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| PART I. | FINANCIAL INFORMATION | 7 |
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| Item 1. | Financial Statements (Unaudited) | 7 |
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| | Condensed Consolidated Balance Sheets | 7 |
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| | Condensed Consolidated Statements of Operations and Comprehensive Loss | 8 |
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| | Condensed Consolidated Statements of Stockholders’ Equity | 9 |
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| | Condensed Consolidated Statements of Cash Flows | 10 |
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| | Notes to Unaudited Condensed Consolidated Financial Statements | 11 |
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| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 |
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| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
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| Item 4. | Controls and Procedures | 27 |
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| PART II. | OTHER INFORMATION | 27 |
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| Item 1. | Legal Proceedings | 27 |
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| Item 1A. | Risk Factors | 28 |
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 76 |
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| Item 3. | Defaults Upon Senior Securities | 76 |
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| Item 4. | Mine Safety Disclosures | 76 |
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| Item 5. | Other Information | 76 |
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| Item 6. | Exhibits | 77 |
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| | Signatures | 78 |
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SUMMARY OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS
Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:
| ● | We are a clinical-stage biopharmaceutical company with a limited operating history. |
| ● | We have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We may never achieve or maintain profitability. |
| ● | We have no products approved for commercial sale and have not generated any revenue from product sales. |
| ● | Our business is entirely dependent on the successful development, regulatory approval and commercialization of AV-101, our only product candidate under development. |
| ● | We are conducting our first late-stage clinical trial of AV-101, a dry powder formulation of imatinib for the treatment of PAH administered using a dry powder inhaler, to assess its safety and tolerability. Although we believe that AV-101 has therapeutic potential for PAH based on oral imatinib’s results in the Phase 3 IMPRES trial, we are utilizing a novel dry powder formulation which may not achieve better or similar levels of clinical activity or may have similar tolerability challenges as oral imatinib. The results of earlier studies and trials of oral imatinib in PAH patients and our Phase 1 clinical trial of AV-101 in healthy volunteers may not be predictive of future trial results for AV-101. |
| ● | If we encounter future difficulties with site activation and patient enrollment in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected. |
| ● | We face, and will continue to face, significant competition and our failure to effectively compete may prevent us from achieving significant market penetration for AV-101, if approved. Most of our competitors have significantly greater resources than we do and we may not be able to successfully compete. |
| ● | We rely, and intend to continue to rely, on qualified third parties to supply all components of AV-101. As a result, we are dependent on several third parties, some of which are sole source suppliers, for the manufacture of AV-101 and our supply chain, and if we experience problems with any of these suppliers, or they fail to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, it would materially and adversely affect our business. |
| ● | We rely, and intend to continue to rely, on third parties in the conduct of all of our clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for AV-101. |
| ● | We have six issued U.S. patents and many pending patent applications with respect to AV-101. We can provide no assurance that any of our other current or future patent applications will result in issued patents. If we cannot protect our patent rights or our other proprietary rights, others may develop products similar or identical to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop. |
| ● | We may be unable to obtain regulatory approval for AV-101 under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of AV-101 and adversely impact our potential to generate revenue, our business and our results of operations. |
| ● | AV-101 is a drug-device combination product, which may result in additional regulatory risks. |
| ● | We are currently conducting, and may in the future conduct clinical trials for AV-101 outside the United States, and the U.S. Food and Drug Administration, or FDA, European Medicines Agency, or EMA, and applicable foreign regulatory authorities may not accept data from such trials. |
| ● | We will need to increase the size of our organization, and we may experience difficulties in managing growth. |
| ● | We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and retaining highly qualified personnel, our business may be materially and adversely affected. |
| ● | Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations. |
The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission, or the SEC. If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full under Item 1A of this Quarterly Report on Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:
| ● | the initiation, timing, progress, results and cost of our research and development program for AV-101 and our current and future clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work and the period during which the results of the trials will become available; |
| ● | our expectations regarding the potential market size and size of the potential patient populations for AV-101, if approved for commercial use; |
| ● | our clinical and regulatory development plans; |
| ● | our expectations with regard to the data to be derived from our ongoing global Phase 2b/Phase 3 clinical trial, or any other product candidates that we may identify or develop; |
| ● | the timing or likelihood of regulatory filings and approvals for AV-101; |
| ● | our ability to commercialize AV-101, if approved; |
| ● | the rate and degree of market acceptance of AV-101, including our expectations regarding prescriber interest in novel agents such as AV-101; |
| ● | the pricing and reimbursement of AV-101, if approved; |
| ● | the implementation of our business model and strategic plans for our business and AV-101; |
| ● | estimates of our future expenses, revenues, capital requirements and our needs for additional financing, and our ability to obtain additional capital; |
| ● | the scope of protection we are able to establish and maintain for intellectual property rights covering AV-101, including the projected terms of patent protection; |
| ● | regulatory developments in the United States and foreign countries; |
| ● | our ability to enter into strategic collaborations, including for the commercialization of AV-101 outside the United States; |
| ● | our ability to contract with third-party suppliers, manufacturers and contract research organizations, or CROs, and their ability to perform adequately; |
| ● | the success of competing therapies for PAH that are or may become available; |
| ● | developments relating to our competitors and our industry, including the impact of government regulation; |
| ● | our ability to attract and retain key scientific or management personnel; |
| ● | our ability to obtain additional funding for our operations, when needed, including funding necessary to complete further development and commercialization of AV-101, if approved; |
| ● | our financial performance; and |
| ● | other risks and uncertainties, including those listed under the section titled “Risk Factors.” |
In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed above under “Summary of the Material Risks Associated with Our Business” and under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the Securities and Exchange Commission, or the SEC, as exhibits hereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.
This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
