or other advisors to the committee, before retaining them; |
| • | reviewing and discussing with management our disclosures regarding compensation for use in any annual reports on Form 10-K, registration statements or proxy statements, to the extent required by law or Nasdaq listing requirements; |
| • | preparing and reviewing the Compensation Committee report on executive compensation included in our annual proxy statement, to the extent required by law and Nasdaq listing requirements; |
| • | investigating any matter brought to the attention of the Compensation Committee within the scope of its duties, if in the judgment of the Compensation Committee, such investigation is appropriate; and |
| • | reviewing and evaluating the performance of the Compensation Committee and the adequacy of its charter. |
The Compensation Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Compensation Committee. Nominating and Corporate Governance Committee Dr. Giaccia and Dr. Ho currently serve as members of the Nominating and Corporate Governance Committee, each of whom, the board of directors has determined is independent in accordance with the Nasdaq definition of independence. Specific responsibilities of the Nominating and Corporate Governance Committee include: | • | identifying, evaluating and recommending to the board of directors, candidates for election to the board, and making recommendations regarding re-election of incumbent directors; |
| • | considering recommendations and proposals submitted by stockholders in respect of board nominees, establishing policies in respect of such recommendations and proposals (including stockholder communications with the board of directors), and recommending any action to the board in respect of such stockholder recommendations and proposals; |
| • | identifying, evaluating and recommending to the board of directors, candidates to serve on committees of the board of directors, |
| • | assessing the performance of the board of directors; and |
| • | developing, recommending to the board of directors and reviewing corporate governance principles, and periodically reviewing such principles, our code of business conduct and other governance principles and making recommendations to the board of directors in respect thereof. |
The Nominating and Corporate Governance Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Nominating and Corporate Governance Committee. Changes to Procedures for Recommending Nominees to the Board of Directors. None. Delinquent Section 16(a) Reports Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2021, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied. Code of Business Conduct and Ethics We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at www.aravive.com. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website. Item11. Executive Compensation. EXECUTIVE COMPENSATION We are a “smaller reporting company” under Item 10 of Regulation S-K promulgated under the Exchange Act and the following compensation disclosure is intended to comply with the requirements applicable to smaller reporting companies. Although the rules allow us to provide less detail about our executive compensation program, the Compensation Committee is committed to providing the information necessary to help stockholders understand its executive compensation-related decisions. Accordingly, this section includes supplemental narratives that describe the 2021 executive compensation program for our named executive officers. Named Executive Officers. The following individuals are our “named executive officers” for the year ended December 31, 2021: | • | Gail McIntyre, our Chief Executive Officer and former Chief Scientific Officer |
| • | Vinay Shah, our Chief Financial Officer |
| • | Reshma Rangwala, our Former Chief Medical Officer (Dr. Rangwala resigned as our Chief Medical Officer, effective March 28, 2022) |
Oversight of Executive Compensation The compensation of our named executive officers is determined and approved by our Compensation Committee, in discussion with the Chief Executive Officer with respect to the other named executive officers. The Chief Executive Officer does not participate in discussions or decisions regarding her own compensation. We believe that in order to create value for our stockholders, it is critical to attract, motivate and retain key executive talent by providing competitive compensation packages. Accordingly, we design our executive compensation programs to: | • | attract, motivate and retain executives with the skills and expertise to execute our business plans; |
| • | reward those executives fairly over time for actions consistent with creating long-term stockholder value; |
| • | align the interests of our executive officers with those of our stockholders; |
| • | provide compensation packages that are competitive, reasonable and fair within the highly competitive life sciences market for talented individuals. |
The Compensation Committee uses the services of an independent compensation consultant who is retained by, and reports directly to, the Compensation Committee to provide the Compensation Committee with an additional external perspective with respect to its evaluation of relevant market and industry practices. At the end of 2020, the Compensation Committee retained Korn Ferry, as a third-party compensation consultant to assist the Compensation Committee in establishing overall compensation levels for 2021. Korn Ferry conducted analyses and provided advice on, among other things, the appropriate peer group, executive compensation for our executive officers and compensation trends in the life sciences industry. The peer group was recommended by Korn Ferry and chosen by the Compensation Committee in late 2020 based on the following parameters: biopharmaceutical companies that were developing oncology products, with a lead product in a similar phase of development (Phase 1 or 2 clinical trials) as well as other appropriate financial and organizational metrics. SUMMARY COMPENSATION TABLE The following table shows compensation awarded to or earned by our named executive officers, for the fiscal years ended December 31, 2021 and 2020. | | | | | | | | | | | | Non-Equity | | | | | | | | | | | | | | | | | | | | | | Incentive | | | | | | | | | | | | | | | | | | Option | | | Plan | | | All Other | | | | | | | | | | | | | | Awards | | | Compensation | | | Compensation | | | Total | | Name and Principal Position | | Year | | Salary ($) | | | ($)(1) | | | ($)(2) | | | ($)(3) | | | ($) | | Gail McIntyre(4) | | | | | | | | | | | | | | | | | | | | | | | Chief Executive Officer | | 2021 | | | 500,000 | | | | 824,291 | | | | 187,500 | | | | 12,202 | | | | 1,523,993 | | | | 2020 | | | 404,188 | | | | 848,641 | | | | 149,400 | | | | 8,882 | | | | 1,411,111 | | Vinay Shah(5) | | | | | | | | | | | | | | | | | | | | | | | Chief Financial Officer | | 2021 | | | 370,800 | | | | 299,742 | | | | 111,240 | | | | 14,464 | | | | 796,246 | | | | 2020 | | | 360,064 | | | | 314,691 | | | | 115,200 | | | | 6,726 | | | | 796,681 | | Reshma Rangwala(6) | | | | | | | | | | | | | | | | | | | | | | | Former Chief Medical Officer | | 2021 | | | 415,000 | | | | 49,957 | | | | 124,500 | | | | 4,971 | | | | 594,428 | | | | 2020 | | | 108,582 | | | | 311,678 | | | | 33,200 | | | | 2,286 | | | | 455,746 | |
(1) | In accordance with SEC rules, this column reflects the aggregate fair value of the stock and option awards granted during the respective fiscal year computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note 2 and Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
(2) | Amounts reported in the non-equity incentive compensation plan column represent awards earned based on the achievement of company goals for the fiscal year presented as determined by the Compensation Committee of the Board and was paid in the first quarter of 2022 and 2021. |
(3) | All other compensation is primarily comprised of life insurance payments made by us and employer matching contributions for contributions to our 401(k) plan. |
(4) | Dr. McIntyre became our Chief Scientific Officer on February 12, 2019 and served in such role until she became our Chief Executive Officer on April 8, 2020. |
(5) | Mr. Shah became our Chief Financial Officer on October 12, 2018, when the Merger was completed. |
(6) | Dr. Rangwala became our Chief Medical Officer on September 28, 2020 and resigned as our Chief Medical Officer effective March 28, 2022. |
NARRATIVE TO SUMMARY COMPENSATION TABLE The three principal components of our executive compensation program for our named executive officers in 2021 were base salary, annual performance-based bonus and long-term equity compensation. Base salary provides financial stability and security through a fixed amount of cash for performing job responsibilities. Annual performance-based bonus and long-term equity incentive compensation are designed to reward achievement of the specific strategic goals that we believe will advance our business strategy and create long-term value for our stockholders. Consistent with our goal of attracting, motivating and retaining a high-caliber executive team, our executive compensation program is designed to pay for performance. We utilize compensation elements that meaningfully align our named executive officer’s interests with those of our stockholders to create long-term value. As such, a significant portion of our Chief Executive Officer’s and other executive officers’ compensation is “at risk”, performance-based compensation, in the form of long-term equity awards and annual cash incentives that are only earned if we achieve measurable corporate metrics, as set forth in the table below. | | | | | | | | | | Annual | | | | | | | | | | | | | | | | Target Cash | | | Equity | | Name | | Fixed | | | "At Risk" | | | Incentive Awards | | | Incentives | | Gail McIntyre | | | 32 | % | | | 68 | % | | | 16 | % | | | 52 | % | Vinay Shah | | | 44 | % | | | 54 | % | | | 18 | % | | | 36 | % | Reshma Rangwala | | | 65 | % | | | 34 | % | | | 26 | % | | | 8 | % |
We do not have any formal policies for allocating compensation among salary, annual target cash incentive awards and equity grants, short-term and long-term compensation or among cash and non-cash compensation. Instead, the Compensation Committee uses its judgment in determining a total compensation program for each named executive officer to recommend to the Board for its approval that is a mix of current, short-term and long-term incentive compensation, that it believes appropriate to achieve the goals of our executive compensation program and our corporate objectives. Annual Base Salary In January 2021, the Compensation Committee reviewed the base salaries for our named executive officers, the market data from Korn Ferry, the scope of each executive’s responsibilities, each executive’s prior experience and internal pay equity. After such review, Mr. Shah’s base salary was increased from $360,000 to $370,800 and Dr. McIntyre’s base salary for services as our Chief Executive Officer was increased to $500,000 from $415,000. In January 2022, Dr. McIntyre’s base salary was raised to $510,000, Dr. Rangwala’s base salary was raised to $440,000 and Mr. Shah’s base salary was raised to $381,924. The named executive officers’ 2021 annual base salaries approved by the Compensation Committee were as follows: | | 2021 Base | | Name | | Salary ($) | | Gail McIntyre | | | 500,000 | | Vinay Shah | | | 370,800 | | Reshma Rangwala | | | 415,000 | |
Annual Cash Incentive (Performance-Based Bonus) Opportunity In addition to base salaries, our named executive officers are eligible to earn an annual performance-based cash bonus, which is designed to provide an appropriate incentive to our named executives to achieve defined annual corporate performance goals and to reward our executives for individual achievement towards these goals. The annual performance-based bonus each executive officer is eligible to receive is based on the individual’s target bonus, as a percentage of base salary. The amount of the performance-based bonus, if any, an executive earns may vary from year to year based on the achievement of certain corporate performance goals recommended by the Compensation Committee and communicated to our named executive officers each year, prior to or shortly following the beginning of the year to which they relate. The corporate goals typically relate to our annual company goals and various business accomplishments which vary from time to time depending on our overall strategic objectives. The Compensation Committee may, but need not, establish a specific weighting amongst various corporate goals. The proportional emphasis on each goal may vary from time to time depending on our overall strategic objectives and the Compensation Committee’s and Board’s subjective determination of which goals have more impact on our performance. Pursuant to their employment agreements or offer letters, each named executive officer was eligible to earn a 2021 target bonus represented as a percentage of base salary as set forth below. | | Target Bonus | | Name | | Percent | | Gail McIntyre | | | 50 | % | Vinay Shah | | | 40 | % | Reshma Rangwala | | | 40 | % |
For 2021, the corporate goals primarily included clinical milestones. In January 2022, after careful review, our Compensation Committee, concluded that we had achieved 75% of our corporate performance goals and therefore performance based bonuses were paid based upon 75% of target opportunities. 2021 Performance-Based Awards After the end of the year, the Compensation Committee approves the extent to which the corporate goals have been achieved, based on management’s review and recommendation, however, our executives do not make recommendations with respect to their own achievement. Accordingly, whether or not any bonus is awarded is determined in the Compensation Committee’s discretion. Bonuses are not earned or vested until they are awarded and paid. The Compensation Committee also considers any significant corporate events or other significant accomplishments that were not contemplated at the beginning of the performance period in determining the extent to which the strategic goals were satisfied, such as the circumstances surrounding the feasibility of a goal being achieved. On January 6, 2022, the Compensation Committee approved 2021 performance-based bonus awards set forth below related to 2021 performance based on the level of attainment of the 2021 specified goals. Name | Base Salary | Target % of Base Salary | % of Target Achieved | Performance-Based Bonus Payout | Gail McIntyre | $500,000 | 50% | 75% | $187,500 | Vinay Shah | $370,800 | 40% | 75% | $111,240 | Reshma Rangwala | $415,000 | 40% | 75% | $124,500 |
For the years ended December 31, 2020 and 2019, the % of target achieved was 80% an 92.5%, respectively. Long-Term Incentive Compensation Equity incentives are a key component of our executive compensation program that the Compensation Committee believes motivate executive officers to achieve our business objectives by tying incentives to the appreciation of our common stock. During 2021, we granted equity awards in the form of stock options that vest over a four-year period. Our long-term, equity-based incentive awards are designed to align the interests of our named executive officers and our other employees, non-employee directors and consultants with the interests of our shareholders. Because vesting is based on continued service, our equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards. We use stock options as the primary incentive vehicle for long-term compensation to our named executive officers because they are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price. We generally provide initial grants in connection with the commencement of employment of our named executive officers as our Compensation Committee, determines appropriate. We also provide annual grants shortly following the end of each year. In January 2021, the Compensation Committee awarded stock option grants to our named executive officers in conjunction with the Board’s review of the 2020 corporate goals. Dr. McIntyre was granted stock options to purchase 165,000 shares at an exercise price of $5.95 per share. Mr. Shah was granted stock options to purchase 60,000 shares at an exercise price of $5.95 per share and Dr. Rangwala was granted stock options to purchase 10,000 shares at an exercise price of $5.95 per share. In January 2022, the Compensation Committee awarded stock option grants to our named executive officers in conjunction with the Board’s review of the 2021 corporate goals. Dr. McIntyre was granted stock options to purchase 425,000 shares at an exercise price of $2.18 per share. Mr. Shah was granted stock options to purchase 175,000 shares at an exercise price of $2.18 per share and Dr. Rangwala was granted stock options to purchase 175,000 shares at an exercise price of $2.18 per share. Other Compensation Health and Welfare Benefits Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees. Employee Benefit Plans Our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, group life and accidental death and dismemberment insurance plans, in each case, on the same basis as all of our other employees. We maintain a 401(k) plan for the benefit of our eligible employees, including our named executive officers, as discussed in the section below entitled “401(k) plan.” 401(k) Plan All of our employees, including our named executive officers, are eligible to participate in our 401(k) Plan, which is a retirement savings defined contribution plan established in accordance with Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"). Pursuant to our 401(k) Plan, employees may elect to defer their eligible compensation into the plan on a pre-tax basis, up to the statutorily prescribed annual limit of $19,500 in 2021 (additional salary deferrals not to exceed $6,500 are available to those employees 50 years of age or older) and to have the amount of this reduction contributed to our 401(k) Plan. In general, eligible compensation for purposes of the 401(k) plan includes an employee’s wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with us, to the extent the amounts are included in gross income, and subject to certain adjustments and exclusions required under the Code. The 401(k) Plan currently does not offer the ability to invest in our securities. None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans, non-qualified defined contribution plans or pension plans sponsored by us. Pension Benefits We do not maintain any pension benefit plans. Nonqualified Deferred Compensation We do not maintain any nonqualified deferred compensation plans. Employment Offer Letters, Severance and Change in Control Arrangements We have entered into employment offer letters with each of our named executive officers. The offer letters provide for “at will” employment and set forth the terms and conditions of employment, including the initial annual base salary, target bonus opportunity, equity compensation, severance benefits and eligibility to participate in our employee benefit plans and programs. There are no ongoing guarantees of increases to future compensation such as base salary increases. Our named executive officers were each required to execute our standard proprietary information and inventions agreement. The material terms of these employment offer letters are summarized below. These summaries are qualified in their entirety by reference to the actual text of the offer letters, which are filed as exhibits attached. Gail McIntyre During the years ended December 31, 2020 and 2019, Dr. McIntyre’s employment was at-will per the terms of an offer letter with Private Aravive, dated January 1, 2017, as amended February 6, 2019. Dr. McIntyre began work as a full-time employee of Private Aravive in January 2017 and was originally eligible to receive an annual salary of $264,000 and a bonus target of $39,600 and three months’ salary as severance in the event of certain terminations. On February 6, 2019, the Compensation Committee approved an increase in Dr. McIntyre’s annual base salary to $325,000 and her target bonus was increased to 40% of her annual base salary. In connection with Dr. McIntyre’s employment by Aravive Biologics, Dr. McIntyre was granted options to purchase shares of Aravive Biologics common stock, each of which were fully vested and were converted into options to purchase 59,281 shares of our common stock at the effective time of the Merger. On March 26, 2020, we entered into an employment offer letter with Dr. McIntyre ("the McIntyre Offer Letter") that superseded the offer letter with Aravive Biologics that provided that provided, among other things, (i) for Dr. McIntyre to serve as our Chief Scientific Officer, (ii) an annual base salary of $360,000 for such service; (iii) a target bonus equal to 40% of Dr. McIntyre’s annual base salary. In addition, Dr. McIntyre’s Offer Letter provides for severance payments upon certain conditions if we terminate her employment for any reason other than cause or permanent disability, and not in connection with a change in control and that upon a qualifying termination of employment in connection with a change of control, she would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control. Effective as of April 8, 2020, upon her appointment as our Chief Executive Officer, we entered into an amendment or the 2020 Amendment to the McIntyre Offer Letter that we had entered into with Dr. McIntyre on March 26, 2020. The Amendment provides, among other things, (i) that Dr. McIntyre will serve as our President and Chief Executive Officer,(ii) an annual base salary of $415,000 for such service; (iii) a target bonus equal to 45% of Dr. McIntyre’s annual base salary; (iv) up to 12 months of salary continuation and reimbursement of COBRA coverage and a pro-rated portion of her year-end target bonus contingent upon corporate goals being met, if terminated for any reason other than Cause or Permanent Disability and not in connection with a Change in Control (as such terms are defined in the Offer Letter). Dr. McIntyre was also granted an option to purchase 80,000 shares of common stock vesting pro rata on a monthly basis over a four-year period. On January 25, 2021, the Company entered into an amendment to the 2021 Amendment, to the McIntyre Offer Letter, as amended by the 2020 Amendment. The 2021 Amendment provides that Dr. McIntyre will receive: (i) effective as of January 1, 2021, an annual base salary of $500,000, less required deductions and withholdings, payable in accordance with our standard payroll schedule, for service as our Chief Executive Officer (which base salary was increased to $510,000 in January 2022); and (ii) a target bonus equal to 50% of Dr. McIntyre’s annual base salary. All other terms of the McIntyre Offer Letter as amended by the 2020 Amendment remain in full force and effect. Dr. McIntyre was also granted an option to purchase 165,000 shares of the Company’s common stock with an exercise price of $5.95 per share and vesting pro rata on a monthly basis over a four- year period. Vinay Shah During the years ended December 31, 2018 and 2019, Mr. Shah’s employment was at-will per the terms of an offer letter with Aravive Biologics dated February 1, 2017 as later amended on May 30, 2018 and February 6, 2019 pursuant to which he was entitled to receive an annual base salary of $335,000 for 2019, an annual target bonus of 40% of his base salary and six months’ salary as severance in the event of certain terminations. On March 26, 2020, we entered into an employment offer letter with Mr. Shah or the Shah Offer Letter that superseded the offer letter with Aravive Biologics and provides that Mr. Shah will serve as our Chief Financial Officer on an “at will” basis with compensation that included a base salary of $360,000, which was increased to $370,800 in January 2021 and further increased to $370,800 in January 2022 and a target bonus equal to 40% of Mr. Shah’s annual base salary. In addition, the Shah Offer Letter provides for severance payments upon certain conditions if we terminate his employment for any reason other than cause or permanent disability, and not in connection with a change in control and that upon a qualifying termination of employment in connection with a change of control, he would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.” Reshma Rangwala Effective September 28, 2020, we appointed Dr. Reshma Rangwala as our Chief Medical Officer. Dr. Rangwala resigned from her position as our Chief Medical Officer, effective March 28, 2022. Pursuant to the terms of our employment offer letter effective September 28, 2020 with Dr. Rangwala or the Rangwala Offer Letter, her employment with us is on an “at will” basis. Dr. Rangwala’s compensation for services provided as our Chief Medical Officer includes: (i) an annual base salary of $415,000, which was increased to $440,000 in January 2022; (ii) an annual cash bonus targeted at 40% of her base salary, dependent on performance with respect to both corporate and individual goals, as determined by our Board of Directors; (iii) a $50,000 retention bonus to be paid on the 18-month anniversary of the effective date of the offer letter; (iv) an option to purchase 75,000 shares of our common stock pursuant to our 2019 Equity Incentive Plan, with 25% to vest upon the 12-month anniversary of the effective date of the offer letter and the remainder to vest equally in monthly installments over a 36 month period at an exercise price to be determined by the Company’s Board when such option is granted. The Rangwala Offer Letter also provided for severance payments upon certain conditions if we terminate her employment for any reason other than cause or permanent disability, and not in connection with a change in control and that upon a qualifying termination of employment in connection with a change of control, she would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control. Dr Rangwala resigned as our Chief medical Officer on March 28, 2022. Executive Officer Offer Letters Subsequent to 2021 Effective March 21, 2022 we appointed Dr. Dove as our Chief Operating Officer. Pursuant to the terms of the offer letter effective March 21, 2022 with Dr. Dove, his employment with us is on an “at will” basis. Dr. Dove’s compensation for services provided as our Chief Operating Officer includes: (i) an annual base salary of $385,000; (ii) an annual cash bonus targeted at 40% of his base salary, dependent on performance with respect to both corporate and individual goals, as determined by our Board of Directors; (iii) an option to purchase 200,000 shares of our common stock pursuant to our 2019 Equity Incentive Plan, with 25% to vest upon the 12-month anniversary of the effective date of the offer letter and the remainder to vest equally in monthly installments over a 36 month period at an exercise price to be determined by the Company’s Board when such option is granted. POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL Severance Benefits Other Than in Connection With a Change in Control The McIntyre Offer Letter and Shah Offer Letter provide that if we terminate any of their employment for any reason other than Cause or Permanent Disability (as defined in the Offer Letters), and not in connection with a change in control, if they (i) execute and do not revoke a release of claims within 60 days following the date of termination of employment with us and (ii) returns all of our property in his or her possession he or she will be entitled to (a) twelve months for Dr. McIntyre and nine months for Mr. Shah of salary continuation payments (b) if he or she timely elects to continue her health insurance coverage under COBRA, we will pay a portion of him or her monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date he or she terminates employment with us (c) 12 months accelerated vesting of stock options and RSUs awarded to him or her and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Change in Control Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company set forth below. In addition, if during the twelve-month period commencing on the closing date of a Change in Control we terminate his or her employment for any reason other than Cause or death or disability or he or she resigns for Good Reason, all unvested equity awards will immediately vest, subject to certain restriction. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Dr. McIntyre would be eligible for full accelerated vesting of her outstanding stock options and RSUs. The Rangwala Offer Letter had similar severance provisions to those set forth in the Shah Offer Letter Change in Control Severance Benefit Plan We have adopted a change in control severance benefit plan (the "severance plan"). The severance plan provides certain of our employees, including our currently employed Named Executive Officers, with severance payments and benefits upon certain qualifying terminations of employment within a one-year period following the closing of a change in control, as defined in the severance plan. The summary below is qualified by reference to the actual text of the severance plan, which is filed as an exhibit to the Form S-1, as amended, filed with the SEC on March 10, 2014. Under the severance plan, in the event of a participant’s involuntary termination without cause (and not due to death or disability) or if a participant resigns for good reason (as each terms is defined in the severance plan), if the participant in the severance plan (i) executes and does not revoke a release of claims within 60 days following the date he terminates employment with us and (ii) returns all of our property in his possession, he will be entitled to cash severance equal to the sum of his or her monthly base salary and monthly annual bonus target, multiplied by a severance multiplier, which is 15 in the case of the Chief Executive Officer and 12 in the case of the other C-Suite employees. In addition, following a qualifying termination, if a participant timely elects to continue his health insurance coverage under COBRA, we will pay a portion of his monthly COBRA premiums for a period of specified months following the date of termination All stock awards which are vested and exercisable as of the date of a qualifying termination under the severance plan (including by virtue of the provisions of the applicable equity plan) will remain outstanding and exercisable until the earliest to occur of (i) the last day of the applicable severance period, which is 15 months in the case of the Chief Executive Officer and 12 months in the case of the other C-Suite employees (ii) the expiration of the original term of such stock awards. If one of our named executive officers is entitled to severance benefits under the severance plan by virtue of a qualifying termination of employment within 12 months following a change in control, he would not be entitled to severance benefits under the terms of his offer letter. In addition, the severance plan provides that, except as otherwise expressly provided in an agreement between us and a participant, if any payment or benefit a participant would receive in connection with a change in control would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and such payment or benefit would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment or benefit will be equal to either (i) the largest portion of the change in control payment that would result in no portion of the payment or benefit being subject to the excise tax, or (ii) the largest portion, up to and including the total payment or benefit, whichever amount, after taking into account all applicable taxes, including the excise tax (all computed at the highest applicable marginal rate), would result in the participant’s receipt, on an after-tax basis, of the greatest economic benefit to the participant, notwithstanding that all or some portion of the payment or benefit may be subject to the excise tax. If a reduction is so required, the reduction will occur in the order specified in the severance plan. OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END The following table shows for the fiscal year ended December 31, 2021, certain information regarding outstanding equity awards at fiscal year-end for the Named Executive Officers. Each award issued to Dr. McIntyre, Mr. Shah, and Dr. Rangwala set forth below is subject to accelerated vesting upon a qualifying termination of his employment, as described under “—Potential Payments Upon Termination or Change in Control.” Dr. Rangwala resigned from her position as our Chief Medical Officer, effective March 28, 2022. OUTSTANDING EQUITY AWARDS AT December 31, 2021 | | | | Option | | | | | Awards(1) | | | | | Number of | | | Number of | | | | | | | | | | | Securities | | | Securities | | | | | | | | | | | Underlying | | | Underlying | | | | | | | | | | | Unexercised | | | Unexercised | | | Option | | Option | | | | | options (#) | | | options (#) | | | Exercise | | Expiration | Name | | Grant Date | | exercisable | | | unexercisable | | | Price ($) | | Date | Gail McIntyre | | 6/15/2017(4) | | | 29,641 | | | | — | | | $ | 0.66 | | 6/14/2027 | | | 12/14/2017(4) | | | 14,820 | | | | — | | | $ | 0.90 | | 12/13/2027 | | | 3/20/2018(4) | | | 14,820 | | | | — | | | $ | 0.90 | | 3/19/2028 | | | 2/28/2019(3) | | | 37,541 | | | | 15,459 | | | $ | 5.83 | | 2/27/2029 | | | 1/22/2020(3) | | | 23,279 | | | | 25,304 | | | $ | 10.84 | | 1/21/2030 | | | 4/8/2020(3) | | | 33,333 | | | | 46,667 | | | $ | 6.16 | | 4/7/2030 | | | 1/25/2021(3) | | | 37,812 | | | | 127,188 | | | $ | 5.95 | | 1/24/2031 | Vinay Shah | | 10/01/2014(4) | | | 19,380 | | | | — | | | $ | 0.24 | | 9/30/2024 | | | 6/15/2017(4) | | | 38,001 | | | | — | | | $ | 0.66 | | 6/14/2027 | | | 12/14/2017(4) | | | 19,000 | | | | — | | | $ | 0.90 | | 12/13/2027 | | | 3/20/2018(4) | | | 19,000 | | | | — | | | $ | 0.90 | | 3/19/2028 | | | 2/28/2019(3) | | | 26,916 | | | | 11,084 | | | $ | 5.83 | | 2/27/2029 | | | 1/22/2020(3) | | | 16,687 | | | | 18,139 | | | $ | 10.84 | | 1/21/2030 | | | 1/25/2021(3) | | | 13,750 | | | | 46,250 | | | $ | 5.95 | | 1/24/2031 | Reshma Rangwala | | 9/28/2020(2) | | | 23,437 | | | | 51,563 | | | $ | 4.95 | | 9/27/2030 | | | 1/25/2021(3) | | | 2,291 | | | | 7,709 | | | $ | 5.95 | | 1/24/2031 |
(1) | Except as otherwise indicated, vesting of all options is subject to continued service on the applicable vesting date. |
(2) | The shares subject to the stock options vest over a four-year period as follows: 25% of the shares underlying the options vest on the one-year anniversary of the vesting start date, and thereafter 1/48th of the shares vest each month. |
(3) | 1/48th of the shares subject to the option become exercisable monthly measured from the date of the grant. |
(4) | The shares subject to these options vested in full upon the closing of the Merger and were assumed by us in the Merger. |
Treatment of stock awards under the 2019 Plan The 2019 Plan, provides that in the event of certain corporate transactions, as defined in the 2019 Plan, the following provisions will apply to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award: The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the 2019 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent); To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to a date prior to the effective time of such corporate transaction (contingent upon the effectiveness of the corporate transaction), and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such corporate transaction; To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any exercise price payable by such holder in connection with such exercise. In addition, any escrow, holdback, earn out or similar provisions in the definitive agreement for the corporate transaction may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of common stock. A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2019 Plan, as may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of such a provision, no such acceleration will occur. For purposes of the 2019 Plan, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 50% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction, or (4) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction. Treatment of stock awards under the 2014 Plan The 2014 Plan, provides that in the event of certain corporate transactions, as defined in the 2014 Plan, the following provisions will apply to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award: The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the 2014 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent); provided, that if any such stock awards are so assumed, continued or substituted, if a participant incurs an involuntary termination on or within 12 months following the date of such corporate transaction, any unvested shares subject to such assumed, continued or substituted stock awards will vest in full as of the date of such termination; To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to a date prior to the effective time of such corporate transaction, and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such corporate transaction; To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any exercise price payable by such holder in connection with such exercise. A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2014 Plan, as may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of such a provision, no such acceleration will occur. For purposes of the 2014 Plan, an involuntary termination generally means, during the 12 months following the closing of a corporate transaction or change in control, either (i) a termination of service other than for cause (as defined in the 2014 Plan) or (ii) a voluntary resignation following: a material diminution in the participant’s base salary; a material diminution in the participant’s authority, duties, position or responsibilities; a material diminution in the authority, duties, position or responsibilities of the participant’s supervisor (including a requirement that a participant report to a corporate officer or employee instead of directly to the board of directors); a material diminution in the budget over which the participant retains authority; a relocation of the participant’s principal place of work to a location more than 50 miles away from the principal place of work prior to the consummation of a corporate transaction or a change in control; or any other act or omission that constitutes a material breach by us of the 2014 Plan. Treatment of stock options under the Aravive Biologics, Inc 2010 and 2017 Equity Incentive Plans In connection with the Merger, we assumed the Aravive Biologics, Inc. 2010 and 2017 Equity Incentive Plans. The Aravive Biologics, Inc. 2010 and 2017 Equity Incentive Plans provide that in the event of certain corporate transactions, as defined in the plans, the board of directors may take one or more of the following actions with respect to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award: each outstanding stock award may be assumed or continued or an equivalent stock award may be substituted by a successor corporation and any reacquisition or repurchase rights held by us in respect of common stock issued pursuant to prior stock awards may be assigned to the successor corporation. The plans also provide that in the event of a specified corporate transaction the board of directors may determine to accelerate the vesting, in whole or in part of a stock award, with such stock award becoming fully vested and exercisable prior to the corporate transaction arrange for the lapse of any reacquisition or repurchase rights held by us with respect to the stock award or cancel or arrange for the cancellation of a stock award in exchange for cash consideration. Any awards that have not been assumed, continued, substituted, or exercised prior to the corporate transaction will terminate at the closing of the transaction. All options issued under the Aravive Biologics, Inc 2010 and 2017 Equity Plans that were outstanding on the closing of the Merger vested upon the closing of the Merger. DIRECTOR COMPENSATION The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such compensation reflects the practices of the competitive market. In January 2020, the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. This analysis examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group, which was the same peer group that the Compensation Committee used as a reference when setting executive compensation. Based on this analysis, as well as its consideration of our financial performance, general market conditions, and the interests of our stockholders, the board of directors determined at that time to maintain our non-employee director compensation policy at its then-current cash and equity compensation levels. These compensation levels were maintained until September 2020 when the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. In September 2020, the committee annual fees remained the same, the non-executive annual cash compensation was increased from $40,000 to $65,000, the cap for total compensation to be received by the chairperson was increased from $70,000 to $95,000, and the annual equity awards and new director awards were revised from a grant of an option to purchase 7,500 shares of common stock to a grant of an option to purchase shares of common stock having a grant date fair market value of $75,000. The following table shows for the fiscal year ended December 31, 2021 certain information with respect to the compensation of all of our current and former non-employee directors: DIRECTOR COMPENSATION FOR FISCAL 2021 | | Fees Earned or | | | Option | | | Restricted Stock | | | | | | Name | | Paid in Cash ($) | | | Awards ($) (1) | | | Awards ($) | | | Total ($) | | Fredric N. Eshelman, Pharm. D.(2) | | $ | 95,000 | | | $ | 75,000 | | | | — | | | $ | 170,000 | | Amato Giaccia, Ph.D. | | $ | 86,841 | | | $ | 75,000 | | | | — | | | $ | 161,841 | | Michael W. Rogers(3) | | $ | 92,500 | | | $ | 75,000 | | | | — | | | $ | 167,500 | | Eric Zhang | | $ | 72,500 | | | $ | 75,000 | | | | — | | | $ | 147,500 | | John A. Hohneker, M.D. (4) | | $ | 44,397 | | | $ | 175,000 | | | | — | | | $ | 219,397 | | Peter T.C. Ho, M.D., Ph.D.(4) | | $ | 42,293 | | | $ | 175,000 | | | | — | | | $ | 217,293 | | Sigurd Kirk (4) | | $ | 45,983 | | | $ | 175,000 | | | | — | | | $ | 220,983 | |
| (1) | In accordance with SEC rules, this column reflects the aggregate fair value of the option awards granted during the respective fiscal year computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note 2 and Note 9 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K. |
| (2) | Dr. Eshelman was appointed Chairman of the Board on April 8, 2020 and Executive Chairman of the Board on January 3, 2022. |
| (3) | Mr. Rogers was appointed as a director on September 15, 2020. |
| (4) | Dr. Hohneker, Dr Ho and Mr. Kirk were appointed directors on May 12, 2021. |
The table below shows the aggregate number of option awards outstanding at fiscal year-end for each of our current and former non-employee directors. | | Number of Shares | | | | Subject to Outstanding | | | | Options as of | | Name | | December 31, 2021 | | Fredric Eshelman, Pharm. D.(1) | | | 49,567 | | Amato Giaccia, Ph.D.(2) | | | 215,563 | | Michael Rogers(3) | | | 52,823 | | Eric Zhang | | | 58,529 | | John A. Hohneker, M.D. (4) | | | 43,492 | | Peter T.C. Ho, M.D., Ph.D.(4) | | | 43,492 | | Sigurd Kirk (4) | | | 43,492 | |
| (1) | Dr. Eshelman was appointed Chairman of the Board on April 8, 2020 and Executive Chairman of the Board on January 3, 2022. |
| (2) | Amounts in the director compensation table above for Dr. Giaccia and Dr. Tabibiazar include options assumed by us in the Merger that were issued to such individuals by Aravive Biologics prior to the Merger. |
| (3) | Mr. Rogers was appointed as a director on September 15, 2020. |
| (4) | Dr. Hohneker, Dr. Ho and Mr. Kirk were appointed directors on May 12, 2021. |
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY Under our non-employee director compensation policy in effect during the year ended December 31, 2021, we paid each of our non-employee directors a cash retainer for service on the board of directors and for service on each committee on which the director is a member. The chairman of each committee receives an additional retainer for such service. These retainers are payable in arrears in four equal quarterly installments on the last day of each quarter, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on the board of directors. The retainers paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors on which the director was a member for the year ended December 31, 2021 are as follows: | | Member Annual | | | Chairman Annual | | | | Service Retainer | | | Service Retainer | | Board | | $ | 65,000 | | | $ | 30,000 | * | Audit Committee | | $ | 7,500 | | | $ | 15,000 | | Compensation Committee Mr. Tabibiazar and Mr. Hoffman currently serve as members of the Compensation Committee, each of whom the board of directors has determined is independent in accordance Rule 10C-1 under the Exchange Act and the Nasdaq definition of independence and that each is a “non-employee director” as defined in Rule 16b-3 promulgated under the Exchange Act.
The primary purpose of the Compensation Committee is to discharge the responsibilities of the board of directors to oversee compensation policies, plans and programs and to review and determine the compensation to be paid to the executive officers, directors and other senior management, as appropriate. Specific responsibilities of the Compensation Committee include:
reviewing and approving, or recommending that the independent members of the board of directors approve, goals and objectives relevant to the compensation of executive officers, and evaluating performance in light of such goals and objectives, including reviewing and approving employment, severance, change in control provisions and other compensatory arrangements;
reviewing and approving the compensation of the directors;
overseeing the administration of equity incentive plans and approve grants and awards;
reviewing and making recommendations to the board of directors regarding the adoption, amendment and termination of our equity incentive plans;
assessing the independence of independent compensation consultants, legal counsel or other advisors to the committee, before retaining them;
reviewing and discussing with management our disclosures regarding compensation for use in any annual reports on Form 10-K, registration statements or proxy statements, to the extent required by law or Nasdaq listing requirements;
preparing and reviewing the Compensation Committee report on executive compensation included in our annual proxy statement, to the extent required by law and Nasdaq listing requirements;
investigating any matter brought to the attention of the Compensation Committee within the scope of its duties, if in the judgment of the Compensation Committee, such investigation is appropriate; and
reviewing and evaluating the performance of the Compensation Committee and the adequacy of its charter.
The Compensation Committee operates pursuant to a written charter adopted by the board of directors, which is available on our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Compensation Committee.
| | $ | 5,000 | | | $ | 12,500 | | Nominating and Corporate Governance Committee | | $ | 3,500 | | | $ | 10,000 | | Drs. Akkaraju and Giaccia and Mr. Hoffman currently serve as members ofResearch & Development Committee
| | $ | 3,500 | | | $ | 10,000 | | Business Strategy Committee | | $ | 3,500 | | | $ | 10,000 | |
* | In September 2020, the Nominating and Corporate Governance Committee, each of whom,policy was amended to increase the board of directors has determined is independent in accordance withnon-executive annual cash compensation from $40,000 to $65,000, increase the Nasdaq definition of independence. Specific responsibilities of the Nominating and Corporate Governance Committee include: identifying, evaluating and recommendingcap for total compensation to the board of directors, candidates for election to the board, and making recommendations regarding re-election of incumbent directors;
considering recommendations and proposals submitted by stockholders in respect of board nominees, establishing policies in respect of such recommendations and proposals (including stockholder communications with the board of directors), and recommending any action to the board in respect of such stockholder recommendations and proposals;
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| •
| identifying, evaluating and recommending to the board of directors, candidates to serve on committees of the board of directors,
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assessing the performance of the board of directors; and
developing, recommending to the board of directors and reviewing corporate governance principles, and periodically reviewing such principles, our code of business conduct and other governance principles and making recommendations to the board of directors in respect thereof.
The Nominating and Corporate Governance Committee operates pursuant to a written charter adoptedbe received by the board of directors, which is available on our website at www.aravive.com. The charter describes in more detail the nature and scope of responsibilities of the Nominating and Corporate Governance Committee.
Changeschairperson from $70,000 to Procedures for Recommending Nominees to the Board of Directors.
None.
Delinquent Section 16(a) Reports
Section 16(a) of the Exchange Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and our other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended December 31, 2019, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with other than a filing of a Form 3 for Gail McIntyre upon her appointment as an executive officer that was filed one day late.
Code of Business Conduct and Ethics
We have adopted a code of conduct that applies to all officers, directors and employees, including those officers responsible for financial reporting. The full text of the code of conduct is posted on our website at www.aravive.com. If we make any substantive amendments to the code of conduct or grant any waiver from a provision of the code of conduct to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website.
Item 11. Executive Compensation.
EXECUTIVE COMPENSATION
We are a “smaller reporting company” under Item 10 of Regulation S-K promulgated under the Exchange Act$95,000, and the following compensation disclosure is intended to comply with the requirements applicable to smaller reporting companies. Although the rules allow us to provide less detail about our executive compensation program, the Compensation Committee is committed to providing the information necessary to help stockholders understand its executive compensation-related decisions. Accordingly, this section includes supplemental narratives that describe the 2019 executive compensation program for our named executive officers.
Named Executive Officers. The following individuals are our “named executive officers” for the year ended December 31, 2019:
Jay Shepard, our former President and Chief Executive Officer;
Vinay Shah, our Chief Financial Officer; and
Gail McIntyre, our Chief Scientific Officer.
Oversight of Executive Compensation
The compensation of our named executive officers is determined and approved by our Compensation Committee without members of management or any of our named executive officers present.
We believe that in order to create value for our stockholders, it is critical to attract, motivate and retain key executive talent by providing competitive compensation packages. Accordingly, we design our executive compensation programs to:
attract, motivate and retain executives with the skills and expertise to execute our business plans;
reward those executives fairly over time for actions consistent with creating long-term stockholder value;
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| align the interests of our executive officers with those of our stockholders;
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provide compensation packages that are competitive, reasonable and fair within the highly competitive life sciences market for talented individuals.
The Compensation Committee uses the services of an independent compensation consultant who is retained by, and reports directly to, the Compensation Committee to provide the Compensation Committee with an additional external perspective with respect to its evaluation of relevant market and industry practices. At the end of 2018, the Compensation Committee retained Compensia, as a third-party compensation consultant to assist the Compensation Committee in establishing overall compensation levels for 2019. Compensia conducted analyses and provided advice on, among other things, the appropriate peer group, executive compensation for our executive officers and compensation trends in the life sciences industry. The peer group was recommended by Compensia and chosen by the Compensation Committee in late 2018 based on the following parameters: biopharmaceutical companies that were developing oncology products, with a lead product in a similar phase of development (Phase 1 or 2 clinical trials) and market values generally between $25 million and $200 million. At the time we choose our peer group companies, our market value was under approximately $60 million and our headcount was under 20 employees.
SUMMARY COMPENSATION TABLE
The following table shows compensation awarded to or earned by our named executive officers, for the fiscal years ended December 31, 2019 and 2018.
Name and Principal Position | | Year | | Salary ($) | | | Bonus ($)(1) | | | Stock Award ($)(2) | | Option Awards ($)(2) | | | Non-Equity Incentive Plan Compensation ($)(3) | | | All Other Compensation ($)(4) | | | Total ($) | | Jay P. Shepard(5) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Former President and Chief Executive Officer | | 2019 | | $ | 506,763 | | | — | | | — | | $ | 569,398 | | | $ | 231,250 | | | $ | 7,824 | | | $ | 1,315,235 | | | | 2018 | | $ | 540,264 | | | $ | 270,000 | | | — | | — | | | — | | | $ | 8,024 | | | $ | 818,288 | | Vinay Shah(6) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chief Financial Officer | | 2019 | | $ | 335,000 | | | — | | | — | | $ | 186,527 | | | $ | 123,950 | | | $ | 4,561 | | | $ | 650,038 | | | | 2018 | | $ | 60,017 | | | $ | 50,985 | | | — | | — | | | — | | | $ | 1,006 | | | $ | 112,008 | | Gail McIntyre(7) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Chief Scientific Officer | | 2019 | | $ | 325,000 | | | — | | | — | | $ | 260,156 | | | $ | 120,250 | | | $ | 8,089 | | | $ | 713,495 | | | | 2018 | | $ | 59,332 | | | $ | 40,788 | | | — | | — | | | — | | | $ | 829 | | | $ | 100,949 | |
(1)
| The bonus for Mr. Shepard in 2018 was a cash retention bonuses as awarded by the board of directors. The bonus for Mr. Shah and Dr. McIntyre in 2018 was a merit bonus for performance in 2018 that was paid in the first quarter of 2019.
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(2)
| In accordance with SEC rules, this column reflects the aggregate fair value of the stock and option awards granted during the respective fiscal year computed as of their respective grant dates in accordance with Financial Accounting Standard Board Accounting Standards Codification Topic 718 for stock-based compensation transactions (ASC 718). The valuation assumptions used in determining such amounts are described in Note 2 and Note 8 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
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(3)
| Amounts reported in the non-equity incentive compensation plan column represent awards earned based on the achievement of company goals for the fiscal year presented as determined by the Compensation Committee of the board of directors and was paid in the first quarter of 2020.
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(4)
| All other compensation is primarily comprised of life insurance payments made by us.
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(5)
| Mr. Shepard stepped down as our President and Chief Executive Officer effective January 9, 2020 and assumed the role of Chairman of the Board and Director.
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(6)
| Mr. Shah became our Chief Financial Officer on October 12, 2018, when the Merger was completed. The Summary Compensation Table does not include the following compensation (i) salary of $195,119 paid to Mr. Shah by Private Aravive for services performed by Mr. Shah as Chief Financial Officer of Private Aravive during 2018 and (ii) $24,500, which is the grant fair value of stock options awarded to Mr. Shah by Private Aravive for services performed by Mr. Shah as Chief Financial Officer of Private Aravive during 2018.
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(7)
| Dr. McIntyre became our Chief Scientific Officer on February 12, 2019. The Summary Compensation Table does not include the following compensation (i) salary of $213,443 paid to Dr. McIntyre by Private Aravive for services performed by Dr. McIntyre as Senior Vice President of Research and Development of Private Aravive during 2018 and (ii) $19,110, which is the grant fair value of stock options awarded to Dr. McIntyre by Private Aravive for services performed by Dr. McIntyre as Senior Vice President of Research and Development of Private Aravive during 2018.
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NARRATIVE TO SUMMARY COMPENSATION TABLE
The three principal components of our executive compensation program for our named executive officers in 2019 were base salary, annual performance-based bonus and long-term equity compensation. Base salary provides financial stability and security through a fixed amount of cash for performing job responsibilities. Annual performance-based bonus and long-term equity incentive compensation are designed to reward achievement of the specific strategic goals that we believe will advance our business strategy and create long-term value for our stockholders.
Consistent with our goal of attracting, motivating and retaining a high-caliber executive team, our executive compensation program is designed to pay for performance. We utilize compensation elements that meaningfully align our named executive officer’s interests with those of our stockholders to create long-term value. As such, a significant portion of our Chief Executive Officer’s and other executive officers’ compensation is “at risk”, performance-based compensation, in the form of long-term equity awards and annual cash incentives that are only earned if we achieve measurable corporate metrics, as set forth in the table below.
Name | | Fixed | | | "At Risk" | | | Annual Performance Bonus | | | Equity Incentives | | Jay Shepard | | | 39 | % | | | 61 | % | | | 18 | % | | | 43 | % | Vinay Shah | | | 52 | % | | | 48 | % | | | 19 | % | | | 29 | % | Gail McIntyre | | | 46 | % | | | 54 | % | | | 17 | % | | | 37 | % |
We do not have any formal policies for allocating compensation among salary, performance bonusnew director awards and equity grants, short-term and long-term compensation or among cash and non-cash compensation. Instead, the Compensation Committee uses its judgment in determiningwere revised from a total compensation program for each named executive officer to recommend to the Board for its approval that is a mixgrant of current, short-term and long-term incentive compensation, and cash and non-cash compensation, that it believes appropriate to achieve the goals of our executive compensation program and our corporate objectives.
Annual Base Salary
In February 2019 and January 2020, the Compensation Committee reviewed the base salaries for our named executive officers, the market data from Compensia, the scope of each executive’s responsibilities, each executive’s prior experience and internal pay equity. After such review, the named executive officers’ 2019 and 2020 annual base salaries approved by the Compensation Committee were as follows:
Name | | 2019 Base Salary ($) | | | 2020 Base Salary ($) | | Jay Shepard | | | 500,000 | | | — | | Vinay Shah | | | 335,000 | | | | 360,000 | | Gail McIntyre | | | 325,000 | | | | 360,000 | |
Annual Performance-Based Bonus Opportunity
In addition to base salaries, our named executive officers are eligible to earn an annual performance-based cash bonus, which is designed to provide an appropriate incentive to our named executives to achieve defined annual corporate performance goals and to reward our executives for individual achievement towards these goals. The annual performance-based bonus each executive officer is eligible to receive is based on the individual’s target bonus, as a percentage of base salary. The amount of the performance-based bonus, if any, an executive earns may vary from year to year based on the achievement of certain corporate performance goals recommended by the Compensation Committee and communicated to our named executive officers each year, prior to or shortly following the beginning of the year to which they relate.
The corporate goals typically relate to our annual company goals and various business accomplishments which vary from time to time depending on our overall strategic objectives. The Compensation Committee may, but need not, establish a specific weighting amongst various corporate goals. The proportional emphasis on each goal may vary from time to time depending on our overall strategic objectives and the Compensation Committee’s and Board’s subjective determination of which goals have more impact on our performance.
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After the end of the year, the Compensation Committee approves the extent to which the corporate goals have been achieved, based on management’s review and recommendation, however, our executives do not make recommendations with respect to their own achievement. Accordingly, whether or not any bonus is awarded is determined in the Compensation Committee’s discretion. Bonuses are not earned or vested until they are awarded and paid. The Compensation Committee also considers any significant corporate events or other significant accomplishments that were not contemplated at the beginning of the performance period in determining the extent to which the strategic goals were satisfied, such as the circumstances surrounding the feasibility of a goal being achieved.
Pursuant to their employment agreements or offer letters, each named executive officer was eligible to earn a 2019 target bonus represented as a percentage of base salary as set forth below.
Name
| | Target Bonus
Percent
| | Jay Shepard
| | | 50
| %
| Vinay Shah
| | | 40
| %
| Gail McIntyre
| | | 40
| %
|
For 2019, the corporate goals included securing additional financing, CPRIT compliance, obtaining analyst coverage, clinical milestones and hiring of an executive management team. In January 2020, after careful review, our Compensation Committee, concluded that we had achieved 92.5% of our corporate performance goals and therefore performance bonuses were paid based upon 92.5% of target bonuses.
2019 Performance-Based Awards
On January 22, 2020, the Compensation Committee approved 2019 bonus awards related to 2019 performance based on the level of attainment of the 2019 specified goals, Mr. Shepard was paid a 2019 performance bonus of $231,250, Mr. Shah was paid a 2019 performance bonus of $123,950 and Dr. McIntyre was paid a 2019 performance bonus of $120,250.
Long-Term Incentive Compensation
Equity incentives are a key component of our executive compensation program that the Compensation Committee believes motivate executive officers to achieve our business objectives by tying incentives to the appreciation of our common stock. During 2019, we granted equity awards in the form of stock options that vest over a four year period. Our long-term, equity-based incentive awards are designed to align the interests of our named executive officers and our other employees, non-employee directors and consultants with the interests of our shareholders. Because vesting is based on continued service, our equity-based incentives also encourage the retention of our named executive officers through the vesting period of the awards.
We use stock options as the primary incentive vehicle for long-term compensation to our named executive officers because they are able to profit from stock options only if our stock price increases relative to the stock option’s exercise price. We generally provide initial grants in connection with the commencement of employment of our named executive officers as our Compensation Committee, determines appropriate. We also provide annual retention grants shortly following the end of each year. The size of awards made subsequent to the commencement of employment takes into account stock options already held by the individual.
In February 2019, the Compensation Committee awarded stock option grants to our named executive officers in conjunction with the Board’s review of the 2019 corporate goals. Mr. Shepard, Mr. Shah and Dr. McIntyre were granted stock options to purchase 116,000 shares, 38,000 shares and 53,000 shares, respectively at an exercise price of $5.83 per share. The Compensation Committee considered the recent Merger and disparity between equity awards that had been granted to former Versartis employees and Private Aravive employees.
On January 22, 2020, the Compensation Committee approved additional stock option grants to each of Mr. Shah and Dr. McIntyre to purchase 34,826 shares and 48,583 shares of our common stock, respectively, at an exercise price of $10.84 per share.
Other Compensation
Health and Welfare Benefits
Our named executive officers are eligible to participate in all of our employee benefit plans, including our medical, dental, vision, group life and disability insurance plans, in each case on the same basis as other employees.
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Employee benefit plans
Our named executive officers are eligible to participate in our employee benefit plans, including our medical, dental, vision, group life and accidental death and dismemberment insurance plans, in each case, on the same basis as all of our other employees. We maintain a 401(k) plan for the benefit of our eligible employees, including our named executive officers, as discussed in the section below entitled “401(k) plan.”
401(k) plan
All of our employees, including our named executive officers, are eligible to participate in our 401(k) Plan, which is a retirement savings defined contribution plan established in accordance with Section 401(a) of the Internal Revenue Code of 1986, as amended ("Code"). Pursuant to our 401(k) Plan, employees may elect to defer their eligible compensation into the plan on a pre-tax basis, up to the statutorily prescribed annual limit of $18,500 in 2018 (additional salary deferrals not to exceed $6,000 are available to those employees 50 years of age or older) and to have the amount of this reduction contributed to our 401(k) Plan. In general, eligible compensation for purposes of the 401(k) plan includes an employee’s wages, salaries, fees for professional services and other amounts received for personal services actually rendered in the course of employment with us, to the extent the amounts are included in gross income, and subject to certain adjustments and exclusions required under the Code. The 401(k) Plan currently does not offer the ability to invest in our securities.
None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans, non-qualified defined contribution plans or pension plans sponsored by us.
Pension benefits
We do not maintain any pension benefit plans.
Nonqualified deferred compensation
We do not maintain any nonqualified deferred compensation plans.
Employment Offer Letters, Severance and Change in Control Arrangements
We or Private Aravive have entered into employment offer letters with each of our named executive officers. The offer letters provide for “at will” employment and set forth the terms and conditions of employment, including annual base salary, target bonus opportunity, equity compensation, severance benefits and eligibility to participate in our employee benefit plans and programs. Our named executive officers were each required to execute our standard proprietary information and inventions agreement. The material terms of these employment offer letters are summarized below. These summaries are qualified in their entirety by reference to the actual text of the offer letters, which are filed as exhibits attached.
Jay P. Shepard
We entered into an employment offer letter with Mr. Shepard on May 12, 2015. The offer letter originally provided that if terminated for any reason other than cause or permanent disability, Mr. Shepard would be eligible to receive certain severance benefits. If the termination is not in connection with a change in control, the severance benefits will include (i) up to 12 months of salary continuation and payment of health insurance coverage, (ii) 12 months accelerated vesting of the stock options and RSUs awarded to Mr. Shepard and (iii) up to 6 months post-termination to exercise any vested shares subject to such stock option. If terminated in connection with a change in control, severance benefits will be those specified under our equity incentive plan. Change in Control Severance Plan. On February 6, 2019, the Compensation Committee approved an amendment to the severance provisions of the offer letter entered into by Mr. Shepard to increase the time period for which (i) we will continue to pay his health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) to eighteen months following his Separation (as defined in the offer letter) and (ii) he can exercise any vested options to purchase shares of common stock twelve months following his Separation from us. On February 28, 2019, the Compensation Committee approved an amendment to the offer letter entered into by Mr. Shepard, to set his annual salary at a rate of $500,000 with a target bonus equal to 50% of his annual base salary.
In addition, Mr. Shepard’s offer letter provided that upon a qualifying termination of employment, he would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.”
In January 2020, Mr. Shepard resigned as our President and Chief Executive Officer pursuant to the terms of a separation agreement that we entered into with Mr. Shepard. Mr. Shepard will continue to serve the company as a consultant under the terms of a consulting agreement. See “Executive Compensation Actions After 2019-Jay Shepard.”
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Vinay Shah
During the years ended December 31, 2018 and 2019, Mr. Shah’s employment was at-will per the terms of an offer letter with Private Aravive dated February 1, 2017 as later amended on May 30, 2018 and February 6, 2019 pursuant to which he was entitled to receive an annual base salary of $335,000 for 2019,an annual target bonus of 40% of his base salary and six months’ salary as severance in the event of certain terminations. Mr. Shah also entered into severance letters with Private Aravive that provide for twelve months’ severance pay, twelve months payment of COBRA premiums and up to one year to exercise vested options if his employment was terminated within twelve months of the Merger due to a Qualifying Termination (as defined in the severance letter). Mr. Shah was granted options to purchase shares of Private Aravive common stock, each of which were fully vested and were converted into options to purchase 95,381 shares of our common stock at the effective time of the Merger.
In addition, Mr. Shah’s offer letter provided that upon a qualifying termination of employment, he would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.”
Gail McIntyre
During the years ended December 31, 2018 and 2019, Dr. McIntyre’s employment was at-will per the terms of an offer letter with Private Aravive, dated January 1, 2017, as amended February 6, 2019 e. Dr. McIntyre began work as a full-time employee of Private Aravive in January 2017 and was originally eligible to receive an annual salary of $264,000 and a bonus target of $39,600 and three months’ salary as severance in the event of certain terminations. On February 6, 2019, the Compensation Committee approved an increase in Dr. McIntyre’s annual base salary to $325,000 and her target bonus was increased to 40% of her annual base salary. In connection with Dr. McIntyre’s employment by Private Aravive, Dr. McIntyre was granted options to purchase shares of Private Aravive common stock, each of which were fully vested and were converted into options to purchase 59,281 shares of our common stock at the effective time of the Merger. Dr. McIntyre also entered into severance letters with Private Aravive. that provides for twelve months’ severance pay, twelve months payment of COBRA premiums and up to one year to exercise vested options if her employment is terminated within twelve months of the Merger due to a Qualifying Termination (as defined in the severance letter).
In addition, Dr. McIntyre’s offer letter provided that upon a qualifying termination of employment, she would be entitled to certain severance payments and benefits, which are described below under “—Potential payments upon termination or change in control.
Executive Compensation Actions After 2019
Rekha Hermajani Offer Letter
Pursuant to the terms of our Offer Letter dated January 8, 2020 with Ms. Hemrajani, Ms. Hemrajani’s compensation for services provided as our President and Chief Executive Officer includes: (i) an annual base salary of $475,000; (ii) an annual cash bonus targeted at 50% of her base salary, dependent on performance with respect to both corporate and individual goals, as determined by our board of directors; (iii) an option to purchase 143,000 shares of our common stock and (iv) restricted stock units (“RSUs”) for 57,000 shares with each RSU representing the contingent right to receive, upon vesting of the RSU, one share of common stock. The stock options granted have an exercise price equal to the fair market value of the common stock on the date of the grant, expire ten years after the date of the grant and will vest as follows: 25% of the shares subject to the options will vest twelve months after the date of the grant, and the remaining 75% of the shares subject to the options will vest in equal monthly installments over the next 36 months following the one-year anniversary of the date of grant, subject to Ms. Hemrajani’s continued service to our company. The RSUs will vest in four equal annual installments on the first, second, third and fourth anniversaries of the vesting commencement date. All compensation offered to Ms. Hemrajani is subject to applicable tax withholdings.
If terminated for any reason other than Cause or Permanent Disability (each as defined in the Offer Letter), Ms. Hemrajani will be eligible to receive certain severance benefits. If the termination is not in connection with a Change in Control (as defined in the Offer Letter), the severance benefits will include (i) up to 12 months of salary continuation and reimbursement of COBRA coverage, (ii) a pro-rated portion of her year-end target bonus contingent upon corporate goals being met, (iii) 12 months accelerated vesting of the stock options and RSUs awarded to Ms. Hemrajani and (iv) up to 9 months post-termination to exercise any vested shares subject to such stock option. If terminated in connection with a Change in Control, severance benefits will be those specified under the Company’s 2019 Equity Incentive Plan and the Company’s Change in Control Severance Plan the form of which was previously filed with the Securities and Exchange Commission (the “Severance Plan”), which provides specified severance benefits to certain eligible officers and employees of the Company. In addition, if during the twelve month period commencing on the closing date of a Change in Control the Company terminates her employment for any reason other than Cause or Permanent Disability, all unvested equity awards will immediately vest, subject to certain restrictions. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Ms. Hemrajani will be eligible for full accelerated vesting of her outstanding stock options and RSUs.
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Jay P. Shepard Separation Agreement and Consulting Agreement
On January 9, 2020, Mr. Shepard transitioned to the role of Chairman of the Board of Directors and resigned as our President and Chief Executive Officer. On January 9, 2020, we entered into a separation agreement with Mr. Shepard and a consulting agreement with Mr. Shepard. The consulting agreement provides that, subject to execution of a release which is not revoked, in consideration for Mr. Shepard providing transition services to us, we agreed to pay Mr. Shepard (i) fifty percent of his base salary over a six month period, and (ii) reimbursement of six months of COBRA premiums during such period. As a member of our board of directors and a consultant, his equity awards will continue to vest. The separation agreement contains a non-disparagement obligation on both parties and a standard release of claims on the part of Mr. Shepard. On January 9, 2020 the Compensation Committee issued to Mr. Shepard an option to purchase 5,075 shares of our common stock in accordance with our director compensation policy for his transition to Chairman of the Board of Directors, which vests pro rata on a monthly basis over eight months commencing February 9, 2020 with full vesting, if not fully vested at such time, on the date of our next annual meeting of stockholders.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
Severance benefits other than in connection with a change in control
Ms. Hemrajani
Ms. Hemrajani’s offer letter provides that if we terminate her employment for any reason other than cause or permanent disability and not in connection with a change in control if Ms. Hemrajani (i) executes and does not revoke a release of claims within 60 days following the date she terminates employment with us, (ii) returns all of our property in her possession and (iii) resigns as a member of the board of directors, she will be entitled to (a) twelve months of salary continuation payments, (b) if she timely elects to continue his health insurance coverage under COBRA, we will pay a portion of her monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date she terminates employment with us (c) a pro-rated portion of her year-end target bonus contingent upon corporate goals being met, (d) 12 months accelerated vesting of the stock options and RSUs awarded to Ms. Hemrajani and (e) up to 9 months post-termination to exercise any vested shares subject to such stock option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Change in Control Severance Plan (the “Severance Plan”), which provides for specified severance benefits to certain eligible officers and employees of our company. In addition, in accordance with the terms of her offer letter, if during the twelve month period commencing on the closing date of a Change in Control we terminate her employment for any reason other than Cause or Permanent Disability, all unvested equity awards will immediately vest, subject to certain restrictions. Ms. Hemrajani would receive a “Severance Multiplier” of 18 under the Severance Plan, which will entitle her to: cash severance equivalent to 18 multiplied by the sum of her monthly base salary and monthly annual bonus target; up to 18 months’ payment of health insurance coverage and up to 18 months to exercise vested stock options. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Ms. Hemrajani would be eligible for full accelerated vesting of her outstanding stock options and RSUs.
Mr. Shah
On March 26, 2020, we entered into an offer letter with Mr. Shah that superseded the offer letter with private Aravive and provides that if we terminate his employment for any reason other than cause or permanent disability, or a qualifying termination and not in connection with a change in control, if Mr. Shah (i) executes and does not revoke a release of claims within 60 days following the date he terminates employment with us and, (ii) returns all of our property in his possession he will be entitled to (a) nine months of salary continuation payments (b) if he timely elects to continue his health insurance coverage under COBRA, we will pay a portion of his monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date he terminates employment with us. In addition, he will be entitled to (c) 12 months accelerated vesting of stock options and RSUs awarded to Mr. Shah and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company. In addition, if during the twelve month period commencing on the closing date of a Change in Control we terminate his employment for any reason other than Cause, death or Disability or he resigns for Good Reason, pursuant to the Severance Plan, all unvested equity awards will immediately vest, subject to certain restriction. Mr. Shah would receive a “Severance Multiplier” of 12 under the Severance Plan, which will entitle him to: cash severance equivalent to 12 multiplied by the sum of his monthly base salary and monthly annual bonus target; up to 12 months’ payment of health insurance coverage and up to 12 months to exercise vested stock options. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Mr. Shah would be eligible for full accelerated vesting of his outstanding stock options and RSUs.
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Dr. McIntyre
On March 26, 2020, we entered into an offer letter with Dr. McIntyre that superseded the offer letter with private Aravive and provides that if we terminate her employment for any reason other than cause or permanent disability, or a qualifying termination and not in connection with a change in control, if Dr. McIntyre (i) executes and does not revoke a release of claims within 60 days following the date she terminates employment with us and (ii) returns all of our property in his possession she will be entitled to (a) nine months of salary continuation payments (b) if she timely elects to continue her health insurance coverage under COBRA, we will pay a portion of her monthly COBRA premiums (at the same rate that we pay for active employees) for up to twelve months following the date she terminates employment with us. In addition, she will be entitled to (c) 12 months accelerated vesting of stock options and RSUs awarded to Dr. McIntyre and (d) up to 9 months post-termination to exercise any vested shares subject to such option. In addition, if terminated in connection with a change of control, severance benefits will be those specified under our 2019 Equity Incentive Plan and our Change in Control Severance Plan, which provides for specified severance benefits to certain eligible officers and employees of our company. In addition, if during the twelve month period commencing on the closing date of a Change in Control we terminate her employment for any reason other than Cause or death or disability or she resigns for Good Reason, all unvested equity awards will immediately vest, subject to certain restriction. Dr. McIntyre would receive a “Severance Multiplier” of 12 under the Severance Plan, which will entitle her to: cash severance equivalent to 12 multiplied by the sum of her monthly base salary and monthly annual bonus target; up to 12 months’ payment of health insurance coverage and up to 12 months to exercise vested stock options. In addition, under the 2019 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Dr. McIntyre would be eligible for full accelerated vesting of her outstanding stock options and RSUs.
Mr. Shepard
Mr. Shepard’s offer letter that was in effect during 2019 provided that if terminated for any reason other than cause or death or disability or his resignation for Good Reason, Mr. Shepard would have been eligible to receive certain severance benefits. If the termination was not in connection with a change in control, the severance benefits would have included (i) up to 12 months of salary continuation and payment of health insurance coverage, (ii) 12 months accelerated vesting of the stock options and RSUs awarded to Mr. Shepard and (iii) up to 6 months post-termination to exercise any vested shares subject to such stock option. If terminated in connection with a change in control, severance benefits would have been those specified under our equity incentive plans and our Severance Plan, which provides specified severance benefits to certain eligible officers and employees of the Company. Mr. Shepard would have received a “Severance Multiplier” of 18 under the Severance Plan, which would have entitled him to: cash severance equivalent to 18 multiplied by the sum of his monthly base salary and monthly annual bonus target; up to 18 months’ payment of health insurance coverage and up to 18 months to exercise vested stock options. In addition, under the 2014 Equity Incentive Plan, if involuntarily terminated in connection with certain corporate transactions, including a change in control, Mr. Shepard would have been eligible for full accelerated vesting of his outstanding stock options and RSUs.
Change in control severance benefit plan
We have adopted a change in control severance benefit plan, or the severance plan. The severance plan provides certain of our employees, including our currently employed Named Executive Officers, with severance payments and benefits upon certain qualifying terminations of employment within a one-year period following the closing of a change in control, as defined in the severance plan. The summary below is qualified by reference to the actual text of the severance plan, which is filed as an exhibit to the Form S-1, as amended, filed with the SEC on March 10, 2014.
Under the severance plan, in the event of a participant’s involuntary termination without cause (and not due to death or disability) or if a participant resigns for good reason, if the participant in the severance plan (i) executes and does not revoke a release of claims within 60 days following the date he terminates employment with us and (ii) returns all of our property in his possession, he will be entitled to cash severance equal to the sum of his or her monthly base salary and monthly annual bonus target, multiplied by a severance multiplier, which is 15 in the case of the Chief Executive Officer and 12 in the case of the Chief Financial Officer and Chief Scientific Officer. In addition, following a qualifying termination, if a participant timely elects to continue his health insurance coverage under COBRA, we will pay a portion of his monthly COBRA premiums for a period of specified months following the date of termination.
All stock awards which are vested and exercisable as of the date of a qualifying termination under the severance plan (including by virtue of the provisions of the applicable equity plan) will remain outstanding and exercisable until the earliest to occur of (i) the last day of the applicable severance period, which is 15 months in the case of the Chief Executive Officer and 12 months in the case of the Chief Financial Officer and Chief Scientific Officer (ii) the expiration of the original term of such stock awards.
If one of our named executive officers is entitled to severance benefits under the severance plan by virtue of a qualifying termination of employment within 12 months following a change in control, he would not be entitled to severance benefits under the terms of his offer letter.
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In addition, the severance plan provides that, except as otherwise expressly provided in an agreement between us and a participant, if any payment or benefit a participant would receive in connection with a change in control would constitute a “parachute payment” within the meaning of Section 280G of the Internal Revenue Code and such payment or benefit would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code, then such payment or benefit will be equal to either (i) the largest portion of the change in control payment that would result in no portion of the payment or benefit being subject to the excise tax, or (ii) the largest portion, up to and including the total payment or benefit, whichever amount, after taking into account all applicable taxes, including the excise tax (all computed at the highest applicable marginal rate), would result in the participant’s receipt, on an after-tax basis, of the greatest economic benefit to the participant, notwithstanding that all or some portion of the payment or benefit may be subject to the excise tax. If a reduction is so required, the reduction will occur in the order specified in the severance plan.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END
The following table shows for the fiscal year ended December 31, 2019, certain information regarding outstanding equity awards at fiscal year-end for the Named Executive Officers. Each award issued to Mr. Shepard, Mr. Shah, and Dr. McIntyre set forth below is subject to accelerated vesting upon a qualifying termination of his employment, as described under “—Potential Payments Upon Termination or Change in Control.”
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OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2019
| | | | Option Awards(1)(2) | | | Stock Awards(1) | | Name | | Grant Date | | Number of Securities Underlying Unexercised options (#) exercisable | | | Number of Securities Underlying Unexercised options (#) unexercisable | | | Option Exercise Price ($) | | | Option Expiration Date | | | Number of shares or units of stock that have not vested (#) | | | Market value of shares or units of stock that have not vested (#) | | Jay P. Shepard | | 12/28/2013(2) | | | 13,148 | | | | — | | | $ | 15.18 | | | 12/27/2023 | | | | — | | | | — | | | | 2/19/2014 (2) | | | 7,563 | | | | — | | | $ | 48.99 | | | 2/18/2024 | | | | — | | | | — | | | | 5/11/2015(2) | | | 51,500 | | | | — | | | $ | 91.14 | | | 5/10/2025 | | | | — | | | | — | | | | 1/28/2016(5) | | | 34,139 | | | | 727 | | | $ | 64.08 | | | 1/27/2026 | | | | — | | | | — | | | | 1/28/2016(4) | | | — | | | | — | | | | — | | | | — | | | | 2,700 | | | $ | 36,909 | | | | 1/27/2017(6) | | | 17,609 | | | | 6,541 | | | $ | 85.80 | | | 1/26/2027 | | | | — | | | | — | | | | 1/27/2017(3) | | | — | | | | — | | | | — | | | | — | | | | 556 | | | $ | 7,601 | | | | 1/27/2017(4) | | | — | | | | — | | | | — | | | | — | | | | 5,392 | | | $ | 73,709 | | | | 12/20/2017(4) | | | — | | | | — | | | | — | | | | — | | | | 18,582 | | | $ | 254,016 | | | | 02/28/2019(2) | | | 24,166 | | | | 91,834 | | | $ | 5.83 | | | 2/27/2029 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Vinay Shah | | 10/01/2014(7) | | | 19,380 | | | | — | | | $ | 0.24 | | | 9/30/2024 | | | | — | | | | — | | | | 6/15/2017(7) | | | 38,001 | | | | — | | | $ | 0.66 | | | 6/14/2027 | | | | — | | | | — | | | | 12/14/2017(7) | | | 19,000 | | | | — | | | $ | 0.90 | | | 12/13/2027 | | | | — | | | | — | | | | 3/20/2018(7) | | | 19,000 | | | | — | | | $ | 0.90 | | | 3/19/2028 | | | | — | | | | — | | | | 2/28/2019(2) | | | 7,916 | | | | 30,084 | | | $ | 5.83 | | | 2/27/2029 | | | | — | | | | — | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Gail McIntyre | | 6/15/2017(7) | | | 29,641 | | | | — | | | $ | 0.66 | | | 6/14/2027 | | | | — | | | | — | | | | 12/14/2017(7) | | | 14,820 | | | | — | | | $ | 0.90 | | | 12/13/2027 | | | | — | | | | — | | | | 3/20/2018(7) | | | 14,820 | | | | — | | | $ | 0.90 | | | 3/19/2028 | | | | — | | | | — | | | | 2/28/2019(2) | | | 11,041 | | | | 41,959 | | | $ | 5.83 | | | 2/27/2029 | | | | — | | | | — | |
(1)
| Except as otherwise indicated, vesting of all options and RSU’s is subject to continued service on the applicable vesting date.
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(2)
| The shares subject to the stock options vest over a four-year period as follows: 25% of the shares underlying the options vest on the one-year anniversary of the vesting start date, and thereafter 1/48th of the shares vest each month.
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(3)
| The shares subject to these restricted stock units vest according to the following schedules: one-third of the shares subject to the award vest on each of the first, second and third anniversaries of the grant date.
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(4)
| The shares subject to these restricted stock units vest according to the following schedule: 25% of the shares vest on each of the first, second, third and fourth anniversaries of the grant date.
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(5)
| 4/48th of the shares subject to the option became exercisable on May 28, 2016, and the balance of the shares vest and become exercisable monthly thereafter.
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(6)
| 1/48th of the shares subject to the option become exercisable monthly measured from the date of the grant.
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(7)
| The shares subject to these options vested in full upon the closing of the Merger and were assumed by us in the Merger
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Treatment of stock awards under the 2019 Plan
The 2019 Plan, provides that in the event of certain corporate transactions, as defined in the 2019 Plan, the following provisions will apply to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award:
The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the 2019 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent);
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To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to a date prior to the effective time of such corporate transaction (contingent upon the effectiveness of the corporate transaction), and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such corporate transaction;
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or
To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any exercise price payable by such holder in connection with such exercise. In addition, any escrow, holdback, earn out or similar provisions in the definitive agreement for the corporate transaction may apply to such payment to the same extent and in the same manner as such provisions apply to the holders of common stock.
A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2019 Plan, as may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of such a provision, no such acceleration will occur.
For purposes of the 2019 Plan, a corporate transaction is generally the consummation of: (1) a sale of all or substantially all of our assets, (2) the sale or disposition of more than 50% of our outstanding securities, (3) a merger or consolidation where we do not survive the transaction, or (4) a merger or consolidation where we do survive the transaction but the shares of our common stock outstanding immediately before such transaction are converted or exchanged into other property by virtue of the transaction.
Treatment of stock awards under the 2014 Plan
The 2014 Plan, provides that in the event of certain corporate transactions, as defined in the 2014 Plan, the following provisions will apply to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award:
The surviving or acquiring corporation (or its parent) may assume, continue or substitute similar stock awards for outstanding stock awards under the 2014 Plan and any reacquisition or repurchase rights held by us may be assigned to the surviving or acquiring corporation (or its parent); provided, that if any such stock awards are so assumed, continued or substituted, if a participant incurs an involuntary termination on or within 12 months following the date of such corporate transaction, any unvested shares subject to such assumed, continued or substituted stock awards will vest in full as of the date of such termination;
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has not terminated prior to the effective time of the corporate transaction will be accelerated in full to a date prior to the effective time of such corporate transaction, and such stock awards will terminate if not exercised (if applicable) at or prior to the effective time of such corporation transaction, and any reacquisition or repurchase rights held by us will lapse, contingent upon the effectiveness of such corporate transaction;
To the extent that outstanding stock awards are not so assumed, continued or substituted, the vesting and, if applicable, exercisability of any such stock awards held by participants whose continuous service has terminated prior to the effective time of the corporate transaction will not be accelerated and all unvested stock awards held by such participants will terminate if not exercised (if applicable) prior to the effective time of the corporate transaction, but any reacquisition or repurchase rights held by us may continue to be exercised notwithstanding such corporate transaction; or
To the extent a stock award will terminate if not exercised prior to the effective time of a corporate transaction, the board of directors may provide that the holder of the stock award may not exercise the stock award, but instead will receive a payment, in such form as may be determined by the board of directors, equal in value to the excess, if any, of the value of the property the participant would have received upon exercise of the stock award over any exercise price payable by such holder in connection with such exercise.
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A stock award may be subject to additional acceleration of vesting and exercisability upon or after a change in control, as defined in the 2014 Plan, as may be provided in the stock award agreement for such stock award or in any other written agreement between us and a participant, but in the absence of such a provision, no such acceleration will occur.
For purposes of the 2014 Plan, an involuntary termination generally means, during the 12 months following the closing of a corporate transaction or change in control, either (i) a termination of service other than for cause (as defined in the 2014 Plan) or (ii) a voluntary resignation following: a material diminution in the participant’s base salary; a material diminution in the participant’s authority, duties, position or responsibilities; a material diminution in the authority, duties, position or responsibilities of the participant’s supervisor (including a requirement that a participant report to a corporate officer or employee instead of directly to the board of directors); a material diminution in the budget over which the participant retains authority; a relocation of the participant’s principal place of work to a location more than 50 miles away from the principal place of work prior to the consummation of a corporate transaction or a change in control; or any other act or omission that constitutes a material breach by us of the 2014 Plan.
Treatment of stock options under the Aravive Biologics, Inc 2010 and 2017 Equity Incentive Plans
In connection with the Merger we assumed the Aravive Biologics, Inc. 2010 and 2017 Equity Incentive Plans. The Aravive Biologics, Inc. 2010 and 2017 Equity Incentive Plans provide that in the event of certain corporate transactions, as defined in the plans, the board of directors may take one or more of the following actions with respect to outstanding stock awards, unless otherwise provided in a stock award agreement or any other written agreement between us and a participant, or unless otherwise expressly provided by the board of directors at the time of grant of a stock award: each outstanding stock award may be assumed or continued or an equivalent stock award may be substituted by a successor corporation and any reacquisition or repurchase rights held by us in respect of common stock issued pursuant to prior stock awards may be assigned to the successor corporation. The plans also provide that in the event of a specified corporate transaction the board of directors may determine to accelerate the vesting, in whole or in part of a stock award, with such stock award becoming fully vested and exercisable prior to the corporate transaction arrange for the lapse of any reacquisition or repurchase rights held by us with respect to the stock award or cancel or arrange for the cancellation of a stock award in exchange for cash consideration. Any awards that have not been assumed, continued, substituted, or exercised prior to the corporate transaction will terminate at the closing of the transaction. All options issued under the Aravive Biologics, Inc 2010 and 2017 Equity Plans that were outstanding on the closing of the Merger vested upon the closing of the Merger.
DIRECTOR COMPENSATION
The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such compensation reflects the practices of the competitive market. In January 2019, the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s compensation consultant, Compensia, which assessed our then-current director compensation policy. This analysis examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group, which was the same peer group that the Compensation Committee used as a reference when setting executive compensation. Based on this analysis, as well as its consideration of our financial performance, general market conditions, and the interests of our stockholders, the board of directors determined at that time to maintain our non-employee director compensation policy at its then-current cash and equity compensation levels. These compensation levels were maintained throughout 2019.
The following table shows for the fiscal year ended December 31, 2019 certain information with respect to the compensation of all of our current and former non-employee directors:
DIRECTOR COMPENSATION FOR FISCAL 2019
Name | | Fees Earned or Paid in Cash ($) | | | Option Awards ($) | | | Restricted Stock Awards ($) | | Total ($) | | Srinivas Akkaraju, M.D., Ph.D. | | $ | 70,000 | | | $ | 48,789 | | | — | | $ | 118,789 | | Amato Giaccia, Ph.D | | $ | 50,000 | | | $ | 70,929 | | | — | | $ | 120,929 | | Robert E. Hoffman | | $ | 63,500 | | | $ | 70,929 | | | — | | $ | 134,429 | | Raymond Tabibiazar, M.D. | | $ | 48,750 | | | $ | 70,929 | | | — | | $ | 119,679 | | Shahzad Malik, M.D.(1) | | $ | 48,750 | | | $ | 48,789 | | | — | | $ | 97,539 | | Eric Zhang | | $ | 47,500 | | | $ | 70,929 | | | — | | $ | 118,429 | |
(1)
| The compensation earned is for our former director who resigned effective January 9, 2020.
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The table below shows the aggregate number of option awards outstanding at fiscal year-end for each of our current and former non-employee directors.
Name
| | Number of Shares
Subject to Outstanding
Options as of
December 31, 2019
| | | Number of Shares
Subject to Outstanding
Stock Awards as of
December 31, 2019
| Srinivas Akkaraju, M.D., Ph.D.
| | | 23,457
| | | —
| Amato Giaccia, Ph.D
| | | 240,416
| | | —
| Robert E. Hoffman
| | | 19,688
| | | —
| Raymond Tabibiazar, M.D.
| | | 654,522
| | | —
| Shahzad Malik, M.D.
| | | 23,782
| | | —
| Eric Zhang
| | | 19,688
| | | —
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Amounts in the director compensation table above for Dr. Giaccia and Dr. Tabibiazar include options assumed by us in the Merger that were issued to such individuals by Private Aravive prior to the Merger.
NON-EMPLOYEE DIRECTOR COMPENSATION POLICY
Under our non-employee director compensation policy in effect during the year ended December 31, 2019, we paid each of our non-employee directors a cash retainer for service on the board of directors and for service on each committee on which the director is a member. The chairman of each committee receives an additional retainer for such service. These retainers are payable in arrears in four equal quarterly installments on the last day of each quarter, provided that the amount of such payment will be prorated for any portion of such quarter that the director is not serving on the board of directors.
The retainers paid to non-employee directors for service on the board of directors and for service on each committee of the board of directors on which the director was a member for the year ended December 31, 2019 are as follows:
| | Member Annual Service Retainer | | | Chairman Annual Service Retainer | | | Board | | $ | 40,000 | | | $ | 30,000 | | * | Audit Committee | | $ | 7,500 | | | $ | 15,000 | | | Compensation Committee | | $ | 5,000 | | | $ | 12,500 | | * | Nominating and Corporate Governance Committee | | $ | 3,500 | | | $ | 10,000 | | |
*
| In January 2019, the policy was amended to reduce the annual compensation committee chairman service retainer to $12,500 and to cap the total compensation to be received by the chairperson or executive chairperson of the board of directors for services on the board of directors and all committees thereof at $70,000.
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The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such compensation reflects the practices of the competitive market. In January 2019, the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s compensation consultant, Compensia, which assessed our then-current director compensation policy. This analysis examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group, which is the same peer group that we use as a reference when setting executive compensation. Based on this analysis, as well as its consideration of our financial performance, general market conditions, and the interests of our stockholders, the board of directors determined to amend our non-employee director compensation policy, effective January 3, 2019, to provide the cash compensation set forth above and the equity compensation described below.
On the date of each annual meeting of stockholders held, each non-employee director that continues to serve as a non-employee member on the board of directors will receive options to acquire 7,500 shares of common stock vesting 1/12th per month with full vesting, if not fully vested at such time, on the dateto a grant of our next annual meeting of stockholder. The exercise price of such options will equal the fair market value of our common stock on the date of grant. For any new non-employee director who joins the board of director at a time other than at the annual stockholder meeting, then, in addition to the new non-employee director grants, such directors will receive an option to purchase shares of common stock such numberhaving a grant date fair market value of shares of common stock equity equal to the product of 7,500 and a fraction with (i) a numerator equal to the number of days between the date of the director’s initial election or appointment to the board of directors and the date which is the first anniversary of the date of the most recent annual stockholder meeting occurring before the director is elected or appointed to the board of directors, and (ii) a denominator equal to 365. In each case, vesting of the award is subject to the director’s continuous service on each vesting date. This policy is intended to provide a total$75,000
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compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’ interests with those of our stockholders in accordance with the terms policy. In January 2019 we issued an option to (i) each of Dr. Giaccia, Mr. Hoffman, Dr. Tabibiazar, and Mr. Zhang to purchase 7,500 shares of our common stock, and (ii) to each Dr. Akkaraju, Dr. Giaccia, Mr. Hoffman, Dr. Malik, Dr. Tabibiazar and Mr. Zhang to purchase 4,688 shares of our common stock. In accordance with our policy, on September 12, 2019, immediately after our annual meeting of stockholders, we issued to each of Dr. Akkaraju, Dr. Giaccia, Mr. Hoffman, Dr. Malik, Dr. Tabibiazar and Mr. Zhang an option to purchase 7,500 shares of our common stock. On January 9, 2020 the Compensation Committee issued to Mr. Shepard an option to purchase 5,075 shares of our common stock in accordance with our director compensation policy for his transition to Chairman of the Board of Directors, which vests pro rata on a monthly basis over eight months commencing February 9, 2020 with full vesting, if not fully vested at such time, on the date of our next annual meeting of stockholders.
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The board of directors reviews the compensation of our non-employee directors from time to time to ensure that the amount and form of such compensation reflects the practices of the competitive market. In September 2020, the board of directors evaluated a competitive market analysis prepared by the Compensation Committee’s compensation consultant, Korn Ferry, which assessed our then-current director compensation policy. This analysis examined how our director compensation levels, practices, and design features compared to the constituent members of our compensation peer group, which is the same peer group that we use as a reference when setting executive compensation. Based on this analysis, as well as its consideration of our financial performance, general market conditions, and the interests of our stockholders, the board of directors determined to amend our non-employee director compensation policy, effective September 8, 2020, to provide the cash compensation set forth above and the equity compensation described below. On the date of each annual meeting of stockholders held, each non-employee director that continues to serve as a non-employee member on the board of directors will receive options to acquire shares of common stock having a fair value on the grant date of $75,000, vesting 1/12th per month with full vesting, if not fully vested at such time, on the date of our next annual meeting of stockholder. The exercise price of such options will equal the fair market value of our common stock on the date of grant. For any new non-employee director who joins the board of director at a time other than at the annual stockholder meeting, then, in addition to the new non-employee director grants, such directors will receive an option to purchase shares of common stock, such number of shares of common stock equity equal to the product of the (i) number of shares of common stock having a grant date fair value of $75,000 and (ii) a fraction with (x) a numerator equal to the number of days between the date of the director’s initial election or appointment to the board of directors and the date which is the first anniversary of the date of the most recent annual stockholder meeting occurring before the director is elected or appointed to the board of directors, and (y) a denominator equal to 365. In each case, vesting of the award is subject to the director’s continuous service on each vesting date. This policy is intended to provide a total compensation package that enables us to attract and retain qualified and experienced individuals to serve as directors and to align our directors’ interests with those of our stockholders in accordance with the terms of the policy. On September 10, 2021 we issued an option to each of Dr. Eshelman, Dr. Giaccia, Dr. Tabibiazar, Mr. Rogers, Mr. Zhang, Dr. Ho, Dr. Hohneker and Mr. Kirk to purchase 22,812 shares of our common stock. On July 1, 2021, for their appointment to the Board, Dr. Ho, Dr. Hohneker and Mr. Kirk were each issued an annual option to purchase 5,245 shares of common stock and new director options to purchase 15,435 shares of common stock. Directors have been and will continue to be reimbursed for expenses directly related to their activities as directors, including attendance at board and committee meetings. Directors are also entitled to the protection provided by their indemnification agreements and the indemnification provisions in our certificate of incorporation and bylaws. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 16, 2020 by: (i) each director; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by us to be beneficial owners of more than five percent of its common stock.
| | Beneficial Ownership(1) | | Beneficial Owner | | Number of Shares | | | Percent of Total | | Greater than 5% stockholders other than executive officers and directors: | | | | | | | | | New Leaf Biopharma Opportunities II, L.P. and affiliated entities(2) | | | 946,423 | | | | 6.3 | % | BC Axis Limited, as controlled by 3E Biosciences Capital LP(3) | | | 859,766 | | | | 5.7 | % | Invus Public Equities, L.P and its affiliated entities(4) | | | 1,350,000 | | | | 9.0 | % | Named Executive officers and directors: | | | | | | | | | Jay P. Shepard(5) | | | 249,705 | | | | 1.6 | % | Rekha Hemrajani | | — | | | * | | Vinay Shah(6) | | | 288,078 | | | | 1.9 | % | Gail McIntyre, Ph.D.(7) | | | 78,607 | | | * | | Srinivas Akkaraju, M.D., Ph.D.(8)(9) | | | 628,838 | | | | 4.2 | % | Amato Giaccia, Ph.D.(10) | | | 1,176,254 | | | | 7.7 | % | Robert E. Hoffman(11) | | | 13,646 | | | * | | Raymond Tabibiazar, M.D.(12) | | | 1,649,231 | | | | 10.5 | % | Eric Zhang(13)(14) | | | 873,412 | | | | 5.8 | % | All executive officers and directors as a group (9 persons)(15) | | | 4,957,771 | | | | 30.4 | % |
Item12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 25, 2022 by: (i) each director; (ii) each of the executive officers named in the Summary Compensation Table; (iii) all executive officers and directors of the Company as a group; and (iv) all those known by us to be beneficial owners of more than five percent of its common stock. | | Beneficial Ownership(1) | | Beneficial Owner | | Number of Shares | | | Percent of Total | | Greater than 5% stockholders other than executive officers and directors: | | | | | | | | | Invus Public Equities, L.P and its affiliated entities(2) | | | 1,311,291 | | | | 6.2 | % | Raymond Tabibiazar, M.D.(3) | | | 1,612,896 | | | | 7.4 | % | Eshelman Ventures, LLC(4) | | | 4,280,098 | | | | 19.84 | % | Named Executive officers and directors: | | | | | | | | | Fredric N. Eshelman, Pharm. D.(5) | | | 4,319,769 | | | | 19.99 | % | Amato Giaccia, Ph.D.(6) | | | 1,149,839 | | | | 5.4 | % | Michael W. Rogers(7) | | | 38,558 | | | | * | | Eric Zhang(8) | | | 910,691 | | | | 4.3 | % | Vinay Shah(9) | | | 369,954 | | | | 1.7 | % | Gail McIntyre(10) | | | 269,360 | | | | 1.3 | % | Leonard Scott Dove, Ph.D.(11) | | | 0 | | | | * | | Peter T.C. Ho, M.D., Ph.D.(12) | | | 26,598 | | | | * | | John A. Hohneker, M.D. (13) | | | 25,598 | | | | * | | Sigurd Kirk (14) | | | 25,598 | | | | * | | All current executive officers and directors as a group (10 persons)(15) | | | 7,135,965 | | | | 31.8 | % |
* | Represents beneficial ownership of less than one percent (1%) of the outstanding common stock. |
| (1) | This table is based upon information supplied by officers, directors and principal stockholders and Schedules 13D and 13G filed with the SEC. Unless otherwise indicated in the footnotes to this table and subject to community property laws where applicable, we believe that each of the stockholders named in this table has sole voting and investment power with respect to the shares indicated as beneficially owned. Applicable percentages are based on 15,015,932 shares outstanding on March 16, 2020, adjusted as required by rules promulgated by the SEC. Beneficial ownership of shares is determined in accordance with the rules of the SEC and includes voting and investment power with respect to the shares. Shares of common stock subject to outstanding options that are exercisable within 60 days of March 16, 2020 are deemed outstanding for computing the percentage of ownership of the person holding such options. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Aravive, Inc., River Oaks Tower, 3730 Kirby Drive, Suite 1200, Houston, Texas 77098. |
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(2)
| Information is based upon a Schedule 13G/A (Amendment No. 2) filed with the SEC on February 13, 2020 (the “Schedule 13G/A”) by New Leaf Biopharma Opportunities II, L.P. (“Biopharma II”), New Leaf BPO Associates II, L.P. (“NLBA II”), New Leaf BPO Management II, L.L.C. (“NLB Management II”), Ronald M. Hunt and Vijay K. Lathi. All 946,423 shares are owned by Biopharma II; except that NLBA II, the sole general partner of Biopharma II, may be deemed to beneficially own, and have sole power to vote, such shares; (ii) NLB Management II, the sole general partner of NLBA II and ultimate general partner of Biopharma II, may be deemed to beneficially own, and have sole power to vote, such shares; and (iii) each of Ronald M. Hunt and Vijay K. Lathi, the individual managing directors of NLB Management II, may also be deemed to beneficially own, and have shared power to vote, such shares. Each of the entities and the individuals listed above disclaims beneficial ownership of such shares of common stock, except for the shares, if any, such entity or individual holds of record and to the extent of their pecuniary interest therein, if any. The address of the individuals and entities listed above is 420 Lexington Avenue, Suite 408, New York, NY 10170, except for Vijay Lathi whose address is New Leaf Venture Partners, 2730 Sand Hill Road, Suite 110, Menlo Park, CA 94025. We obtained the foregoing information regarding beneficial ownership of these shares solely from the Schedule 13G/A.
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(3)
| Information is based upon a Schedule 13D filed with the SEC on October 22, 2018 by BC Axis Limited, as controlled by 3E Biosciences Capital LP and Karen Liu. Ms. Liu is a director of BC Axis Limited The address for BC Axis Limited, as controlled by 3E Biosciences Capital LP and Karen Liu. is c/o BC Axis Limited, Suite 701, Tower C; Tsinghua Science Park; No 1. Zhongguancun East Road; Hainan District, Beijing.
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(4)
| Information is based upon a Schedule 13G filed with the SEC on December 10, 2019 by Invus Public Equities, L.P (“Invus Public Equities”)., Invus Public Equities Advisors, LLC (“Invus PE Advisors”), Artal Treasury Limited (“Artal Treasury”),Artal International S.C.A (“Artal International”), Artal International Management S.A. (“Artal Management”), Artal Group S.A. (“Artal Group”), Wetsend S.A.(“Westend”), Stichting Administratiekabntoor Westland (“Stichting”)and Mr. Pascal Minne(“Minne’). Invus Public Equities directly holds the 1,350,000 shares of common stock. Invus PE Advisors, as the general partner of Invus Public Equities, controls Invus Public Equities and accordingly may be deemed to beneficially own the shares held by Invus Public Equities. Artal Treasury, as the managing member of Invus PE Advisors, controls Invus PE Advisors, and accordingly may be deemed to beneficially own the shares held by Invus Public Equities. Artal International, as its Geneva branch is the sole stockholder of Artal Treasury, may be deemed to beneficially own the shares that Artal Treasury may be deemed to beneficially own. Artal International Management, as the managing partner of Artal International, controls Artal International and, accordingly, may be deemed to beneficially own the shares that Artal International may be deemed to beneficially own. Artal Group, as the parent company of Artal International Management, controls Artal International Management and, accordingly, may be deemed to beneficially own the shares that Artal International Management may be deemed to beneficially own. Westend, as the parent company of Artal Group, controls Artal Group and, accordingly, may be deemed to beneficially own the shares that Artal Group may be deemed to beneficially own. The Stichting, as the parent company of Westend, controls Westend and, accordingly, may be deemed to beneficially own the shares that Westend may be deemed to beneficially own. Mr. Minne, as the sole member of the board of the Stichting, controls the Stichting and, accordingly, may be deemed to beneficially own the shares that the Stichting may be deemed to beneficially The address for Invus Public Equities and Invus PE Advisors is 750 Lexington Avenue, 30th Floor, New York, New York 10022. The address for Artal Treasury is PO Box 265, Suite 6, borough House, Rue du Pre, St. Peter Port, Guernsey GYI 3QU. The address for Artal International, Artal International Management and Artal Group, Westend is Valley Park, 44, Rue de la Vallée, L-2661, Luxembourg. The address for Stichting is Ijsselburcht 3 NL-6825 BS Arnhem, The Netherlands. The address for Minne is Rue de l’Industrie 44, B-1000, Bruxelles, Belgium.
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(5)
| Includes an aggregate of 163,068 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(6)
| Includes 108,640 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(7)
| Includes 77,775 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(8)
| Includes an aggregate of 20,957 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(9)
| Based on information set forth in a Schedule 13D filed with the SEC by entities affiliated with Samsara BioCapital GP, LLC on June 18, 2018 and Form 4 filed with the SEC by entities affiliated with Samsara BioCapital GPP, LLC on December 2, 2019, these shares include 576,066 shares held by Samsara BioCapital, L.P., or Samsara BioCapital. Dr. Srinivas Akkaraju, a member of the board of directors, is a managing member of Samsara BioCapital GP, LLC, the general partner of Samsara BioCapital. The managing member disclaims beneficial ownership of these shares except to the extent of the Reporting Person’s pecuniary interest therein. The Address for Samsara BioCapital, L.P. is 565 Everett Avenue, Palo Alto, CA 94301.
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(10)
| Includes 234,374 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(11)
| Includes 13,646 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(12)
| Includes 648,480 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(13)
| Includes 13,646 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020.
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(14)
| Consists of 859,766 shares held by Elite Vantage Global Limited. The Address for Elite Vantage Global Limited is Suite 1807, 18/F, China Resources Building, 26 Harbor Road, Wan Chai, Hong Kong.
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(15)
| Consists of 3,677,185 shares held by the directors and executive officers and an aggregate of 1,280,586 shares issuable pursuant to stock options exercisable within 60 days of March 16, 2020 and upon settlement of RSUs that vest within 60 days of March 16, 2020.
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The following table presents information as of December 31, 2019 with respect to the shares indicated as beneficially owned. Applicable percentages are based on 21,094,357 shares outstanding on March 25, 2022, adjusted as required by rules promulgated by the SEC, which does not include 4,850,241 shares of our common stock (or common stock equivalents in lieu thereof) issued upon closing of the registered direct offering on March 31, 2022. Beneficial ownership of shares is determined in accordance with the rules of the SEC and includes voting and investment power with respect to the shares. Shares of common stock subject to outstanding options that are exercisable within 60 days of March 25, 2022 are deemed outstanding for computing the percentage of ownership of the person holding such options. Unless otherwise indicated, the address of each beneficial owner listed in the table below is c/o Aravive, Inc., River Oaks Tower, 3730 Kirby Drive, Suite 1200, Houston, Texas 77098.
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| (2) | Information is based upon a Schedule 13G/A filed with the SEC on February 16, 2021 by Invus Public Equities, L.P (“Invus Public Equities”)., Invus Public Equities Advisors, LLC (“Invus PE Advisors”), Artal Treasury Limited (“Artal Treasury”),Artal International S.C.A (“Artal International”), Artal International Management S.A. (“Artal Management”), Artal Group S.A. (“Artal Group”), Wetsend S.A.(“Westend”), Stichting Administratiekabntoor Westland (“Stichting”)and Mr. Amaury Wittouck (“Wittock”). Invus Public Equities directly holds the 1,311,291 shares of common stock. Invus PE Advisors, as the general partner of Invus Public Equities, controls Invus Public Equities and accordingly may be deemed to beneficially own the shares held by Invus Public Equities. Artal International Management, as the managing partner of Artal International, controls Artal International and, accordingly, may be deemed to beneficially own the Shares that Artal International may be deemed to beneficially own. Artal Group, as the parent company of Artal International Management, controls Artal International Management and, accordingly, may be deemed to beneficially own the Shares that Artal International Management may be deemed to beneficially own. Westend, as the parent company of Artal Group, controls Artal Group and, accordingly, may be deemed to beneficially own the Shares that Artal Group may be deemed to beneficially own. The Stichting, as majority shareholder of Westend, controls Westend and, accordingly, may be deemed to beneficially own the Shares that Westend may be deemed to beneficially own. As of January 11, 2021, Mr. Wittouck, as the sole member of the board of the Stichting, controls the Stichting and, accordingly, may be deemed to beneficially own the Shares that the Stichting may be deemed to beneficially Artal International, as its Geneva branch is the sole stockholder of Artal Treasury, may be deemed to beneficially own the shares that Artal Treasury may be deemed to beneficially own. Artal International Management, as the managing partner of Artal International, controls Artal International and, accordingly, may be deemed to beneficially own the shares that Artal International may be deemed to beneficially own. Artal Group, as the parent company of Artal International Management, controls Artal International Management and, accordingly, may be deemed to beneficially own the shares that Artal International Management may be deemed to beneficially own. Westend, as the parent company of Artal Group, controls Artal Group and, accordingly, may be deemed to beneficially own the shares that Artal Group may be deemed to beneficially own. The Stichting, as the majority shareholder of Westend, controls Westend and, accordingly, may be deemed to beneficially own the shares that Westend may be deemed to beneficially own. As of January 11, 2021, Mr. Wittouck, as the sole member of the board of the Stichting, controls the Stichting and, accordingly, may be deemed to beneficially own the shares that the Stichting may be deemed to beneficially own. The address for Invus Public Equities and Invus PE Advisors is 750 Lexington Avenue, 30th Floor, New York, New York 10022. The address for Artal Treasury is Suite 4, Borough House, Rue du Pree, St. Peter Port, Guernsey GYI 3JJ. The address for Artal International, Artal International Management and Artal Group, Westend is Valley Park, 44, Rue de la Vallée, L-2661, Luxembourg. The address for Stichting is Claude Debussylaan, 46, 1082 MD Amsterdam, The Netherlands. The address for Wittouck is Valley Park, 44, Rue de la Vallée, L-2661, Luxembourg. |
| (3) | Information is based upon a Schedule 13D filed with the SEC on April 12, 2021. Includes an aggregate of 612,145 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. The address for Dr. Tabibiazar is c/o 526 Ventures, 245 First Street, 18th Floor, Cambridge, Massachusetts 02142. |
| (4) | Information for Eshelman Ventures, LLC is based upon a Schedule 13D filed with the SEC on January 6, 2022. Consists of: (i) 3,806,098 shares of Common Stock directly held by Eshelman Ventures, LLC, an entity wholly owned by Dr. Eshelman, and (ii) 474,000 Warrant Shares issuable upon exercise of the Pre-Funded Warrant. Does not include any securities issued to Eshelman Ventures, LLC upon closing of the registered direct offering on March 31, 2022. Unless the Company obtains the approval of its stockholders, the aggregate number of shares of Common Stock that may be issued under the Pre-Funded Warrant and the Investment Agreement may not exceed the maximum number of shares of Common Stock which the Company may issue without stockholder approval under the Nasdaq Stock Market Listing Rule 5635(b). As a result of such limitation, the beneficial ownership of Eshelman Ventures, LLC includes 474,000 Warrant Shares issuable upon exercise of the Pre-Funded Warrant and excludes 4,071,455 Warrant Shares issuable upon exercise of the Pre-Funded Warrant. Dr. Eshelman may be deemed to be the beneficial owner of such shares held by Eshelman Ventures, LLC. Pursuant to the Pre-Funded Warrant and the Investment Agreement, Eshelman Ventures, LLC may acquire up to 4,545,455 shares of Common Stock in the aggregate (subject to adjustment), as described in “The Issuance Proposal” above, which may result in a change of control of the Company. Nasdaq guidance suggests that a change of control occurs when, as a result of the issuance, an investor or a group would own, or have the right to acquire, 20% or more of the outstanding shares of common stock or voting power and such ownership or voting power would be the largest ownership position. The address for Eshelman Ventures, LLC is 319 North 3rd Street, Suite 301, Wilmington, North Carolina 28401. |
| (5) | Includes 39,671 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022 and 474,000 warrant shares issuable upon exercise of the Pre-Funder Warrant. |
| (6) | Includes 207,959 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (7) | Includes an aggregate of 38,558 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (8) | Includes an aggregate of 50,925 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (9) | Includes an aggregate of 179,112 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (10) | Includes an aggregate of 258,223 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (11) | Includes an aggregate of 0 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (12) | Includes an aggregate of 25,598 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (13) | Includes an aggregate of 25,598 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (14) | Includes an aggregate of 25,598 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022. |
| (15) | Consists of 5,810,723 shares held by the directors and current executive officers, an aggregate of 851,242 shares issuable pursuant to stock options exercisable within 60 days of March 25, 2022 and 474,000 warrant shares issuable upon exercise of the Pre-Funder Warrant. |
The following table presents information as of December 31, 2021 with respect to shares of our common stock that may be issued under our existing equity compensation plans, including the 2009 Stock Plan, 2014 Plan, the 2019 Plan and the 2014 Employee Stock Purchase Plan. We do not maintain any equity incentive plans that have not been approved by shareholders. Equity Compensation Plan Information | | | | | | | | | | Number of securities | | | | | | | | | | | | remaining available | | | | | | | | | | | | for future issuance | | | | | | | | | | | | under equity | | | | Number of securities | | | | | | | compensation plans | | | | to be issued upon | | | Weighted-average | | | (excluding securities | | | | exercise of | | | exercise price | | | reflected in | | | | outstanding | | | of outstanding | | | column (a)) | | Plan Category | | options (a) | | | options (b) | | | (c) | | Equity Compensation Plan approved by security holders (1) | | | | | | | | | | | | | 2014 Equity Incentive Plan | | | 159,664 | | | $ | 5.41 | | | | — | | 2014 Employee Stock Purchase Plan | | | — | | | | — | | | | 273,681 | | 2019 Equity Incentive Plan | | | 1,355,840 | | | $ | 6.18 | | | | 1,857,990 | | Total | | | 1,515,504 | | | $ | 6.10 | | | | 2,131,671 | |
(1) | This table does not present information regarding equity awards under the Aravive Biologics, Inc. 2010 Equity Incentive Plan and the 2014 Employee Stock Purchase Plan. We do not maintain any equity incentive plansAravive Biologics, Inc. 2017 Equity Incentive Plan that have not been approvedwere assumed by shareholders. Equity Compensation Plan Information
Plan Category | | Number of securities to be issued upon exercise of outstanding options (a) | | | Weighted-average exercise price of outstanding options (b) | | | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | | Equity Compensation Plan approved by security holders (1) | | | | | | | | | | | | | 2009 Stock Plan | | | 39,442 | | | $ | 30.52 | | | — | | 2014 Equity Incentive Plan | | | 576,121 | | | $ | 30.39 | | | — | | 2014 Employee Stock Purchase Plan | | — | | | — | | | | 221,908 | | 2019 Equity Incentive Plan | | | 45,000 | | | $ | 5.77 | | | | 1,391,697 | | Total | | | 660,563 | | | $ | 28.72 | | | | 1,613,605 | |
(1)
| This table does not present information regarding equity awards under the Aravive Biologics, Inc. 2010 Equity Incentive Plan and the Aravive Biologics, Inc. 2017 Equity Incentive Plan that were assumed by us in connection with the Merger. As of December 31, 2019, an additional 1,159,597us in connection with the Merger. As of December 31, 2021, an additional 923,749 shares of our common stock were subject to options outstanding that were assumed in the Merger.
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Item 13. Certain Relationships and Related Transactions, and Director Independence.
TRANSACTIONS WITH RELATED PERSONS
RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES
In 2014, we adopted a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-persons transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement or relationship (or any series of similar transactions, arrangements or relationships) in which we and any “related person” are participants involving an amount that exceeds $100,000. Transactions involving compensation for services provided to us as an employee, director, consultant or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or more than 5% stockholder of our company, including any of their immediate family members, and any entity owned or controlled by such persons.
Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to the Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the board of directors) for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, we rely on information supplied by its executive officers, directors and certain significant stockholders. In considering related-person transactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to (i) the risks, costs and benefits to us, (ii) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (iii) the terms of the transaction, (iv) the availability of other sources for comparable services or products and (v) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the Audit Committee consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of us and our stockholders, as the Audit Committee determines in the good faith exercise of its discretion.
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CERTAIN RELATED-PERSON TRANSACTIONS
The following is a summary of transactions since January 1, 2018
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Item13. Certain Relationships and Related Transactions, and Director Independence. TRANSACTIONS WITH RELATED PERSONS RELATED-PERSON TRANSACTIONS POLICY AND PROCEDURES In 2014, we adopted a written Related-Person Transactions Policy that sets forth our policies and procedures regarding the identification, review, consideration and approval or ratification of “related-persons transactions.” For purposes of our policy only, a “related-person transaction” is a transaction, arrangement, or relationship (or any series of similar transactions, arrangements, or relationships) in which we and any “related person” are participants involving an amount that exceeds $100,000. Transactions involving compensation for services provided to us as an employee, director, consultant, or similar capacity by a related person are not covered by this policy. A related person is any executive officer, director, or more than 5% stockholder of our company, including any of their immediate family members, and any entity owned or controlled by such persons. Under the policy, where a transaction has been identified as a related-person transaction, management must present information regarding the proposed related-person transaction to the Audit Committee (or, where Audit Committee approval would be inappropriate, to another independent body of the board of directors) for consideration and approval or ratification. The presentation must include a description of, among other things, the material facts, the interests, direct and indirect, of the related persons, the benefits to us of the transaction and whether any alternative transactions were available. To identify related-person transactions in advance, we rely on information supplied by its executive officers, directors, and certain significant stockholders. In considering related-person transactions, the Audit Committee takes into account the relevant available facts and circumstances including, but not limited to (i) the risks, costs and benefits to us, (ii) the impact on a director’s independence in the event the related person is a director, immediate family member of a director or an entity with which a director is affiliated, (iii) the terms of the transaction, (iv) the availability of other sources for comparable services or products and (v) the terms available to or from, as the case may be, unrelated third parties or to or from employees generally. In the event a director has an interest in the proposed transaction, the director must recuse himself or herself form the deliberations and approval. The policy requires that, in determining whether to approve, ratify or reject a related-person transaction, the Audit Committee consider, in light of known circumstances, whether the transaction is in, or is not inconsistent with, the best interests of us and our stockholders, as the Audit Committee determines in the good faith exercise of its discretion. CERTAIN RELATED-PERSON TRANSACTIONS The following is a summary of transactions since January 1, 2020 and all currently proposed transactions, to which we have been a participant, in which: | • | the amounts exceeded or will exceed $120,000; and |
| • | any of the directors, executive officers or holders of more than 5% of the respective capital stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest. On December 2, 2019, Samsara BioCapital LP, invested approximately $1,000,000 in our public offering and acquired 133,333 shares in the offering. Dr. Akkaraju has been a managing member of Samsara BioCapital GP, LLC, the general partner of Samsara BioCapital LP. an affiliate of Srini Akkaraju.
Since January 1, 2018, there have been no transactionsinterest other than compensation arrangements which are describedas set forth under “Executive Compensation” and “Director Compensation” and the entry into our standard form of indemnification agreements described below with directors and executive officers, and there are no proposed transactions, in which the amount involved exceeds $120,000 to which we or any of any of our subsidiaries was (or is to be) a party and in which any director, director nominee, executive officer, holder of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals, had (or will have) a direct or indirect material interest..
Indemnification
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On April 8, 2020, pursuant to the terms of an Investment Agreement that we entered into with, Eshelman Ventures, LLC, a North Carolina limited liability company (the “Investor”), and, solely for purposes of certain provisions of the Investment Agreement, Fredric N. Eshelman, Eshelman Ventures, LLC purchased 931,098 shares of our common stock, (the “Purchased Shares”), for an aggregate purchase price of approximately $5,000,000. We agreed to use commercially reasonable efforts to file and cause to be declared effective prior to the six-month anniversary of the acquisition date a shelf registration statement on Form S-3 with respect to those Purchased Shares that are not otherwise registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”), which registration statement was declared effective on July 13, 2020. On December 31, 2020, we entered into a consulting agreement (the “Consulting Agreement”) with Mr. Tabibiazar pursuant to which he has agreed to provide consulting services to us from time to time. The Consulting Agreement has a one-year term and automatically renews for successive one-year periods unless sooner terminated (the “Term”). The Consulting Agreement may be terminated by either party at any time without cause upon fifteen (15) days’ written notice. As compensation, we agreed to amend the terms of Mr. Tabibiazar’s option grants issued under our equity compensation plan(s) to extend the exercisability date of each option until the earlier of (1) one year following the termination by either Mr. Tabibiazar or us of the Consulting Agreement and (2) the latest date on which the options expire as set forth in the applicable award agreements. In addition, Mr. Tabibiazar has agreed not to (A) offer for sale, sell, pledge or otherwise transfer or dispose of any our securities, or securities convertible into or exercisable or exchangeable for shares of our common stock, (B) to enter into any swap or other derivate transaction that transfers any of the economic benefits or risks of ownership of shares of our common stock or (C) to publicly disclose his intention to do any of the foregoing until April 5, 2021. On February 12, 2021, we entered into the Purchase Agreement, with Eshelman Ventures relating to the issuance and sale of 2,875,000 shares of the Company’s common stock at a price per share of $7.29. The Offering closed on February 18, 2021 and we received aggregate gross proceeds from the Offering of approximately $21.0 million. In January 2022, we entered into and closed an investment agreement with Eshelman Ventures relating to the issuance of a pre-funded warrant to purchase up to 4,545,455 shares of the Company’s common stock, par value $0.0001 per share, at a price of $2.20 per share, which was the consolidated closing bid price of our common stock on the Nasdaq on December 31, 2021, for an aggregate purchase price of $10 million. In March 2022, we entered into a securities purchase agreement with Eshelman Ventures pursuant to which we issued to Eshelman Ventures, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (i) 860,216 shares of our common stock, $0.0001 par value per share, and (ii) five-year warrants to purchase up to 860,216 additional shares of our common stock. The combined purchase price of each share of common stock and accompanying warrant was $2.325 per share. The exercise price of the accompanying warrants is $2.20, which was the consolidated closing bid price of our common stock on the Nasdaq on December 31, 2021. The aggregate proceeds from this securities purchase agreement with Eshelman Ventures was $2 million. Since January 1, 2020, there have been no transactions other than the transactions described above, the compensation arrangements which are described under “Executive Compensation” and “Director Compensation” and the entry into our standard form of indemnification agreements described below with directors and executive officers, and there are no proposed transactions, in which the amount involved exceeds $120,000 to which we or any of any of our subsidiaries was (or is to be) a party and in which any director, director nominee, executive officer, holder of more than 5% of our capital stock, or any immediate family member of or person sharing the household with any of these individuals, had (or will have) a direct or indirect material interest. Indemnification Agreements Our amended and restated certificate of incorporation contains provisions limiting the liability of directors and our amended and restated bylaws provide that we will indemnify each of our directors to the fullest extent permitted under Delaware law. Our amended and restated certificate of incorporation and amended and restated bylaws also provide the board of directors with discretion to indemnify our officers and employees when determined appropriate by the board. In addition, we have entered and expect to continue to enter into agreements to indemnify our directors and executive officers. Independence of the Board of Directors The board of directors undertook a review of the independence of the members of the board of directors and considered whether any director has a material relationship with our company that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from and provided by each director concerning their background, employment and affiliations, including family relationships, the board of directors has determined that all of our current directors, except Dr. McIntyre, due to her position as Chief Executive Officer of our company, is “independent” as that term is defined under the rules of Nasdaq. As a result, Dr. Eshelman, Dr. Giaccia, Mr. Rogers, and Mr. Zhang are deemed to be “independent” as that term is defined under the rules of Nasdaq. See the section of this Annual Report on Form 10-K entitled “Item 10. Directors, Executive Officers and Corporate Governance— Independence of the Board of Directors.” Item14. Principal Accounting Fees and Services. PRINCIPAL ACCOUNTANT FEES AND SERVICES The following table sets forth the aggregate fees incurred by us for audit and other services rendered by BDO USA, LLP ("BDO") during the year ended December 31, 2021 and December 31, 2020: | | Fiscal Year Ended | | | | 2021 | | | 2020 | | | | (in thousands) | | Audit Fees(1) | | $ | 301 | | | $ | 247 | | Audit-Related Fees(2) | | | — | | | | — | | Tax Fees(3) | | | 44 | | | | 50 | | All Other Fees(4) | | | — | | | | — | | Total Fees | | $ | 345 | | | $ | 297 | |
(1) | Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements, review of the independenceinterim consolidated financial statements, the issuance of consent and comfort letters in connection with registration statement filings with the members of the board of directorsSEC and considered whether any director has a material relationship with our companyall services that could compromise his or her ability to exercise independent judgment in carrying out his or her responsibilities. Based upon information requested from andare normally provided by each director concerning their background, employment and affiliations, including family relationships, the board of directors has determined that all of our current directors, except Mr. Shepard, due to his position as President and Chief Executive Officer of our company, is “independent” as that term is defined under the rules of Nasdaq. As a result, Dr. Akkaraju, Dr. Giaccia, Mr. Hoffman, Dr. Tabibiazar, and Mr. Zhang are deemed to be “independent” as that term is defined under the rules of Nasdaq. See the section of this Annual Report on Form 10-K entitled “Item 10. Directors, Executive Officers and Corporate Governance— Independence of the Board of Directors.” Item 14. Principal Accounting Fees and Services.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
On November 29, 2018, we dismissed PwC as our independent registered public accounting firm and we retained BDO USA, LLP (“BDO USA”) as our new independent registered public accounting firm responsible for auditing our financial statements. The following table sets forth the aggregate fees incurred by us for audit and other services rendered by BDO USA during the year ended December 31, 2019 and November 30, 2018 until December 31, 2018:
| | Fiscal Year Ended | | | | 2019 | | | 2018 | | | | (in thousands) | | Audit Fees(1) | | $ | 254 | | | $ | 254 | | Audit-Related Fees(2) | | — | | | — | | Tax Fees(3) | | 54 | | | — | | All Other Fees(4) | | — | | | — | | Total Fees | | $ | 308 | | | $ | 254 | |
(1)
| Audit fees consist of fees billed for professional services rendered for the audit of our consolidated annual financial statements, review of the interim consolidated financial statements, the issuance of consent and comfort letters in connection with registration statement filings with the SEC and all services that are normally provided by the accounting firm in connection with statutory and regulatory filings or engagements.
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95
(3) | Tax fees include fees billed in the fiscal periods shown for professional services for tax compliance. |
All fees described above were pre-approved by the Audit Committee. Pre-Approval Policies and Procedures
The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting.
The Audit Committee has determined that the rendering of non-audit services by BDO USA in 2019 and 2018 is compatible with maintaining the principal accountant’s independence.
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PART IV
Item 15. Exhibits, Financial Statement Schedule.
(1)
| Consolidated Financial Statements:
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See Index to Consolidated Financial Statements at page F-1.
(2)
| Financial Statement Schedule:
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All schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto.
The exhibits listed in the accompanying index to exhibits are filed as part of, or incorporated by reference into, the 2019 Annual Report on Form 10-K.
ITEM 16. FORM 10-K SUMMARY
Not applicable.
97
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
Aravive, Inc.
Houston, Texas
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Aravive, Inc. (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the two years in the period ended December 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Change in Accounting Principle
As discussed in Notes 2 and 5 to the consolidated financial statements, the Company changed its method of accounting for leases in the year ended December 31, 2019 upon adoption of Accounting Standards Codification (ASC) Topic 842, Leases, using the modified retrospective method.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ BDO USA, LLP
We have served as the Company's auditor since 2018.
Raleigh, North Carolina
March 27, 2020
F-2
ARAVIVE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | December 31, | | | | 2019 | | | 2018 | | Assets | | | | | | | | | Current assets | | | | | | | | | Cash and cash equivalents | | $ | 65,134 | | | $ | 56,992 | | Prepaid expenses and other current assets | | | 3,079 | | | | 1,038 | | Total current assets | | | 68,213 | | | | 58,030 | | Restricted cash | | | 2,423 | | | | 2,396 | | Property and equipment, net | | | 1,808 | | | | 32 | | Operating lease right-of-use assets | | | 8,697 | | | | — | | Build-to-suit lease asset, net | | | — | | | | 8,651 | | Intangible asset, net | | | 219 | | | | 341 | | Other assets | | | 761 | | | | 20 | | Total assets | | $ | 82,121 | | | $ | 69,470 | | Liabilities and stockholders' equity | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 1,078 | | | $ | 426 | | Accrued liabilities | | | 1,497 | | | | 1,365 | | Operating lease obligation, current portion | | | 2,393 | | | | — | | Deferred revenue | | | — | | | | 146 | | Total current liabilities | | | 4,968 | | | | 1,937 | | Contingent payable | | | 264 | | | | 264 | | Operating lease obligation | | | 7,840 | | | | — | | Build-to-suit lease obligation | | | — | | | | 7,324 | | Total liabilities | | | 13,072 | | | | 9,525 | | Commitments and contingencies | | | | | | | | | Stockholders' equity | | | | | | | | | Preferred stock, $0.0001 par value, 5,000,000 shares authorized at December 31, 2019 and December 31, 2018; zero shares issued and outstanding at December 31, 2019 and December 31, 2018 | | | — | | | | — | | Common stock, $0.0001 par value, 100,000,000 shares authorized at December 31, 2019 and December 31, 2018; 15,001,795 and 11,266,151 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively | | | 2 | | | | 1 | | Additional paid-in capital | | | 539,158 | | | | 510,509 | | Accumulated deficit | | | (470,111 | ) | | | (450,565 | ) | Total stockholders' equity | | | 69,049 | | | | 59,945 | | Total liabilities and stockholders’ equity | | $ | 82,121 | | | $ | 69,470 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-3
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
| | Year Ended December 31, | | | | 2019 | | | 2018 | | Revenue | | | | | | | | | Grant revenue | | $ | 4,753 | | | $ | 1,371 | | Total revenue | | | 4,753 | | | | 1,371 | | Operating expenses | | | | | | | | | Research and development | | | 12,836 | | | | 11,075 | | Write-off of acquired in-process research and development | | | — | | | | 38,313 | | General and administrative | | | 13,691 | | | | 27,395 | | Total operating expenses | | | 26,527 | | | | 76,783 | | Loss from operations | | | (21,774 | ) | | | (75,412 | ) | Interest income | | | 1,022 | | | | 989 | | Interest expense | | | — | | | | (2,429 | ) | Other income (expense), net | | | 2,534 | | | | 519 | | Net loss | | $ | (18,218 | ) | | $ | (76,333 | ) | Net loss per share- basic and diluted | | $ | (1.57 | ) | | $ | (10.64 | ) | Weighted-average common shares used to compute net loss per share- basic and diluted | | | 11,589 | | | | 7,171 | |
The accompanying notes are an integral part of these consolidated financial statement
F-4
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share and per share amounts)
| | | | | | | | | | Additional | | | | | | | Total | | | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | Balances at January 1, 2018 | | | 5,989,688 | | | $ | 1 | | | $ | 456,987 | | | $ | (374,232 | ) | | $ | 82,756 | | Issuance of common stock upon exercise of options | | | 3,643 | | | | — | | | | 35 | | | | — | | | | 35 | | Issuance of common stock under employee benefit plans | | | 130,905 | | | | — | | | | 17 | | | | — | | | | 17 | | Stock-based compensation | | | — | | | | — | | | | 16,139 | | | | — | | | | 16,139 | | Issuance of common stock for the merger transaction | | | 5,141,915 | | | | — | | | | 37,331 | | | | — | | | | 37,331 | | Net loss | | | — | | | | — | | | | — | | | | (76,333 | ) | | | (76,333 | ) | Balances at December 31, 2018 | | | 11,266,151 | | | | 1 | | | | 510,509 | | | | (450,565 | ) | | | 59,945 | | Issuance of common stock in public offering, net of issuance costs of $351 | | | 3,633,334 | | | | 1 | | | | 25,127 | | | | — | | | | 25,128 | | Cumulative-effect adjustment to equity due to adoption of ASU 2016-02 | | | — | | | | — | | | | — | | | | (1,328 | ) | | | (1,328 | ) | Issuance of common stock upon exercise of options | | | 39,686 | | | | — | | | | 95 | | | | — | | | | 95 | | Issuance of common stock under employee benefit plans | | | 62,624 | | | | — | | | | 28 | | | | — | | | | 28 | | Stock-based compensation | | | — | | | | — | | | | 3,399 | | | | — | | | | 3,399 | | Net loss | | | — | | | | — | | | | — | | | | (18,218 | ) | | | (18,218 | ) | Balances at December 31, 2019 | | | 15,001,795 | | | $ | 2 | | | $ | 539,158 | | | $ | (470,111 | ) | | $ | 69,049 | |
The accompanying notes are an integral part of these consolidated financial statements.
F-5
ARAVIVE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | Year Ended December 31, | | | | 2019 | | | 2018 | | Cash flows from operating activities | | | | | | | | | Net loss | | $ | (18,218 | ) | | $ | (76,333 | ) | Adjustments to reconcile net loss to net cash used in operating activities | | | | | | | | | Depreciation and amortization | | | 498 | | | | 1,060 | | Write-off of acquired in-process research & development | | | — | | | | 38,313 | | Stock-based compensation expense | | | 3,399 | | | | 16,139 | | Changes in assets and liabilities, net of acquisition | | | | | | | | | Prepaid expenses and other assets | | | (2,782 | ) | | | (224 | ) | Accounts payable | | | 652 | | | | (1,744 | ) | Deferred revenue | | | (146 | ) | | | (1,371 | ) | Accrued and other liabilities | | | (484 | ) | | | (5,097 | ) | Net cash used in operating activities | | | (17,081 | ) | | | (29,257 | ) | Cash flows from investing activities | | | | | | | | | Purchase of property and equipment | | | — | | | | (33 | ) | Cash paid to acquire in-process research & development | | | — | | | | (2,076 | ) | Cash acquired in the merger transaction | | | — | | | | 5,277 | | Net cash provided by investing activities | | | — | | | | 3,168 | | Cash flows from financing activities | | | | | | | | | Inducement on build-to-suit lease obligation | | | — | | | | 1,896 | | Proceeds from issuance of common stock, net of issuance costs | | | 25,127 | | | | — | | Proceeds from issuance of common stock in connection with employee benefit plans and exercise of stock options | | | 123 | | | | 52 | | Net cash provided by financing activities | | | 25,250 | | | | 1,948 | | Net increase (decrease) in cash, cash equivalents and restricted cash | | | 8,169 | | | | (24,141 | ) | Cash, cash equivalents and restricted cash at beginning of period | | | 59,388 | | | | 83,529 | | Cash, cash equivalents and restricted cash at end of period | | $ | 67,557 | | | $ | 59,388 | | Supplemental disclosure of noncash items | | | | | | | | | Issuance of common stock for the merger transaction | | $ | — | | | $ | 37,331 | | Property and equipment recorded upon adoption of ASU 2016-02 | | $ | 2,151 | | | $ | — | |
The accompanying notes are an integral part of these consolidated financial statements.
F-6
ARAVIVE, INC.
NOTES
Pre-Approval Policies and Procedures The Audit Committee has adopted a policy and procedures for the pre-approval of audit and non-audit services rendered by our independent registered public accounting firm. The policy generally pre-approves specified services in the defined categories of audit services, audit-related services and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor or on an individual, explicit, case-by-case basis before the independent auditor is engaged to provide each service. The pre-approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to the full Audit Committee at its next scheduled meeting. The Audit Committee has determined that the rendering of non-audit services by BDO in 2021 and 2020 is compatible with maintaining the principal accountant’s independence. PART IV Item 15. Exhibits, Financial Statement Schedule. Consolidated Financial Statements: See Index to Consolidated Financial Statements at page F-1. Financial Statement Schedule: All schedules are omitted because they are not required or the required information is included in the consolidated financial statements or notes thereto. Exhibits: The exhibits listed in the accompanying index to exhibits are filed as part of, or incorporated by reference into, the 2021 Annual Report on Form 10-K. ITEM 16.FORM 10-K SUMMARY Not applicable. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Shareholders and Board of Directors Aravive, Inc. Houston, Texas Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of Aravive, Inc. (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, stockholders’ equity, and cash flows for 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, 2021 and 2020, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Going Concern Uncertainty The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has suffered recurring losses from operations and has not generated significant revenue or positive cash flows from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. Revenue Recognition – Collaboration and License Agreement As described in Note 5 to the Company’s consolidated financial statements, on November 6, 2020 the Company entered into a Collaboration and License Agreement (the “Agreement”) which resulted in recognition of revenue of $4.2 million related to the license to intellectual property and $3.2 million related to research and development services, which also includes amounts recognized associated with providing clinical supplies, for the year ended December 31, 2021. The Company recognizes revenue related to the research and development services based on the pattern in which the Company performs the services pursuant to the current development plan, which is generally determined to be the amount of incurred costs as a percentage of total expected costs associated with the service portion of the Agreement. We have identified management’s estimate of the total expected costs associated with the service portion of the Agreement as a critical audit matter. Estimation of the total expected costs requires management to make judgments with respect to future development costs, including costs related to performing the product candidate’s clinical trial. Auditing management’s estimates with respect to the total expected costs required increased auditor judgment due to the inherent uncertainty involved in the clinical development process. The primary procedures we performed to address this critical audit matter included: | 1. Formation and Business•
| Assessing management’s estimate of the Company Aravive, Inc. (“Aravive” ortotal expected costs through a review of third-party evidence supporting estimated costs of the “Company”) was incorporatedclinical trial based on December 10, 2008 ina certain number of patients and through discussions with the State of Delaware. Aravive is a clinical-stage biopharmaceutical company developing treatments designed to haltCompany’s clinical development professionals knowledgeable about the current progression of life-threatening diseases, including cancer and fibrosis. Prior to the merger with Aravive Biologics, Inc. (the “Merger”), Aravive (then known as Versartis, Inc.) was an endocrine-focused biopharmaceutical company that was developing a long-acting recombinant human growth hormone for the treatment of growth hormone deficiency. The “Company” refers to Aravive as a combined company following the completion of the Merger with Aravive Biologics, Inc. (“Private Aravive”). The Merger became effective on October 12, 2018. On October 15, 2018, Versartis, Inc. changed its name to Aravive, Inc.
The Company’s lead product candidate, AVB-500 (previously referred to as AVB-S6-500), is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway by 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 GAS6-AXL signaling pathway also plays a significant role in fibrogenesis.
The Company’s current development program benefits from the availability of a proprietary serum-based biomarker that we expect 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 our 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 healthy volunteers. 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 and are currently enrolling the expansion cohort in the Phase 1b. In August 2018, the U.S. Food and Drug Administration (FDA) granted fast track designation to AVB-500 for platinum-resistant recurrent ovarian cancer. In January 2020, the Company announced that the FDA has cleared our Investigational New Drug (IND) application for investigation of AVB-500, in the treatment of our second oncology indication, clear cell renal cell carcinoma (ccRCC).
As the Company advances its clinical programs, the Company is in close contact with its 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 clear cell renal cell carcinoma (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 and the initiation of the 20 mg/kg dosing cohort. While this may delay 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 will pause new enrollment in its IgA nephropathy (IgAN) trial until the risk of unnecessary exposure of patients to COVID-19 is decreased.
In July 2016, Private Aravive was approved for a $20 million Product Development Award from the Cancer Prevention and Research Institute of Texas (“CPRIT Grant”). The CPRIT Grant was expected to allow Private Aravive to develop the product candidate referenced abovecandidates through clinical trials. The CPRIT Grant was effective asdevelopment.
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| • | Reviewing meeting minutes and development updates from board 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 has 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.
F-7
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.
In connection with the completion of the Merger, on October 15, 2018, the amended and restated certificate of incorporation of the Company was amended to effect, at 12:01 a.m. Eastern Time on October 16, 2018, a reverse split of Company Common Stock at a ratio of 1-for-6 (the “Amended Certificate”).
All share and per share amounts in the consolidated financial statements have been retroactively adjusted for all periods presented to give effect to the reverse split, including reclassifying an amount equal to the reduction in par value to additional paid-in capital.
The Reverse Split affected all issued and outstanding shares of Common Stock,director meetings as well as Common Stock underlying stock optionscommunications with manufacturing partners and restricted stock units outstanding immediately priorclinical research organizations for consistency with management’s estimate.
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| • | Examining any information contradictory to the effectiveness of the Reverse Split.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 financial statements are consolidated for the years ended December 31, 2019 and 2018 and 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 of the Company's subsidiaries and consolidated operations.
Liquidity and Capital Resources
Since inception, the Company has incurred net losses and negative cash flows from operations. At December 31, 2019, the Company had an accumulated deficit of $470.1 million and working capital of $63.3 million. Since inception, the Company has incurred net losses and negative cash flows from operations. The Company expects to continue to incur losses from costs related to the development of AVB-500 and related administrative activities for the foreseeable future. As of December 31, 2019, the Company had a cash and cash equivalents balance of $65.1 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 our clinical development program to later stages of development and commercialize our clinical product candidate. Although management has been successful in raising capital in the past, there can be no assurance that the Company will be successful or that any needed financing will be available in the future at terms acceptable to the Company.
F-8
Correction of Quarterly Information
During the fourth quarter ended December 31, 2018, the Company determined that the amount related to the inducement on build-to-suit lease obligation as reflected within one line in the investing activities section of the unaudited consolidated statement of cash flows for the three-, six-, and nine-month periods ended March 31, 2018, June 30, 2018, and September 30, 2018, respectively, filed on Form 10-Q, should have been classified as cash flows provided from financing activities. There is no impact to the consolidated statements of operations and comprehensive loss or consolidated balance sheets for any of these periods. The Company evaluated the effect of this misclassification and concluded it was not material to any of its previously issued unaudited consolidated financial statements. Upon revision, cash flows from investing activities for the three-, six-, and nine-month periods ended March 31, 2018, June 30, 2018, and September 30, 2018, decreased by $1.5 million, $1.9 million, and $1.9 million, respectively and cash flows from financing activities for the respective periods increased by $1.5 million, $1.9 million, and $1.9 million, respectively. This adjustment had no impact to the Company’s financial position, results of operations or cash flows as of and for the year ended December 31, 2018.
Segments
The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. All long-lived assets are maintained in the United States of America.
Concentration of credit risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. All of the Company’s cash and cash equivalents are held at several financial institutions that management believes are of high credit quality. Such deposits may exceed federally insured limits.
Risk and Uncertainties
The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers.
Products developed by the Company require clearances from the U.S. Food and Drug Administration (“FDA”), the Pharmaceuticals Medicines and Devices Agency (“PMDA”), or other international regulatory agencies prior to commercial sales. There can be no assurance that the products will receive the necessary clearances. If the Company is denied clearance, clearance is delayed or the Company is unable to maintain clearance, it could have a material adverse impact on the Company.
The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to launch and commercialize any product candidates for which it receives regulatory approval.
Cash and cash equivalents, Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2019 and 2018 the Company’s cash and cash equivalents were held in multiple institutions within the United States and included deposits in money market funds which were unrestricted as to withdrawal or use. Restricted cash consists of a letter of credit to secure the Company’s obligations under the right-of-use lease.
Property and equipment, Net
Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in operations in the period realized.
F-9
Leases
The Company adopted ASC 842 on January 1, 2019. For the periods prior to January 1, 2019, the Company’s leases were accounted for under ASC 840. The Company leases all of its office space in conducting its business. At inception, the Company determines whether an agreement represents a lease and at commencement the Company evaluates each lease agreementmanagement’s estimate to determine whether the lease is an operating or financing lease. As described below under "Recent Accounting Pronouncements”, the Company adopted the Financial Accounting Standards Board Accounting Standards Update, or ASU, "Leases," or ASU 2016-02. The Company elected to adopt the standard on January 1, 2019 using the alternative transition method providedcompleteness of considerations made by ASU 2018-11 whereby the Company recorded right-of-use (“ROU”) assets and lease liabilities for its existing leases as of January 1, 2019, as well as a cumulative-effect adjustment to accumulated deficit of initially applying the new standard as of January 1, 2019.
The new standard provides a number of optional practical expedients in transition. The Company has elected the practical expedients to not reassess its prior conclusions about lease identification under the new standard, to not reassess lease classification, and to not reassess initial direct costs. The Company has elected the practical expedient allowing the use-of-hindsight which doesn’t require the Company to reassess the lease term of its leases based on all facts and circumstances through the effective date.
The new guidance also provides practical expedients for ongoing lease accounting. The Company has elected the recognition exemption for short-term lease for all leases that qualify. Under this exemption, the Company will not recognize ROU assets or lease liabilities on the consolidated balance sheet for those leases that qualify as a short-term lease, which includes not recognizing ROU assets or lease liabilities for existing short-term leases of those assets in transition. The Company has also elected the practical expedient to not separate lease and non-lease components for all equipment and real-estate leases.
With the adoption of ASU 2016-02, the Company recorded an operating lease right-of-use asset and an operating lease obligation on the consolidated balance sheet. ROU assets represent the Company’s ROU of the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. ROU obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term and ROU assets are calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the adoption date in determining the present value of lease payments. The lease term may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. 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.
The Company accounts for the sublease with EVA as an operating lease. The Company reviews the right-of-use asset recorded associated with the sublease for impairment whenever events or changes in circumstances indicate that the carrying amount of the right-of-use asset may not be recoverable. 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 right-of-use asset may not be recoverable. There have been no such impairments of right-of-use assets during the year ended December 31, 2019.
Prior to the Company’s adoption of ASU 2016-02, when the Company’s lease agreements contained renewal options, tenant improvement allowances, rent holidays and rent escalation clauses, the Company recorded a deferred rent asset or liability equal to the difference between the rent expense and the future minimum lease payments due. The lease expense related to operating leases was recognized on a straight-line basis in the consolidated statements of operations over the term of each lease.
F-10
Impairment of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by the comparison of the carrying amount to the future net cash flows which the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value (i.e. determined through estimating projected discounted future net cash flows or other acceptable methods of determining fair value) arising from the asset. There have been no such impairments of long-lived assets during the years ended December 31, 2019 and 2018.
Fair Value of Financial Instruments
The carrying value of the Company’s cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items.
Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.
The fair value hierarchy defines a three-levelmanagement.
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/s/ BDO USA, LLP We have served as the Company's auditor since 2018. Raleigh, North Carolina March 31, 2022 ARAVIVE, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) | | December 31, | | | December 31, | | | | 2021 | | | 2020 | | | | | | | | | | Assets | | | | | | | | | Current Assets | | | | | | | | | Cash and cash equivalents | | $ | 59,424 | | | $ | 60,541 | | Prepaid expenses and other current assets | | | 3,321 | | | | 1,148 | | Total current assets | | | 62,745 | | | | 61,689 | | Restricted cash | | | 2,431 | | | | 2,430 | | Property and equipment, net | | | 400 | | | | 526 | | Operating lease right-of-use assets | | | 2,207 | | | | 2,958 | | Intangible asset, net | | | 0 | | | | 97 | | Other assets | | | 4 | | | | 10 | | Total assets | | $ | 67,787 | | | $ | 67,710 | | Liabilities and stockholders' equity | | | | | | | | | Current liabilities | | | | | | | | | Accounts payable | | $ | 2,657 | | | $ | 2,500 | | Accrued liabilities | | | 8,416 | | | | 2,323 | | Operating lease obligation, current portion | | | 2,297 | | | | 2,086 | | Current portion of deferred revenue | | | 4,571 | | | | 2,552 | | Total current liabilities | | | 17,941 | | | | 9,461 | | Deferred revenue, net of current portion | | | 3,548 | | | | 3,763 | | Operating lease obligation, net of current portion | | | 4,076 | | | | 6,431 | | Total liabilities | | | 25,565 | | | | 19,655 | | Commitments and contingencies (Note 7) | | | | | | | | | Stockholders' equity | | | | | | | | | Common stock, $0.0001 par value, 100,000,000 shares authorized at December 31, 2021 and December 31, 2020; 21,039,594 and 16,481,099 shares issued and outstanding at December 31, 2021 and December 31, 2020, respectively | | | 2 | | | | 2 | | Additional paid-in capital | | | 582,025 | | | | 548,707 | | Accumulated deficit | | | (539,805 | ) | | | (500,654 | ) | Total stockholders' equity | | | 42,222 | | | | 48,055 | | Total liabilities and stockholders’ equity | | $ | 67,787 | | | $ | 67,710 | |
The accompanying notes are an integral part of these consolidated financial statements. ARAVIVE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) | | Year Ended | | | | December 31, | | | | 2021 | | | 2020 | | Revenue | | | | | | | | | Collaboration revenue | | $ | 7,442 | | | $ | 5,685 | | Total revenue | | | 7,442 | | | | 5,685 | | Operating expenses | | | | | | | | | Research and development | | | 37,541 | | | | 17,620 | | General and administrative | | | 10,550 | | | | 13,065 | | Loss on impairment of long-lived assets | | | — | | | | 5,784 | | Total operating expenses | | | 48,091 | | | | 36,469 | | Loss from operations | | | (40,649 | ) | | | (30,784 | ) | Interest income | | | 37 | | | | 255 | | Other income (expense), net | | | 1,461 | | | | (14 | ) | Net loss | | $ | (39,151 | ) | | $ | (30,543 | ) | Net loss per share - basic and diluted | | $ | (1.95 | ) | | $ | (1.93 | ) | Weighted-average common shares used to compute basic and diluted net loss per share | | | 20,070 | | | | 15,790 | |
The accompanying notes are an integral part of these consolidated financial statements. ARAVIVE, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (In thousands, except share and per share amounts) | | | | | | | | | | Additional | | | | | | | Total | | | | Common Stock | | | Paid-In | | | Accumulated | | | Stockholders' | | | | Shares | | | Amount | | | Capital | | | Deficit | | | Equity | | Balance at January 1, 2020 | | | 15,001,795 | | | $ | 2 | | | $ | 539,158 | | | $ | (470,111 | ) | | $ | 69,049 | | Issuance of common stock upon exercise of options | | | 114,515 | | | | 0 | | | | 315 | | | | 0 | | | | 315 | | Issuance of common stock under employee benefit plans | | | 56,291 | | | | 0 | | | | 80 | | | | 0 | | | | 80 | | Issuance of common stock in private placement, net of issuance costs of $78 | | | 931,098 | | | | 0 | | | | 4,922 | | | | 0 | | | | 4,922 | | Issuance of common stock, net of issuance costs of $94 | | | 377,400 | | | | 0 | | | | 2,266 | | | | 0 | | | | 2,266 | | Stock-based compensation | | | — | | | | 0 | | | | 1,966 | | | | 0 | | | | 1,966 | | Net loss | | | — | | | | 0 | | | | 0 | | | | (30,543 | ) | | | (30,543 | ) | Balances at December 31, 2020 | | | 16,481,099 | | | | 2 | | | | 548,707 | | | | (500,654 | ) | | | 48,055 | | Issuance of common stock upon exercise of options | | | 219,109 | | | | 0 | | | | 308 | | | | 0 | | | | 308 | | Issuance of common stock under employee benefit plans | | | 31,759 | | | | 0 | | | | 120 | | | | 0 | | | | 120 | | Issuance of common stock in direct offering, net of issuance costs of $98 | | | 2,875,000 | | | | 0 | | | | 20,866 | | | | 0 | | | | 20,866 | | Issuance of common stock in at the market offering, net of issuance costs of $250 | | | 1,432,627 | | | | 0 | | | | 9,767 | | | | 0 | | | | 9,767 | | Stock-based compensation | | | — | | | | 0 | | | | 2,257 | | | | 0 | | | | 2,257 | | Net loss | | | — | | | | 0 | | | | 0 | | | | (39,151 | ) | | | (39,151 | ) | Balances at December 31, 2021 | | | 21,039,594 | | | $ | 2 | | | $ | 582,025 | | | $ | (539,805 | ) | | $ | 42,222 | |
The accompanying notes are an integral part of these consolidated financial statements. ARAVIVE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) | Year Ended | | December 31, | | 2021 | | 2020 | Cash flows from operating activities | | | | Net loss | $ (39,151) | | $ (30,543) | Adjustments to reconcile net loss to net cash used in operating activities | | | | Depreciation and amortization | 974 | | 1,829 | Impairment of long-lived assets | 0 | | 5,784 | Stock-based compensation expense | 2,257 | | 1,966 | Write-off of lease receivable/prepaid commission assets | 0 — | | 1,383 | Changes in assets and liabilities | | | | Prepaid expenses and other assets | (2,167) | | 1,299 | Accounts payable | 157 | | 1,422 | Deferred revenue | 1,804 | | 6,315 | Accrued and other liabilities | 3,949 | | (1,624) | Net cash used in operating activities | (32,177) | | (12,169) | Cash flows from financing activities | | | | Proceeds from issuance of common stock in connection with employee benefit plans | 120 | | 80 | Proceeds from issuance of common stock in connection with exercise of options | 308 | | 315 | Proceeds from issuance of common stock in direct offering, net of issuance costs | 20,866 | | 0 — | Proceeds from issuance of common stock in private placement, net of issuance costs of $78 | 0 — | | 4,922 | Proceeds from issuance of common stock in at the market offering | 9,767 | | 2,266 | Net cash provided by financing activities | 31,061 | | 7,583 | Net change in cash, cash equivalents, and restricted cash | (1,116) | | (4,586) | Cash, cash equivalents, and restricted cash at beginning of period | 62,971 | | 67,557 | Cash, cash equivalents, and restricted cash at end of period | $ 61,855 | | $ 62,971 | Supplemental disclosure of noncash items | | | | Right-of-use asset acquired through operating lease | 0 — | | 470 | | | | |
The accompanying notes are an integral part of these consolidated financial statements. ARAVIVE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Formation and Business of the Company Aravive, Inc. (“Aravive” or the “Company”) was incorporated on December 10, 2008 in the State of Delaware. Aravive Biologics, Inc. (“Aravive Biologics”) our wholly owned subsidiary was incorporated in 2007. Aravive is a clinical-stage biopharmaceutical company developing treatments designed to halt the progression of life-threatening diseases, including cancer and fibrosis. The Company’s lead product candidate, batiraxcept (formerly AVB-500), is an ultrahigh-affinity, decoy protein that targets the GAS6-AXL signaling pathway. By capturing serum GAS6, batiraxcept 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 accelerated batiraxcept drug development by allowing the Company to select a pharmacologically active dose and may potentially identify the cancer patients that have the best chance of responding to batiraxcept. In July 2016, Aravive Biologics 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 expected to allow Aravive Biologics to develop the product candidate referenced above through clinical trials. The CPRIT Grant was effective as of June 1, 2016 and terminated on November 30, 2019. The Company has received all $20 million of the grant proceeds and have incurred all of the grant award proceeds by the termination date. Aravive Biologics’ royalty and other obligations, including its obligation to repay the disbursed grant proceeds under certain circumstances, survive the termination of the agreement. The CPRIT Grant was subject to customary CPRIT funding conditions including a matching funds requirement where Aravive Biologics matched 50% of funding from the CPRIT Grant. Consequently, Aravive Biologics was required to raise $10.0 million in matching funds over the three-year project. Aravive Biologics raised all its required $10.0 million in matching funds. Aravive Biologics’ award from CPRIT requires it to pay CPRIT a portion of its revenues from sales of certain products, or received from its licensees or sublicensees, at tiered percentages of revenue in the low- to mid-single digits until the aggregate amount of such payments equals 400% of the grant award proceeds, and thereafter at a rate of less than one percent for as long as Aravive Biologics maintains government exclusivity. In addition, the grant contract also contains a provision that provides for repayment to CPRIT of the full amount of the grant proceeds under certain specified circumstances involving relocation of Aravive Biologics’ principal place of business outside Texas. In the Company’s completed Phase 1 clinical trial in healthy volunteers with its lead product candidate, batiraxcept, the Company demonstrated proof of mechanism for batiraxcept in neutralizing GAS6. Importantly, batiraxcept had a favorable safety profile preclinically and in the first in human trial and Phase 1b clinical trial in cancer patients. In August 2018, the U.S. Food and Drug Administration (“FDA”) designated as a Fast Track development program the investigation of batiraxcept for platinum-resistant recurrent ovarian cancer ("PROC"). In December 2018, the Company initiated a Phase 1b clinical trial of batiraxcept combined with standard of care therapies in patients with platinum resistant ovarian cancer, or PROC, for which it reported results in July 2020. In April 2020, the Company entered into a license and collaboration agreement with WuXi Biologics (Hong Kong) Limited, the objective of which is to identify and develop novel high-affinity bispecific antibodies against CCN2, also known as connective tissue growth factor ("CTGF"), implicated in cancer and fibrosis, and identified from a similar target discovery screen that identified the significance of the AXL/GAS6 pathway in cancer. The goal is to generate a best-in-class therapeutic targeting desmoplasia and tumor growth for initial investigation in the clinic in 2023. In November 2020, the Company entered into a collaboration and license agreement with 3D Medicines Inc. ("3D Medicines") (the “Agreement or the 3D Medicine Agreement”), whereby the Company granted 3D Medicines an exclusive license to develop and commercialize products that contain batiraxcept as the sole drug substance for the diagnosis, treatment or prevention of human oncological diseases, in mainland China, Taiwan, Hong Kong and Macau (the "Territory") for an upfront cash payment of $12 million. During the second quarter of 2021, the Company received a $6 million development milestone from 3D Medicines, for completing our first clinical milestone with 3D Medicines, dosing the first patient in its Phase 3 trial of batiraxcept in PROC.. Based upon this event, the Company received a $6 million cash payment during the second quarter of 2021. In August 2021, the Company received a $3 million development milestone from 3D Medicines based on the Center for Drug Evaluation ("CDE") of the China National Medical Products Administration ("NMPA") approval of the Investigational New Drug application ("IND") submitted by 3D Medicines to participate in the Company’s international batiraxcept Phase 3 PROC clinical trial. As the Company advances its clinical programs, the Company is in close contact with its clinical research organizations ("CROs") and clinical sites and is continually assessing the impact of COVID-19 on its planned trials and current timelines and costs. The Company has experienced delays in patient enrollment due to the COVID-19 pandemic. If the COVID-19 pandemic continues and persists for an extended period of time or increases in severity, the Company could experience significant disruptions to its clinical development timelines and, if the Company experiences delays in patient enrollment and deems it necessary or advisable to improve patient recruitment by, among other things, opening additional clinical sites, the Company could incur increased clinical program expenses. Any such disruptions or delays would, and any such increased clinical program expenses could, adversely affect the Company’s business, financial condition, results of operations and growth prospects.
As consideration for the rights granted as part of a license agreement with Stanford University, Aravive Biologics is obligated to pay yearly license fees and milestone payments, and a royalty based on net sales of products covered by the patent-related rights. More specifically, Aravive Biologics is obligated to pay Stanford University (i) annual license payments (ii) milestone payments of up to an aggregate of $1,000,000 upon achievement of clinical and regulatory milestones, and (iii) royalties equal to a percentage (in the low single digits) of net sales of licensed products; provided that the annual license payments made will offset (and be credited against) any royalties due in such license year. In the event of a sublicense to a third party of any rights based on the patents that are solely owned by Stanford University, Aravive Biologics is obligated to pay royalties to Stanford University equal to a percentage of what Aravive Biologics would have been required to pay to Stanford University had it sold the products under sublicense itself. In addition, in such event it is required to pay to Stanford University a percent of sublicensing income. In the event of a termination, Aravive Biologics will be obligated to pay all amounts that accrued prior to such termination. 2. Summary of Significant Accounting Policies Basis of Presentation and Use of Estimates The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the accompanying consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accompanying financial statements are consolidated for the years ended December 31, 2021 and 2020 and includes the accounts of Aravive, Inc. and its wholly-owned subsidiary Aravive Biologics. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for the Company's subsidiary and consolidated operations. Going Concern Uncertainty Since inception, the Company has incurred net losses and negative cash flows from operations. At December 31, 2021, the Company had an accumulated deficit of $539.8 million and working capital of $44.8 million. Since inception, the Company has incurred net losses and negative cash flows from operations. The Company expects to continue to incur losses from costs related to the development of batiraxcept and related administrative activities for the foreseeable future. These factors raised substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability of the recorded assets or the classification of liabilities that may be necessary should the Company be unable to continue as a going concern. As of December 31, 2021, the Company had a cash and cash equivalents balance of $59.4 million consisting of cash and investments in highly liquid U.S. money market funds. The Company intends to seek additional capital through equity and/or debt financings, collaborative or other funding arrangements with partners or through other sources of financing to fulfill its operating and capital requirement for the next 12 months to advance its clinical development program to later stages of development and potentially commercialize its clinical product candidate batiraxcept. 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. If the Company is unable to raise additional funds when needed, the Company may be required to delay, reduce, or terminate some or all of its development programs and clinical trials. The Companymayalso be required to sell or license to others technologies or clinical product candidates or programs that it would prefer to develop and commercialize itself. Segments The Company operates in one segment. Management uses one measurement of profitability and does not segregate its business for internal reporting. All long-lived assets are maintained in the United States of America.
Concentration of Credit Risk Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash and cash equivalents. All of the Company’s cash and cash equivalents are held at several financial institutions that management believes are of high credit quality. Such deposits may exceed federally insured limits. Risk and Uncertainties The Company’s future results of operations involve a number of risks and uncertainties. Factors that could affect the Company’s future operating results and cause actual results to vary materially from expectations include, but are not limited to, uncertainty of results of clinical trials and reaching milestones, uncertainty of regulatory approval of the Company’s potential drug candidates, uncertainty of market acceptance of the Company’s products, competition from substitute products and larger companies, securing and protecting proprietary technology, strategic relationships and dependence on key individuals and sole source suppliers. Products developed by the Company require clearances from the U.S. Food and Drug Administration (“FDA”), the Pharmaceuticals Medicines and Devices Agency (“PMDA”), or other international regulatory agencies prior to commercial sales. There can be no assurance that the products will receive the necessary clearances. If the Company is denied clearance, clearance is delayed or the Company is unable to maintain clearance, it could have a material adverse impact on the Company. The Company expects to incur substantial operating losses for the next several years and will need to obtain additional financing in order to launch and commercialize any product candidates for which it receives regulatory approval. The Company relies on third-party manufacturers to purchase from their third-party vendors the materials necessary to produce product candidates and manufacture product candidates for clinical studies. The Company also depends on third-party suppliers for key materials and services used in research and development, as well as manufacturing processes, and are subject to certain risks related to the loss of these third-party suppliers or their inability to supply adequate materials and services. The Company does not control the manufacturing processes of the contract development and manufacturing organizations, or CDMOs, with whom it contracts and is dependent on these third parties for the production of its therapeutic candidates in accordance with relevant regulations (such as current Good Manufacturing Practices, or cGMP, which includes, among other things, quality control, quality assurance and the maintenance of records and documentation. In addition, the Company is dependent upon third-party suppliers for the materials needed to construct its cGMP facility as well as the equipment that will be needed to run the facility. Cash and Cash Equivalents, Restricted Cash The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At December 31, 2021 and 2020 the Company’s cash and cash equivalents were held in multiple institutions within the United States and included deposits in money market funds which were unrestricted as to withdrawal or use. Restricted cash consists of a letter of credit to secure the Company’s obligations under the right-of-use lease. Property and Equipment, Net Property and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the assets, generally between three and five years. Leasehold improvements are amortized on a straight-line basis over the lesser of their useful life or the term of the lease. Maintenance and repairs are charged to expense as incurred, and improvements are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the consolidated balance sheets and any resulting gain or loss is reflected in operations in the period realized. Leases The Company leases all of its office space in conducting its business. At inception, the Company determines whether an agreement represents a lease and at commencement the Company evaluates each lease agreement to determine whether the lease is an operating or financing lease. The Company records an operating lease ROU asset and an operating lease obligation on the consolidated balance sheet when entering into a lease. ROU assets represent the Company’s ROU of the underlying asset for the lease term and the lease obligation represents the Company’s commitment to make the lease payments arising from the lease. Lease obligations are recognized at the commencement date based on the present value of remaining lease payments over the lease term and ROU assets are calculated as the lease liability, adjusted by unamortized initial direct costs, unamortized lease incentives received, cumulative deferred or prepaid lease payments, and accumulated impairment losses. As the Company’s leases do not provide an implicit rate, the Company has used an estimated incremental borrowing rate based on the information available at the lease inception date in determining the present value of lease payments. The lease term may include options to extend or terminate the lease and the Company includes renewal options in its calculation of the estimated lease term when it is reasonably certain that the Company will exercise that option. Operating lease expense is recognized on a straight-line basis over the lease term, subject to any changes in the lease or expectations regarding the terms. Variable lease costs such as common area costs and property taxes are expensed as incurred. Variable lease costs and short-term lease payments not included in the lease liability are classified within operating activities in the consolidated statements of cash flows. For all lease agreements, the Company has combined lease and nonlease components. Leases with an initial term of 12 months or less are not recorded on the consolidated balance sheet. These expenses are recognized within operating expenses in the consolidated statements of operations.
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 during the year ended December 31, 2021. The Company accounted for the sublease with EVA Automation, Inc. (“EVA”) as an operating lease and reviewed 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 at the time, that EVA would not be in a position to pay future sublease rental payments and intended 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 Facility may not be recoverable. Accordingly, the Company performed a recoverability test, using an undiscounted cash flow analysis as of March 31, 2020. Based on the undiscounted cash flow analysis, the Company determined that the ROU and leasehold improvement assets had net carrying values that exceeded their estimated undiscounted future cash flows. The Company then measured the impairment of the asset group using a discounted cash flow analysis of the estimated future sublease payments to be received from an expected sublessee. 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 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 Facility location for subletting. In determining the fair value of the asset group, the Company utilized current real estate market estimated rates, time needed to sublet the building and estimated a discount rate of 9.5%. As a result of the impairment analysis, the Company recognized an impairment charge against its ROU asset and leasehold improvement assets of $2.4 million and $0.5 million, respectively, for the quarter ended September 30, 2020. A total of $5.8 million was reported as an impairment loss on the Company’s long-lived asset balances within the statement of operations for the year ended December 31, 2020. In June 2021, the Company entered into a sublease arrangement with Grail, Inc. ("Subtenant") to occupy all of the approximately 34,464 rentable square feet of office space at the 1020 Marsh Facility. The landlord consent was received and final agreement was signed in July 2021. The term of the sublease commenced on August 1, 2021 and will continue through October 31, 2024. Aggregate base rent due to the Company under the sublease agreement is approximately $7.65 million. Fair Value of Financial Instruments The carrying value of the Company’s cash and cash equivalents, restricted cash, accounts payable and accrued liabilities approximate fair value due to the short-term nature of these items. Fair value is defined as the exchange price that would be received for an asset or an exit price paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy defines a three-level valuation hierarchy for disclosure of fair value measurements as follows: | Level 1 | Unadjusted quoted prices in active markets for identical assets or liabilities; |
| Level 2 | Inputs other than quoted prices included within Level 1 that are observable, unadjusted quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and |
| Level 3 | Unobservable inputs that are supported by little or no market activity for the related assets or liabilities. |
The categorization of a financial instrument within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The Company’s financial instruments consist of Level 1 assets as of December 31, 2021 and 2020. Level 1 securities are comprised of highly liquid money market funds. Preclinical and Clinical Trial Accruals The Company’s clinical trial accruals are based on estimates of patient enrollment and related costs at clinical investigator sites as well as estimates for the services received and efforts expended pursuant to contracts with multiple research institutions and 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 CROs 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 more than likely to be 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.
Net Loss per Share of Common Stock Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and restricted stock units are considered to be potentially dilutive securities. Because the Company has reported a net loss for the years ended December 31, 2021 and 2020, diluted net loss per common share is the same as basic net loss per common share for those periods. Collaborative Arrangements The Company records the elements of its collaboration agreements that represent joint operating activities in accordance with ASC Topic 808,Collaborative Arrangements (ASC 808). Accordingly, the elements of the collaboration agreements that represent activities in which both parties are active participants and to which both parties are exposed to the significant risks and rewards that are dependent on the commercial success of the activities are recorded as collaborative arrangements. The Company considers the guidance in ASC 606-10-15, Revenue from Contracts with Customers – Scope and Scope Exceptions, in determining the appropriate treatment for the transactions between the Company and its collaborative partner and the transactions between the Company and third parties. Generally, the classification of transactions under the collaborative arrangements is determined based on the nature and contractual terms of the arrangement along with the nature of the operations of the participants. Currently, we have one collaboration agreement with 3D Medicines, see Note 5 for further discussion. Revenue Recognition The Company’s sole source of revenue for 2021 and 2020 has been generated through its collaboration and license agreement. The Company’s collaboration and license agreements frequently contain multiple elements including (i) intellectual property licenses, and (ii) research and development services. Consideration received under these arrangements may include upfront payments, research and development funding, cost reimbursements, milestone payments, payments for product sales and royalty payments. The Company’s customer includes 3D Medicines. The Company follows ASC 606,Revenue from Contracts with Customers (ASC 606) for recognition of its collaboration and license agreements. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to receive in exchange for goods or services and excludes sales incentives and amounts collected on behalf of third parties. The Company analyzes the nature of these performance obligations in the context of individual agreements in order to assess the distinct performance obligations.
The Company applies the following five-step model to recognize revenue: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. i) Identify the contract with a customer. The Company considers the terms and conditions of its agreements to identify contracts within the scope of ASC 606. The Company concludes it has a contract with a customer when the contract is approved, each party's rights regarding the goods and services to be transferred can be identified, the payment terms for the goods and services can be identified, it has been determined that the customer has the ability and intent to pay and the contract has commercial substance. The Company uses judgment in determining the customer's ability and intent to pay, which is based upon factors including the customer's historical payment experience or, for new customers, credit and financial information pertaining to the customers. ii) Identify the performance obligations in the contract. Performance obligations in the agreements are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the service either on its own or together with other resources that are readily available from third parties or from the Company, and are distinct in the context of the contract, whereby the transfer of the services is separately identifiable from other promises in the contract. The Company’s performance obligations generally consist of intellectual property licenses and research and development services with respect to license and service agreements, and the manufacture and supply of product for product sales agreements. iii) Determine the transaction price. The Company determines the transaction price based on the consideration to which the Company expects to be entitled in exchange for transferring goods and services to the customer. In determining the transaction price, any variable consideration would be considered, to the extent applicable, if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. In accordance with the royalty exception under ASC 606 for licenses of intellectual property, the transaction price excludes future royalty payments to be received from the Company’s customers. None of the Company’s revenue generating contracts contain consideration payable to its customer or a significant financing component. iv) Allocate the transaction price to performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to that performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation based on a relative standalone selling price. v) Recognize revenue when or as we satisfy a performance obligation. Revenue is recognized at the time the related performance obligation is satisfied by transferring the promised goods or services to a customer. The Company recognizes revenue when control of the goods or services is transferred to the customers for an amount that reflects the consideration that the Company expect to receive in exchange for those goods or services. Performance Obligations. The following is a general description of principal goods and services from which the Company generates revenue. License to intellectual property The Company generates revenue from licensing its intellectual property including know-how and development and commercialization rights. The license provides a customer with the right to further research, develop and commercialize internally-discovered or collaborated drug candidates, or the right to use batiraxcept to further research, develop and commercialize customer drug candidates. The consideration the Company receives is in the form of nonrefundable upfront consideration related to the functional intellectual property licenses and is recognized when the Company transfers such license to the customer unless the license is combined with other goods or services into one performance obligation, in which case the revenue is recognized over a period of time based on the estimated pattern in which the Company satisfies the combined performance obligation. The Company’s licensing agreements are generally cancelable. Research and development services The Company generates revenue from research and development services it provides to its customers and primarily includes clinical trials, and assistance during regulatory approval application process. Revenue associated with these services is recognized based on the Company’s estimate of total consideration to be received for such services and the pattern in which the Company perform the services. The pattern of performance is generally determined to be the amount of incurred costs related to the service portion of the contract with the customer as a percentage of total expected costs associated with the service portion of the contract. Contracts with Multiple Performance Obligations. Most of the Company’s collaboration and license agreements with customers contain multiple promised goods or services. Based on the characteristics of the promised goods and services the Company analyzes whether they are separate or combined performance obligations. The transaction price is allocated to the separate performance obligations on a relative standalone selling price basis. The estimated standalone selling price is based on the adjusted market assessment approach including estimated present value of future cash flows and cost-plus margin approach, taking into consideration the type of services, estimates of hourly market rates, and stage of the development.
Variable Consideration. The Company’s contracts with customers primarily include two types of variable consideration: (i) development and regulatory milestone payments, which are due to the Company upon achievement of specific development and regulatory milestones and (ii) one-time sales-based payments and sales-based royalties associated with licensed intellectual property. Due to uncertainty associated with achievement of the development and regulatory milestones, the related milestone payments are excluded from the contract consideration and the corresponding revenue is not recognized until the Company concludes it is probable that reversal of such milestone revenue will not occur. As part of the Company’s evaluation of the constraint, the Company considers numerous factors, including whether the achievement of the milestone is outside of the Company’s control, contingent upon regulatory approval or dependent on licensee efforts. Product sales-based royalties under licensed intellectual property and one-time payments are accounted for under the royalty exception. The Company recognizes revenue for sales-based royalties under licensed intellectual property and one-time payments at the later of when the sales occur or the performance obligation is satisfied or partially satisfied. The transaction price is reevaluated each reporting period and as uncertain events are resolved or other changes in circumstances occur. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective is not expected to have a material impact on the Company’s financial position or results of operations upon adoption. In December 2019, the FASB issued ASU No.2019-12,Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. This guidance is intended to improve consistent application and simplify the accounting for income taxes. This ASU removes certain exceptions to the general principles in Topic 740 and clarifies and amends existing guidance. This standard is effective for annual reporting periods beginning after December 15, 2020, including interim reporting periods within those annual reporting periods, with early adoption permitted. The Company adopted this guidance as of January 1, 2021, the adoption did not have a material impact on the Company’s consolidated financial statements. In August 2020, the FASB issued ASU No.2020-06,Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40)-Accounting For Convertible Instruments and Contracts in an Entity's Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for annual and interim periods beginning after December 15, 2021, and early adoption is permitted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. The Company adopted this guidance as of January 1, 2021, the adoption did not have a material impact on the Company’s consolidated financial statements.
3. Balance Sheet Components Prepaid expenses and other current assets (in thousands) | | December 31, | | | | 2021 | | | 2020 | | Preclinical and clinical | | $ | 3,288 | | | $ | 870 | | Clinical research organization receivable | | | 0 | | | | 262 | | Lease receivable | | | 33 | | | | 0 | | Other | | | 0 | | | | 16 | | Total | | $ | 3,321 | | | $ | 1,148 | |
Property and equipment, net (in thousands) | | December 31, | | | | 2021 | | | 2020 | | Equipment and furniture | | $ | 1,430 | | | $ | 1,416 | | Buildings, leasehold and building improvements | | | 2,673 | | | | 2,673 | | | | | 4,103 | | | | 4,089 | | Less: Accumulated depreciation and amortization | | | (2,699 | ) | | | (2,559 | ) | Accumulated impairment loss | | | (1,004 | ) | | | (1,004 | ) | Property and equipment, net | | $ | 400 | | | $ | 526 | |
During the year ended December 31, 2020, the Company determined leasehold improvements were impaired as described in Note 2. Depreciation expense was approximately $0.1 million and $0.3 million for the years ended December 31, 2021 and 2020, respectively. Accrued liabilities (in thousands) | | December 31, | | | | 2021 | | | 2020 | | Payroll and related | | $ | 1,397 | | | $ | 1,052 | | Preclinical and clinical | | | 6,727 | | | | 707 | | Prepaid sublease | | | 227 | | | | 0 | | Professional services | | | 50 | | | | 169 | | Other | | | 15 | | | | 395 | | Total | | $ | 8,416 | | | $ | 2,323 | |
4. Fair Value Measurements The Company’s financial instruments consist principally of cash and cash equivalents, prepaid expenses, accounts payable and accrued liabilities. The remaining financial instruments are reported on the Company’s consolidated balance sheets at amounts that approximate current fair value. The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands): | | Fair Value Measurements at | | | | December 31, 2021 | | | | Total | | | Level 1 | | Assets | | | | | | | | | Money market funds | | $ | 49,217 | | | $ | 49,217 | |
| | Fair Value Measurements at | | | | December 31, 2020 | | | | Total | | | Level 1 | | Assets | | | | | | | - | | Money market funds | | $ | 49,207 | | | $ | 49,207 | |
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were 0 transfers within the hierarchy during the years ended December 31, 2021 and 2020. 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 Marsh Facility. 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%. 5. Collaboration and License Agreement On November 6, 2020, the Company entered into the 3D Medicines Agreement, whereby the Company granted 3D Medicines an exclusive license to develop and commercialize products that contain batiraxcept as the sole drug substance, for the diagnosis, treatment or prevention of human oncological diseases, in the Territory. Under the terms of the Agreement, the Company was paid $21 million (inclusive of $9 million in milestone payments) and is eligible to receive from 3D Medicines cash payments of up to an aggregate of $207 million (inclusive of $9 million in milestone payments) in clinical development, regulatory and commercial milestone payments. There can be no guarantee that any additional milestones will in fact be met. The Company is obligated to make certain payments to The Board of Trustees of the Stanford University based on certain amounts received from 3D Medicines under the Agreement pursuant to the existing license agreement by and between the Company and Stanford, dated January 25, 2012, and as amended to date. The Company will also be entitled to receive tiered royalties ranging from low double digits to mid-teens on sales in the Territory, if any, of products containing batiraxcept. Royalties are payable with respect to each jurisdiction in the Territory until the latest to occur of: (i) the last-to-expire of specified patent rights in such jurisdiction in the Territory; or (ii) ten (10) years after the first commercial sale of a product in such jurisdiction in the Territory. In addition, royalties payable under the Agreement will be subject to reduction on account of generic competition under certain specified conditions, with any such reductions capped at certain percentages of the amounts otherwise payable during the applicable royalty payment period. Under the terms and conditions of the Agreement, 3D Medicines will be solely responsible for the development and commercialization of licensed products in the Territory. If either the Company or 3D Medicines materially breaches the Agreement and does not cure such breach, the non-breaching party may terminate the Agreement in its entirety. Either party may also terminate the Agreement, upon written notice, if the other party files for bankruptcy, is dissolved or has a receiver appointed for substantially all of its property. The Company may terminate the Agreement if 3D Medicines, its affiliates or its sublicensees challenges the validity or enforceability of any of the Company’s patents covering any of the licensed compounds or products or ceases substantially all development and commercialization of licensed products in the Territory for a specified period, subject to certain exceptions. 3D Medicines may also terminate the Agreement for convenience provided certain notice is provided to the Company.
The Agreement contemplates that the Company will enter into ancillary arrangements with 3D Medicines, including a clinical supply agreement and a manufacturing technology transfer agreement. The Company assessed this arrangement in accordance with ASC 606 and identified the following performance obligations: 1) license to intellectual property, batiraxcept, and 2) research and development services, including conducting clinical trials. The Company concluded that each of these performance obligations were distinct because 3D Medicines can benefit from the good or service either on its own or together with other resources that are readily available, and each performance obligation is separately identifiable from other promises within the contract. The estimated total transaction price was allocated between performance obligations based on their relative standalone selling prices. The Company uses a discounted cash flow approach and an expected cost plus a margin approach to estimate the standalone selling price for the performance obligations. The Company allocated the $21.0 million transaction price as such: $11.3 million to the research and development services performance obligation and $9.7 million to the license to intellectual property. Accordingly, the Company will recognize revenue related to the allocable research and development services obligation on a proportional performance basis as the underlying services are performed pursuant to the current development plan which is commensurate with the period and consistent with the pattern over which the Company’s research and development services obligation is satisfied. The Company will recognize the revenue related to the license to intellectual property at a point in time. This is due to the fact the license was determined to be a functional license due to current stage in development of batiraxcept. Batiraxcept has been developed, dosing levels have already been determined and the drug is currently in a phase III clinical trial related to our PROC Ovarian study. As of December 31, 2021, no clinical or regulatory milestones have been assessed as probable of being reached and thus have been fully constrained. The Company continues to re-assess the probability of achievement of future milestones at the end of each reporting period. The Company recognized in revenue $4.2 million related to the license to intellectual property and $3.2 million related to the research and development services, which also includes amounts recognized associated with providing clinical supplies for the year ended December 31, 2021. During the year ended December 31, 2021, the Company adjusted its estimate of the overall transaction price as a result of the achievement of the $6 million and $3 million development milestones. This adjustment resulted in a cumulative catch-up recorded to revenue for the year ended December 31, 2021 of approximately $5.0 million. As of December 31, 2021, the Company had a contract liability balance of $8.1 million of which $4.6 million is classified as current and $3.5 million is classified as long-term, consisting of deferred revenue related to a portion of the payment received from 3D Medicines. The Company recognized revenue of $1.8 million for the year ended December 31, 2021, related to the contract liability balance of $6.3 million as of December 31, 2020. As of December 31, 2021, the service period for the future research and development services is expected to occur over the next 3 years. The Company recognized in revenue $5.6 million related to the license to intellectual property and $0.1 million related to the research and development services for the year ended December 31, 2020. As of December 31, 2020, the Company had a contract liability balance of $6.3 million of which $2.6 million is classified as current and $3.7 million is classified as long-term, consisting of deferred revenue related to a portion of the payment received from 3D Medicines. 6. Leases In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at the 1020 Marsh Facility. The lease commenced in August 2017 for a period of 87 months with one renewal option for a five-year term. The Company did not include the renewal option period as the Company determined it was not reasonably certain the lease would be renewed as of the modification date. In October 2018, the Company executed a sublease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the sublease commenced on October 30, 2018 and expired August 31, 2020. In August 2020, the Company entered into a lease agreement in North Carolina for approximately 4,128 square feet for office space. The monthly lease payments will be approximately $9 thousand per month for a period of 63 months with a three-month rent abatement period. The lease has commenced in the fourth quarter of 2020. The Company’s rent expense including both short-term and variable lease components of $0.4 million and $0.5 million associated with the facility leases was $1.6 million and $2.1 million for the years ended December 31, 2021 and 2020, respectively. Cash paid for amounts included in the measurement of lease obligations for operating cash flows from operating leases for 2021 and 2020 was $2.5 million and $2.3 million, respectively. As of December 31, 2021, the Company’s operating leases had a weighted average remaining lease term of 2.9 years and a weighted average discount rate of 7.6%, which approximates the Company’s incremental borrowing rate. As of December 31, 2020, the Company’s operating leases had a weighted average remaining lease term of 3.9 years and a weighted average discount rate of 7.62%, which approximates the Company’s incremental borrowing rate.
As of December 31, 2021, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands): Year Ending December 31, | | | | | 2022 | | $ | 2,955 | | 2023 | | | 3,039 | | 2024 | | | 2,619 | | 2025 | | | 116 | | 2026 | | | 31 | | Total future minimum lease payments | | | 8,760 | | Less: discount | | | (2,387 | ) | Total lease liabilities | | $ | 6,373 | |
1020 Marsh Facility Sublease On June 8, 2021, the Company entered into an operating sublease with Subtenant for the 1020 Marsh Facility. The final agreement and consent received from the landlord was obtained on July 13, 2021. The term of the sublease has commenced on August 1, 2021 and continues through October 31, 2024, unless the master lease is terminated earlier due to a breach by Subtenant. Subtenant will also pay to the Company, as additional rent, an amount equal to the Company’s share of operating expenses attributable to the subleased premises due under the master lease. The terms entered into for this sublease agreement did not result in an impairment of the Company’s long-lived assets for the year ended December 31, 2021. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statements of operations. The Company has recorded lease income associated with this sublease of approximately $1.0 million for the year ended December 31, 2021. During the year ended December 31, 2021, cash received from the Subtenant was $0.9 million, which amount was included in operating cash flows. Future base rent the Subtenant shall pay to the Company over the sublease term as of December 31, 2021, are as follows (in thousands): Year Ending December 31, | | | | | 2022 | | $ | 2,303 | | 2023 | | | 2,372 | | 2024 | | | 2,029 | | Total | | $ | 6,704 | |
In August 2018, the Company entered into an operating sublease agreement with EVA Automation, Inc. (“EVA”) for the 1020 Marsh Facility referenced above. The 1020 Marsh Facility 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 firstfive full calendar months of the term of the sublease. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statements of operations. At the end of the first quarter ended March 31, 2020, the Company was informed by EVA that it will not be in a position to pay future sublease rental payments and intends to exit the sublease. For the year ended December 31, 2020, the Company recorded an impairment charge to long-lived assets as previously discussed in Note 2. In addition, associated with this impairment charge the Company recorded a write down totaling $1.4 million related to a straight-line sublease rent receivable balance and previously capitalized commission charges, which has been recorded in other expense within the condensed consolidated statement of operations for the year ended December 31, 2020. Overall, for the year ended December 31, 2020, the Company recorded sublease loss associated with this sublease of $13 thousand. Cash received from EVA was $1.2 million for 2020, which amount was included in operating cash flows. 7. Commitments and Contingencies Purchase Commitments The Company conducts research and development programs through a combination of internal and collaborative programs that include, among others, arrangements with contract manufacturing organizations and contract research organizations. The Company had contractual arrangements with these organizations including license agreements with milestone obligations and service agreements with obligations largely based on services performed. In the normal course of business, the Company enters into various firm purchase commitments related to certain preclinical and clinical studies. Contingencies In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated. Indemnification In accordance with the Company’s amended and restated Certificate of Incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.
Litigation The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of December 31, 2021. Contingent payable The Company acquired a settlement that Aravive Biologics entered into with former creditors in 2014 pursuant to which Aravive Biologics had agreed to make an initial 7.5% cash payment to the creditors with the remainder contingent on future milestone payments, or Contingent Payments, until full repayment of the payables is made. The Contingent Payments are to be made from the proceeds received by Aravive Biologics from any future licensing transactions. As a result of the 3D Medicines partnership agreement in November 2020, the Contingent Payments became due. It was stipulated that the Contingent Payments will be distributed on a pro rata basis with other secured creditors and will be made from at least 10% of any proceeds from any future licensing transactions. The proceeds from any future licensing transactions will be held in an escrow account which will be administered by an independent third party. The creditors agreed that the Initial payment and any Contingent Payments represents settlement in full of all outstanding obligations owed to the creditors by Aravive Biologics and released Aravive Biologics from all claims. As a result of and in connection with the Merger, the Company determined the fair value of the contingent payable to be approximately $0.3 million, based upon an appraisal (or valuation) of the assets and liabilities assumed to determine fair values. Due to the 3D Medicines Licensing agreement, the contingent payable became due and payable. Accordingly, for the year ended December 31, 2020, the Company accreted the balance to the gross amount of $0.7 million and paid $0.4 million. The remaining payable balance of $0.3 million was paid subsequently in February of 2021. As of December 31, 2020, the unpaid portion of the liability was classified in accrued liabilities in the accompanying consolidated balance sheet. 8. Common Stock The Amended and Restated Certificate of Incorporation, authorizes the Company to issue 100,000,000 shares of common stock as of December 31, 2021. Common stockholders are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote. The Company had reserved shares of common stock for future issuances as follows: | | December 31, | | | | 2021 | | | 2020 | | Issuance of equity-based awards under stock plan | | | 2,131,671 | | | | 1,600,703 | | Issuance upon exercise of options under stock plan | | | 2,439,253 | | | | 2,173,776 | | Issuance of restricted stock units under stock plan | | | 0 | | | | 233 | | Total | | | 4,570,924 | | | | 3,774,712 | |
Related party transaction On February 12, 2021, the Company entered into a Securities Purchase Agreement, with Eshelman Ventures relating to the issuance and sale (the “Offering”) of 2,875,000 shares of the Company’s common stock at a price per share of $7.29. The Offering closed on February 18, 2021 and the Company received aggregate proceeds from the Offering of approximately $20.9 million, net of offering costs. Eshelman Ventures is an entity wholly owned by the Company’s chairman of the board. Private Placement On April 6, 2020, the Company, entered into an investment agreement (the “Investment Agreement”), by and among the Company, Eshelman Ventures, LLC, a North Carolina limited liability company (the “Eshelman Ventures”), and, solely for purposes of Article IV and Article V of the Investment Agreement, Fredric N. Eshelman, Pharm.D., who immediately became the Company’s chairman of the board. On April 8, 2020, pursuant to the Investment Agreement, Eshelman Ventures purchased 931,098 shares of the Company’s unregistered common stock for an aggregate purchase price of approximately $5.0 million. The Company recorded the amount received net of expenses of approximately $78 thousand.
At the Market Offering Program In September 2020, the Company filed a shelf registration statement on Form S-3 with the SEC which was declared effective by the SEC on November 20, 2020 (the “Form S-3”). On September 4, 2020, the Company entered into aEquity Distribution Agreement with Piper Sandler & Co. and Cantor Fitzgerald to sell shares of the Company’s common stock, par value $0.0001 per share, from time to time, through an “at the market offering” program having an aggregate offering price of up to $60,000,000 through which Piper Sandler and Cantor Fitzgerald will act as sales agents. During the years ended December 31, 2021 and 2020, the Company sold 1,432,627 and 377,400 shares of common stock that were registered under the Form S-3 and received proceeds net of discounts and offering costs of $9.8 million and $2.3 million under the Equity Distribution Agreement. 9. Stock Based Awards 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 Aravive Biologics 2017 Equity Incentive Plan and the 2010 Equity Incentive Plan, as amended (Prior Plans). As of December 31, 2021, the total number of shares of common stock available for issuance under the 2019 Plan was 1,857,990. In addition, if the shares subject to outstanding stock options or other awards under the Prior Plans: (I) terminate or expire prior to exercise or settlement; (II) are not issued because the award is settled in cash; (III) are forfeited because of failure to vest; (IV) or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, such shares will become available for issuance under the 2019 Plan. Unless the Board provides otherwise, beginning January 1, 2020 with expiration of January 1, 2029, the total number of shares of common stock available for issuance will automatically increase annually on January 1 of each calendar year by 4.5% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. The 2019 Plan provides for granting of equity awards to employees, directors and consultants, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance awards. Activity under the Company’s stock option plans is set forth below: | | | | | | | | | | Weighted | | | | | | | | | | | | | | | | Average | | | | | | | | | | | | Weighted | | | Remaining | | | Aggregate | | | | | | | | Average | | | Contractual | | | Intrinsic | | | | Number of | | | Exercise | | | Life | | | Value | | | | Shares | | | Price | | | (in years) | | | (in thousands) | | Balances, January 1, 2021 | | | 2,173,776 | | | $ | 9.59 | | | | | | | | | | Options granted | | | 1,005,628 | | | | 5.26 | | | | | | | | | | Options cancelled | | | (521,088 | ) | | | 31.03 | | | | | | | | | | Options exercised | | | (219,063 | ) | | | 1.40 | | | | | | | | | | Balances, December 31, 2021 | | | 2,439,253 | | | $ | 3.96 | | | | 7.1 | | | $ | 1,611 | | Outstanding and expected to vest as of December 31, 2021 | | | 2,248,136 | | | $ | 3.80 | | | | 6.9 | | | $ | 1,611 | | Exercisable as of December 31, 2021 | | | 1,477,273 | | | $ | 2.68 | | | | 5.8 | | | $ | 1,611 | |
The intrinsic values of outstanding, vested and exercisable options were determined by multiplying the number of shares by the difference in exercise price of the options and the fair value of the common stock. The intrinsic value of stock options exercised during the years ended December 31, 2021 and 2020, was $1.0 million and $0.6 million, respectively.
Stock Options Granted to Employees During the year ended December 31, 2021 and 2020, the Company granted stock options to officers, directors and employees to purchase shares of common stock with a weighted-average grant date fair value of $4.43 and $4.69 per share, respectively. The fair value is being expensed over the vesting period of the options, which is usually 4 years on a straight-line basis as the services are being provided. No tax benefits were realized from options and other share-based payment arrangements during the periods. During the year ended December 31, 2020, the Company modified certain stock options and restricted stock units that were outstanding to our two former CEO’s and former directors. The modification of the terms or conditions of an equity award was treated as an exchange of the original award for a new award. The Company then recognized additional compensation for any incremental value. Incremental compensation cost was measured as the excess, if any, of the fair value of the modified award over the fair value of the original aware immediately before its terms were modified. As a result of these modifications during the year ended December 31, 2020, the Company recognized incremental compensation costs of $0.4 million. As of December 31, 2021, total unrecognized employee stock-based compensation related to stock options granted was $3.6 million, which is expected to be recognized over the weighted-average remaining vesting period of 2.6 years. The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions: | | December 31, | | | December 31, | | | | 2021 | | | 2020 | | Expected volatility | | | 114.2 | % | | | 112.0 | % | Risk-free interest rate | | | 0.8 | % | | | 1.0 | % | Dividend yield | | | 0.0 | % | | | 0.0 | % | Expected life (in years) | | | 6.0 | | | | 6.0 | |
Determining Fair Value of Stock Options The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine. Expected Volatility – The expected volatility is based on the historical volatility of our common stock over the most recent period commensurate with the estimated expected term of our stock options. Risk-Free Interest Rate – The risk-free rate assumption was based on the U.S. Treasury instruments with terms that were consistent with the expected term of the Company’s stock options. Expected Dividend – The expected dividend assumption was based on the Company’s history and expectation of dividend payouts. Expected Term – The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. For option grants that are considered to be “plain vanilla”, the Company has opted to use the simplified method for estimating the expected term as provided by the SEC. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the options. Forfeiture Rate – Forfeitures were estimated based on historical experience. Fair Value of Common Stock – The fair value of the underlying common stock is based upon quoted prices on Nasdaq. Stock-based compensation expense, net of estimated forfeitures, is reflected in the statements of operations as follows (in thousands): | | Year Ended | | | | December 31, | | | | 2021 | | | 2020 | | Operating Expenses | | | | | | | | | Research and development | | $ | 932 | | | $ | 536 | | General and administrative | | | 1,325 | | | | 1,430 | | Total | | $ | 2,257 | | | $ | 1,966 | |
2014 Employee Stock Purchase Plan The board of directors adopted, and the Company’s stockholders approved, the 2014 Employee Stock Purchase Plan (the "ESPP") in March 2014. The ESPP became effective on March 20, 2014. The maximum aggregate number of shares of common stock that may be issued under the ESPP per purchase period is 2,500 shares (which was adjusted for the reverse stock split that occurred in October 2018). Additionally, the number of shares of common stock reserved for issuance under the ESPP will increase automatically each year, beginning on January 1,2015 and continuing through and including January 1,2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; and (ii) 50,000 shares of common stock (which was adjusted for the reverse stock split that occurred in October 2018). The Board may act prior to the first day of any calendar year to provide that there will be noJanuary 1 increase or that the increase will be for a lesser number of shares than would otherwise occur. Shares subject to purchase rights granted under the ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the ESPP. An employee may not be granted rights to purchase stock under the ESPP if such employee (i) immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of the Company’s common stock, or (ii) holds rights to purchase stock under the ESPP that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding. The administrator may approve offerings with a duration of not more than 27 months and may specify one or more shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of common stock will be purchased for the employees who are participating in the offering. The administrator, in its discretion, will determine the terms of offerings under the ESPP. The ESPP permits participants to purchase shares of our common stock through payroll deductions with up to 15% of their earnings. The purchase price of the shares will be not less than 85% of the lower of the fair market value of our common stock on the first day of an offering or on the date of purchase. The fair value of the ESPP grants were immaterial for the years ended December 31, 2021 and 2020, respectively. 10. Income Taxes The provision (benefit) for federal income taxes in 2021 and 2020 is as follows (in thousands): | | December 31, | | | | 2021 | | | 2020 | | Current | | | | | | | | | Federal | | $ | 0 | | | $ | 0 | | State | | | 0 | | | | 0 | | | | | — | | | | — | | Deferred | | | | | | | | | Federal | | $ | 0 | | | $ | 0 | | State | | | 0 | | | | 0 | | Total deferred tax expense | | | 0 | | | | 0 | | Total income tax expense | | $ | 0 | | | $ | 0 | |
Income tax expense (benefit) in 2021 and 2020 differed from the amount expected by applying the statutory federal tax rate to the income or loss before taxes as summarized below: | | December 31, | | | | 2021 | | | 2020 | | Federal tax benefit at statutory rate | | | 21 | % | | | 21 | % | Change in valuation allowance | | | (21 | )% | | | (12 | )% | Section 382 limitation | | | 0 | | | | 0 | | Other non-deductible expenses | | | (1 | )% | | | (1 | )% | Stock based compensation | | | 0 | | | | (8 | )% | Other | | | 1 | % | | | 0 | | Total | | | 0 | % | | | 0 | % |
Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets at December 31, 2021 and 2020 are as follows (in thousands): | | December 31, | | | | 2021 | | | 2020 | | Net operating loss carry forwards | | $ | 18,205 | | | $ | 10,988 | | Research and development tax credits | | | 404 | | | | 90 | | Stock based compensation and other | | | 3,694 | | | | 2,860 | | Operating lease obligation | | | 1,339 | | | | 1,789 | | Total deferred tax assets | | | 23,642 | | | | 15,727 | | Less: Valuation allowance | | | (23,179 | ) | | | (15,106 | ) | Deferred tax liabilities | | | — | | | | — | | Operating lease right-of-use assets | | | (463 | ) | | | (621 | ) | Net deferred tax assets | | $ | 0 | | | $ | 0 | |
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets. The valuation allowance increased by approximately $8.1 million in 2021 and increased $3.8 million in 2020. At December 31, 2021, the Company has net operating loss carryforwards for federal income tax purposes of approximately $86.7 million, of which $81.9 million was generated post December 31, 2017 (after section 382 limitation) and will have no expiration date. The remaining $4.8 million of net operating loss carryforwards begin to expire in 2037. The Company also has federal research and development tax credits of approximately $404 thousand, which begin to expire in 2037. As of December 31, 2021, the Company’s total gross deferred tax assets were $23.6 million. Due to the Company’s lack of earnings history and uncertainties surrounding its ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. The Company has performed an analysis to determine whether an “ownership change” occurred from inception up to the Aravive Biologics' acquisition date. Based on this analysis during 2018, management determined that both Versartis, Inc. and Aravive Biologics did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. The Company reviewed ownership changes during the years ended December 31, 2021 and 2020 and concluded that there were no additional Section 382 limitations after 2018. The Company follows the provisions of FASB Accounting Standards Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements. At December 31, 2021 and 2020, the Company’s reserve for unrecognized tax benefits is approximately $209 thousand and $39 thousand, respectively. Due to the full valuation allowance at December 31, 2021, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate. The Company does not anticipate any significant change in its unrecognized tax benefits within 12 months of this reporting date. The Company includes penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.
Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statute is effectively open for all tax years. However, due to the above-mentioned ownership change and impairment of net operating loss and credit carryforwards, only net operating loss and credit carryforwards post- January 14, 2017 are carried forward to future years for federal and state tax purposes. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands): | | Amount | | Balance at January 1, 2020 | | | 39 | | Gross increase/ (decrease) related to prior year tax positions | | | 0 | | Gross increase related to current year positions | | | 0 | | Reductions to unrecognized tax benefits related to lapsing statute of limitations | | | 0 | | Balance at December 31, 2020 | | $ | 39 | | Gross increase/ (decrease) related to prior year tax positions | | | 124 | | Gross increase related to current year positions | | | 46 | | Reductions to unrecognized tax benefits related to lapsing statute of limitations | | | 0 | | Balance at December 31, 2021 | | $ | 209 | |
All tax years remain open for examination by federal and state tax authorities. 11. Employee Benefit Plans Defined Contribution Plan The Company sponsors a 401(k) Plan, which stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations of eligible compensation. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. Employer contributions were $88 thousand and $15 thousand for the years ended December 31, 2021 and 2020, respectively. 12. Net loss per share of Common Stock The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands, except per share data): | | Year Ended | | | | December 31, | | | | 2021 | | | 2020 | | Net loss | | $ | (39,151 | ) | | $ | (30,543 | ) | Basic and diluted net loss per share | | $ | (1.95 | ) | | $ | (1.93 | ) | Weighted-average shares used to compute basic and diluted net loss per share | | | 20,070 | | | | 15,790 | |
Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as-if converted method, for convertible securities, if inclusion of these is dilutive. Because the Company has reported a net loss for the years ended December 31, 2021 and 2020, the Company did not have dilutive common stock equivalents and therefore diluted net loss per common share is the same as basic net loss per common share for those years. The following potentially dilutive securities outstanding at the end of the years presented have been excluded from the computation of diluted shares outstanding: | | Year Ended | | | | December 31, | | | | 2021 | | | 2020 | | Options to purchase common stock | | | 2,439,253 | | | | 2,173,776 | | Restricted stock units | | | 0 | | | | 233 | |
13. Subsequent Events
Related party transaction In January 2022, the Company entered into an investment agreement (the “Investment Agreement”)with Eshelman Ventures, LLC and, solely for purposes of Article IV and Article V of the Investment Agreement, Dr. Eshelman relating to the issuance of a pre-funded warrant to purchase up to 4,545,455 shares of the Company’s common stock, par value $0.0001 per share, at a price of $2.20 per share, which was the consolidated closing bid price of the Company’s Common Stock on The Nasdaq on December 31, 2021, for an aggregate purchase price of $10 million. The closing of the transaction occurred on January 5, 2022. Pursuant to the terms of the Investment Agreement, the Company was required to file a registration statement registering the shares of common stock underlying the pre-funded warrant. The registration statement was filed on January 5, 2022 and declared effective by the SEC on January 18, 2022. At the Market Offering Program From January 1, 2022 to March 15, 2022, the Company sold 54,763 shares for proceeds net of discounts and offering costs of $0.1 million under the Equity Distribution Agreement. Registered Direct Offering and Related Party Transaction On March 31, 2022, the Company closed a registered direct offering of its common stock with a single healthcare-focused institutional investor and Eshelman Ventures, LLC, a related party, pursuant to which the Company issued 3,185,216 shares of common stock, 1,665,025 pre-funded warrants and common stock warrants to purchase up to 4,850,241 shares of common stock in a registered direct offering priced at-the-market under Nasdaq rules. The purchase price per share and accompanying common stock warrant was $2.005 for the institutional investor and $2.325 for Eshelman Ventures, LLC. The purchase price per pre-funded warrant and accompanying common stock warrant was $2.004 for the institutional investor The net proceeds from the offering was $9.3 million, including underwriting discounts, commission and offering expenses. The common stock warrants issued to the institutional investor are exercisable immediately, will expire five years from the exercisable date and will have an exercise price of $1.88 per share. The common stock warrants issued to Eshelman Ventures, LLC will be exercisable upon the approval by the stockholders of the Company of previously issued securities, will expire five years following the issuance date and will have an exercise price of $2.20 per share. The Company could receive additional gross proceeds of $9.4 million, if the warrants are fully exercised.
Exhibit Index Exhibit The Company’s financial instruments consist of Level 1 assetsNumber
| | Description | | | | 1.1 | | Equity Distribution Agreement, dated as of December 31,March 26, 2019 between Aravive, Inc. and 2018. Level 1 securities are comprisedPiper Jaffray & Co (Incorporated herein by reference to exhibit number 1.1 of highly liquid money market funds.our current report on Form 8-K (File No. 001-36361), as filed with the SEC on March 26, 2019). | | | | Preclinical1.2
| | Equity Distribution Agreement, dated as of September 4, 2020 between Aravive, Inc., Piper Sandler & Co. 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 pursuantCantor Fitzgerald & Co. (Incorporated herein by reference to contracts with multiple research institutions and clinical research organizations (“CROs”) that conduct and manage clinical trials on the Company’s behalf.
The Company estimates preclinical and clinical trial expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations that conduct and manage preclinical studies and clinical trials on its behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of patient enrollment and activity expended in each period. If the actual timingexhibit number 1.1 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 recordedRegistration Statement on Form S-3 (File No. 333-248612) 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.
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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 beginsfiled 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 basedSEC 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.September 4, 2020).
| | | | 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.3.1
Comprehensive Loss
Comprehensive loss is defined as a change in equity of a business enterprise during a period, resulting from transactions from non-owner sources. Specifically, the Company includes cumulative foreign currency translation adjustments and net unrealized gains. There was no difference between net loss and comprehensive loss for all periods presented.
Net Loss per Share of Common Stock
Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For purposes of the diluted net loss per share calculation, stock options and restricted stock units are considered to be potentially dilutive securities. Because the Company has reported a net loss for the years ended December 31, 2019 and 2018, diluted net loss per common share is the same as basic net loss per common share for those periods.
In-process Research & Development
In-process research and development, or IPR&D, was recorded at its relative fair value using a discounted cash flow model and was assigned to acquired research and development assets that were not fully developed as of the completion of the Merger. IPR&D acquired in an asset purchase is capitalized on the Company’s consolidated balance sheet at its acquisition-date fair value if the acquired IPR&D has alternative future use. For the IPR&D that was acquired from the Merger it was determined that the IPR&D had no alternative future use and therefore it was expensed immediately following the Merger. Fair value measurement was classified as Level 3 under the fair value hierarchy.
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.
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| | Revenue Recognition
The Company’s sole source of revenue for 2019 and 2018 was grant revenue related to the CPRIT Grant, which is being recognized when qualifying costs are incurred and there is reasonable assurance that the conditions of the award have been met for collection. Proceeds received prior to the costs being incurred or the conditions of the award being met are recognized as deferred revenue until the services are performed and the conditions of the award are met.
Funds received are reflected in deferred revenue as a liability until revenue is earned. Grant revenue is recognized when qualifying costs are incurred. As of December 31, 2019, the Company had an unbilled receivable from CPRIT of $1.6 million, which is reflected in prepaid expenses and other current assets on the accompanying consolidated balance sheet. As of December 31, 2018, the Company had deferred revenue of $0.1 million.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, or FASB, or other standard setting bodies and adopted by us as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective is not expected to have a material impact on the Company’s financial position or results of operations upon adoption.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU is a comprehensive new leases standard that amends various aspects of existing guidance for leases and requires additional disclosures about leasing arrangements. The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous lease guidance. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842)- Targeted Improvements, that allows entities to apply the provisions of the new standard at the effective date (e.g. January 1, 2019), as opposed to the earliest period presented under the modified retrospective transition approach (January 1, 2017) and recognize a cumulative-effect adjustment to the opening balance of accumulated deficit in the period of adoption. The modified retrospective approach includes a number of optional practical expedients primarily focused on leases that commenced before the effective date of Topic 842, including continuing to account for leases that commence before the effective date in accordance with previous guidance, unless the lease is modified. The Company adopted ASC Topic 842 with the cumulative effect of adoption recognized to accumulated deficit on January 1, 2019, as previously described in Note 2.
F-13
As a result of the adoption of ASC 842 on January 1, 2019, the Company derecognized $8.6 million for the existing asset; $7.3 million for the obligation and $1.3 million to the opening balance of the accumulated deficit. The existing asset and obligation on the consolidated balance sheet resulted from the build-to-suit lease arrangement at 1020 Marsh Road, Menlo Park, California or the 1020 Space, which did not meet the criteria for “sale-leaseback” treatment at the time construction was completed in 2017, and the Company has applied the general lessee transition guidance to this lease. Based on the Company’s assessment of the 1020 Space, qualifies as an operating lease under ASC 842.
Additionally, as a result of adoption of ASC 842, the Company recognized operating lease ROU assets of approximately $10.4 million, $2.2 million of leasehold improvements, an operating lease obligation of $12.6 million and derecognition of deferred rent of $0.1 million as of January 1, 2019.
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting. This amendment provides additional guidance related to share-based payment transactions for acquiring goods or services from nonemployees. The guidance will be effective for the Company for fiscal years beginning after December 15, 2018, including the interim periods within that fiscal year. The Company has adopted this new guidance as of January 1, 2019, which had no material impact on the Company’s consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-08, Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, which is intended to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments in ASU No. 2018-08 should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transaction) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. This amendment applies to all entities that make or receive grants or contributions. This ASU is effective for public companies serving as a resource recipient for fiscal years beginning after June 15, 2018, including interim periods within that fiscal year. The Company has adopted this guidance as of January 1, 2019 which had no material impact to its consolidated financial statements.
In May 2017, the FASB issued, ASU-2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting. This guidance clarifies when changes to the terms and conditions of share-based awards must be accounted for as modifications. The guidance does not change the accounting treatment for modifications. The guidance, which became effective on January 1, 2018, has not had a material impact on the Company’s consolidated financial statements.
In January 2017, the FASB issued, ASU-2017-01, Business Combinations (Topic 805) – Clarifying the Definition of a Business. This guidance clarifies changes to the definition of a business for accounting purposes. Under the new guidance, an entity first determines whether substantially all of the fair value of a set of assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets, also known as the screen test. If this threshold is met under the screen test, the set of assets is not deemed to be a business. If the threshold is not met, the entity then evaluates whether the set of assets meets the requirement to be deemed a business, which at a minimum, requires there to be an input and a substantive process that together significantly contribute to the ability to create outputs. In October 2018, the Company, then known as Versartis, Inc., completed a merger whereby Private Aravive merged with a wholly owned subsidiary of Versartis, Inc. in an all-stock transaction and Private Aravive was the surviving corporation of such merger as a wholly owned subsidiary of the Company (formerly known as Versartis, Inc.). The Merger was accounted for as an acquisition by the Company of Private Aravive’s net assets or a group of similar identifiable assets. Substantially all of the fair value of the net acquired assets is concentrated in a single identifiable asset or a group of similar identifiable assets, and as such the set of net assets acquired is not deemed to be a business. The guidance, which has become effective for the Company on January 1, 2018, had a material impact on the Company’s consolidated financial statements upon close of the Merger, as the application of the screen test under the new guidance results in the transaction to be accounted for as an asset acquisition.
In November 2016, the FASB issued, ASU-2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. This guidance requires that a statement of cash flows present the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. The guidance has become effective on a retrospective basis for the Company on January 1, 2018. The Company retrospectively adjusted the prior periods presented in the Company’s consolidated statement of cash flows, which resulted in a reclassification of restricted cash of $2.4 million to the beginning and ending period balances of cash amounts shown on the statement of cash flows prior to the adoption date.
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3. Balance Sheet Components
Prepaid expenses and other current assets (in thousands)
| | December 31, | | | | 2019 | | | 2018 | | Preclinical and clinical | | $ | 531 | | | $ | 416 | | Lease receivable | | | 900 | | | | 606 | | Unbilled receivable from CPRIT | | | 1,604 | | | | — | | Other | | | 44 | | | | 16 | | Total | | $ | 3,079 | | | $ | 1,038 | |
Property and equipment, net (in thousands)
| | December 31, | | | | 2019 | | | 2018 | | Equipment and furniture | | $ | 1,442 | | | $ | 1,442 | | Buildings, leasehold and building improvements | | | 2,674 | | | | 134 | | | | | 4,116 | | | | 1,576 | | Less: Accumulated depreciation and amortization | | | (2,308 | ) | | | (1,544 | ) | Property and equipment, net | | $ | 1,808 | | | $ | 32 | |
Depreciation expense was approximately $0.4 million and $1.1 million for the years ended December 31, 2019 and 2018, respectively.
Intangible asset, net (in thousands)
| | December 31, | | | | 2019 | | | 2018 | | Assembled workforce | | $ | 366 | | | $ | 366 | | | | | 366 | | | | 366 | | Less: Accumulated amortization | | | (147 | ) | | | (25 | ) | Intangible asset, net | | $ | 219 | | | $ | 341 | |
Amortization expense is expected to be approximately $0.1 million in each year over the next 1.8 years.
Accrued liabilities (in thousands)
| | December 31, | | | | 2019 | | | 2018 | | Payroll and related | | $ | 1,248 | | | $ | 509 | | Preclinical and clinical | | | 5 | | | | 563 | | Professional services | | | 32 | | | | — | | Other | | | 212 | | | | 293 | | Total | | $ | 1,497 | | | $ | 1,365 | |
F-15
4. Fair Value Measurements
The Company’s financial instruments consist principally of cash and cash equivalents, prepaid expenses, foreign currency exchange contracts, 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 December 31, 2019 | | | | Total | | | Level 1 | | Assets | | | | | | | | | Money market funds | | $ | 63,691 | | | $ | 63,691 | | | | | | | | | | | | | Fair Value Measurements at December 31, 2018 | | | | Total | | | Level 1 | | Assets | | | | | | | | | Money market funds | | $ | 48,389 | | | $ | 48,389 | |
The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the years ended December 31, 2019 or 2018.
5. Leases
The Company adopted ASC 842 as of January 1, 2019, using the modified retrospective approach and therefore prior year financial statements were not recast under the new standard.
In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at the 1020 Space. The lease commenced in August 2017 for a period of 87 months with one renewal option for a five-year term. The Company did not include the renewal option period as the Company determined it was not reasonably certain the lease would be renewed as of the modification date.
In October 2018, the Company executed a sublease agreement in Palo Alto, California for approximately 4,240 square feet for office space. The rental term of the sublease commenced on October 30, 2018 and expires August 31, 2020.
The Company’s rent expense including both short-term and variable lease components of $0.5 million associated with the facility leases was $2.5 million for the year ended December 31, 2019. Cash paid for amounts included in the measurement of lease obligations for operating cash flows from operating leases for 2019 was $2.7 million. As of December 31, 2019, the Company’s operating leases had a weighted average remaining lease term of 4.6 years and a weighted average discount rate of 7.75%, which approximates the Company’s incremental borrowing rate.
As of December 31, 2019, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):
Year Ending December 31, | | | | | 2020 | | $ | 2,668 | | 2021 | | | 2,618 | | 2022 | | | 2,697 | | 2023 | | | 2,777 | | 2024 | | | 2,373 | | Total future minimum lease payments | | | 13,133 | | Less: discount | | | (2,900 | ) | Total lease liabilities | | $ | 10,233 | |
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As of December 31, 2018, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):
Year Ending December 31, | | | | | 2019 | | $ | 2,652 | | 2020 | | | 2,668 | | 2021 | | | 2,618 | | 2022 | | | 2,697 | | 2023 | | | 2,777 | | Thereafter | | | 2,373 | | | | $ | 15,785 | |
1020 Marsh Sublease
In August 2018, the Company entered into an operating sublease agreement with EVA Automation, Inc. (“EVA”) for the 1020 Space referenced above. The 1020 Space Sublease commenced on October 1, 2018 for 73 months. EVA is entitled to an abatement of base rent of approximately $0.9 million for the first five full calendar months of the term of the sublease. Lease income associated with this sublease is recorded in other income in the accompanying consolidated statements of operations. The Company has recorded lease income associated with this sublease of approximately $2.5 million and $0.6 million for 2019 and 2018 respectively. During 2019, cash received from EVA was $2.3 million, which amount was included in prepaid expenses and other assets for operating cash flows.
Future base rent and additional rent EVA shall pay to the Company over the sublease term as of December 31, 2019, are as follows (in thousands):
Year Ending December 31, | | | | | 2020 | | $ | 2,563 | | 2021 | | | 2,628 | | 2022 | | | 2,695 | | 2023 | | | 2,764 | | 2024 | | | 2,355 | | | | $ | 13,005 | |
Build-to-Suit Lease
In March 2017, the Company entered into an operating facility lease agreement for approximately 34,500 rentable square feet located at 1020 Marsh Road, Menlo Park, California and for approximately 17,400 rentable square feet located at 1060 Marsh Road. In September 2017, the Company opted out of its intent to occupy 1060 Marsh Road. The Company began occupying 1020 Marsh Rd in August 2017. The lease has a term of 86 months from the commencement date as defined in the lease agreement with the Company’s option to extend the term of the lease for an additional five years. The Company is obligated to make lease payments totaling approximately $20.0 million over the initial term of the lease. In connection with this lease, the landlord is providing a tenant improvement allowance of approximately $1.9 million for the 1020 Space, for costs associated with the design, development and construction of the Company’s improvements. The Company is obligated to fund all costs incurred in excess of the tenant improvement allowance. The Company provided the Landlord with a letter of credit to secure its obligations under the lease in the initial amount of approximately $2.4 million, reported as restricted cash on the consolidated balance sheets which is subject to reductions in future years if certain financial hurdles are met.
Under the terms of the lease agreement, the Company has indemnified the landlord during the construction period. Accordingly, for accounting purposes, the Company has concluded that it is the deemed owner of the building during the construction period and the Company capitalized approximately $8.9 million within build-to-suit lease asset and recognized an $7.3 million corresponding build-to-suit lease obligation in non-current liabilities in the consolidated balance sheet as of December 31, 2018. Of the $8.9 million, approximately $3.5 million has been recorded as a build-to-suit asset related to construction costs incurred by the Company as of December 31, 2018. Rent expense was $0.3 million for the year ended December 31, 2018.
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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 claims that may be made against the Company in the future but have not yet been made. The Company accrues a liability for such matters when it is probable that future expenditures will be made and such expenditures can be reasonably estimated.
Indemnification
In accordance with the Company’s amended and restated Certificate of Incorporation and amended and restated bylaws, the Company has indemnification obligations to its officers and directors for certain events or occurrences, subject to certain limits, while they are serving at the Company’s request in such capacity. There have been no claims to date and the Company has a director and officer insurance policy that may enable it to recover a portion of any amounts paid for future claims.
Litigation
The Company may from time to time be involved in legal proceedings arising from the normal course of business. There are no pending or threatened legal proceedings as of December 31, 2019.
Contingent payable
As part of the Merger, the Company acquired a settlement that Private Aravive entered into with former creditors in 2014 pursuant to which Private Aravive had agreed to make an initial 7.5% cash payment to the creditors with the remainder contingent on future milestone payments, or Contingent Payments, until full repayment of the payables is made. The contingent Payments are to be made from the proceeds received by Private Aravive from any future licensing transactions. The Contingent Payments will be distributed on a pro rata basis with other secured creditors and will be made from at least 10% of any proceeds from any future licensing transactions. The proceeds from any future licensing transactions will be held in an escrow account which will be administered by an independent third party. The creditors agree that the Initial payment and any Contingent Payments represents settlement in full of all outstanding obligations owed to the creditors by Private Aravive and released Private Aravive from all claims. As a result of and in connection with the Merger, the Company determined the fair value of the contingent payable to be approximately $264,000, based upon an appraisal (or valuation) of the assets and liabilities assumed to determine fair values.
7. Common Stock
The Amended and Restated Certificate of Incorporation authorizes the Company to issue 100,000,000 shares of common stock as of December 31, 2019. Common stockholders are entitled to dividends as and when declared(Incorporated herein by the Board of Directors, subjectreference to the rightssame numbered exhibit of holders of all classes of stock outstanding having priority rightsour current report on Form 8-K (File No. 001-36361), as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.
The Company had reserved shares of common stock for future issuances as follows:
| | December 31, | | | | 2019 | | | 2018 | | Issuance of equity based awards under stock plan | | | 1,391,697 | | | | 1,201,581 | | Issuance upon exercise of options under stock plan | | | 1,820,160 | | | | 1,515,923 | | Issuance of restricted stock units under stock plan | | | 42,112 | | | | 117,597 | | Total | | | 3,253,969 | | | | 2,835,101 | |
F-18
In connectionfiled with the completionSEC on March 26, 2014).
| | | | 3.2 | | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the Merger,SEC on October 15, 2018,June 1, 2017). | | | | 3.3 | | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the amendedSEC on September 12, 2017). | | | | 3.4 | | Certificate of Amendment of Amended and restated certificateRestated Certificate of incorporationIncorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the Company was amended to effect, at 12:01 a.m. Eastern TimeSEC on October 16, 2018, a reverse split2018). | | | | 3.5 | | Certificate of Company CommonAmendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.2 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on October 16, 2018). | | | | 3.6 | | Certificate of Correction to Certificate of Amendment of Amended and Restated Certificate of Incorporation of Aravive, Inc. (Incorporated herein by reference to exhibit number 3.6 on our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019). | | | | 3.7 | | Amended and Restated Bylaws. (Incorporated herein by reference to Exhibit 3.4 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014). | | | 4.1 | | Form of Stock at a ratio of 1-for-6 (the “Amended Certificate”). The accompanying consolidated financial statements and notes to consolidated financial statements give retroactive effectCertificate. (Incorporated herein by reference to the reverse stock split for all periods presented. In December 2019, the Company closed a public offering of its common stock pursuant to which the Company issued 3,633,334 shares of common stock, which included shares issued pursuant to the underwriters’ partial exercise of their over-allotment option, and received net proceeds of approximately $25.1 million, after underwriting discounts, commissions and offering expenses.
Related party transaction
On December 2, 2019, an entity affiliated with a membersame numbered exhibit of our boardquarterly report on Form 10-Q (File No. 001-36361), for the quarterly period ended March 31, 2014, as filed with the SEC on May 14, 2014).
| | | 4.2# | | Description of directors, invested approximately $1,000,000 inCapital Securities.(Incorporated by reference to Exhibit 4.2 of our public offering and acquired 133,333 shares of common stock in the offering.Annual Report on Form 10-K (File No. 001-36361) as filed on March 16, 2021). | | | | 8. Stock Based Awards4.3*
| | Equity Incentive Plans
The Company’s Board of Directors, or Board, and stockholders approved theAravive, Inc. 2019 Equity Incentive Plan or(incorporated by reference to Appendix A to the 2019Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August 9, 2019). | | | 4.4 | | Form of Pre-Funded Common Stock Purchase Warrant of Aravive, Inc. (Incorporated herein by reference to Exhibit 4.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 4, 2022). | | | | 10.1* | | The Versartis 2009 Stock Plan, which became effectiveas amended. (Incorporated herein by reference to the same numbered exhibit of our registration statement on September 12, 2019. The 2019Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014). | | | 10.2* | | Form of Notice of Stock Option Grant and Incentive Stock Option Agreement under 2009 Stock Plan is a successorof Versartis, Inc. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014). | | | 10.3* | | Form of Notice of Stock Option Grant and continuationNon-Statutory Stock Option Agreement under 2009 Stock Plan. (Incorporated herein by reference to the same numbered exhibit of all prior plans includingour registration statement on Form S-1 (File No. 333-193997), as filed with the Company’sSEC on February 18, 2014). | | | 10.4* | | 2014 Equity Incentive Plan. (Incorporated herein by reference to Exhibit 10.6 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014). | | | 10.5* | | Form of 2014 Equity Incentive Plan Stock Option Grant Notice and Private Aravive’s 2017Stock Option Agreement of Versartis, Inc. (Incorporated herein by reference to Exhibit 99.5 of our registration statement on Form S-8 (File No. 333-194949), as filed with the SEC on April 1, 2014). | | | 10.6* | | Form of 2014 Equity Incentive Plan and the 2010 Equity Incentive Plan, as amended (Prior Plans). As of December 31, 2019, the total number of shares of common stock available for issuance under the 2019 Plan was 1,391,697. In addition, if the shares subject to outstanding stock options or other awards under the Prior Plans: (I) terminate or expire prior to exercise or settlement; (II) are not issued because the award is settled in cash; (III) are forfeited because of failure to vest; (IV) or are reacquired or withheld (or not issued) to satisfy a tax withholding obligation or the purchase or exercise price, if any, such shares will become available for issuance under the 2019 Plan. Unless the Board provides otherwise, beginning January 1, 2020 with expiration of January 1, 2029, the total number of shares of common stock available for issuance will automatically increase annually on January 1 of each calendar year by 4.5% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year. The 2019 Plan provides for granting of equity awards to employees, directors and consultants, including incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards and performance awards. Activity under the Company’s stock option plans is set forth below:
| | | | | | | | | | Weighted | | | | | | | | | | | | | | | | Average | | | | | | | | | | | | Weighted | | | Remaining | | | Aggregate | | | | | | | | Average | | | Contractual | | | Intrinsic | | | | Number of | | | Exercise | | | Life | | | Value | | | | Shares | | | Price | | | (in years) | | | (in thousands) | | Balances, January 1, 2018 | | | 607,511 | | | $ | 81.60 | | | | | | | | | | Additional shares authorized | | | — | | | | — | | | | | | | | | | Assumption of option plans associated with the merger | | | 1,183,950 | | | | 0.44 | | | | | | | | | | Options granted | | | — | | | | — | | | | | | | | | | Restricted stock units granted | | | — | | | | — | | | | | | | | | | Options exercised | | | (3,643 | ) | | | 9.66 | | | | | | | | | | Options cancelled | | | (271,895 | ) | | | 80.09 | | | | | | | | | | Balances, December 31, 2018 | | | 1,515,923 | | | | 18.65 | | | | | | | | | | Additional shares authorized | | | — | | | | — | | | | | | | | | | Options granted | | | 483,328 | | | | 5.55 | | | | | | | | | | Restricted stock units granted | | | — | | | | — | | | | | | | | | | Options exercised | | | (39,686 | ) | | | 2.40 | | | | | | | | | | Options cancelled | | | (139,405 | ) | | | 81.33 | | | | | | | | | | Balances, December 31, 2019 | | | 1,820,160 | | | $ | 10.70 | | | | 6.6 | | | $ | 18,957 | | Vested and expected to vest as of December 31, 2019 | | | 1,796,997 | | | $ | 10.75 | | | | 6.6 | | | $ | 18,778 | | Exercisable as of December 31, 2019 | | | 1,474,782 | | | $ | 11.31 | | | | 6.0 | | | $ | 16,311 | |
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The intrinsic values of outstanding, vested and exercisable options were determined by multiplying the number of shares by the difference in exercise price of the options and the fair value of the common stock. The intrinsic value of stock options exercised during the years ended December 31, 2019 and 2018, was $0.4 million and none, respectively.
The following table summarizes information with respect to stock options outstanding and currently exercisable and vested as of December 31, 2019:
| | | | | | | | | | Options Exercisable | | | | Options Outstanding | | | and Vested | | | | | | | | Weighted Average | | | | | | | Weighted Average | | | | | | | | Remaining | | | | | | | Remaining | | Range of | | Number | | | Contractual | | | Number | | | Contractual | | Exercise Prices | | Outstanding | | | Life (in Years) | | | Outstanding | | | Life (in Years) | | $0.06-$0.06 | | | 86,867 | | | | 1.5 | | | | 86,867 | | | | 1.5 | | $0.24-$0.24 | | | 621,098 | | | | 5.4 | | | | 621,098 | | | | 5.4 | | $0.66-$0.90 | | | 451,632 | | | | 7.8 | | | | 451,632 | | | | 7.8 | | $3.54-$5.83 | | | 385,673 | | | | 8.8 | | | | 110,828 | | | | 8.8 | | $5.87-$191.76 | | | 274,890 | | | | 5.8 | | | | 204,357 | | | | 5.8 | | | | | 1,820,160 | | | | | | | | 1,474,782 | | | | | |
Stock Options Granted to Employees
During the year ended December 31, 2019, the Company granted stock options to officers, directors and employees to purchase shares of common stock with a weighted-average grant date fair value of $4.69 per share. The fair value is being expensed over the vesting period of the options, which is usually 4 years on a straight-line basis as the services are being provided. No tax benefits were realized from options and other share-based payment arrangements during the periods. For the year ended December 31, 2018 the fair value assumptions noted below, were all related to the assumed fully vested stock options in accordance with the Merger. No options were granted during the year ended December 31, 2018.
As of December 31, 2019, total unrecognized employee stock-based compensation related to stock options granted was $2.0 million, which is expected to be recognized over the weighted-average remaining vesting period of 2.8 years.
The fair value of employee stock options was estimated using the Black-Scholes model with the following weighted-average assumptions:
| | Year Ended December 31, | | | | 2019 | | | 2018 | | Expected volatility | | | 111.0 | % | | | 132.0 | % | Risk-free interest rate | | | 2.4 | % | | | 3.0 | % | Dividend yield | | | 0.0 | % | | | 0.0 | % | Expected life (in years) | | | 6.0 | | | | 3.3 | |
Determining Fair Value of Stock Options
The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Each of these inputs is subjective and generally requires significant judgment to determine.
Expected Volatility – Beginning in 2018, the Company had enough historical stock price information in order to value the options assumed in the Merger. The Company continues to utilize our historical stock prices in order to estimate the expected volatility.
Risk-Free Interest Rate – The risk-free rate assumption was based on the U.S. Treasury instruments with terms that were consistent with the expected term of the Company’s stock options.
Expected Dividend – The expected dividend assumption was based on the Company’s history and expectation of dividend payouts.
Expected Term – The expected term of stock options represents the weighted average period the stock options are expected to be outstanding. For option grants that are considered to be “plain vanilla”, the Company has opted to use the simplified method for estimating the expected term as provided by the Securities and Exchange Commission. The simplified method calculates the expected term as the average time-to-vesting and the contractual life of the options.
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Forfeiture Rate – Forfeitures were estimated based on historical experience.
Fair Value of Common Stock – The fair value of the underlying common stock is based upon quoted prices on the Nasdaq Global Select Market.
Stock-based compensation expense, net of estimated forfeitures, is reflected in the statements of operations as follows (in thousands):
| | Year Ended December 31, | | | | 2019 | | | 2018 | | Operating Expenses | | | | | | | | | Research and development | | $ | 347 | | | $ | 2,946 | | General and administrative | | | 3,052 | | | | 13,193 | | Total | | $ | 3,399 | | | $ | 16,139 | |
2014 Employee Stock Purchase Plan
The board of directors adopted, and the Company’s stockholders approved, the 2014 Employee Stock Purchase Plan, or the ESPP, in March 2014. The ESPP became effective on March 20, 2014.
The maximum aggregate number of shares of common stock that may be issued under the ESPP per purchase period is 416 shares (which was adjusted for the reverse stock split that occurred in October 2018). In November 2019, the board of directors adopted a resolution to increase the maximum aggregate number of shares of common stock that may be issued under the ESPP per purchase period 2,500 shares, beginning with the offering period that starts in May 2020. Additionally, the number of shares of common stock reserved for issuance under the ESPP will increase automatically each year, beginning on January 1, 2015 and continuing through and including January 1, 2024, by the lesser of (i) 1% of the total number of shares of our common stock outstanding on December 31 of the preceding calendar year; and (ii) 50,000 shares of common stock (which was adjusted for the reverse stock split that occurred in October 2018). The board of directors may act prior to the first day of any calendar year to provide that there will be no January 1 increase or that the increase will be for a lesser number of shares than would otherwise occur. Shares subject to purchase rights granted under the ESPP that terminate without having been exercised in full will not reduce the number of shares available for issuance under the ESPP.
An employee may not be granted rights to purchase stock under the ESPP if such employee (i) immediately after the grant would own stock possessing 5% or more of the total combined voting power or value of the Company’s common stock, or (ii) holds rights to purchase stock under the ESPP that would accrue at a rate that exceeds $25,000 worth of our stock for each calendar year that the rights remain outstanding.
The administrator may approve offerings with a duration of not more than 27 months, and may specify one or more shorter purchase periods within each offering. Each offering will have one or more purchase dates on which shares of common stock will be purchased for the employees who are participating in the offering. The administrator, in its discretion, will determine the terms of offerings under the ESPP.
The ESPP permits participants to purchase shares of our common stock through payroll deductions with up to 15% of their earnings. The purchase price of the shares will be not less than 85% of the lower of the fair market value of our common stock on the first day of an offering or on the date of purchase. The fair value of the ESPP grants were immaterial for the years ended December 31, 2019 and 2018, respectively.
Restricted Stock Units Unit Grant Notice and 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 $1.4 million and $3.2 million, in compensation expense during the years ended December 31, 2019 and 2018, respectively. As all of the restricted stock vests through 2019 and beyond, the Company will continue to recognize stock-based compensation expense related to the grants of these restricted stock units. If all of the remaining restricted stock units that were granted in prior years vest, the Company will recognize approximately $0.7 million in compensation expense over a weighted average remaining period of 2 years. However, no compensation expense will be recognized for restricted stock units that do not vest. F-21
A summary of the Company’s restricted stock activity is presented in the following tables:
| | | | | | Weighted | | | | | | | | Average | | | | Number of | | | Grant Date | | | | Shares | | | Fair Value | | Restricted Stock Units | | | | | | | | | Unvested at December 31, 2018 | | | 117,597 | | | $ | 31.37 | | Granted | | | — | | | | — | | Vested | | | (59,567 | ) | | | 31.37 | | Forfeited/canceled | | | (15,918 | ) | | | 27.16 | | Unvested at December 31, 2019 | | | 42,112 | | | $ | 32.97 | |
9. Income Taxes
The provision (benefit) for federal income taxes in 2019 and 2018 is as follows (in thousands):
| | December 31, | | | | 2019 | | | 2018 | | Current | | | | | | | | | Federal | | $ | — | | | $ | — | | State | | | — | | | | — | | | | | — | | | | — | | Deferred | | | | | | | | | Federal | | $ | — | | | $ | — | | State | | | — | | | | — | | Total deferred tax expense | | | — | | | | — | | Total income tax expense | | $ | — | | | $ | — | |
| | December 31, | | | | 2019 | | | 2018 | | United States | | $ | (18,218 | ) | | $ | (76,256 | ) | Foreign | | | (0 | ) | | | (77 | ) | Net loss before provision for income taxes | | $ | (18,218 | ) | | $ | (76,333 | ) |
Income tax expense (benefit) in 2019 and 2018 differed from the amount expected by applying the statutory federal tax rate to the income or loss before taxes as summarized below:
| | December 31, | | | | 2019 | | | 2018 | | Federal tax benefit at statutory rate | | | 21 | % | | | 21 | % | Change in valuation allowance | | | (23 | )% | | | 103 | % | Section 382 limitation | | | — | | | | (109 | )% | Other non-deductible expenses | | | (1 | )% | | | (11 | )% | Stock based compensation | | | (7 | )% | | | (4 | ) | ASC 842 lease accounting | | | 10 | % | | | — | | Total | | | 0 | % | | | 0 | % |
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Deferred income taxes reflect the net tax effects of net operating loss and tax credit carryforwards and temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s net deferred tax assets at December 31, 2019 and 2018 are as follows (in thousands):
| | December 31, | | | | 2019 | | | 2018 | | Net operating loss carry forwards | | $ | 5,869 | | | $ | 2,335 | | Research and development tax credits | | | 90 | | | | 168 | | Stock based compensation and other | | | 5,099 | | | | 5,263 | | Operating lease obligation | | | 2,149 | | | | — | | Total deferred tax assets | | | 13,207 | | | | 7,766 | | Less: Valuation allowance | | | (11,326 | ) | | | (7,032 | ) | Deferred tax liabilities | | | (55 | ) | | | (734 | ) | Operating lease right-of-use assets | | | (1,826 | ) | | | — | | Net deferred tax assets | | $ | — | | | $ | — | |
Subsequent to the issuance of the December 31, 2018 consolidated financial statements, the Company corrected the deferred tax asset related to stock based compensation and valuation allowance disclosed in the table above to reflect the appropriate deferred tax asset and valuation allowance amounts as of December 31, 2018. The adjustment decreased the previously reported deferred tax asset and the previously reported valuation allowance by $3.3 million. The correction did not have a material impact on the consolidated financial statements for the year ended December 31, 2018 and did not impact the Company’s Consolidated Balance Sheets, Consolidated Statements of Operations, or Consolidated Statements of Cash Flows as of or for the year ended December 31, 2019.
The Company’s accounting for deferred taxes involves the evaluation of a number of factors concerning the realizability of its net deferred tax assets. The Company primarily considered such factors as its history of operating losses, the nature of the Company’s deferred tax assets, and the timing, likelihood and amount, if any, of future taxable income during the periods in which those temporary differences and carryforwards become deductible. At present, the Company does not believe that it is more likely than not that the deferred tax assets will be realized; accordingly, a full valuation allowance has been established and no deferred tax asset is shown in the accompanying consolidated balance sheets.
The valuation allowance increased by approximately $4.3 million in 2019 and decreased by $95.1 million in 2018.
At December 31, 2019, the Company has net operating loss carryforwards for federal income tax purposes of approximately $27.9 million, of which $23.1 million was generated post December 31, 2017 (after section 382 limitation) and will have no expiration date. The remaining $4.8 million of net operating loss carryforwards begin to expire in 2037. The Company also has federal research and development tax credits of approximately $90 thousand, which begin to expire in 2037.
As of December 31, 2019, the Company’s total gross deferred tax assets were $13.2 million. Due to the Company’s lack of earnings history and uncertainties surrounding our ability to generate future taxable income, the net deferred tax assets have been fully offset by a valuation allowance. The deferred tax assets were primarily comprised of federal tax net operating losses and tax credit carryforwards. Utilization of net operating losses and tax credit carryforwards may be limited by the “ownership change” rules, as defined in Section 382 of the Internal Revenue Code (any such limitation, a “Section 382 limitation”). Similar rules may apply under state tax laws. The Company has performed an analysis to determine whether an “ownership change” occurred from inception up to the Private Aravive's acquisition date. Based on this analysis during 2018, management determined that both Versartis, Inc. and Private Aravive did experience ownership changes, which resulted in a significant impairment of the net operating losses and credit carryforwards. In 2019, no additional ownership changes were noted.
The Company follows the provisions of FASB Accounting Standards Codification 740-10 (ASC 740-10), Accounting for Uncertainty in Income Taxes. ASC 740-10 prescribes a comprehensive model for the recognition, measurement, presentation and disclosure in consolidated financial statements of uncertain tax positions that have been taken or expected to be taken on a tax return. No liability related to uncertain tax positions is recorded in the consolidated financial statements. At December 31, 2019 and 2018, the Company’s reserve for unrecognized tax benefits is approximately $39 thousand and $72 thousand, respectively. Due to the above-mentioned Section 382 limitation and impairment of tax attributes, in 2018 there was a decrease in prior year unrecognized tax benefits of $3.9 million. Due to the full valuation allowance at December 31, 2018, current adjustments to the unrecognized tax benefit will have no impact on the Company’s effective income tax rate. The Company does not anticipate any significant change in its unrecognized tax benefits within 12 months of this reporting date. The Company includes penalties and interest expense related to income taxes as a component of other expense and interest expense, respectively, as necessary.
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Because the statute of limitations does not expire until after the net operating loss and credit carryforwards are actually used, the statute is effectively open for all tax years. However, due to the above-mentioned ownership change and impairment of net operating loss and credit carryforwards, only net operating loss and credit carryforwards post-January 14, 2017 are carried forward to future years for federal and state tax purposes.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):
| | Amount | | Balance at January 1, 2018 | | $ | 3,934 | | Gross increase/ (decrease) related to prior year tax positions | | | (3,934 | ) | Gross increase related to current year positions | | | 72 | | Reductions to unrecognized tax benefits related to lapsing statute of limitations | | | — | | Balance at December 31, 2018 | | $ | 72 | | Gross increase/ (decrease) related to prior year tax positions | | | (72 | ) | Gross increase related to current year positions | | | 39 | | Reductions to unrecognized tax benefits related to lapsing statute of limitations | | | — | | Balance at December 31, 2019 | | $ | 39 | |
All tax years remain open for examination by federal and state tax authorities.
The Tax Cuts and Jobs Act ("the Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. The Company is required to recognize the effect of the tax law changes in the period of enactment, such as determining the estimated transition tax, remeasuring our U.S. deferred tax assets and liabilities at a 21% rate as well as reassessing the net realizability of our deferred tax assets and liabilities.
Accordingly, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future. The provisional amount related to the re-measurement of our deferred tax balance is a reduction of approximately $33 million. Due to the corresponding valuation allowance fully offsetting deferred taxes, there is no income statement impact.
In December 2017, the SEC staff issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (SAB 118) which allows companies to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. In Q4 2018, the Company completed its analysis within the measurement period in accordance with SAB 118 and found no change to the provisional amount on 2017 tax provision.
10. Restructuring Plan
In October 2017, the Board of Directors of the Company approved a plan of termination to eliminate a number of positions effective October 20, 2017 (the “Restructuring Plan”), as part of its commitment to reduce costs following the failure of the Phase 3 VELOCITY trial of somavaratan to reach its primary endpoint. The reduction included 45 employees, which represented approximately 62% of its workforce as of October 6, 2017. Affected employees were notified of the Restructuring Plan on October 6, 2017. Simultaneously with the Restructuring Plan the Company established a Severance Benefit Plan (the “Plan”) for affected employees as well as a retention plan for retained employees. The Plan provides payment of severance benefits to affected employees of the Company. The Company granted approximately 907,000 restricted stock units to retained employees with a two year vesting schedule and offered a cash retention bonus of 50% of each retained employees then current base salary, which will be earned and payable subject to continued employment for an additional 12 months.
Employee severance costs are accrued when the restructuring actions are probable and estimable. Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period. During the year ended December 31, 2018, the Company incurred severance-related charges totaling $4.2 million, of which $1.7 million is included within general and administrative expenses and $2.5 million is included within research and development expenses. There was no balance owed under these restructuring plans as of December 31, 2018.
11. Employee Benefit Plans
Defined Contribution Plan
The Company sponsors a 401(k) Plan, which stipulates that eligible employees can elect to contribute to the 401(k) Plan, subject to certain limitations of eligible compensation. The Company may match employee contributions in amounts to be determined at the Company’s sole discretion. To date, the Company has not made any matching contributions.
Severance Benefit Plan & Retention Cash Bonus
Simultaneously with the Restructuring Plan, the Company established a Severance Benefit Plan (the “Plan”) for affected employees (See Note 10) as well as a retention plan for retained employees. The Plan provides payment of severance benefits to affected employees of the Company. The Company granted approximately 151,000 restricted stock units to retained employees with a two year vesting schedule and offered a cash retention bonus of 50% of each retained employees then current base salary, of which $1.5 million was paid in October 2018.
12. Net loss per share of Common Stock
The following table summarizes the computation of basic and diluted net loss per share attributable to common stockholders of the Company (in thousands, except per share data):
| | December 31, | | | | 2019 | | | 2018 | | Net loss attributable to common stockholders- basic and diluted | | $ | (18,218 | ) | | $ | (76,333 | ) | Net loss per share- basic and diluted | | $ | (1.57 | ) | | $ | (10.64 | ) | Weighted-average common shares used to compute net loss per share- basic and diluted | | | 11,589 | | | | 7,171 | |
Basic net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted net loss attributable to common stockholders per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and dilutive common stock equivalents outstanding for the period, determined using the treasury-stock method and the as-if converted method, for convertible securities, if inclusion of these is dilutive. Because the Company has reported a net loss for the years ended December 31, 2019 and 2018, the Company did not have dilutive common stock equivalents and therefore diluted net loss per common share is the same as basic net loss per common share for those years.
The following potentially dilutive securities outstanding at the end of the years presented have been excluded from the computation of diluted shares outstanding:
| | December 31, | | | | 2019 | | | 2018 | | Options to purchase common stock | | | 1,820,160 | | | | 1,515,923 | | Restricted stock units | | | 42,112 | | | | 117,597 | |
13. Merger with Aravive Biologics, Inc.
On October 12, 2018, pursuant to the terms of the Agreement and Plan of Merger and Reorganization, dated as of June 3, 2018, by and between the Company, then known as Versartis, Inc., Velo Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Merger Sub”), and Private Aravive, Merger Sub was merged with and into Private Aravive (the “Merger”), with Private Aravive surviving the Merger as a wholly-owned subsidiary of the Company. Pursuant to the terms of the Merger Agreement, at the effective time of the Merger or the Effective Time, each outstanding share of capital stock of Private Aravive (other than any shares held as treasury stock) was converted into the right to receive 2.2801 shares of the Company’s common stock, par value $0.0001 per share (the “Company Common Stock”), without giving effect to any adjustment for the reverse stock split described below, and (b) each outstanding Private Aravive stock option, all of which were in-the-money, whether vested or unvested, that had not previously been exercised prior to the Effective Time was converted into an option to purchase 2.2801 shares of the Company Common Stock for each share of Private Aravive common stock covered by such option. The aggregate consideration issued in the Merger to the former security holders of Private Aravive, was 5,141,915 shares of Company Common Stock.
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The Merger was accounted for as an asset acquisition by the Company. To determine the accounting for this transaction under GAAP, the Company assessed whether an integrated set of assets and activities were accounted for as an acquisition of a business or an asset acquisition. The guidance requires an initial screen test to determine if substantially all of the fair value of the gross assets acquired is concentrated in a single asset or group of similar assets. If that screen is met, the set is not a business. In connection with the acquisition of Private Aravive, the Company determined that substantially all the fair value is included in in-process research and development of Private Aravive’s lead asset, AVB-500 and, as such, the acquisition is treated as an asset acquisition. The net tangible and intangible assets acquired and liabilities assumed in connection with the transaction were recorded based on their relative fair values allocation as of October 12, 2018 and the value associated with in-process research and development will be expensed as it was determined to have no alternative future use. The estimate of the purchase price for the fair value of the identifiable tangible and intangible assets acquired and liabilities assumed, were as follows.
| | Amount | | | | (in thousands) | | Consideration | | | | | Common stock issued - 5,141,915 shares issued at $7.26 per share | | $ | 37,331 | | Transaction costs | | | 2,076 | | Total consideration | | $ | 39,407 | | | | | | | Assets acquired and liabilities assumed | | | | | Cash | | $ | 5,277 | | In-process research and development | | | 38,313 | | Assembled workforce | | | 366 | | Deferred revenue | | | (1,517 | ) | Contingent payable | | | (264 | ) | Other assets and liabilities | | | (2,768 | ) | Total net assets acquired | | $ | 39,407 | |
Corporate Name Change
On October 15, 2018, the Company changed its name to “Aravive, Inc.” from Versartis, Inc.Shares of Company Common Stock were previously listed on the Nasdaq Global Select Market under the symbol “VSAR.” The Company filed with The Nasdaq Stock Market, LLC (“Nasdaq”) a notification form for the listing of additional shares with respect to the shares of Company Common Stock to be issued to the holders of Aravive Biologics, Inc. capital stock in the Merger so that these shares are listed on Nasdaq. The Company Common Stock began trading on the Nasdaq Global Select Market under the symbol “ARAV” on October 16, 2018.
14. Subsequent Events
On January 8, 2020 upon the appointment of Ms. Hemrajani as the Company’s President and Chief Executive Officer, Jay Shepard resigned as the Company’s Chief Executive Officer and assumed Chairman of the Board of Directors. On January 9, 2020 the Company entered into a separation agreement with Mr. Shepard along with a consulting agreement. This consulting agreement provides that in consideration for Mr. Shepard providing transition services to the Company, the Company agreed to pay Mr. Shepard $150,000 payable pro-rata on a monthly basis over a six-month period along with reimbursement of all COBRA payments made for the benefits during the consulting period.
In March 2020, the World Health Organization declared coronavirus (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. A health pandemic is a disease outbreak that spreads rapidly and widely by infection and affects many individuals in an area or population at the same time. Aravive and the business of the supplier of our clinical product candidate and the suppliers of the standard of care drugs that are administered in combination with our clinical product candidate could be materially and adversely affected by the risks, or the public perception of the risks, related to a pandemic or other health crisis. Such events could result in the complete or partial closure of one or more manufacturing facilities which could impact our supply of our clinical product candidate or the standard of care drugs that are administered in combination with our clinical product candidate.
In March 2020, the Company has decided to amend its clear renal cell carcinoma to initiate treatment at 15 mg/kg or 20 mg/kg given the safety profile seen with the 15 mg/kg dosing cohort of the platinum resistant ovarian cancer (PROC) trial and the recent initiation of the 20 mg/kg dosing cohort in the PROC population. While this may delay first patient dosing, the overall timelines for top line data may not be significantly impacted given the higher starting dose, assuming the COVID-19 situation does not interfere with ongoing clinical studies. Also, to reduce the risk of unnecessary exposure of patients to COVID-19 that may be caused by
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patients coming to health centers for their AVB-500 intravenous infusion, the Company will pause new enrollment in its IgA nephropathy (IgAN) trial as this is a relatively healthy patient population with a chronic disease.
In addition, an outbreak near where our clinical trial sites are located would likely impact our ability to recruit patients, delay our clinical trials, and could affect our ability to complete our clinical trials within the planned time periods. It is not possible for the Company to predict the duration or magnitude of the adverse results of the outbreak and its effects on our business or results of operations at this time.
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Exhibit Index
Exhibit
Number
| | Description
| | | | 1.1
| | Equity DistributionUnit Award Agreement dated as of March 26, 2019 between Aravive, Inc. and Piper Jaffray & Co Incorporated herein by reference to exhibit number 1.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on March 26, 2019).
| | | | 3.1
| | Amended and Restated Certificate of Incorporation (Incorporated herein by reference to the same numbered exhibit of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on March 26, 2014).
| | | | 3.2
| | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on June 1, 2017).
| | | | 3.3
| | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on September 12, 2017).
| | | | 3.4
| | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on October 16, 2018).
| | | | 3.5
| | Certificate of Amendment of Amended and Restated Certificate of Incorporation of Versartis, Inc. (Incorporated herein by reference to exhibit number 3.2 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on October 16, 2018).
| | | | 3.6
| | Certificate of Correction to Certificate of Amendment of Amended and Restated Certificate of Incorporation of Aravive, Inc. (Incorporated herein by reference to exhibit number 3.6 on our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019).
| | | | 3.7
| | Amended and Restated Bylaws. (Incorporated herein by reference to Exhibit 3.4 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014).
| | | 4.1
| | Form of Stock Certificate. (Incorporated herein by reference to the same numbered exhibit of our quarterly report on Form 10-Q (File No. 001-36361), for the quarterly period ended March 31, 2014, as filed with the SEC on May 14, 2014).
| | | 4.2#
| | Description of Capital Securities.
| | | | 4.3*
| | The Aravive, Inc. 2019 Equity Incentive Plan (incorporated by reference to Appendix A to the Definitive Proxy Statement on Schedule 14A filed with the Securities and Exchange Commission on August 9, 2019).
| | | | 10.1
| | Lease by and between the Company and CA-Shorebreeze Limited Partnership, dated as of August 31, 2011. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.2*
| | 2009 Stock Plan, as amended. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.3*
| | Form of Notice of Stock Option Grant and Incentive Stock Option Agreement under 2009 Stock Plan. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.4*
| | Form of Notice of Stock Option Grant and Non-Statutory Stock Option Agreement under 2009 Stock Plan. (Incorporated herein by reference to the same numbered exhibit of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.5*
| | 2014 Equity Incentive Plan. (Incorporated herein by reference to Exhibit 3.4 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014).
| | | 10.6*
| | Form of 2014 Equity Incentive Plan Stock Option Grant Notice and Stock Option Agreement. (Incorporated herein by reference to Exhibit 99.5 of our registration statement on Form S-8 (File No. 333-194949), as filed with the SEC on April 1, 2014).
| | | 10.7*
| | Form of 2014 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361), as filed with the SEC on April 17, 2014).
|
Exhibit Number
| | Description
| | | | | | 10.8*
| | Change in Control Severance Plan. (Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 10, 2014).
| | | 10.9*
| | 2014 Employee Stock Purchase Plan. (Incorporated herein by reference to Exhibit 10.9 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014).
| | | 10.10*
| | Form of Indemnification Agreement by and between the Company and each of its directors and officers. (Incorporated herein by reference to Exhibit 10.10 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014).
| | | 10.11†
| | Services Agreement by and between the Company and Amunix Operating Inc., dated as of March 18, 2013. (Incorporated herein by reference to Exhibit 10.14 of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.12†
| | Second Amended and Restated Licensing Agreement by and between the Company and Amunix Operating, Inc., dated as of December 30, 2010. (Incorporated herein by reference to Exhibit 10.15 of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.13†
| | Letter Agreement by and between the Company and Amunix Operating, Inc., dated as of February 3, 2011. (Incorporated herein by reference to Exhibit 10.16 of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.14†
| | Amendment No. 1 to the Second Amended and Restated Licensing Agreement by and between the Company and Amunix Operating, Inc., dated as of January 7, 2013. (Incorporated herein by reference to Exhibit 10.17 of our registration statement on Form S-1 (File No. 333-193997), as filed with the SEC on February 18, 2014).
| | | 10.15
| | Amendment No. 2 to Second Amended and Restated Licensing Agreement by and between the Company and Amunix Operating, Inc., dated as of February 25, 2014. (Incorporated herein by reference to Exhibit 10.21 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 06, 2014).
| | | 10.16*
| | Offer letter between the Company and Jay Shepard dated as of May 12, 2015. (Incorporated herein by reference to Exhibit 10.7 of our quarterly report on Form 10-Q (File No. 001-36361), as filed with the SEC on August 8, 2015).
| | | | 10.17
| | Operating Lease Agreement by and between Versartis, Inc. and Bohannon Associates dated March 17, 2017 (Incorporated herein by reference to Exhibit 10.1 of our quarterly report on Form 10-Q (File No. 001-36361), as filed with the SEC on May 10, 2017).
| | | | 10.18†
| | Amended Amunix License Agreement by and between Versartis, Inc. and Amunix Operating, Inc. dated March 22, 2016 (Incorporated herein by reference to Exhibit 10.2 of our quarterly report on Form 10-Q (File No. 001-36361), as filed with the SEC on August 7, 2017).
| | | | 10.19*
| | Offer Letter with Robert Gut, dated August 30, 2017 (Incorporated herein by reference to Exhibit 10.37 of our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 6, 2018).
| | | | 10.20
| | Agreement and Plan of Merger and Organization among Versartis, Inc., Velo Merger Sub, Inc. and Aravive Biologics, Inc. dated as of June 3, 2018 (Incorporated herein by reference to Exhibit 2.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 4, 2018).
| | | | 10.21
| | Form of Support Agreement, by and between Versartis, Inc. and Aravive Biologics, Inc.’s directors, officers and certain stockholders (Incorporated herein by reference to Exhibit 2.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 4, 2018).
| | | | 10.22
| | Form of Support Agreement, by and between Aravive Biologics, Inc. and Versartis, Inc.’s directors, officers and certain stockholders (Incorporated herein by reference to Exhibit 2.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 4, 2018).
| | | | 10.23
| | Cancer Research Grant Contract, dated December 1, 2015, by and between the Cancer Prevention and Research Institute of Texas and Ruga Corporation (Incorporated herein by reference to Exhibit 10.1 of our registration statement on Form S-4/A (File No. 333-226594 as filed with the SEC on August 24, 2018).
| | | | 10.24†
| Number | | Description | | | 10.7* | | Change in Control Severance Plan Established by Versartis, Inc. (Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 10, 2014). | | | 10.8* | | 2014 Employee Stock Purchase Plan. (Incorporated herein by reference to Exhibit 10.9 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014). | | | 10.9* | | Form of Indemnification Agreement by and between the Company and each of its directors and officers. (Incorporated herein by reference to Exhibit 10.10 of our registration statement on Form S-1, as amended (File No. 333-193997), as filed with the SEC on March 6, 2014). | | | | 10.10 | | Agreement and Plan of Merger and Organization among Versartis, Inc., Velo Merger Sub, Inc. and Aravive Biologics, Inc. dated as of June 3, 2018 (Incorporated herein by reference to Exhibit 2.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 4, 2018). | | | | 10.11† | | Cancer Research Grant Contract, dated December 1, 2015, by and between the Cancer Prevention and Research Institute of Texas and Ruga Corporation (Incorporated herein by reference to Exhibit 10.1 of our registration statement on Form S-4/A (File No. 333-226594 as filed with the SEC on August 24, 2018). | | | | 10.12† | | Exclusive License Agreement, dated January 25, 2012, by and between The Board of Trustees of the Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.2 of our registration statement on Form S-4/A (File No. 333-226594 as filed with the SEC on August 24, 2018). | | | | 10.13† | | Amendment to the Exclusive License Agreement, dated July 26, 2012, by and between the Board of Trustees of Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.3 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018). | | | | 10.14† | | Amendment No. 2 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.4 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018). | | | | 10.15† | | Amendment No. 3 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.5 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018). | | | | 10.16† | | Master Manufacturing Services Agreement, dated July 11, 2016, by and between WuXi Biologics (Hong Kong) Limited and Aravive Biologics, Inc. (Incorporated herein by reference to Exhibit 10.6 of our registration statement on Form S-4/A (File No. 333-226594 as filed with the SEC on August 24, 2018). | | | | 10.17† | | License Agreement dated December 1, 2017, by and between WuXi Biologics (Hong Kong) Limited and Aravive Biologics, Inc. (Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018). | | | | 10.18* | | Indemnification Agreement dated October 17, 2016, by and between Ruga Corporation and Vinay Shah (Incorporated herein by reference to Exhibit 10.8 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018). | | | | 10.19 | | Sublease dated August 21, 2018, by and among Versartis, Inc. and Eva Automation, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on September 20, 2018). | | | | 10.20* | | Aravive, Inc. 2017 Equity Incentive Plan (Incorporated herein by reference to Exhibit 4.9 of our registration statement on Form S-8 (File No. 333-227865), as filed with the SEC on October 17, 2018). | | | | 10.21* | | Aravive, Inc. 2010 Equity Incentive Plan, as amended (Incorporated herein by reference to Exhibit 4.10 of our registration statement on Form S-8 (File No. 333-227865), as filed with the SEC on October 17, 2018). |
Exhibit Number
| Number | | Description | | | | | | | 10.25†
| | Amendment to the Exclusive License Agreement, dated July 26, 2012, by and between the Board of Trustees of Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.3 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
| | | | 10.26†
| | Amendment No. 2 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.4 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
| | | | 10.27†
| | Amendment No. 3 to the Exclusive License Agreement, dated September 25, 2017, by and between The Board of Trustees of the Leland Stanford Junior University and Ruga Corporation (Incorporated herein by reference to Exhibit 10.5 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
| | | | 10.28†
| | Master Manufacturing Services Agreement, dated July 11, 2016, by and between WuXi Biologics (Hong Kong) Limited and Aravive Biologics, Inc. (Incorporated herein by reference to Exhibit 10.6 of our registration statement on Form S-4/A (File No. 333-226594 as filed with the SEC on August 24, 2018).
| | | | 10.29†
| | License Agreement dated December 1, 2017, by and between WuXi Biologics (Hong Kong) Limited and Aravive Biologics, Inc. (Incorporated herein by reference to Exhibit 10.7 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
| | | | 10.30†
| | Indemnification Agreement dated October 17, 2016, by and between Ruga Corporation and Vinay Shah (Incorporated herein by reference to Exhibit 10.8 of our registration statement on Form S-4 (File No. 333-226594 as filed with the SEC on August 3, 2018).
| | | | 10.31
| | Sublease dated August 21, 2018, by and among Versartis, Inc. and Eva Automation, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on September 20, 2018).
| | | | 10.32*
| | Aravive, Inc. 2017 Equity Incentive Plan (Incorporated herein by reference to Exhibit 4.9 of our registration statement on Form S-8 (File No. 333-227865), as filed with the SEC on October 17, 2018).
| | | | 10.33*
| | Aravive, Inc. 2010 Equity Incentive Plan, as amended (Incorporated herein by reference to Exhibit 4.10 of our registration statement on Form S-8 (File No. 333-227865), as filed with the SEC on October 17, 2018).
| | | | 10.34*
| | Separation Agreement with Paul Westberg effective November 15, 2018 (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on November 20, 2018).
| | | | 10.35*
| | Separation Agreement with Tracy Woody effective November 15, 2018 (Incorporated herein by reference to Exhibit 10.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on November 20, 2018).
| | | | 10.36*
| | Amendment to Jay Shepard Offer Letter dated as of February 6, 2019 (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
| | | | 10.37*
| | Offer Letter dated February 1, 2017 and the amendment thereto dated May 30, 2018 by and between Aravive Biologics, Inc. and Vinay Shah (Incorporated herein by reference to Exhibit 10.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
| | | | 10.38*
| | Severance Agreement dated May 31, 2018 and amendment thereto dated September 24, 2018 between Aravive Biologics, Inc. and Vinay Shah (Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
| | | | 10.39*
| | Offer Letter dated January 1, 2017 by and between Aravive Biologics, Inc. and Gail McIntyre (Incorporated herein by reference to Exhibit 10.4 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019).
| | | | 10.40*
| | Non-Employee Director Compensation Policy, as amended January 3, 2019 (Incorporated herein by reference to exhibit number 10.60 on our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019).
| | | | 10.41*
| | Amendment to Jay Shepard Offer Letter effective as of February 28, 2019 (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on March 6, 2019).
| | | | 10.42*
| | First Amendment to Aravive, Inc. 2014 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on March 6, 2019).
| | | | 10.43*
| | Offer Letter, dated January 8, 2020, between Rekha Hemrajani and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
| | | | 10.22* | | Severance Agreement dated May 31, 2018 and amendment thereto dated September 24, 2018 between Aravive Biologics, Inc. and Vinay Shah (Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 12, 2019). | | | | 10.23* | | Non-Employee Director Compensation Policy of Aravive, Inc., as amended January 3, 2019 (Incorporated herein by reference to exhibit number 10.60 on our annual report on Form 10-K (File No. 001-36361), as filed with the SEC on March 15, 2019). | | | | 10.24* | | First Amendment to Aravive, Inc. 2014 Equity Incentive Plan (Incorporated herein by reference to Exhibit 10.2 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on March 6, 2019). | | | | 10.25* | | Offer Letter, dated January 8, 2020, between Rekha Hemrajani and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020). | | | | 10.26* | | Separation Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020). | | | | 10.27 | | Consulting Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.4 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020). | | | | 10.28* | | Aravive, Inc. 2019 Equity Incentive Plan (Incorporated herein by reference to Exhibit 99.1 of our registration statement on Form S-8 (File No. 333-233866), as filed with the SEC on September 20, 2019). | | | | 10.29* | | Form of Stock Option Grant Notice and Stock Option Agreement and Notice of Exercise of Aravive, Inc. under the 2019 Incentive Plan (Incorporated herein by reference to Exhibit 99.2 of our registration statement on Form S-8 (File No. 333-233866), as filed with the SEC on September 20, 2019). | | | | 10.30* | | Offer Letter, dated March 26, 2020, between Vinay Shah and Aravive, Inc. (Incorporated by reference to Exhibit 10.48 of our Annual Report on Form 10-K (File No. 001-36361) as filed on March 27, 2020). | | | | 10.31* | | Offer Letter, dated March 26, 2020 between Gail McIntyre and Aravive, Inc. (Incorporated by reference to Exhibit 10.49 of our Annual Report on Form 10-K (File No. 001-36361) as filed on March 27, 2020). | | | | 10.32* | | Form of 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement. (Incorporated by reference to Exhibit 10.50 of our Annual Report on Form 10-K (File No. 001-36361) as filed on March 27, 2020). | | | | 10.33 | | Investment Agreement, dated as of April 6, 2020, by and among Aravive, Inc., Eshelman Ventures, LLC, and, solely for purposes of Article IV and Article V of the Investment Agreement, Fredric N. Eshelman, Pharm.D. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020). | | | | 10.34* | | Separation Agreement dated April 8, 2020 between Aravive, Inc. and Rekha Hemrajani (Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020). | | | | 10.35* | | Option Agreement dated April 8, 2020 by and between Aravive, Inc. and Srini Akkaraju (Incorporated herein by reference to Exhibit 10.4 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020) | | | | 10.36* | | Option Agreement dated April 8, 2020 by and between Aravive, Inc. and Jay Shepard. (Incorporated herein by reference to Exhibit 10.5 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020) | | | | 10.37* | | Option Agreement dated April 8, 2020 by and between Aravive, Inc. and Robert Hoffman. (Incorporated herein by reference to Exhibit 10.6 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020) |
Exhibit Number
| | Description
| | | | | | | 10.44*
| | Separation Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.3 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
| | | | 10.45
| | Consulting Agreement, dated January 9, 2020, between Jay Shepard and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.4 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 9, 2020).
| | | | 10.46*
| | Aravive, Inc. 2019 Equity Incentive Plan (Incorporated herein by reference to Exhibit 99.1 of our registration statement on Form S-8 (File No. 333-233866), as filed with the SEC on September 20, 2019).
| | | | 10.47*
| | Form of Stock Option Grant Notice and Stock Option Agreement (Incorporated herein by reference to Exhibit 99.2 of our registration statement on Form S-8 (File No. 333-233866), as filed with the SEC on September 20, 2019).
| | | | 10.48#*
| | Offer Letter, dated March 26, 2020, between Vinay Shah and Aravive, Inc.
| | | | 10.49#*
| | Offer Letter, dated March 26, 2020 between Gail McIntyre and Aravive, Inc.
| | | | 10.50#*
| | Form of 2019 Equity Incentive Plan Restricted Stock Unit Grant Notice and Restricted Stock Unit Award Agreement.
| | | | 21.1#
| | List of Subsidiaries.
| | | | 23.1#
| | Consent of BDO USA, LLP.
| | | | 24.1#
| | Power of Attorney (included in the signature page hereto).
| | | 31.1#
| | 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.
| | | 31.2#
| | 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.
| | | 32.1#
| | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | | 32.2#
| | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
| | | 101.INS
| | XBRL Instance Document
| | | 101.SCH
| | XBRL Taxonomy Extension Schema Document
| | | 101.CAL
| | XBRL Taxonomy Extension Calculation Linkbase Document
| | | 101.DEF
| | XBRL Taxonomy Extension Definition Linkbase Document
| | | 101.LAB
| | XBRL Taxonomy Extension Label Linkbase Document
| | | 101.PRE
| | XBRL Taxonomy Extension Presentation Linkbase Document
| Number | | Description | | | | 10.38* | | Amendment to Offer Letter dated as of April 8, 2020 by and between Aravive, Inc. and Gail McIntyre. (Incorporated herein by reference to Exhibit 10.7 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on April 9, 2020) | | | | 10.39†† | | Collaboration and License Agreement between Aravive, Inc. and 3D Medicines Inc. dated November 6, 2020 (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on November 10, 2020) | | | | 10.40* | | Consulting Agreement, dated December 31, 2020, between Aravive, Inc. and Ray Tabibiazar (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 1, 2021) | | | | 10.41* | | Offer Letter, dated September 8, 2020 between Reshma Rangwala and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.48 of our Annual Report on Form 10-K (File No. 001-36361 as filed with the SEC on March 16, 2021) | | | | 10.42 | | Amendment to Offer Letter dated as of January 25, 2021 by and between Aravive, Inc. and Gail McIntyre (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 27, 2021) | | | | 10.43 | | Securities Purchase Agreement dated as of February 12, 2021 by and between Aravive, Inc. and Eshelman Ventures, LLC (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on February 16, 2021) | | | | 10.44 | | Sublease entered into as of June 8, 2021 by and between Aravive, Inc, and Grail, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on June 14, 2021) | | | | 10.45 | | Investment Agreement, dated as of January 3, 2022, by and among Aravive, Inc., Eshelman Ventures, LLC, and solely for purposes of Article IV and V of the Investment Agreement, Fredric N. Eshelman, Pharm.D. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on January 4, 2022) | | | | 10.46* | | Offer Letter, dated February 20, 2022 and effective as of March 22, 2022, between Leonard Scott Dove and Aravive, Inc. (Incorporated herein by reference to Exhibit 10.1 of our current report on Form 8-K (File No. 001-36361 as filed with the SEC on March 22, 2022) | | | | 21.1# | | List of Subsidiaries. | | | | 23.1# | | Consent of BDO USA, LLP. | | | | 24.1# | | Power of Attorney (included in the signature page hereto). | | | 31.1# | | 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. | | | 31.2# | | 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. | | | 32.1# | | Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | 32.2# | | Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | | | 101.INS | | Inline XBRL Instance Document | | | 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 (embedded within the Inline XBRL and contained in Exhibit 101) | |
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† | Registrant has been granted confidential treatment for certain portions of this agreement. The omitted portions have been filed separately with the SEC. |
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†† | Registrant has omitted certain portions of this exhibit in accordance with Item 601 (b)(10) of Regulation S-K. The Company agrees to furnish unredacted copies of these exhibits to the SEC upon request. |
* | Indicates management contract or compensatory plan. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. | | | Aravive, Inc. | | | | Date: March 27, 2020
| | By:
| | /s/ Rekha Hemrajani
| | | | | Rekha Hemrajani
| | | | | | | | Date: March 31, 2022 | | By: | | /s/ Gail McIntyre | | | | | Gail McIntyre | | | | | Chief Executive Officer and President (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Rekha Hemrajani and Vinay Shah, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission,
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Gail McIntyre and Vinay Shah, and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the SEC, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them, or their or his substitutes or substitute, may lawfully do or cause to be done by virtue hereof. Signature | | | Title | | Date | | | | | | | /s/ Gail McIntyre | | | Chief Executive Officer and Director | | March 31, 2022 | Gail McIntyre | | | (Principal Executive Officer) | | | | | | | | | /s/ Vinay Shah | | | Chief Financial Officer | | March 31, 2022 | Vinay Shah | | | (Principal Financial Officer & Principal Accounting Officer) | | | | | | | | | /s/ Fredric N. Eshelman, Pharm.D. | | | Director | | March 31, 2022 | Fredric N. Eshelman, Pharm.D. | | | (Executive Chairman of the Board of Directors) | | | | | | | | | /s/ Amato Giaccia, Ph. D. | | | Director | | March 31, 2022 | Amato Giaccia, Ph. D. | | | | | | | | | | | | /s/ Michael W. Rogers | | | Director | | March 31, 2022 | Michael W. Rogers | | | | | | | | | | | | /s/ Eric Zhang | | | Director | | March 31, 2022 | Eric Zhang | | | | | | | | | | | | /s/ Sigurd Kirk | | | Director | | March 31, 2022 | Sigurd Kirk | | | | | | | | | | | | /s/ John A. Hohneker, M.D. | | | Director | | March 31, 2022 | John A. Hohneker, M.D. | | | | | | | | | | | | /s/ Peter T. C. Ho, M.D., Ph.D. | | | Director | | March 31, 2022 | Peter T. C. Ho, M.D., Ph.D. | | | | | |
Signature
| | Title
| | Date
| | | | | | /s/ Rekha Hemrajani
| | Chief Executive Officer, President and Director
(Principal Executive Officer)
| | March 27, 2020
| Rekha Hemrajani
| | | | | | | | | /s/ Vinay Shah
| | Chief Financial Officer
(Principal Financial Officer &
Principal Accounting Officer)
| | March 27, 2020
| Vinay Shah
| | | | | | | | | /s/ Srinivas Akkaraju, M.D., Ph.D.
| | Director
| | March 27, 2020
| Srinivas Akkaraju, M.D., Ph.D.
| | | | | | | | | | /s/ Amato Giaccia, Ph. D.
| | Director
| | March 27, 2020
| Amato Giaccia, Ph. D.
| | | | | | | | | | /s/ Robert E. Hoffman
| | Director
| | March 27, 2020
| Robert E. Hoffman
| | | | | | | | | | /s/ Ray Tabibiazar, M.D.
| | Director
| | March 27, 2020
| Ray Tabibiazar, M.D.
| | | | | | | | | | /s/ Jay P. Shepard
| | Director
(Chairman of the Board)
| | March 27, 2020
| Jay P. Shepard
| | | | | | | | | | /s/ Eric Zhang
| | Director
| | March 27, 2020
| Eric Zhang
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