On May 19, 2023, AVROBIO, Inc., a Delaware corporation (the “Company”), entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Novartis Pharma AG and Novartis Pharmaceuticals Corporation (collectively, the “Purchaser”), providing for the sale of the Company’s cystinosis gene therapy program (designated AVR-RD-04) and all other assets of the Company specifically related to this program. In addition, pursuant to the Asset Purchase Agreement, the Company has granted an exclusive license to the Purchaser to use certain intellectual property of the Company, which consists of certain proprietary elements of the Company’s plato® gene therapy platform technology specifically within the field of cystinosis. The foregoing transactions contemplated by the Asset Purchase Agreement are referred to as the “Asset Sale”. The Company has also agreed not to assert claims against the Purchaser for violations of certain other Company intellectual property rights in connection with the Purchaser’s exercise of the exclusive license granted to it under the Asset Purchase Agreement, and for violations of the licensed intellectual property, except in connection with activities by the Purchaser in the fields of Gaucher disease, Pompe disease, Hunter syndrome and Fabry disease, or indemnification claims under the Asset Purchase Agreement. The aggregate consideration to the Company consists of a cash payment of $87.5 million upon closing of the transaction on June 9, 2023 (the “Closing Date”).
The Asset Purchase Agreement contains certain customary representations, warranties and covenants. The Asset Purchase Agreement also contains customary indemnification provisions pursuant to which the parties agree to indemnify each other for certain matters, including, among other things, breaches of certain representations, warranties and covenants in connection with the Asset Sale, subject to specified caps and limitations. The Company has also agreed to a covenant that would prohibit the Company from engaging in specified activities that would compete with the cystinosis business, for a period of 5 years, subject to certain limitations and exceptions. Completion of the Asset Sale was subject to the satisfaction or waiver of customary closing conditions, including a requirement to obtain third party consents from certain of the Company’s key suppliers and licensors, and a requirement to terminate any liens, including those imposed under the Company’s Loan and Security Agreement (the “Term Loan Facility”), dated as of November 2, 2021, with Silicon Valley Bank, a division of First-Citizens Bank & Trust and the other parties thereto. Upon closing, the Company utilized a portion of the transaction proceeds to pay off its outstanding balance under the Term Loan Facility.
The following unaudited pro forma condensed consolidated financial statements are intended to show how the Asset Sale might have affected the historical financial statements of the Company if the Asset Sale had been completed at an earlier time as indicated therein, and such unaudited pro forma consolidated financial statements are derived from, and should be read in conjunction with, the Company’s historical condensed consolidated financial statements and notes thereto, as presented in the Company’s Quarterly Report on Form 10-Q for the three months ended March 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on May 11, 2023 (the “Form 10-Q”) and the Company’s historical financial statements and notes thereto, as presented in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022 filed with the SEC on March 23, 2023 (the “Form 10-K”).
The unaudited pro forma condensed combined financial information was prepared in accordance with Article 11 of Regulation S-X. The unaudited pro forma condensed consolidated balance sheet as of March 31, 2023 assumes the transaction had occurred on March 31, 2023. The unaudited pro forma condensed consolidated statements of operations for the three months ended March 31, 2023 and the year ended December 31, 2022 give effect to the transaction as if it had occurred as of January 1, 2022.
In addition, Regulation S-X permits registrants to reflect adjustments that depict synergies and dis-synergies of the acquisitions and dispositions for which pro forma effect is being given in the Company’s disclosures as management adjustments. The Company has determined not to disclose such adjustments because it does not believe that presentation of such adjustments would enhance an understanding of the pro forma effects of the Asset Sale.
The accounting adjustments to reflect the Asset Sale in the unaudited pro forma consolidated financial statements include:
The unaudited pro forma consolidated financial statement information is presented for informational purposes only and is based upon estimates by the Company’s management, which are based upon available information and certain assumptions that the Company’s management believes are reasonable as of the date of this filing. The unaudited pro forma consolidated financial statements are not intended to be indicative of the actual financial position or results of operations that would have been achieved had the Asset Sale been consummated as of the periods indicated, nor does it purport to indicate results which may be attained in the future. Actual amounts could differ materially from these estimates.
The unaudited pro forma consolidated balance sheet as of March 31, 2023 and the unaudited pro forma consolidated statements of operations for three months ended March 31, 2023 and the year ended December 31, 2022 should be read in conjunction with the notes thereto.
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| | | Transaction Accounting Adjustments | | | |
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| | Historical AVROBIO (a) | | | Operations of Sold Assets (b) | |
| | Pro Forma Adjustments (c) | |
| | Pro Forma AVROBIO | |
| Assets | | | | | | | | | | | | | | |
| Current assets: | | | | | | | | | | | | | | |
| Cash and cash equivalents | | $ | 72,326 | | | $ | (16,403 | ) | (d) | | $ | 84,024 | | (f) | | $ | 139,947 | |
| Prepaid expenses and other current assets | | | 4,925 | | | | (714 | ) | (e) | | | — | | | | | 4,211 | |
| Total current assets | | | 77,251 | | | | (17,117 | ) | | | | 84,024 | | | | | 144,158 | |
| Operating lease assets | | | 2,857 | | | | — | | | | | — | | | | | 2,857 | |
| Property and equipment, net | | | 2,574 | | | | — | | | | | — | | | | | 2,574 | |
| Restricted cash, net of current portion | | | 283 | | | | — | | | | | — | | | | | 283 | |
| Other assets | | | 40 | | | | — | | | | | — | | | | | 40 | |
| Total assets | | $ | 83,005 | | | $ | (17,117 | ) | | | $ | 84,024 | | | | $ | 149,912 | |
| Liabilities and stockholders’ equity | | | | | | | | | | | | | | | | | | |
| Current liabilities: | | | | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 591 | | | $ | — | | | | $ | — | | | | $ | 591 | |
| Accrued expenses and other current liabilities | | | 11,081 | | | | (553 | ) | (e) | | | (286 | ) | | | | 10,242 | |
| Operating lease liabilities, current | | | 2,627 | | | | — | | | | | — | | | | | 2,627 | |
| Total current liabilities | | | 14,299 | | | | (553 | ) | | | | (286 | ) | | | | 13,460 | |
| Note payable, net of discount | | | 15,356 | | | | (15,356 | ) | (d) | | | — | | | | | | |
| Operating lease liabilities, net of current portion | | | 352 | | | | — | | | | | — | | | | | 352 | |
| Total liabilities | | | 30,007 | | | | (15,909 | ) | | | | (286 | ) | | | | 13,812 | |
| Stockholders’ equity | | | | | | | | | | | | | | | | | | |
| Common stock, $0.0001 par value; 150,000 shares authorized; 44,088 shares issued and outstanding as of March 31, 2023 | | | 4 | | | | — | | | | | — | | | | | 4 | |
| Additional paid-in capital | | | 567,383 | | | | — | | | | | — | | | | | 567,383 | |
| Accumulated deficit | | | (514,389 | ) | | | (1,208 | ) | | | | 84,310 | | | | | (431,287 | ) |
| Total stockholders’ equity | | | 52,998 | | | | (1,208 | ) | | | | 84,310 | | | | | 136,100 | |
| Total liabilities and stockholders’ equity | | $ | 83,005 | | | $ | (17,117 | ) | | | $ | 84,024 | | | | $ | 149,912 | |
