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| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
2020
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
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Delaware | 20-5258327 | |||||
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1035 O’Brien
Menlo Park,
94063
656-9323
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Common Stock, par value $0.0001 per share | ADVM | Nasdaq Global Market | ||||||||||||
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
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•the initiation, progress, timing, costs and results of preclinical studies and any clinical trials for our product candidates;
•our ability to advance our viral vector manufacturing and delivery capabilities;
•the timing or likelihood of regulatory filings,submissions, designations and approvals;
•our plans to explore potential applications of our gene therapy platform in other indications in ophthalmologyocular and rare diseases;
•our expectations regarding the clinical effectiveness of our product candidates;
•our commercialization, marketing and manufacturing capabilities and strategy;
•the pricing and reimbursement of our product candidates, if approved;
•our expectation regarding the potential market sizes for our product candidates;
•our intellectual property position;
•the potential benefits of our strategic collaborations and our ability to enter into strategic arrangements;
•developments and projections relating to our competitors and our industry;
our expectations regarding the time during which we will be an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012;
•our estimates regarding expenses, future revenue, our financial position, capital requirements, uses of cash and needs for additional financing;financing and
•the safety, efficacy and projected development timeline and commercial potential of any product candidates.
In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based upon information available to us as of the date of this Annual Report on Form 10-K, and while we believe such information forms a reasonable basis for such statements, such information may be limited or incomplete, and our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain and investors are cautioned not to unduly rely upon these statements.
We are
We are advancing our robust pipeline of gene therapy product candidates designed to treat rare diseases, alpha-1 antitrypsin (“A1AT”) deficiency and hereditary angioedema (“HAE”), as well asfor wet age-related macular degeneration (“wAMD”wet AMD”) and diabetic macular edema (“DME”). Our pipeline of lead and partnered
Forbeing developed for the treatment of A1AT deficiency, we are advancing our genepatients with chronic retinal diseases who respond to standard-of-care anti-VEGF therapy, product candidate ADVM-043, AAVrh.10-A1AT, inincluding wet AMD and DME. ADVM-022 utilizes a proprietary vector capsid, AAV.7m8, carrying an ongoing Phase 1/2 clinical trial (the “ADVANCE trial”). The ADVANCE trialaflibercept coding sequence under the control of a proprietary expression cassette.
* Based on an 80kg patient
ADVM-043 is designed as a potential single-administrationnew treatment to induce stable, long-term A1AT protein levels, or expression. In a preclinical proof-of-concept study, ADVM-043 demonstrated robust protein expression above therapeutic levels in mice following either IV or IP administration. In another study in non-human primates, evidence of stable long-term expression of hA1AT was observed out to one year following IP administration of ADVM-043.
For treatment of the rare disease HAE, we are advancing our preclinical gene therapy product candidate ADVM-053, AAVrh.10-C1EI. ADVM-053 is designed as a potential single-administration treatment to provide sustained expression of the C1 esterase inhibitor (“C1EI”) protein to eliminate protein level variability and to prevent breakthrough edema attacks. In preclinical studies, a single IV administration of ADVM-053 increased C1EI protein expression above therapeutic levels and decreased vascular permeability. We plan to submit an Investigational New Drug (“IND”) applicationoptions for ADVM-053 for HAE withwet AMD, the U.S. Food and Drug Administration (“FDA”) granted Fast Track designation for ADVM-022 for the treatment of wet AMD.
For wAMD,2021.
Our earlier-stage research programs include gene therapy product candidates targeting cardiomyopathy associated with Friedreich’s ataxia (“FA”)future is unknown at this time and severe allergy.
Our partnered programs include vectors wewill depend on future developments that are developing under collaboration agreements. Under an agreement with Editas Medicine, Inc. (“Editas”) weunpredictable. We are leveragingactively monitoring and managing our AAV-vectorsresponse and assessing actual and potential impacts to these areas. Please refer to the “Risk Factors” section for use with Editas’ leading Clustered Regularly Interspaced Short Palindromic Repeats (“CRISPR”)-based genome editing technologies to treat up to five inherited retinal diseases. Our agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) provides for development of up to eight distinct ocular therapeutic targets, and includes AVA-311 for the treatment of juvenile X-Linked Retinoschisis (“XLRS”).
On May 11, 2016, we completed the acquisition of allfurther discussion of the outstanding shares of Annapurna Therapeutics SAS (“Annapurna”), a privately-held French gene therapy company, (the “Annapurna acquisition”) and,risks we face as a result Annapurna became our wholly-owned subsidiary. At the closing of the Annapurna acquisition,COVID-19 pandemic.
We changedcurrent or planned clinical studies.
COVID-19 pandemic, we cannot be certain that this trend will continue. Based on current information, we believe that our partners in our supply chain have been and will continue to serve us continuously during the COVID-19 pandemic.
However, certain of these partners including our bulk drug substance and drug product suppliers have prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study and/or supply of potential treatments or vaccinations for COVID-19, which could result in supply interruptions for us. To mitigate against future potential delays in product supply, we are continuously implementing additional measures to address potential risks as we identify them, including securing additional supplies and manufacturing capacity reserve, which have resulted in additional expenses and may result in other additional expenses in the future.•industry-leading development capabilities in AAVadeno-associated virus (“AAV”) technology;
•a robust pipeline of gene therapy product candidates targeting the treatment of seriousocular and rare diseases;
•a growing portfolio of proprietary vectors;
proprietary vectors; and
•an experienced leadership team with expertise in developingophthalmology, gene therapies.
•Target large patient populations impacted by wAMDwet AMD, diabetic retinopathy (including diabetic macular edema), and well-established orphan indications offering significant market potential. For wAMD, thereother chronic retinal conditions that respond to anti-VEGF therapy. There are an estimated 1.21.5 million individuals in the U.S. and 3over 5 million on aindividuals worldwide basis living with this disease,wet AMD, and the incidence of new cases is expected to continue to grow significantly fromas the population ages. There are an aging population. The standard-of-care therapies generated approximately $9.2 billion in sales in 2017. For A1AT deficiency, approximately 100,000 individuals in the U.S. are affected. The therapeutic market for patients with A1AT deficiency was estimated at approximately $57530 million in the U.S., $700 million in North America, and $1.2 billion worldwide in 2016. For HAE, there are approximately 8,000 individuals in the U.S. impacted by this disease. The therapeutic market for HAE wasdiabetes, approximately $1.75% of whom are living with DME, and the incidence is expected to continue to grow significantly with the prevalence of diabetes. DME is a type of diabetic retinopathy, the leading cause of vision loss in working-age adults. We estimate that the standard-of-care anti-VEGF therapies used to treat wet AMD and DR generated in excess of $11 billion worldwide in 2016.
Address unmet needs in serious rare and ocular diseases. •Develop a one-time gene therapy treatment to relieve the burden of frequent, chronic injections.Our gene therapies are designed as single-administration treatmentsa single, in-office IVT injection therapy to address the unmet needs of patients with seriousocular and rare diseases. The current standards of care for wet AMD, DME, and ocular diseases. Currently, patients living with A1AT deficiency, HAE and wAMD are treated with therapies thatother chronic diseases require frequent IV, subcutaneous injection (“SQ”), or intravitreal administration and have significant limitations.injections for the duration of the disease. As an example, for patients with emphysema due to A1AT deficiency,wet AMD, the current standard-of-care treatment is weekly IV infusions of A1AT. This treatment regimen can be difficult for patients to comply with and underdosing can lead to worsening lung function. For HAE, the current standard-of-care treatment is IV or SQ infusions of C1EI 2-3 times a week, which offer limited efficacy as patients can still have breakthrough attacks, which can be fatal. For wAMD, the current standard-of-care treatment requirestreatments require patients to receive intravitrealIVT injections of anti-VEGF proteinsprotein every 4-8 weeks, which can be difficult4-12 weeks. Similar regimens have been approved for DME. We believe that durable treatment to reduce injection frequency is the largest unmet need for wet AMD patients. Lifetime need for frequent injections burdens patients, caregivers, and healthcare providers. Real world evidence shows reduction in patients’ vision over time. A gene therapy administered as a single, in-office IVT injection has the potential to comply withdeliver long-term efficacy, reduce the burden of frequent anti-VEGF injections, optimize patient compliance, and leads to loss ofimprove vision from underdosing.
•Pursue indications with well-defined clinical and regulatory paths where possible, to mitigate the risk of the development of our novel gene therapies. risk.We have selected indications that have prior clinical validation, including established endpoints, standard-of-care administration methods, and defined regulatory paths. For example, in A1AT deficiency, published clinical data demonstrate the correlation of patients’ serum A1AT protein levels with the risk for emphysema, and four plasma derived protein products have been approved by the FDA based on demonstratingwet AMD, aflibercept is an increase in the A1AT protein levels. Similarly, data show that augmenting serum A1AT protein levels can slow the loss of lung parenchyma. In HAE, there are several therapies approved for routine prophylaxis on the basis of reducing breakthrough attacks by elevating C1-esterase inhibitor levels to an established threshold. For wAMD, anti-VEGF proteins are the approved standard-of-care IVT injection treatment, and our gene therapyADVM‑022 utilizes aour proprietary vector, AAV.7m8, designed to deliver anprovide the same anti-VEGF protein through an intravitreala single IVT injection.
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•Collaborate with partners to leverage our industry-leading AAV vector expertise and ophthalmicocular vector development and product delivery capabilities.Under a collaboration agreement with Editas Medicine, we are leveraging our proprietary AAV vectors for use with Editas’ leading CRISPR-based genome editing technologies to treat up to five inherited retinal diseases. Our collaboration agreement with Regeneron provides for the development of up to eight distinct ocular therapeutic targets and, includes AVA-311 for the treatment of juvenile XLRS. We plan to continue to explore waysopportunities to work collaboratively with these and potential new partners whothat may benefit from our capabilities and expertise in AAV vector development and product delivery.
Prepare manufacturing•Expand our process development capabilities forto support late-stage clinical trials and commercialization.We plan to begin the initial stage of investing in a manufacturing facility to build on our internal process development capabilities. Our in-house manufacturing process is based on the Baculovirus/Sf9 production system, which has been used for a number of vaccines and recombinant protein therapies approved by the FDA and EMA-approved productsEuropean Medical Agency (“EMA”), and is capable of producing large quantities of AAVs. Currently, we utilize our process development capabilitiesOur strategy is to deliverdevelop scalable processes to transfer to our new internal GMP manufacturing site in North Carolina and to our GMP contract manufacturers. As we prepare for larger, late-stage clinical trials and potential commercialization, we planmanufacturers, providing a flexible manufacturing strategy to invest in stages insupport a manufacturing facility to meet our product production requirements.
Compelling•Substantial clinical data. Positive data from gene therapy clinical trials have been reported in a variety of indications, including adrenoleukodystrophy, beta-thalassemia, chronic lymphoid leukemia, hemophilia, Spinal Muscular Atrophy, HIV infection andspinal muscular atrophy, Sanfilippo syndrome, ornithine transcarbamylase deficiency, glycogen storage disease type 1a, sickle cell disease, Parkinson’s disease, and Duchenne muscular dystrophy, as well as several ophthalmicocular diseases including biallelic RPE65 mutation-associated retinal dystrophy, Choroideremiachoroideremia, Leber’s hereditary optic neuropathy, and Leber’s Hereditary Optic Neuropathy.
Increased•Significant investment by biopharmaceutical companies. The modality of gene therapy has been further validated by growingreceived significant interest and investments by biopharmaceutical companies. Large, global biopharmaceutical companies, such as BioMarin PharmaceuticalAstellas Pharma Inc., Biogen Idec Inc., Celgene Corporation, GlaxoSmithKline plc,Bristol-Myers Squib, CSL Behring, Daiichi Sankyo, Hoffmann-La Roche Ltd., Johnson & Johnson, Novartis, Sanofi,and Regeneron and Shire Pharmaceuticals Group Plc, have increased their investment in the gene therapy field. Additionally, pure-play gene therapy companies, such as Applied Genetic Technologies Corporation, Audentes4D Molecular Therapeutics, Akouos Therapeutics, Passage Bio, REGENXBIO Inc., bluebird bio, Inc., REGENXBIO Inc. (“REGENXBIO”), SparkRocket Pharmaceuticals, Sangamo Therapeutics, Inc.,Sarepta Therapeutics, Sio Gene Therapies, Solid Biosciences, Taysha Gene Therapies, and uniQure N.V. and Voyager Therapeutics, have attracted recent investment in this growing field.
•Approval of cell and gene therapy products by regulatory authorities. The FDA recentlyand EMA have approved its firstseveral cell and gene therapy products, including two AAV vector-based gene therapy product, LUXTURNA™ (voretigene neparvovec-rzyl) for the treatment of patients with confirmed biallelic RPE65 mutation-associated retinal dystrophy.
•Highly-efficient transfer of DNA.AAV vectors offer highly-efficient transfer of DNA to the patient.
•Non-pathogenic. Parental Naturally occurring and recombinant AAV virus isare not known to cause any disease in humans.
•Non-replicating. Parental Naturally occurring AAV is incapable of replication without co-infection of a helper virus is naturally replication deficient. Once inside the host cell,such as adenovirus, herpes virus, or others. Recombinant AAV vectors do not replicate, and cannot spread.
•Long-term expression. Once incorporated into the host cell, AAV vectors can continue to drive expression of a therapeutic protein for years. This may avoid the needyears, making AAV-based gene therapy a compelling treatment modality for diseases requiring frequent treatments, that are the standard of care for thechronic treatment of A1AT deficiency, HAE and wAMD.
•Low-integrating potential. Recombinant AAV vector genomes remain mainly as a stable non-integrated episome in the host cell nucleus,non-integrating episomes, mitigating the risk of potential safety concerns.
•Low inflammatory potential. Compared to other vectors used in direct gene therapy approaches, AAV vectors elicit onlyrelatively mild inflammatory reactions.
•Ability to transduce non-dividing cells. AAV vectors are able tocan efficiently transduce non-dividing cells or slow-dividing cells such as retinal cells and hepatocytes, which allow production of the therapeutic protein at the site of the disease (wAMD)(wet AMD) or its natural organ of production (A1AT)(C1-Esterase Inhibitor).
Tested in humans. AAV vectors have been used safely in more than 130•Approval of cell and gene therapy trials to date.
products by regulatory authorities. The FDA and EMA have approved two AAV is naturally occurring and has becomevector-based gene therapy products.
January 2021. As effective as existing AAV vectors are in gene therapy, we believe there is an opportunity to advance vector capabilities beyond those currently available.are opportunities for improvement. Naturally occurring AAV variants have evolved with particular characteristics, some of which remain and pose limitations to their use in gene therapy.
In order to
ADVM-043DME:
Wet AMD
A1AT deficiency is an orphan disease affecting approximately 100,000 individuals in the United States (the “U.S.”). The disease is caused by mutations in the SERPINA1 gene, resulting in very low levels of A1AT. A1AT deficiency is associatedTreating Patients with the development of emphysema and premature death.
The market for A1AT deficiency therapy was approximately $575 million in the U.S., $700 million in North America and $1.2 billion worldwide in 2016. The current standard-of-care treatment for patients with this disease who have developed emphysema includes weekly IV infusions of a plasma derived A1AT, at an estimated cost of $100,000 annually per patient. This current treatment regimen is burdensome and can result in underdosing, which in turn can lead to worsening lung function.
Our Approach for A1AT Deficiency
ADVM-043 is our gene therapy candidate that has the potential to induce stable, long-term A1AT protein expression. In a preclinical proof-of-concept study, ADVM-043 demonstrated robust protein expression in mice, with protein levels 2.5 times above normal levels of A1AT. Data showed that hA1AT was present in the serum following either IV or IP administration of ADVM-043. In another study in non-human primates, evidence of stable long-term expression of hA1AT was observed out to one year following IP administration of ADVM-043.
ADVM-043 utilizes AAVrh.10, a vector selected based on peer-reviewed published research which compared 25 different vectors used in the lung showing superiority of protein expression from AAVrh.10 over other serotypes. In addition, AAVrh.10 has been shown to transduce the liver, which is the organ that naturally produces A1AT with high efficiency. Our biodistribution and preclinical data on this vector lead us to believe there is potential for AAVrh.10-A1AT, when administered intravenously, to provide therapeutic levels of A1AT.
We are advancing ADVM-043 in the ADVANCE trial in A1AT deficiency patients and we expect to report preliminary data from this trial in the second half of 2018.
ADVM-053 for Treatment of HAE
Market for HAE
HAE is an orphan disease affecting approximately 8,000 individuals in the U.S. This disease is caused by a genetic mutation that results in low levels of C1EI. Low C1EI levels can be associated with sudden swelling and edema of respiratory airways, gastrointestinal tract, and extremities.
The current standard-of-care prophylaxis treatment regimen generally requires IV infusions or subcutaneous injections of C1EI 2-3 times a week, at an estimated cost of $0.5 million – $0.6 million annually per patient in the U.S. This treatment regimen can be burdensome for patients and their caregivers, and patients may still experience breakthrough edema attacks despite treatment.
A prior study demonstrated that patients treated with more frequent infusions of C1EI can significantly decrease and, in some patients, eliminate breakthrough attacks. However, a daily infusion treatment regimen is not clinically practical and, therefore, there is an unmet medical need for sustained C1EI delivery to patients in order to prevent breakthrough edema attacks.
Our Approach for HAE
ADVM-053 is our preclinical gene therapy product candidate that has the potential to be a prophylactic treatment of HAE. ADVM-053 is designed to be administered as a single IV injection to prevent HAE attacks.
ADVM-053 also utilizes an AAVrh.10-based vector, which has been shown to target the liver, which is the natural source of C1EI. In prior preclinical studies, a single IV administration of ADVM-053 showed robust C1EI protein expression. In a proof-of-concept study, ADVM-053 increased C1EI protein expression above anticipated therapeutic levels. An additional study, in a mouse model of the disease, demonstrated that ADVM-053 decreased vascular permeability.
We are advancing ADVM-053 for HAE and plan to submit an IND with the FDA in the second half of 2018.
ADVM-022 for Treatment of wAMD
Market for wAMD
Age-related macular degeneration (“AMD”) is a progressive disease affecting the retinal cells in the macula, the region of the retina at the back of the eye responsible for central vision. Disease progression results in the death of retinal cells and the gradual loss of vision.
Approximately
wAMDWet AMD is a leading cause of vision lossblindness in subjectspatients over 6065 years of age. A significant number of individuals are impacted by this disease, which hasage, with a prevalence of approximately 1.21.5 million individuals in the U.S. and 3over 5 million on a worldwide basis.worldwide. The incidence of new cases of wAMDwet AMD in the U.S. is approximately 150,000 to 200,000 annually, and this number is expected to grow significantly based onas the country’s aging population.
Although the underlying molecular causes of AMD are not completely known, VEGF is known to play a central role in the growth of new blood vessels in wAMD. The standard-of-care therapies for wAMD include Lucentis® and EYLEA®, which together generated annual sales of approximately $9.2 billion in 2017, in addition to off-label use of Avastin®.
Lucentis, a recombinant humanized monoclonal antibody fragment that binds to and inhibits VEGF proteins in the eye, was approved in the U.S. in 2006 and in Europe in 2007. In 2017, Lucentis achieved worldwide sales of approximately $3.3 billion.
EYLEA, a recombinant fusion protein containing portions of the human VEGF receptors that binds to VEGF, was approved in the U.S. in 2011. EYLEA has exhibited strong adoption in the market due to its more convenient dosing regimen compared to Lucentis and in 2017, EYLEA® achieved worldwide sales of approximately $5.9 billion.
Avastin is a recombinant human monoclonal antibody that binds to VEGF and is approved as an anti-cancer agent. Avastin is widely prescribed off-label in ophthalmic diseases such as wAMD and makes up approximately 60% of the wAMD market by volume.
The current treatment regimen can be burdensome, as patients generallystandard-of-care therapy for wet AMD is chronic anti-VEGF IVT injections. These are effective but typically require intravitrealeye injections with anti-VEGF proteins every 4-8 weeks.4-12 weeks in order to maintain vision. Compliance with this regimen can be difficult for patients, caregivers, and their caregivers,healthcare systems, leading to compliance deficienciesundertreatment and resulting in loss of vision from underdosing.
Our Approach for wAMD
ADVM-022 is our preclinical gene therapy product candidatevision. We estimate that these standard-of-care therapies used for the treatment of wAMD. With AAV.7m8wet AMD, DME, retinal vein occlusion, and a proprietary expression cassette, ADVM-022other ocular diseases generated in excess of $11 billion in sales worldwide in 2020 and that there are approximately 9 million patients with wet AMD and DME treatable with anti-VEGF therapy worldwide.
We are advancing ADVM-022, and Arm 3 received aflibercept at a dose of 2 mg. We plan to submit an IND application with the FDApresent clinical data from INFINITY in the second half of 2018.
2021.
Other Preclinical Product Candidates
In addition to our lead programs, we are developing a gene therapy product candidate for the treatment of cardiomyopathy associated with FA, a debilitating neurodegenerative disease resulting in poor coordination of legs and arms, progressive loss of the ability to walk, generalized weakness, loss of sensation, scoliosis, diabetes and cardiomyopathy as well as impaired vision, hearing and speech. It affects approximately 5,000 people in the U.S., France, and approximately 5,000 to 10,000 peopleU.K., which began in Europe. Currently, we are conducting observational studies and are in the early stages of preclinical development.
October 2018.
Our BEVS manufacturing process, using the eye as an example, is presented in the figure below.
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BEVS Manufacturing Process
Our AAV manufacturing method is industrialized, highly scalable and ready for adaptation for commercial stage. We believe our process provides the following advantages over competing systems:
•Industrial-scale biologics production. Our BEVS system can produce quantities of product required at commercial stage by incorporating scalable, well-established process steps used throughout the industry for biologic products.
•Safety advantages. Our BEVS system does not use mammalian cell cultures or tumorigenic cell lines, and the DNA sequences used to allow AAV vector production are inactive in mammalian cells, which lowers the risk of off-target expression from our products.
•High yield and low cost. Because of its scalability, our BEVS system allowsmay allow the production of large quantities of AAV vectors, up to one hundred times greater per manufacturing campaign than those obtained using conventional AAV production systems. This lowers the unit cost of goods and may enable us to meet global demand for large markets, such as wAMD.
•High purity. Our BEVS system coupled with our proprietary downstream purification process produces a highly pure drug substance.
•Precedent regulatory framework. Several FDA- Glybera, an AAV-based gene therapy authorized by the European Commission, and EMA-approvedseveral other vaccines and gene therapy products including FluBlok, Cervarix and Glybera are manufacturedrecombinant protein therapies have been approved by the FDA and/or European Commission using a manufacturing process similar to our BEVS technology.
Our products are manufactured using proprietary cell banks and a scalable process developed internally that is transferred to approved Contract Manufacturing Organizations (“CMOs”). These CMOs produce investigational drugs under cGMPGMP conditions to support our clinical trials. Raw materials of highest quality are purchased from various suppliers and are used throughout the manufacturing process.
We have entered into a manufacturing technology license agreement pursuant to which we and Lonza Houston, Inc. are assessing certain technology potentially useful for the manufacture of our products. The license agreement provides that the parties will conduct activities to evaluate such technology and that we may elect to engage Lonza to manufacture our products. We also granted to Lonza certain licenses to practice the manufacturing technology for products other than those being developed by us, our affiliates or sublicensees.
AAV manufacturing expertise while providing both security and flexibility as we prepare to potentially deliver one of the first gene therapies for large indications.
wet AMD and DME.
•biosimilar anti-VEGFs
•combination / add-on therapy for efficacy or durability improvement (for example, Anti-angiopoietin-2)
next generation•next-generation anti-VEGF with quarterly injection
long acting•long-acting delivery device / gene therapy to lower treatment frequency
For the treatment of A1AT deficiency and HAE,
Many of our competitors,may face, either alone or with their strategic partners, for our other product candidates, have substantially greater financial, technical and human resources than we do and significantly greater experience in the discovery and development of product candidates, obtaining FDA and other regulatory approvals of treatments, and commercializing
Mergers and acquisitions in the biotechnology and pharmaceutical industries may result in even more resources being concentrated among a smaller number of our competitors. These competitors also compete with us in recruiting and retaining qualified scientific and management personnel and establishing clinical study sites and subject registration for clinical studies, as well as in acquiring technologies complementary to, or necessary for, our programs. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
We anticipate that we will face intense and increasing competition as new drugs enter the market and advanced technologies become available. We expect any treatments that we develop and commercialize to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price, the level of generic competition and the availability of reimbursement from government and other third-party payers.
Our commercial opportunity could be reduced or eliminated if our competitors develop and commercialize products that are safer, more effective, have fewer or less severe side effects, are more convenient or are less expensive than any products that we may develop. Our competitors also may obtain FDA or other regulatory approval for their products more rapidly than we may obtain approval for ours, which could result in our competitors establishing a strong market position before we are able to enter the market. In addition, we expect that our therapeutic products, if approved, will be priced at a significant premium over competitive generic products and our ability to compete may be affected in many cases by insurers or other third-party payers seeking to encourage the use of generic products.
Research and Development Expense
Our research and development expenses were $39.8 million, $31.7 million and $25.5 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Regeneron
Pursuant to the collaboration agreement, we and Regeneron have been conducting a research program to identify potential Products for a specified time period. Regeneron bears all costs of performing research under the Collaboration Agreement. Regeneron has a right to substitute a certain number of such targets and may, subject to a payment to us, expand the collaboration beyond the four initially designated targets to include up to four additional targets not currently being researched or developed by Adverum, and endogenous molecules known to bind to and modulate such additional targets, in the research program.
Regeneron has an option, exercisable with respect to all Products containing transgenes expressing molecules that modulate one of the specified targets, to obtain an exclusive worldwide license to research, develop and commercialize such Products for the treatment, prevention or diagnosis of human disease or other medical disorders. Regeneron may exercise this option prior to the expiration of the term of the research program, within a certain time period after the acceptance for filing with the FDA of the IND for such Products. Regeneron must pay us an option fee each time it exercises an option.
Regeneron has the right to submit an IND with the FDA for Products prior to exercising its option. If Regeneron exercises its option for specified Products, Regeneron will be primarily responsible for developing, obtaining and maintaining regulatory approval for, and commercializing such Products.
We have a right to co-fund costs of developing, manufacturing and commercializing Products containing transgenes encoding molecules capable of modulating a target with respect to which Regeneron has exercised its option, subject to certain exceptions. We may exercise this co-funding right up to two times. If we exercise such right, we may elect to bear up to 35% of all development costs incurred for such Products. For any co-funded Products, Regeneron’s payment obligations extend until the Products are no longer sold in the applicable territory. For those Products for which we exercise this option, either party may opt out of sharing development costs for all Products containing transgenes encoding molecules capable of modulating a protein target, in which case the other party may continue to develop and commercialize such Products, subject to the payment of a royalty to the other party ranging from low-single digit to low double-digit royalties. While Regeneron will record all revenue from sales of the co-funded Products, Regeneron will share in the net profits and losses of sales of any Products for which we exercised our co-funding right, with each party receiving a share of profits and bearing its share of losses in accordance with the share of development costs borne by each party for such Product, provided that neither party exercises its opt-out right for such Products.
Under the Collaboration Agreement, Regeneron made an initial payment of $8.0 million dollars for collaboration research costs, a one-time option fee and a one-time license grant fee.
In addition to the initial payment, Regeneron may make the following payments to us:
Reimbursement for additional collaboration research costs;
Up to $80.0 million in development and regulatory milestones for product candidates directed toward each of the eight therapeutic candidates, for a combined total of up to $640.0 million in potential milestone payments for product candidates directed toward all eight therapeutic targets subject to the Collaboration Agreement; and
Tiered, low- to mid-single digit royalties on annual net sales, subject to certain adjustments.
For each Product, Regeneron’s payment obligations extend until the last to occur of the following: (i) the discontinuation of development of the Product or (ii) once a Product is approved by the FDA, the later of (x) the duration of patent coverage for the Product or (y) ten years after first commercial sale of the Product in a particular territory.
The collaboration agreement will expire with respect to each collaboration target upon expiration of all payment obligations by Regeneron. The collaboration agreement may also be terminated (i) by Regeneron at will, either in its entirety or on a target by target basis, upon 30 days’ prior written notice to us, (ii) by either party, upon written notice in connection with a material breach remaining uncured 60 days after initial written notice, (iii) by us, if Regeneron challenges the patent rights licensed by us under the collaboration agreement or (iv) by either party, for insolvency of the other party.
Under our research, collaboration and license agreement with Regeneron, we are required to have a mutually agreed-on research plan with Regeneron in order to invoice Regeneron for services performed. We do not currently have a research plan in place, and, consequently, we are not currently receiving any reimbursements from Regeneron.
Editas
In August 2016, we entered into a collaboration, option, and license agreement with Editas pursuant to which we and Editas collaborate on certain studies using AAV vectors in connection with Editas’ genome editing technology and we grant to Editas an exclusive option to obtain certain exclusive rights to use our proprietary vectors in up to five ophthalmic indications. We received a $1.0 million non-refundable upfront payment, with $0.5 million of such payment to be credited against Editas’ obligation to fund research and development costs during the year ended December 31, 2016. Under the terms of the agreement, both we and Editas are subject to exclusivity obligations. In January 2018, we and Editas extended the collaboration, option and license agreement. In consideration of extending the agreement, Editas made a one-time payment of $0.5 million to us in February 2018.
Under the terms of the agreement, as amended, Editas may exercise the option with respect to a designated initial indication until September 30, 2018. With respect to the four other indications, Editas may exercise the option until the fourth anniversary of the effective date, provided that the option will expire on the third anniversary of the effective date if Editas has not exercised the option with respect to the initial indication or any other indication by such date. Upon Editas’ timely exercise of the option with respect to the designated initial indication, Editas will pay us a $1.3 million fee. For the first additional indication for which Editas timely exercises its option, Editas will pay us a $1.5 million fee. Upon each subsequent exercise of the option, Editas will pay us a $1.0 million fee per indication. If Editas elects to develop a product using certain of our proprietary vectors, we will be eligible to receive up to $15.5 million in development and commercialization milestone payments for such product, and tiered royalties between the mid-single digits and low teens on net sales of such product, subject to certain adjustments.
Unless earlier terminated, the agreement will be in effect until the later of the expiration of the option exercise period or the expiration of the royalty term of the last product. At any time after the option is first exercised, Editas may terminate the Agreement for convenience in its entirety or on an indication-by-indication or country-by-country basis, upon prior written notice to us. We may also terminate the agreement if Editas challenges our patents relating to its proprietary vectors and does not withdraw such challenge within a defined period of time. In addition, either party may terminate the agreement with written notice upon a bankruptcy of the other party or upon an uncured material breach by the other party.
University of California
In May 2010, we entered into asublicensable license agreement with the Regents of University of California (“("Regents”), as amended in September 2013. to certain intellectual property related to improved AAV vectors, including the AAV.7m8 capsid. Under the license agreement, the Regents have granted to us an exclusive, even as to the Regents, license, with the right to grant sublicenses, under the Regents’ undivided interest in patent rights covering a method of using recombinant gene delivery vectors for treating or preventing diseases of the eye, to develop and commercialize products covered by such patent rights in all fields of use in the U.S. The licensed patent rights are jointly owned by the Regents and Chiron Corporation, which was acquired by Novartis AG (“Chiron”), but our license extends only to the Regents’ interest in such patent rights.
Under thethis license agreement, we are obligated to make certain de minimis license payments, certain milestone payments totaling up to $0.9$1.0 million upon reaching certain stages of development of
Our licenseproducts in the low single-digits, subject to adjustments and minimum thresholds.
We were a party to a master service agreement (“MSA”) with
In December 2016, we informed Cornell that we decided to terminate the MSA for material breach, effective January 6, 2017. Subsequently, Cornell informed us that it disputes the validity of our termination of the MSA. Although we intend to defend the validity of our termination of the MSA, we recorded $2.0 million of estimated costs associated with the termination of the MSA during the year ended December 31, 2017. This MSA included services relating to our gene therapy programs ADVM-043, ADVM-053 and severe allergy. Our three licensing agreements with Cornell for these programs remain unchanged.
The decision to terminate the MSA was due to Cornell’s failure to deliver therapeutic material of ADVM-043 suitable for use in human patients. As a result of this decision, we contracted with a large-scale contract manufacturing organization that complies with cGMP industry standards and can produce product quantities for both our planned clinical trials and potential commercial supply. This was part of our planned upgrade of the manufacturing process for ADVM-043, implementing our proprietary, highly-scalable baculovirus-based production system, in advance of our initiation of the ADVANCE trial in the fourth quarter of 2017.
License Agreements
Under our June 2019 settlement agreement with Cornell, our license to know-how was made non-exclusive.
Allergy License Agreement: Under this agreement, we hold an exclusive license to certain patents related to allergens and a non-exclusive license to certain other technology related to allergens.
Dr. Crystal, Chairman of Genetic Medicine, the Bruce Webster Professor of Internal Medicine and a Professor of Genetic Medicine and of Medicine at Weill Cornell, served as a consultant to Annapurna since inception and continues to provide services to us for an annual base compensation of $0.2 million.
REGENXBIO
commercialize products for the treatment of severe allergies, however this option was not exercised, and expired in October 2016. Under this license agreement, REGENXBIO was eligible to receive annual maintenance fees, up to approximately $20.0 million in combined milestone payments and royalties in the mid-to-high single digits. In April 2017, we notified REGENXBIO that we exercised our right to terminate this license agreement for any reason upon six months’ written notice. The termination was effective in October 2017.
FA License Agreement: In April 2014, we entered into an exclusive worldwide license to certain intellectual property in order to develop and commercialize products using the AAVrh.10 vector for FA, where the vector is administered by any route except directly to the central nervous system (“FA Systemic”).
Under the terms of this license agreement, we also had options to obtain a non-exclusive worldwide license to develop and commercialize an FA product where the vector is administered directly to the central nervous system (“FA CNS”), as well as an FA Systemic product using another AAV vector. The option to obtain a non-exclusive license to FA Systemic expired in April 2015 and the option to obtain a non-exclusive license for FA CNS expired in April 2016, and neither were exercised. In October 2017, we notified REGENXBIO that we exercised our right to terminate this license agreement for any reason upon six months’ written notice. The termination will be effective in April 2018.
Inserm Transfert
In JulyFebruary 2014, we entered into an agreement with Inserm Transfert (“Inserm”) wherebyGenSight, in which we holdgranted GenSight a non-exclusive license to our proprietary AAV.7m8 vector to develop gene therapy products to deliver certain therapeutic transgenes. Under the agreement, we are eligible to receive development, regulatory and commercial milestones. Also, we are eligible to receive low to mid-single digit royalties on sales of GenSight’s licensed products.
Unless earlier terminated, this agreement will below-single digit royalty payments. This license with Virovek continues in effect on a country-by-country, licensed product-by-licensed product basis until the laterexpiration of the expirationlast-to-expire patent.
Pursuant to Section 4.7 of the agreement with Inserm, our acquisition of Annapurna triggered a one-time payment to Inserm of €0.3 million.
this dispute.
Our commercial success may depend in part on our ability to obtain and maintain patent and other proprietary protection for commercially important technology, inventions andand know-how related to our business; defend and enforce our patents; preserve the confidentiality of our trade secrets; obtain regulatory exclusivity and operate without infringing the valid enforceable patents and proprietary rights of third parties. Our ability to stop third parties from making, using, selling, offering to sell or importing our products may depend on the extent to which we have rights under valid and enforceable licenses, patents or trade secrets that cover these activities. In some cases, these rights may need to be enforced by third party licensors. With respect to both licensed and company-owned intellectual property, we cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents that may be granted to us in the future will be commercially useful in protecting our commercial products and methods of manufacturing the same.
We are also pursuing innovative ways to regulate the expression of transgenes in tissues. To that end, we have, in collaboration with Stanford University, filed a U.S. patent application that is directed to methods for regulating gene expression in a subject. Patents that grant from this application, if any, are expected to expire in 2033, subject to possible patent term extensions.
A third patent family that we have exclusively licensed includes claims directed to the novel AAV7m8AAV.7m8 vector, which allows delivery of transgenes to the retina via intravitreal injection, and which we utilize in clinical candidates ADVM-022 and ADVM-032.our product candidate ADVM‑022. This family includes at least fifty issued patents in the U.S., as well as elsewhere in North America, Europe, Asia, and the Pacific. CorrespondingPacific, including a European patent validated in thirty-seven countries. Seventeen corresponding applications are pending in the U.S. and elsewhere in North America, Europe, Asia and the Pacific. Patents that issue from this patent family if any, are generally expected to expire in 2032, subject to possible patent term extensions.
2027.
We have exclusively licensed a family of patent applications related to gene therapy treatments for severe allergies, which includes pending U.S. and foreign applications. Patents that grant from this patent family, if any, are generally expected to expire in 2036, subject to patent term extensions and adjustments.
We have also exclusively licensed a patent family directed In January 2021, we granted an exclusive (even as to the use of certain rAAVs for use in FA Systemic including pending applications in Australia, Canada, China, Europe, Hungary, Israel, Japan, New Zealand and the U.S. patents that grant fromus) sublicense to this patent family, if any, are generally expectedwhich does not relate to expire in 2022, subjectADVM-022, to possible patent term extensions and adjustments.
We have exclusively licensed certain know-how related to gene therapy for A1AT deficiency and rights to an IND to initiate clinical studiesLexeo Therapeutics.
Finally,
The FDA and comparable regulatory authorities in state and local jurisdictions and in other countries impose substantial and burdensome requirements upon companies involved in the clinical development, manufacturing, marketing and distribution of drug product and biologic product candidates. These agencies and other federal, state and local entities regulate the research, development, testing, manufacturing, quality control, approval, labeling, storage, record keeping, advertising, promotion, distribution, post-approval monitoring and reporting, sampling, and export and import of our product candidates.
In the U.S., the FDA regulates drug and biologicbiological products, including gene therapy products, are primarily regulated under the Federal Food, Drug, and Cosmetic Act (“FFDCA”FD&C Act”), and the FDA implements regulations and other laws, including, in the case of biologics, the Public Health Service Act. If we failAct (“PHSA”), as well as corresponding implementing regulations promulgated by the FDA. These laws and regulations govern, among other things, the testing, manufacturing, safety, purity, potency, efficacy, labeling, packaging, storage, distribution, record keeping, reporting, advertising and promotion, export and import of biologics products. Prior to comply with applicable FDA or other requirements at any time during the product development process,conducting human clinical testing the approval process, or post-approval,of our gene therapy products, we may become subjectmust submit an investigational new drug application (“IND”) to administrative or judicial sanctions. These sanctions could include the FDA’s refusal to approve pending applications, license suspension or revocation, withdrawal of an approval, warning letters, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties or criminal prosecution. Any FDA enforcement action could have a material adverse effect on our business, financial condition, results of operations and prospects. Biologics require the submission of a Biologics License Application (“BLA”) and approval by the FDA, before being marketed inand the U.S. Similarly, FDA approval is required before any new unapproved drug or dosage form, including a new use of a previously approved drug, can be marketed in the U.S.
IND must become effective.
FDA or the regulated industry.
•Completion of non-clinical laboratory tests, preclinicalincluding evaluations of product chemistry, formulations, and toxicity and animal studies and formulation studies all performed in accordance with current Good Laboratory Practice (“GLP”), regulations and applicable requirements for the humane use of laboratory animals or other applicable regulations;
•Submission of an IND to the FDA, which must become effective before human clinical trials may begin;
•Approval by anthe independent institutional review board (“IRB”), at of each clinical protocol and each clinical trial site before eachthe trial may be initiated;
Performance•Approval by the institutional biosafety committee (“IBC”) of adequateeach clinical trial site, which assesses the safety of research involving, among other things, recombinant DNA, and well-controlledidentifies any potential risks to public health or the environment;
Performance of clinical trial product manufactured under cGMP to establish the identity, strength, quality, purity or potency of the product;
•Satisfactory completion of an FDA inspection of theeach manufacturing facility or facilities at which the drug or biologic product is produced, prior to commercialization, to assessassure that the product is produced in compliance with cGMP,GMP, regulations, and any additional requirements pertainingmade by the agency to assure that the manufacturemethods and distribution of drugcontrols used during manufacturing are adequate to preserve the biological product’s safety, identity, strength, quality, purity, and biologic products;
•Submission to the FDA of a BLA for marketing approval that includes substantial evidence ofdemonstrates purity, safety and potency safety and efficacy fromof the biological product based on results of nonclinical testing and clinical trials;
•Successful completion of FDA audit(s) of the nonclinical and clinical trial sites and the clinical study sponsor that generated the data in support of the BLA;
•Successful completion of the advisory committee review, if the FDA convenes an advisory committee; and
•Payment of user fees and FDA review and approval, or licensure of the BLA prior to any commercial marketing, sale or shipment of the product.
The preclinical and clinical testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.
Our gene therapy studies involve recombinant DNA research, and therefore compliance with NIH Guidelines for Research Involving Recombinant or Synthetic Nucleic Acid Molecules (“NIH Guidelines”) is mandatory. Appropriate protocol(s) and related documentations are submitted to, and the study is registered with, the NIH Office of Biotechnology Activities (“OBA”), pursuant to the NIH Guidelines. The NIH is responsible for convening the Recombinant DNA Advisory Committee (“RAC”) that will discuss the protocol(s) including issues that raise novel or particularly important scientific, safety or ethical considerations. The OBA will notify the FDA of the RAC's decision regarding the necessity for full public review of a gene therapy protocol. RAC proceedings and reports are posted to the OBA website and can be accessed by the public.
The results of preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and a proposed clinical trial protocol, are submitted as part of an IND to the FDA. Some preclinical testing may continue even after the IND is submitted. The OBA notifies the FDA of the RAC’s decision regarding the necessity for full public review of a gene therapy protocol. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA within the 30-day time period, raises concerns or questions relating to the content(s)content of the IND that could potentially expose human research subjects to health risks.during the review period or places the clinical study on a clinical hold. In such athat case, the IND sponsor and the FDA must resolve any outstanding concerns before the IND goes into effect and the clinical trial can begin. With gene therapy protocols, if the FDA allows the IND to proceed, but the RAC decides that full public review of the protocol is warranted, the FDA will request at the completion of its IND review that sponsors delay initiation of the protocol until after completion of the RAC review process.begins. The FDA also maycan impose clinical holds on a biologic product candidate at any time before or during clinical trials due to safety concerns or non-compliance. If the FDA imposes a clinical hold on an IND, clinical trials may not commence or recommenceproceed without FDA authorization, and then only under terms authorized by the FDA.
data.
For purposes of BLA submission and approval, clinical
•Phase 1: Clinical1 includes the initial introduction of an investigational new drug into humans. Phase 1 studies are typically closely monitored and may be conducted in patients or healthy volunteer subjects. These studies are designed to determine the metabolism and pharmacologic actions of the drug in humans, the side effects associated with increasing doses, and, if possible, to gain early evidence on effectiveness. During Phase 1, sufficient information about the drug's pharmacokinetics and pharmacological effects should be obtained to permit the design of well-controlled, scientifically valid, Phase 2 studies. Phase 1 studies also include studies of drug metabolism, structure-activity relationships, and mechanism of action in humans, as well as studies in which investigational drugs are used as research tools to explore biological phenomena or disease processes. In the case of some product candidates for severe or life-threatening diseases, the initial human testing is often conducted in patients. Phase 1 clinical trials of gene therapies are typically conducted in patients rather than healthy volunteers.
than Phase 2: Clinical1 trials are typically well-controlled, closely monitored studies that are generally conducted in a limited subject population to evaluate dosage tolerance and appropriate dosage, identify possible adverse effects and safety risks, and to preliminarily evaluate preliminarily the efficacy of the product candidate for specific targeted indicationsindications. For Phase 2 clinical trials in subjects withgene therapy, although the disease or condition under study.
Phase 4: In some cases, the FDA may condition approval of a BLA foror other relevant regulatory agency will use to determine whether or not to approve a product candidate on the sponsor’s agreement to conduct additionalcandidate.
Similar rules govern the conduct of clinical trials in the European Economic Area (EEA).
Per the regulations, a sponsor (in industry or academia) of aapplicable clinical trial must register athe clinical trial in Phase 2 or later on the ClinicalTrials.gov website, the registry of new, on-going, and on-goingcompleted clinical trials of drugs, biologics, and device products. Sponsors are required to maintain the currency of the posting of the clinical trials posted on-line in the registry. This clinical trial registry and results data bank for clinical trials also contains summary results information on a clinical trial including adverse event information from the clinical trials and for pediatric post-market surveillance of a device product. The registry also provides information that helps patients find trials for which they might be eligible, enhance the design of clinical trials and prevent duplication of unsuccessful or unsafe trials, improve the evidence base that informs clinical care, increase the efficiency of drug and device development processes, improve clinical research practice, and build public trust in clinical research. These phases of testing may not be completed successfully within any specified period, if at all. Concurrent with clinical trials, companies usually complete additional animal trials and must also develop additional information about the chemistry and physical characteristics of the product candidate and finalize a process for manufacturing the product candidate in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.
Under the PDUFA,, the FDA has a performance goal to review applications within 6 months from successful filing of the application for priority reviews or 10 months for standard reviews. The review timeline begins upon the FDA’s acceptance of the original application submission for filing, no later than 60 calendar days from the date the FDA receives the application. In some instances, the review process and the PDUFA goal date may be extended depending on the information required in order for the FDA reviewers to complete their review of the BLA.
The testing and approval processes require substantial time, effort and financial resources, and each may take several years to complete. The FDA may not grant approval on a timely basis, or at all. Even if we believe a clinical trial has demonstrated safety and efficacy of one of our product candidates for the treatment of a disease, the results may not be satisfactory to the FDA. Preclinical and clinical data may be interpreted by the FDA in different ways, which could delay, limit or prevent regulatory approval. We may encounter difficulties or unanticipated costs in our efforts to secure necessary governmental approvals which could delay or preclude us from marketing drugs. The FDA may limit the indications for use or place other conditions on any approvals that could restrict the commercial application of the biologic.
establishedRegenerative medicine advanced therapy (“RMAT”) designation. To qualify for the RMAT designation, a product candidate must be a regenerative advancedmedicine therapy designation process intended to expedite the development of regenerative medicine therapies, defined as a cell therapy, therapeutic tissue engineering product, human cell and tissue product, or any combination product using such therapies or products, except for those regulated solely under Section 361 of the Public Health Service Act and part 1271 of Title 21, Code of Federal Regulations, that are intended to treat, modify, reverse, or cure a serious or life-threatening disease or condition, and for whichthere must be preliminary clinical evidence indicates that the drugcandidate has the potential to address the unmet medical needsneed. The FDA has indicated that gene therapies may qualify as regenerative medicine therapies. Advantages of RMAT designation include early interactions with the FDA to discuss any potential surrogate or intermediate endpoints and address potential ways to support accelerated approval and satisfy post-approval requirements.
condition—generally a disease or condition that affects fewer than 200,000 individuals in the U.S., or if there is no reasonable expectation that the cost of developing and making the product available in the U.S. will be recovered from sales of the product.
certain businesses that handle personal information of California residents. Businesses that violate these laws face civil penalties and private litigation.
•The federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchangecash or in kind, to induce or reward the purchasing, leasing, ordering, or arranging for or to induce either the referral of an individual for, orrecommending the purchase, orderlease, or recommendationorder of any goodhealth care item or service for which payment may be made, underin whole or in part, by federal healthcare programs such as the Medicare and Medicaid programs;
Federal false claims laws, including the•The federal civil False Claims Act, and civil monetary penalty law, which prohibit,prohibits, among other things, individuals or entities from knowingly presenting, or causing to be presented, claimsa false or fraudulent claim for payment from Medicare, Medicaid,of government funds, or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly concealing or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the federal government. Actions under the False Claims Act may be brought by the United States Attorney General or as a qui tam action by a private individual (a whistleblower) in the name of the government and the individual, and the whistleblower may share in any monetary recovery. Many pharmaceutical and other third-party payershealthcare companies have been investigated and have reached substantial financial settlements with the federal government under the civil False Claims Act for a variety of alleged improper marketing activities, including: providing free product to customers with the expectation that the customers would bill federal programs for the product; providing sham consulting fees, grants, free travel and other benefits to physicians to induce them to prescribe the company’s products; and inflating prices reported to private price publication services, which are used to set drug payment rates under government healthcare programs. In addition, in recent years the government has pursued civil False Claims Act cases against a number of pharmaceutical companies for causing false claims to be submitted as a result of the marketing of their products for unapproved, and thus non-reimbursable, uses. Because of the threat of treble damages and mandatory penalties per false or fraudulent;
•Federal criminal laws that prohibit executing a scheme to defraud any healthcare benefit program or making false statements relating to healthcare matters;
•The federal Physician Payment Sunshine Act, which requires certain manufacturers of drugs, devices, biologics and medical supplies to report annually to the Centers for Medicare & Medicaid Services (“CMS”) information related to direct and indirect payments and other transfers of value to physicians other healthcare providers,(defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching hospitals, and ownership and investment interests held by physicians and other healthcare providers and their immediate family members;
•State and foreign law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to sales or marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including commercial insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical 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; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures; state laws that restrict the ability of manufacturers to offer co-pay support to patients for certain prescription drugs; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
Although compliance programs can mitigate the risk of investigation and prosecution for violations of these laws, the risks cannot be entirely eliminated. Moreover, achieving and sustaining compliance with applicable federal and state privacy, security, and fraud laws may prove costly.
inhaled, infused, instilled, implanted or injected, and imposing annual fees based on pharmaceutical companies’ share of sales to federal health care programs. Adoption of government controls and other measures, and tightening of restrictive policies in jurisdictions with existing controls and other measures, could limit coverage of or payments for pharmaceuticals. In addition, following the November 2016 Presidential election in the United States, significant uncertainty exists regarding the futurepharmaceuticals, or affect rebates or other price concessions owed on such products. Certain provisions of the Affordable Care Act have been subject to judicial challenges as well as efforts to repeal, replace, or otherwise modify them or to alter their interpretation and implementation. For example, the Tax Cuts and Jobs Act, enacted on December 22, 2017, eliminated the tax-based payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, commonly referred to as the individual mandate, effective January 1, 2019. Currently, the Supreme Court is considering whether the Affordable Care Act’s individual mandate, post-repeal of its associated tax penalty, is unconstitutional, and, if so, whether the remaining provisions of the Affordable Care Act are inseverable from the mandate. A ruling is expected by mid-2021 and could produce any of a number of results, including invalidation of the Affordable Care Act in its entirety if there is a finding of inseverability. It is unclear how the ultimate decision in this case, or other efforts to repeal, replace or otherwise modify, or invalidate, the Affordable Care Act or its implementing regulations, or portions thereof, as well as health care reform measures of the Biden administration, will affect our business. On January 28, 2021, President Biden issued an executive order to initiate a special enrollment period from February 15, 2021, through May 15, 2021, for purposes of obtaining health insurance coverage through the Affordable Care Act marketplace. The executive order also instructs certain governmental agencies to review and reconsider their existing policies and rules that limit access to healthcare, including, among others, policies that undermine protections for people with pre-existing conditions, demonstrations and waivers under Medicaid and the Affordable Care Act that may reduce coverage or undermine the programs thereunder, including work requirements, and policies that make it more difficult to access health benefits through Medicaid or the Affordable Care Act.
Further, it is possible that additional governmental action could be taken in response to the COVID-19 pandemic.
Under European Union regulatory systems, marketing authorizations may be submitted either under a centralized, decentralized or mutual recognition procedure. The centralized procedure provides for the grant of a single marking authorization that is valid for all European Union member states. The decentralized procedure includes selecting one reference member state (RMS), and submitting to more than one EU member state at the same time. The RMS National Competent Authority conducts a detailed review and prepares an assessment report, to which concerned member states provide comment. The mutual recognition procedure provides for mutual recognition of national approval decisions. Under this procedure, the holder of a national marking authorization may submit an application to the remaining member states post-initial approval. Under the centralized procedure, within 120 days of receiving the applications and assessment report, each member state must decide whether to recognize approval.
products.
Segment and Geographic Information
We operate and manage our business as one reporting and operating segment, which is the business of developing and commercializing gene therapeutics. Our chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.
To date, we have not generated any revenue from product sales and our revenues are generated in the U.S. Substantially all of our non-monetary long-lived assets are located in the U.S.
We consider our relationship with our employees to be good. We have a relatively low turnover of employees, which we attribute to our shared mission of transforming the lives of those affected by ocular and rare diseases.
“ADVM.”
years or longer. •the type, number, scope, progress, expansion costs, results of and timing of any future preclinical studies and clinical trials of any of our product candidates which we are pursuing or may choose to pursue in the future; •the need for, and the progress, costs and results of, any additional clinical trials or nonclinical studies of our product candidates we may initiate based on the results of any clinical trials that we may plan or discussions with the FDA, including any additional clinical trials or nonclinical studies the FDA or other regulatory •the costs of obtaining, maintaining and enforcing our patents and other intellectual property rights; •the costs and timing of obtaining or maintaining manufacturing for our product candidates, including internal and external commercial •the costs and timing of establishing sales and marketing capabilities and enhanced internal controls over financial reporting; •the terms and timing of establishing collaborations, license agreements and other partnerships; •costs associated with any new product candidates that we may develop, in-license or acquire; •our ability to establish and maintain partnering arrangements for development; and •the costs associated with being a public company. •successful completion of preclinical studies and clinical trials, including the ability to demonstrate safety and efficacy of our •receipt of marketing approvals for any future products for which we complete clinical trials, including securing regulatory exclusivity to the extent available; •establishing commercial manufacturing capabilities, for example, by •acceptance of the product as a viable treatment option by patients, the medical community and third-party payers; •establishing market share while competing with other therapies; •a continued acceptable safety profile of our products following regulatory approval; •maintaining compliance with post-approval •qualifying for, identifying, registering, maintaining, enforcing and defending intellectual property rights and claims covering our product candidates.Item 1A. RiskRisk FactorsYou should consider carefully the risks and uncertainties described below, together with all of the other information in this Annual Report on Form 10-K. If any of the following risks are realized, our business, financial condition, results of operations and prospects could be materially and adversely affected. The risks described below are not the only risks facing the Company.Adverum. Risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, results of operations and prospects.Risks Related to Our Financial Position and Need for CapitalWe have incurred significant operating losses since inception, and we expect to incur significant losses for the foreseeable future. We may never become profitable or, if achieved, be able to sustain profitability.We have incurred significant operating losses since we were founded in 2006 and expect to incur significant losses for the foreseeable future as we continue development of our product candidates. As of December 31, 2017, we had an accumulated deficit of $254.1 million. Losses have resulted principally from costs incurred in our clinical trials for our prior wAMD product candidate, AVA-101, research and development programs and from our general and administrative expenses. In the future, we intend to continue to conduct research and development, clinical testing, regulatory compliance activities and, if any of our product candidates is approved, sales and marketing activities that, together with anticipated general and administrative expenses, will likely result in us incurring significant losses for the next several years.We currently generate no revenue from sales, and we may never be able to commercialize any of our product candidates. We do not currently have the required approvals to market any of our product candidates, and we may never receive such approvals. We may not be profitable even if we or any of our future development partners succeed in commercializing any of our product candidates. Because of the numerous risks and uncertainties associated with developing and commercializing our product candidates, we are unable to predict the extent of any future losses or when we will become profitable, if at all.30We expect that our cash, and cash equivalents, and short-term investments will be sufficient to fund our lead gene therapy programs through the end of 2019.into mid-2022. If this expectation proves to be wrong, we may be forced to delay, limit or terminate certain of our development efforts.As of December 31, 2017,efforts before then.We currently expect our cash, cash equivalents and short-term investments were approximately $190.5 million. We currently expect this cash, cash equivalents and short-term investments, together with the net proceeds from our February 2018 underwritten public offering of our common stock, to fund our planned operations through the end of 2019.into mid-2022. However, this estimate is based on a number of assumptions that may prove to be wrong, including our expectations about the timing of planned clinical trials and expected investments into our manufacturing capabilities, and changing circumstances beyond our control may cause capital to be consumed more rapidly than currently anticipated. As a result, our operating plan may change, and we may need to seek additional funds sooner than planned through collaboration agreements and public or private financings. If we run low on capital before weand are able to achieve meaningful clinical data for some or all of our lead product candidates, we may be unable to successfully raise additional funds and, consequentially,on terms acceptable to us, we may need to significantly curtail some or all of our development activities.We will need to raise additional funding, which may not be available on acceptable terms, or at all. If we fail to obtain additional capital necessary to fund our operations, we will be unable to successfully develop and commercialize our product candidates.We will require substantial future capital in order to complete the preclinical and clinical development for our product candidates and potentially to potentially commercialize these product candidates. Any future clinical trials or ongoing clinical trials of our product candidates wouldcould cause an increase in our spending levels, as would other corporate activities.activities, such as manufacturing facility building plans to supply our product candidates. The amount and timing of any expenditure needed to implement our development and commercialization programs will depend on numerous factors, including:agenciesauthorities outside the U.S. may require evaluating the safety of our product candidates;manufacturing;manufacturing if any product candidate is approved;
•the effect of competing technological and market developments;Some of these factors are outside of our control. We do not expect our existing capital resources to be sufficient to enable us to fund the completion of our clinical trials and remaining development programprograms through commercial introduction. We expect that we will need to raise additional funds in the future.We have no product candidate approved by any regulatory authority, have not sold any products, and we do not expect to sell or derive revenue from any product sales for the foreseeable future. We may seek additional funding through collaboration agreements and public or private financings.Additional funding may not be available to us on acceptable terms or at all and the terms of any financing may adversely affect the holdings or the rights of our stockholders. In addition, the issuance of additional shares by us, or the possibility of such issuance, may cause the market price of our shares to decline.If we are unable to obtain funding on a timely basis, we will be unable to complete any future clinical trials for our product candidates and we may be required to significantly curtail some or all of our activities. We also could be required to seek funds through arrangements with collaborative partners or otherwise that may require us to relinquish rights to our product candidates or some of our technologies or otherwise agree to terms unfavorable to us.31Risks Related to the Discovery and Development of Our Product CandidatesOur business will depend substantially on the success of one or more of ADVM-043, ADVM-053, and ADVM-022, our lead product candidates. If we are unable to develop, obtain regulatory approval for, or successfully commercialize, any or all of our lead product candidates, our business will be materially harmed.Our lead product candidates are in the early stages of development and will require substantial preclinical and/or clinical development and testing, manufacturing process improvement and validation, bridging studies process validation and regulatory approval prior to commercialization. We are conducting the ADVANCE trial in patients with A1AT deficiency and we are continuing pre-clinical development of our other lead product candidates to support planned INDs in the second half of 2018. It is critical to our business to successfully develop and ultimately obtain regulatory approval for one or more of these lead product candidates. Our ability to commercialize our product candidates effectively will depend on several factors, including the following:lead product candidates;making arrangements withengaging third-party manufacturers or developing our own manufacturing capabilities that can provide adequate and quality products and services to support clinical development and the market demand for our product candidates, if approved;potential partners;successfully launching•successful launch and commercial sales of the product, whether alone or in collaboration with others;regulationregulations and other requirements; andIf we or our collaborators do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to commercialize our product candidates, which would materially and adversely affect our business, financial condition, results of operations and prospects.Moreover, ofOf the large number of biologics and drugs in development in the pharmaceutical industry, only a small percentage result in the submission of a biologics license application (“BLA”) to the FDA and even fewer are approved for commercialization. Furthermore, even if we do receive regulatory approval to market any of our lead product candidates, any such approval may be subject to limitations on the indicated uses for which we may market the product, or limitations related to its distribution. Accordingly, even if we are able to obtain the requisite financing to continue to fund our development programs, there can be no assurance that any of our product candidates will be successfully developed or commercialized. If we decide to invest in the continued development and potential commercialization of any or all of our lead product candidates and we or any of our future development partners are unable to develop, or obtain regulatory approval, for, or, if approved, successfully commercialize, suchany of our product candidates, we may not be able to generate sufficient revenue to continue our business.Our gene therapy platformDrug development is based on a novel technology, which makes it difficult to predict the timelong, expensive and costuncertain process, and delay or failure can occur at any stage of product candidate development, and subsequently obtaining regulatory approval.We have concentrated our research and development efforts on our gene therapy platform and our future success depends on the successful developmentincluding after commencement of product candidates based on this platform. There can be no assurance that any development problems we experience in the future related to our platform will not cause significant delays or unanticipated costs, or that such development problems can be solved. We may also experience delays in developing a sustainable, reproducible and scalable manufacturing process or transferring that process to commercial partners, which may prevent us from completingof our clinical trials or commercializingany clinical trials using our products on a timely or profitable basis, if at all.In addition,proprietary viral vectors.
Regulatory requirements governing gene and cell therapy products may change in the future. Gene therapy clinical trials conducted at institutions that receive funding for recombinant DNA research from the National Institutes of Health (“NIH”) may also be subjectsignificantly delayed adverse events following exposure to review by the NIH Office of Science Policy’s Recombinant DNA Advisory Committee (“RAC”). Although the FDA decides whether individual gene therapy protocols may proceed, the RAC review process can impede the initiation of a clinical trial, even if the FDA has reviewed the study and approved its initiation. Clinical trial sites in the U.S. that receive NIH funding for research involving recombinant or synthetic nucleic acid molecules are required to follow RAC recommendations, or risk losing NIH funding for such research or needing NIH pre-approval before conducting such research.
Conversely, the FDA can put an IND on clinical hold even if the RAC has provided a favorable review of the gene transfer protocol. Also, before a clinical study can begin at an NIH-funded institution, that entity’s institutional review board (“IRB”) and its Institutional Biosafety Committee will have to review the proposed clinical trial to assess the safety of the study. In addition, adverse developments in clinical trials of gene therapy products conducted by others may causedue to persistent biologic activity of the FDAgenetic material or other regulatory bodiescomponents of products used to changecarry the requirements for human research on or approval of any of our product candidates.
These regulatory review committees and advisory groups and the new guidelines they promulgate may lengthen the regulatory review process, require us to perform additional trials, increase our development costs, lead to changes in regulatory positions and interpretations, delay or prevent approval and commercialization of these treatment candidates or lead to significant post-approval limitations or restrictions. As we advance our product candidates, we may be required to consult with these regulatory and advisory groups, and comply with applicable guidelines or recommendations. If we fail to do so, we may be required to delay or discontinue development of our product candidates. Delay or failure to obtain, or unexpected costs in obtaining, the regulatory approval necessary to bring a potential product to market could decrease our ability to generate sufficient product revenue to maintain our business.
We may not be successful in our efforts to identify or discover additional product candidates.
The success of our business depends primarily upon our ability to identify, develop and commercialize products based on our platform. Our research programs, including those subject to our collaborations with Regeneron and Editas, may fail to identify other potential product candidates for clinical development for a number of reasons. Our research methodology may be unsuccessful in identifying potential product candidates or our potential product candidates may be shown to have harmfulgenetic material. Possible adverse side effects or may have other characteristics that may makecould occur with treatment with gene therapy products include an immunologic reaction early after administration that, while not necessarily adverse to the products unmarketable or unlikely to receive marketing approval.
If anypatient’s health, could substantially limit the effectiveness of these events occur, we may be forced to abandon our development efforts for a program or programs, which would have a material adverse effect on our business, financial condition, results of operations, and prospects and could potentially cause us to cease operations. Research programs to identify new product candidates require substantial technical, financial and human resources. We may focus our efforts and resources on potential programs or product candidates that ultimately prove to be unsuccessful.
Except for our recently-initiated ADVANCE Phase 1/2 trial, we have not tested any of our internally-developed viral vectors or product candidates in clinical trials.
Drug development has inherent risk. Except for our ADVANCE Phase 1/2 trial, which was initiated in December 2017, none of our current product candidates has been evaluated in human clinical trials, and we may experience unexpected results in the future. treatment.
Even if our clinical trials successfully meet their endpoints for safety and efficacy, the FDA and/or other regulatory authorities outside the U.S. may still conclude that the product candidate has not demonstrated a beneficial risk/benefit profile or otherwise does not meet the relevant standard for approval.
Preliminary
From time to time, we may announce or publish preliminary or interim data from our clinical trials. Preliminary and interim results ofsubstantial experience.
Preliminarygene therapy products conducted by others may cause the FDA or other regulatory authorities outside the U.S. to change the requirements for human research on or for approval of any of our product candidates.
operations and prospects.
•such authorities may disagree with the design or implementation of our or any of our future development partners’ clinical trials;
•we or any of our future development partners may be unable to demonstrate to the satisfaction of the FDA or other regulatory authorities outside the U.S. that a product candidate is safe and effective for any indication;
such•the FDA or other regulatory authorities outside the U.S. may not accept clinical data from trials which are conducted at multinational clinical facilities or in countries where the standard of care is potentially different from that of the U.S. or the other regulatory authorities outside the U.S.;
•the results of clinical trials may not demonstrate the safety or efficacy required by such authorities for approval;
•we or any of our future development partners may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks;
•such authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
•approval may be granted only for indications that are significantly more limited than what we apply for and/or with other significant restrictions on distribution and use;
•such authorities may find deficiencies in the manufacturing processes, analytical testing, our facilities, or facilities of third-party manufacturers or testing laboratories with which we or any of our future development partners contract for clinical and commercial supplies; or
•the approval policies or regulations of such authorities may significantly change in a manner rendering our or any of our future development partners’ clinical data insufficient for approval.
With respect to foreign markets, approval procedures vary among countries and, in addition to the aforementioned risks, can involve additional product testing, administrative review periods and agreements with pricing authorities. In addition, events raising questions about the safety of certain marketed pharmaceuticalsrelated products, including those already on the market, may result in increased cautiousness by the FDA and comparable foreign regulatory authorities outside the U.S. in reviewing new drugsour product candidates based on safety, efficacy or other regulatory considerations and may result in significant delays in obtaining regulatory approvals. Any delay in obtaining, or inability to obtain, applicable regulatory approvals would prevent us or any of our future development partners from commercializing our product candidates.
If
We initiated the ADVANCE Phase 1/2 trial in patients with A1AT deficiency in December 2017. Identifying and qualifying subjects to participateenroll a broader study population than that in the ADVANCEOPTIC trial. These different doses, populations, and other treatment conditions may affect clinical outcomes, including safety profiles or efficacy, such as the number of rescue injections required, in each of the cohorts. As a result, preliminary and interim data should be viewed with caution and not relied upon until the final data from a locked database for the entire clinical trial and future planned clinical trials for ADVM-053 and ADVM-022 will be critical to our success. The timing of future clinical trials will depend on the speed at which we can recruit subjects to participate in future testing of these product candidates.
Subject enrollment, a significant factorare available. Material changes in the timingfinal data compared to preliminary or interim data could significantly harm our business prospects.
In particular, ADVM-043 and ADVM-053 are designed to treat rare genetic disorders with limited patient pools from which to draw for clinical trials. ADVM-043 is focused on the treatment of patients with A1AT deficiency. It is estimated that A1AT deficiency affects approximately 100,000 individuals in the U.S.
ADVM-053 is focused on the treatment of patients with HAE. The prevalence of HAE is estimated to be 1 in 10,000 to 1 in 50,000, impacting approximately 8,000 individuals in the United States. Enrollment of eligible subjects with orphan diseases like A1AT and HAEreasons. For example, our research methodology may be limited or slower than we anticipateunsuccessful in light of the small subject populations involved. We plan to seek initial marketing approval of theseidentifying potential product candidates in the U.S. and Europe and we may not be able to initiate clinical trials if we cannot enroll a sufficient number of eligible subjects to participate in the clinical trials required by the FDA or the EMA or other regulatory agencies. In addition, the process of finding and diagnosing subjects may prove costly.
Further, if patients are unwilling to participate in our gene therapy studies because of negative publicity from adverse events in the biotechnology or gene therapy industries or inadequate results in our preclinical studies or clinical trials or for other reasons, including competitive clinical trials for similar patient populations or available approved therapies, our recruitment of subjects, conduct of preclinical studies or clinical trials and ability to obtain regulatory approval of ourpotential product candidates may be hindered.
Trials using early versionsshown to lack efficacy, have harmful side effects, or may have other characteristics that may make the products unmarketable or unlikely to receive marketing approval.
If we have difficulty enrolling a sufficient number of patients to conduct clinical trials on our product candidates as planned, we may need to delay, limit or terminate future clinical trials, any ofprograms, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
Research programs to identify new product candidates require substantial technical, financial and human resources. We believemay focus our efforts and resources on potential programs or product candidates that may ultimately prove to be unsuccessful.
The occurrence of serious complications or side effects in connection with usetechnical, scientific, and other challenges described above, we may be unable to manufacture a sufficient supply of our product candidates eitherfor our clinical trials and may be forced to delay or terminate our development programs. Additionally, changes in preclinicalmanufacturing processes (including manufacturing cell lines), equipment or facilities (including moving manufacturing from one of our facilities to another one of our facilities or a third-party facility, or from a third-party facility to one of our facilities) may require us to complete clinical trials to receive regulatory approval of any manufacturing modifications. As a result, we could experience manufacturing delays that prevent us from completing our clinical studies in a timely manner, if at all.
Duringoperations may be materially harmed.
subject to product recalls, seizures, injunctions or criminal prosecution.
Serious complicationsproduct candidates may result in shipment delays, inventory shortages, lot failures, product withdrawals or serious, unexpected side effectsrecalls, or other interruptions in connection with the usesupply of our product candidates could materially harm our business, prospects, financial conditioncandidates. We may also have to take inventory write-offs and results of operations.
incur other charges and expenses for product substance that fails to meet specifications, undertake costly remediation efforts, or seek more costly manufacturing alternatives. We may encounter problems manufacturing sufficient research-, clinical-, or commercial-grade materials that meet FDA, EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.
We have relied, and expect to continue to rely, on third parties to conduct some or all aspects of our vector production, product manufacturing, protocol development, research and preclinical and clinical testing, and these third parties may not perform satisfactorily.
We do not expect to independently conduct all aspects of our vector production, product manufacturing, protocol development, research and preclinical and clinical testing. We currently rely, and expect to continue to rely, on third parties with respect to these items.
Any of these third parties may terminate their engagements with us at any time. If we need to enter into alternative arrangements, it could delay our product development activities. Our reliance on these third parties for research and development activities will reduce our control over these activities but will not relieve us of our responsibility to ensure compliance with all required regulations and study protocols. If any of these third parties on which we rely do not perform satisfactorily, we will remain responsible for ensuring that each of our IND-enabling studies and clinical trials are conducted in accordance with the study plan and protocols.
These third parties may not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study plans and protocols. For example, on December 6, 2016, we delivered a notice to the appropriate persons at Cornell University of our intent to terminate our Amended and Restated Master Services Agreement for breach as a result of Cornell University’s failure to deliver suitable materials for use in our clinical trials of ADVM-043. If third parties breach their contractual obligations to us, we may not be able to complete, or may be delayed in completing, the preclinical studies and clinical trials required to support future IND submissions, development work, and approval of our product candidates.
Reliance on third-party manufacturers also entails risks to which we would not be subject to if we manufactured the product candidates ourselves, including:
the inability to negotiate manufacturing agreements with third parties under commercially reasonable terms;
reduced control as a result of using third-party manufacturers for all aspects of manufacturing activities;
termination or nonrenewal of manufacturing agreements with third parties in a manner or at a time that is costly or damaging to us; and
disruptions to the operations of our third-party manufacturers or suppliers caused by conditions unrelated to our business or operations, including the bankruptcy of the manufacturer or supplier.
Any of these events could lead to clinical study delays or failure to obtain regulatory approval, or impact our ability to successfully commercialize future products.
We and our contract manufacturers are subject to significant regulation with respect to manufacturing our products. The manufacturing facilities on which we rely may not continue to meet regulatory requirements and may have limited capacity.
We currently have relationships with limited number of suppliers for the manufacturing of our viral vectors and product candidates. Our suppliers may require licenses to manufacture such components if such processes are not owned by the suppliers or in the public domain and we may be unable to transfer or sublicense the intellectual property rights we may have with respect to such activities. All entities involved in the preparation of therapeutics for clinical trials or commercial sale, including our existing contract manufacturer for our product candidates, are subject to extensive regulation. Components of a finished therapeutic product approved for commercial sale or used in late-stage clinical trials must be manufactured in accordance with the FDA’s current Good Manufacturing Practices (“cGMP”). These regulations govern manufacturing processes and procedures (including record keeping) and the implementation and operation of quality systems to control and assure the quality of investigational products and products approved for sale. Poor control of production processes can lead to the introduction of adventitious agents or other contaminants, or to inadvertent changes in the properties or stability of our product candidates that may not be detectable in final product testing. We or our contract manufacturers must supply all necessary documentation in support of a BLA on a timely basis and must adhere to the FDA’s current Good Laboratory Practice regulations and cGMP regulations enforced by the FDA through its facilities inspection program. Our contract manufacturers have not produced a commercially-approved product and therefore have not obtained the requisite FDA approvals to do so. Our facilities and quality systems and the facilities and quality systems of some or all of our third-party contractors must pass a pre-approval inspection for compliance with the applicable regulations as a condition of regulatory approval of our product candidates or any of our other potential products. In addition, the regulatory authorities may, at any time, audit or inspect our manufacturing facilities or those of our third-party contractors involved with the preparation of our product candidates or our other potential products or the associated quality systems for compliance with the regulations applicable to the activities being conducted. If the facility does not pass a pre-approval plant inspection, FDA approval of the products will not be granted.
The regulatory authorities also may, at any time following approval of a product for sale, audit our manufacturing facilities or those of our third-party contractors. If any such inspection or audit identifies a failure to comply with applicable regulations or if a violation of our product specifications or applicable regulations occurs independent of such an inspection or audit, we or the relevant regulatory authority may require remedial measures that may be costly and/or time-consuming for us or a third party to implement and that may include the temporary or permanent suspension of a clinical study or commercial sales or the temporary or permanent closure of a facility. Such violations could also result in civil and/or criminal penalties. Any such remedial measures or other civil and/or criminal penalties imposed upon us or third parties with whom we contract could materially harm our business.
If we or our third-party manufacturers fail to maintain regulatory compliance, the FDA can impose regulatory sanctions including, among other things, refusal to approve a pending application for a new drug product or biologic product, revocation of a pre-existing approval, other civil or criminal penalties or closing one or more manufacturing facilities. As a result, our business, financial condition and results of operations may be materially harmed.
Additionally, if supply from an approved manufacturer is interrupted, there could be a significant disruption in commercial supply. An alternative manufacturer would need to be qualified through a BLA supplement which could result in further delay. The regulatory agencies may also require additional studies if a new manufacturer is relied upon for commercial production. Switching manufacturers may involve substantial costs and is likely to result in a delay in our desired clinical and commercial timelines.
These factors could cause the delay of clinical trials, regulatory submissions, required approvals or commercialization of our product candidates, cause us to incur higher costs and prevent us from commercializing our products successfully. Furthermore, if our suppliers fail to meet contractual requirements, and we are unable to secure one or more replacement suppliers capable of production at a substantially equivalent cost, our clinical trials may be delayed or we could lose potential revenue.
Our reliance on third parties requires us to share our trade secrets and other confidential information, which increases the possibility that a competitor will discover them or that our confidential information, including trade secrets, will be misappropriated or disclosed.
Risks Related to Commercializationprospects.
Any termination or suspension of, or delays in the commencement or completion of, clinical trials for our product candidates could result in increased costs to us, delay or limit our ability to generate revenue and adversely affect our commercial prospects.
ContentsBefore we can initiate clinical trials in the U.S. for our product candidates, we need to submit the results of preclinical testing to the FDA, along with other information including information about product candidate chemistry, manufacturing and controls and our proposed clinical trial protocol, as part of an IND. We may rely in part on preclinical, clinical and quality data generated by CROs and other third parties for regulatory submissions for our product candidates. If these third parties do not make timely regulatory submissions for our product candidates, it will delay our plans for our clinical trials. If those third parties do not make this data available to us, we will likely have to develop all necessary preclinical and clinical data on our own, which will lead to significant delays and increase development costs of the product candidate. In addition, the FDA may require us to conduct additional preclinical
testing for any product candidate before it allows us to initiate clinical testing under any IND, which may lead to additional delays and increase the costs of our preclinical development. Delays with any regulatory body or agency may significantly affect our product development timeline. Delays in the commencement or completion of any clinical trials that we plan for our product candidates could significantly affect our product development costs. We do not know whether any trials that we plan will begin on time or be completed on schedule, if at all. The commencement and completion of clinical trials can be delayed for a number of reasons, including delays related to:
the FDA failing to grant permission to proceed or placing the clinical trial on hold;
subjects failing to enroll or remain in our trial at the rate we expect;
subjects choosing an alternative treatment for the indication for which we are developing our product candidates, or participating in competing clinical trials;
lack of adequate funding to continue the clinical trial;
subjects experiencing severe or unexpected drug-related adverse effects;
a facility manufacturing any of our product candidates or any of their components being ordered by the FDA or other government or regulatory authorities to temporarily or permanently shut down due to violations of cGMP or other applicable requirements, or infections or cross-contaminations of product candidates in the manufacturing process;
any changes to our manufacturing process that may be necessary or desired;
third-party clinical investigators losing the licenses or permits necessary to perform our clinical trials, not performing our clinical trials on our anticipated schedule or consistent with the clinical trial protocol, Good Clinical Practice or regulatory requirements or other third parties not performing data collection or analysis in a timely or accurate manner;
inspections of clinical trial sites by the FDA or the finding of regulatory violations by the FDA or an IRB that require us to undertake corrective action, result in suspension or termination of one or more sites or the imposition of a clinical hold on the entire trial or that prohibit us from using some or all of the data in support of our marketing applications;
third-party contractors becoming debarred or suspended or otherwise penalized by the FDA or other government or regulatory authorities for violations of regulatory requirements, in which case we may need to find a substitute contractor, and we may not be able to use some or all of the data produced by such contractors in support of our marketing applications; or
one or more IRBs refusing to approve, suspending or terminating the trial at an investigational site, precluding enrollment of additional subjects, or withdrawing its approval of the trial.
Product development costs will increase if we have delays in testing or approval of any of our product candidates, or if we need to perform more or larger clinical trials than planned. Additionally, changes in regulatory requirements and policies may occur, and we may need to amend clinical trial protocols to reflect these changes. Amendments may require us to resubmit our clinical trial protocols to IRBs for reexamination, which may impact the costs, timing or successful completion of a clinical trial. If we experience delays in completion of our clinical trials, or if we, the FDA or other regulatory authorities, the IRB, other reviewing entities, or any of our clinical trial sites suspend or terminate any of our clinical trials, the commercial prospects for a product candidate may be harmed and our ability to generate product revenue will be delayed. In addition, many of the factors that cause, or lead to, termination or suspension of, or a delay in the commencement or completion of, clinical trials may also ultimately lead to the denial of regulatory approval of a product candidate. If we make manufacturing or formulation changes to our product candidates, we may need to conduct additional studies to bridge our modified product candidates to earlier versions. Further, if one or more clinical trials are delayed, our competitors may be able to bring products to market before we do, and the commercial viability of our product candidates could be significantly reduced.
If we do not achieve our projected development goals in the time frames we announce and expect, the commercialization of our products may be delayed and, as a result, our stock price may decline.
From time to time, we estimate the timing of the accomplishment of various scientific, clinical, regulatory and other product development goals, which we sometimes refer to as milestones. These milestones may include the commencement or completion of, or the availability of data from, scientific studies and clinical trials and the submission of regulatory filings. From time to time, we may publicly announce the expected timing of some of these milestones. All of these milestones will be based on a variety of assumptions. The actual timing of these milestones can vary dramatically compared to our estimates, in some cases for reasons beyond our control. If we do not meet these milestones as publicly announced, the commercialization of our products may be delayed and, as a result, our stock price may decline.
Final marketing approval for our product candidates by the FDA or other regulatory authorities for commercial use may be delayed, limited or denied, any of which would adversely affect our ability to generate operating revenue.
After the completion of our clinical trials and, assuming the results of the trials are successful, the submission of a BLA, we cannot predict whether or when we will obtain regulatory approval to commercialize our product candidates, and we cannot, therefore, predict the timing of any future revenue. We cannot commercialize our product candidates until the appropriate regulatory authorities have reviewed and approved the applicable applications. We cannot assure you that the regulatory agencies will complete their review processes in a timely manner or that we will obtain regulatory approval for our product candidates. In addition, we may experience delays or rejections based upon additional government regulation from future legislation or administrative action or changes in FDA policy during the period of product development, clinical trials and FDA regulatory review. If marketing approval for any product candidate is delayed, limited or denied, our ability to market the product candidate, and our ability to generate product sales, would be adversely affected.
Even if we obtain marketing approval for any of our product candidates, they could be subject to restrictions or withdrawal from the market, and we may be subject to penalties if we fail to comply with regulatory requirements or if we experience unanticipated problems with our product candidates, when and if any of them are approved.
Even if U.S. regulatory approval is obtained, the FDA may still impose significant restrictions on a product’s indicated uses, marketing or distribution or impose ongoing requirements for potentially costly and time consuming post-approval studies, post-market surveillance or clinical trials. Following approval, if at all, of any of our product candidates, such candidate will also be subject to ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, recordkeeping and reporting of safety and other post-market information. In addition, manufacturers of drug products and their facilities are subject to continual review and periodic inspections by the FDA and other regulatory authorities for compliance with cGMP requirements relating to quality control, quality assurance and corresponding maintenance of records and documents. If we or a regulatory agency discovers previously unknown problems with a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured, a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requesting recall or withdrawal of the product from the market or suspension of manufacturing.
If we or the manufacturing facilities for any product candidate that may receive regulatory approval fail to comply with applicable regulatory requirements, a regulatory agency may:
issue warning letters or untitled letters;
seek an injunction or impose civil or criminal penalties or monetary fines;
suspend or withdraw regulatory approval;
suspend any ongoing clinical trials;
refuse to approve pending applications or supplements or applications filed by us;
suspend or impose restrictions on operations, including costly new manufacturing requirements; or
seize or detain products, refuse to permit the import or export of product or request us to initiate a product recall.
The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenue. The FDA has the authority to require a risk evaluation and mitigation strategy plan as part of a BLA or after approval, which may impose further requirements or restrictions on the distribution or use of an approved drug, such as limiting prescribing to certain physicians or medical centers that have undergone specialized training, limiting treatment to patients who meet certain safe-use criteria and requiring treated patients to enroll in a registry.
In addition, if any of our product candidates is approved, our product labeling, advertising and promotion would be subject to regulatory requirements and continuing regulatory review. The FDA strictly regulates the promotional claims that may be made about prescription products. In particular, a product may not be promoted for uses that are not approved by the FDA as reflected in the product’s approved labeling. If we receive marketing approval for a product candidate, physicians may nevertheless prescribe it to their patients in a manner that is inconsistent with the approved label. If we are found to have promoted such off-label uses, we may become subject to significant liability. The FDA and other agencies actively enforce the laws and regulations prohibiting the promotion of off-label uses, and a company that is found to have improperly promoted off-label uses may be subject to significant sanctions. The federal government has levied large civil and criminal fines against companies for alleged improper promotion and has enjoined several companies from engaging in off-label promotion. The FDA has also requested that companies enter into consent decrees or permanent injunctions under which specified promotional conduct is changed or curtailed.
Even if we receive regulatory approval we still may not be able to successfully commercialize any of our product candidates, and the revenue that we generate from its sales, if any, could be limited.
Even if any of our product candidates receive regulatory approval, they may not gain market acceptance among physicians, patients, healthcare payers or the medical community. Coverage and reimbursement of our product candidates by third-party payers, including government payers, is also generally necessary for commercial success. The degree of market acceptance of our product candidates will depend on a number of factors, including:
demonstration of clinical efficacy and safety compared to other more-established products;
the limitation of our targeted patient population and other limitations or warnings contained in any FDA-approved labeling;
acceptance of new therapeutic options by health care providers and their patients;
the prevalence and severity of any adverse effects;
new procedures or methods of treatment that may be more effective in treating or may reduce the incidences of wAMD, A1AT deficiency, HAE or other conditions for which our products are intended to treat;
pricing and cost-effectiveness;
the effectiveness of our or any future collaborators’ sales and marketing strategies;
our ability to obtain and maintain sufficient third-party coverage and reimbursement from government health care programs, including Medicare and Medicaid, private health insurers and other third-party payers;
unfavorable publicity relating to the product candidate; and
the willingness of patients to pay out-of-pocket in the absence of third-party coverage and reimbursement.
If any product candidate is approved but does not achieve an adequate level of acceptance by physicians, hospitals, healthcare payers or patients, we may not generate sufficient revenue from that product candidate and may not become or remain profitable. Our efforts to educate the medical community and third-party payers on the benefits of such a product candidate may require significant resources and may never be successful. In addition, our ability to successfully commercialize any of our product candidates will depend on our ability to manufacture our products, differentiate our products from competing products and defend and enforce our intellectual property rights relating to our products.
If the market for the treatment of wAMD is smaller than we believe it is, our future revenue may be adversely affected, and our business may suffer.
We are advancing the development of ADVM-022 for the treatment of wAMD, a disease we believe to be the most common cause of vision loss in adults over the age of 50 in developed countries. If the size of the market for wAMD is smaller than we anticipate, we may not be able to achieve profitability and growth. Our projections of the number of people who have wAMD, as well as the subset of people with these diseases who have the potential to benefit from treatment with wAMD, are based on estimates. These estimates have been derived from a variety of sources, including the scientific literature, surveys of clinics, patient foundations and market research and may prove to be incorrect. Further, new studies may change the estimated incidence or prevalence of these diseases. The number of patients may turn out to be lower than expected. The effort to identify patients with diseases we seek to treat is in early stages, and we cannot accurately predict the number of patients for whom treatment might be possible. Additionally, the potentially addressable patient population may be limited or may not be amenable to treatment with our product candidates, and new patients may become increasingly difficult to identify or gain access to, which would adversely affect our results of operations and our business.
Because the target patient populations of ADVM-043 and ADVM-053 are relatively small, we must be able to successfully identify patients and achieve a significant market share to maintain profitability and growth. If the market opportunities for these product candidates are smaller than we believe they are, our future revenue may be adversely affected, and our business may suffer.
ADVM-043 and ADVM-053 are designed to treat rare genetic diseases. ADVM-043 is designed to treat A1AT deficiency, which impacts approximately 100,000 individuals in the U.S. ADVM-053 is designed to treat HAE, which impacts approximately 8,000 individuals in the U.S. Our estimates of both the number of people who have these diseases, as well as the subset of people with these diseases who have the potential to benefit from treatment with these product candidates, may prove to be incorrect. The number of patients in the U.S. and elsewhere may turn out to be lower than expected, may not be otherwise amenable to treatment with these products, or new patients may become increasingly difficult to identify or gain access to, all of which would adversely affect our results of operations and our business. Further, even if we obtain significant market share for our product candidates, because the potential target populations are very small, we may never achieve profitability despite obtaining such significant market share.
Additionally, because the target patient populations for these product candidates are relatively small, the pricing and reimbursement of these product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell these product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to these product candidates (e.g., for administration of such product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell these products.
We may be unable to obtain orphan drug designation or exclusivity for ADVM-043, ADVM-053 or certain of our other product candidates. If our competitors are able to obtain orphan drug exclusivity for products that constitute the same drug and treat the same indications as our product candidates, we may not be able to have competing products approved by the applicable regulatory authority for a significant period of time.
Regulatory authorities in some jurisdictions, including the U.S. and the European Union, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act of 1983, the FDA may designate a product candidate as an orphan drug if it is intended to treat a rare disease or condition, which is defined under the Food, Drug and Cosmetic Act as having a patient population of fewer than 200,000 individuals in the U.S., or a patient population greater than 200,000 in the U.S. where there is no reasonable expectation that the cost of developing the drug will be recovered from sales in the U.S. In the European Union, following the opinion of the EMA’s Committee for Orphan Medicinal Products, the European Commission grants orphan drug designation to promote the development of products that are intended for the diagnosis, prevention or treatment of a life-threatening or chronically debilitating condition affecting not more than five in 10,000 persons in the European Union. Additionally, orphan designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug or biologic product.
Generally, if a product candidate with an orphan drug designation receives the first marketing approval for the indication for which it has such designation, the product is entitled to a period of marketing exclusivity, which precludes the FDA or the European Commission from approving another marketing application for a product that constitutes the same drug treating the same indication for that marketing exclusivity period, except in limited circumstances. If another sponsor receives such approval before we do (regardless of our orphan drug designation), we will be precluded from receiving marketing approval for our product for the applicable exclusivity period. The applicable period is seven years in the U.S. and 10 years in the European Union. The exclusivity period in the U.S. can be extended by six months if the BLA sponsor submits pediatric data that fairly respond to a written request from the FDA for such data. The exclusivity period in the European Union can be reduced to six years if a product no longer meets the criteria for orphan drug designation or if the product is sufficiently profitable so that market exclusivity is no longer justified. Orphan drug exclusivity may be revoked if any regulatory agency determines that the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantity of the product to meet the needs of patients with the rare disease or condition.
We intend to request orphan drug designation for ADVM-043, ADVM-053 or any of our other product candidates that we believe could qualify, but there can be no assurances that the FDA or the European Commission will grant any of such requests. Additionally, the designation of any of our product candidates as an orphan product does not guarantee that any regulatory agency will accelerate regulatory review of, or ultimately approve, that product candidate, nor does it limit the ability of any regulatory agency to grant orphan drug designation to product candidates of other companies that treat the same indications as our product candidates prior to our product candidates receiving exclusive marketing approval.
Even if we obtain orphan drug exclusivity for a product candidate, that exclusivity may not effectively protect the product candidate from competition because different drugs can be approved for the same condition. In the U.S., even after an orphan drug is approved, the FDA may subsequently approve another drug for the same condition if the FDA concludes that the latter drug is not the same drug as the first or is clinically superior in that it is shown to be safer, more effective or makes a major contribution to patient care as compared to the first. In the European Union, marketing authorization may be granted to a similar medicinal product for the same orphan indication if:
the second applicant can establish in its application that its medicinal product, although similar to the orphan medicinal product already authorized, is safer, more effective or otherwise clinically superior;
the holder of the marketing authorization for the original orphan medicinal product consents to a second orphan medicinal product application; or
the holder of the marketing authorization for the original orphan medicinal product cannot supply sufficient quantities of orphan medicinal product.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product candidates, which could make it difficult for us to sell our product candidates profitably.
Market acceptance and sales of our product candidates will depend significantly on the availability of adequate coverage and reimbursement from third-party payers for any of our product candidates and may be affected by existing and future health care reform measures. Government authorities and third-party payers, such as private health insurers and health maintenance organizations, decide which drugs they will pay for and establish reimbursement levels. Reimbursement by a third-party payer may depend upon a number of factors including the third-party payer’s determination that use of a product candidate is:
a covered benefit under its health plan;
appropriate for the specific patient;
cost-effective; and
neither experimental nor investigational.
Obtaining coverage and reimbursement approval for a product candidate from a government or other third-party payer is a time-consuming and costly process that could require us to provide supporting scientific, clinical and cost effectiveness data for the use of the applicable product candidate to the payer. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. While there is no uniform coverage and reimbursement policy among payers in the United States, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. We cannot be sure that coverage or adequate reimbursement will be available for any of our product candidates. Further, reimbursement amounts may reduce the demand for, or the price of, our product candidates. If reimbursement is not available or is available only in limited levels, we may not be able to commercialize certain of our product candidates profitably, or at all, even if approved.
A number of gene therapy products have been approved over the past year by the FDA. Although the U.S. Center for Medicare & Medicaid Services (“CMS”) subsequently approved its first method of coverage and reimbursement for one such product, the methodology has been subject to challenge by members of Congress. CMS’s decision as to coverage and reimbursement for one product does not mean that all similar products will be eligible for analogous coverage and reimbursement. As there is no uniform policy for coverage and reimbursement amongst third-party payors in the United States, even if CMS approves coverage and reimbursement for any of our product candidates, it is unclear what affect, if any, such a decision will have on our ability to obtain and maintain coverage and adequate reimbursement from other private payors.
As a result of legislative proposals and the trend toward managed health care in the U.S., third-party payers are increasingly attempting to contain health care costs by limiting both coverage and the level of reimbursement of new drugs. By way of example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, collectively referred to as the Affordable Care Act, was enacted with a goal of reducing the cost of healthcare and substantially changing the way healthcare is financed by both government and private insurers. The Affordable Care Act, among other things, addressed 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, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program, extended the rebate program to individuals enrolled in Medicaid managed care organizations and established annual fees and taxes on manufacturers of certain prescription drugs.
Some of the provisions of the Affordable Care Act have yet to be implemented, and there have been judicial and Congressional challenges to certain aspects of the Affordable Care Act. Since January 2017, President Trump has signed two Executive Orders and other directives designed to delay, circumvent or loosen the implementation of certain provisions requirements mandated by the Affordable Care Act or otherwise circumvent some of the requirements for health insurance mandated by the Affordable Care Act. Concurrently, Congress has considered legislation that would repeal or repeal and replace all or part of the Affordable Care Act. While Congress has not passed repeal legislation, the Tax Cuts and Jobs Act of 2017 includes a provision repealing, effective January 1, 2019, the tax-based shared responsibility payment imposed by the Affordable Care Act on certain individuals who fail to maintain qualifying health coverage for all or part of a year that is commonly referred to as the “individual mandate.” Additionally, on January 23, 2018, President Trump signed a continuing resolution on appropriations for fiscal year 2018 that delayed the implementation of certain Affordable Care Act-mandated fees, including the so-called “Cadillac” tax on certain high cost employer-sponsored insurance plans, the annual fee imposed on certain health insurance providers based on market share, and the medical device excise tax on non-exempt medical devices. Congress may consider other legislation to repeal or replace elements of the Affordable Care Act.
Other legislative changes have also been proposed and adopted in the U.S. since the Affordable Care Act was enacted. On August 2, 2011, the Budget Control Act of 2011 created measures for spending reductions by Congress. A Joint Select Committee on Deficit Reduction, tasked with recommending a targeted deficit reduction of at least $1.2 trillion for the years 2013 through 2021, was unable to reach required goals, thereby triggering the legislation’s automatic reduction to several government programs. This included aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and will stay in effect through 2024 unless additional Congressional action is taken.
These cost reduction initiatives could decrease the coverage and reimbursement that we receive for any approved products, and could seriously harm our business. We expect that additional healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal, state and foreign governments will pay for healthcare products and services, which could result in reduced demand for our products, if approved, or additional pricing pressures.
Recently there has been heightened governmental scrutiny over pharmaceutical pricing practices in light of the rising cost of prescription drugs and biologics. Such scrutiny has resulted in several recent Congressional inquiries and proposed and enacted federal legislation designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and manufacturer patient programs, and reform government program reimbursement methodologies for products. At the federal level,
Congress and the Trump administration have each indicated that it will continue to seek new legislative and/or administrative measures to control drug costs. At the state level, legislatures have increasingly passed legislation and implemented regulations designed to control pharmaceutical and biological product pricing, including price or patient reimbursement constraints, discounts, restrictions on certain product access and marketing cost disclosure and transparency measures, and, in some cases, designed to encourage importation from other countries and bulk purchasing.
The continuing efforts of the government, insurance companies, managed care organizations and other payers of healthcare services to contain or reduce costs of health care may adversely affect:
the demand for any product candidates for which we may obtain regulatory approval;
our ability to set a price that we believe is fair for our product candidates;
our ability to generate revenue and achieve or maintain profitability;
the level of taxes that we are required to pay; and
the availability of capital.
Due to the novel nature of our technology and the potential for our product candidates to offer therapeutic benefit in a single administration, we face uncertainty related to pricing and reimbursement for these product candidates.
Our product candidates are designed to provide potential therapeutic benefit after a single administration and, therefore, the pricing and reimbursement of our product candidates, if approved, must be adequate to support commercial infrastructure. If we are unable to obtain adequate levels of reimbursement, our ability to successfully market and sell our product candidates will be adversely affected. The manner and level at which reimbursement is provided for services related to our product candidates (e.g., for administration of our product to patients) is also important. Inadequate reimbursement for such services may lead to physician resistance and adversely affect our ability to market or sell our products.
We are subject to many manufacturing risks, any of which could substantially increase our costs and limit supply of our products. The process of manufacturing our products is complex, highly regulated and subject to several risks, including:
The manufacturing of biologics is extremely susceptible to product loss due to contamination, equipment failure, improper installation or operation of equipment or vendor or operator error. Even minor deviations from normal manufacturing processes could result in reduced production yields, product defects and other supply disruptions. If microbial, viral or other contaminations are discovered in our products or in the manufacturing facility in which our products are made, such manufacturing facility may need to be closed for an extended period of time to investigate and remedy the contamination.
The manufacturing facilities in which our products are made could be adversely affected by equipment failures, labor shortages, contaminants, raw materials shortages, natural disasters, power failures and numerous other factors.
We and our contract manufacturers must comply with the FDA’s cGMP regulations and guidelines. We and our contract manufacturers may encounter difficulties in achieving quality control and quality assurance and may experience shortages in qualified personnel. We and our contract manufacturers are subject to inspections by the FDA and comparable agencies in other jurisdictions to confirm compliance with applicable regulatory requirements. Any failure to follow cGMP or other regulatory requirements or any delay, interruption or other issues that arise in the manufacture, fill-finish, packaging or storage of our products as a result of a failure of our facilities or the facilities or operations of third parties to comply with regulatory requirements or pass any regulatory authority inspection could significantly impair our ability to develop and commercialize our products. This may lead to significant delays in the availability of products for our clinical trials or the termination or hold on a clinical trial, or the delay or prevention of a filing or approval of marketing applications for our product candidates. Significant noncompliance could also result in the imposition of sanctions, including fines, injunctions, civil penalties, failure of regulatory authorities to grant marketing approvals for our product candidates, delays, suspension or withdrawal of approvals, license revocation, seizures or recalls of products, operating restrictions and criminal prosecutions, any of which could be costly and damage our reputation. If we are not able to maintain regulatory compliance, we may not be permitted to market our products and/or may be subject to product recalls, seizures, injunctions or criminal prosecution.
Our product candidates are biologics and require processing steps that are more complex than those required for most chemical pharmaceuticals. Moreover, unlike chemical pharmaceuticals, the physical and chemical properties of a biologic such as our product candidates generally cannot be adequately characterized prior to manufacturing the final product. As a result, an assay of the finished product is not sufficient to ensure that the product will perform in the intended manner. Accordingly, we expect to employ multiple steps to attempt to control our manufacturing process to assure that the process works and the product or product candidate is made strictly and consistently in compliance with the process.
Problems with the manufacturing process, even minor deviations from the normal process, could result in product defects or manufacturing failures that result in lot failures, product recalls, product liability claims and insufficient inventory.
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Any adverse developments affecting manufacturing operations for our products may result in shipment delays, inventory shortages, lot failures, product withdrawals or recalls, or other interruptions in the supply of our products. We may also have to take inventory write-offs and incur other charges and expenses for products that fail to meet specifications, undertake costly remediation efforts or seek more costly manufacturing alternatives. We may encounter problems achieving adequate or clinical-grade materials that meet FDA, EMA or other applicable standards or specifications with consistent and acceptable production yields and costs.
We may not be successful in establishing and maintaining development or other strategic collaborations, which could adversely affect our ability to develop and commercialize product candidates and receive potential milestone payments.
We have entered into development or other strategic collaborations with major biotechnology or pharmaceutical companies. For example, our research collaboration and license agreement with Regeneron, which was announced in May 2014, covers up to eight distinct therapeutic targets, in which we could earn up to $80.0 million in development and regulatory milestones for product candidates directed toward each therapeutic target, for a combined total of up to $640.0 million in potential milestone payments for product candidates directed toward all eight therapeutic targets, and low- to mid-single digit royalties on worldwide net sales of collaboration product candidates. For any two therapeutic targets, we have an option to share up to 35% of the worldwide product candidate development costs and profits. Additionally, in August 2016, we entered into a collaboration, option and license agreement with Editas Medicine, pursuant to which we and Editas will collaborate on certain studies using AAV vectors in connection with Editas’ genome editing technology and we will grant to Editas an exclusive option to obtain certain exclusive rights to use our proprietary vectors in up to five ophthalmic indications. If Editas elects to develop a product using certain of our proprietary vectors, we will be eligible to receive up to $5.5 million in development milestone payments and $10.0 million in commercialization milestone payments for such product, and tiered royalties between the mid-single digits and low teens on net sales of such product, subject to certain adjustments.
Research activities under our collaboration agreements are subject to mutually agreed-on research plans and budgets, and if we and our strategic partners are unable to agree on the research plan or research budget in a timely fashion or at all, performance of research activities will be delayed. In addition, some of our strategic partners may terminate any agreements they enter into with us or allow such agreements to expire by their terms. Furthermore, our strategic partners have negotiated for certain rights to control decisions regarding the development and commercialization of our product candidates, if approved, and may not conduct those activities in the same manner as we do.
Moreover, if we fail to maintain development or other strategic collaborations related to our product candidates that we may choose to enter into:
the development of certain of our current or future product candidates may be terminated or delayed;
our cash expenditures related to development of certain of our current or future product candidates would increase significantly, and we may need to seek additional financing;
we may be required to hire additional employees or otherwise develop expertise, such as sales and marketing expertise, for which we have not budgeted; and
we will bear all of the risk related to the development of any such product candidates.
We may form strategic alliances in the future, and we may not realize the benefits of such alliances.
We may form strategic alliances, create joint ventures or collaborations or enter into licensing arrangements with third parties that we believe will complement or augment our existing business, including for the continued development or commercialization of our product candidates. These relationships or those like them may require us to incur non-recurring and other charges, increase our near- and long-term expenditures, issue securities that dilute our existing stockholders or disrupt our management and business. In addition, we face significant competition in seeking appropriate strategic partners and the negotiation process is time-consuming and complex. Moreover, we may not be successful in our efforts to establish a strategic partnership or other alternative arrangements for our product candidates because third parties may view the risk of failure in future clinical trials as too significant or the commercial opportunity for our product candidate as too limited. We cannot be certain that, following a strategic transaction or license, we will achieve the revenue or specific net income that justifies such transaction. Even if we are successful in our efforts to establish development partnerships, the terms that we agree upon may not be favorable to us, and we may not be able to maintain such development partnerships if, for example, development or approval of a product candidate is delayed or sales of an approved product candidate are disappointing. Any delay in entering into development partnership agreements related to our product candidates could delay the development and commercialization of our product candidates and reduce their competitiveness if they reach the market.
If our competitors develop treatments for the target indications of our product candidates that are approved more quickly than ours, marketed more successfully or demonstrated to be safer or more effective than our product candidates, our commercial opportunity will be reduced or eliminated.
We operate in highly competitive segments of the biopharmaceutical markets. We face competition from many different sources, including larger and better-funded pharmaceutical, specialty pharmaceutical, biotechnology and gene therapy companies, as well as from academic institutions, government agencies and private and public research institutions. Our product candidates, if successfully developed and approved, will compete with established therapies as well as with new treatments that may be introduced by our competitors. There are a variety of drug candidates and gene therapies in development or being commercialized by our competitors for the indications that we intend to test. Many of our competitors have significantly greater financial, product candidate development, manufacturing and marketing resources than we do. Large pharmaceutical and biotechnology companies have extensive experience in clinical testing and obtaining regulatory approval for drugs. In addition, universities and private and public research institutes may be active in our target disease areas, and some could be in direct competition with us. We also may compete with these organizations to recruit management, scientists and clinical development personnel. We will also face competition from these third parties in establishing clinical trial sites, registering subjects for clinical trials and in identifying and in-licensing new product candidates. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies.
New developments, including the development of other biotechnology and vectorology technologies and methods of treating disease, occur in the pharmaceutical, biotechnology and gene therapy industries at a rapid pace. Developments by competitors may render our product candidates obsolete or noncompetitive. Competition in drug development is intense. We anticipate that we will face intense and increasing competition as new treatments enter the market and advanced technologies become available.
Even if we obtain regulatory approval for our product candidates, the availability and price of our competitors’ products could limit the demand, and the price we are able to charge, for our product candidates. For example, EYLEA is currently available in the U.S. for treatment of wAMD and macular edema following central retinal vein occlusion (“CRVO”), and in the United Kingdom, Germany, Switzerland, Australia, Japan and certain other countries for the treatment of wAMD. Additionally, marketing approval has been obtained in the EU for EYLEA for the treatment of visual impairment due to macular edema secondary to CRVO. We will not achieve our business plan if the acceptance of our product candidates is inhibited by price competition or the reluctance of physicians to switch from existing methods of treatment to our product candidates, or if physicians switch to other new drug products or choose to reserve our product candidates for use in limited circumstances. Our inability to compete with existing or subsequently introduced drug products or other therapies would have a material adverse impact on our business, prospects, financial condition and results of operations.
Our potential competitors in these diseases may be developing novel immune modulating therapies that may be safer or more effective than our product candidates, including ADVM-022. For example, if we continue clinical development of, and seek to commercialize, ADVM-022, it will compete with a variety of therapies currently marketed and in development for wAMD, using therapeutic modalities such as biologics, small molecules and gene therapy. Lucentis, EYLEA and Avastin are anti-VEGF therapies that are well established and widely accepted by physicians, patients and third-party payers as the standard of care for the treatment of wAMD. There are several other companies with marketed products or products in development for the treatment of wAMD, including Alcon, Allergan, Allegro Ophthalmics, LLC, Apellis Pharmaceuticals, Applied Genetic Technologies Corporation, Bayer, Hoffmann-La Roche Ltd., Iconic Therapeutics, Inc., Neurotech Pharmaceuticals, Inc., Novartis, Ocular Therapeutix, Inc., Ohr Pharmaceuticals, Inc., Ophthotech Corporation, Opthea Ltd., PanOptica Pharma, Genentech, SciFluor Life Science, LLC, Regeneron Pharmaceuticals, Inc., REGENXBIO Biosciences LLC, and Valeant Pharmaceuticals North America LLC.
For the treatment of A1AT deficiency and HAE, we know of a number of products currently in development that aim to reduce the frequency of injection, improve the route of administration, and deliver better efficacy compared to the standard-of-care treatments available today. There are several companies with products for A1AT deficiency in clinical development, including Applied Genetic Technologies Corporation and Kamada Ltd. For the treatment of HAE, there are several companies with products in clinical development, including CSL Behring, Biocryst Pharmaceuticals Inc., Ionis Pharmaceuticals, Inc., and Shire.
We have no sales, marketing or distribution capabilities, and we may have to invest significant resources to develop these capabilities.
We have no internal sales, marketing or distribution capabilities. If any of our product candidates ultimately receive regulatory approval, we may not be able to effectively market and distribute the product candidate. We may have to invest significant amounts of financial and management resources to develop internal sales, distribution and marketing capabilities, some of which will be committed prior to any confirmation that any of our product candidates will be approved, if at all. We may not be able to hire consultants or external service providers to assist us in sales, marketing and distribution functions on acceptable financial terms or at all. Even if we determine to perform sales, marketing and distribution functions ourselves, we could face a number of additional related risks, including:
we may not be able to attract and build an effective marketing department or sales force;
the cost of establishing a marketing department or sales force may exceed our available financial resources and the revenue generated by any product candidates that we may develop, in-license or acquire; and
our direct sales and marketing efforts may not be successful.
Governments may impose price controls, which may adversely affect our future profitability.
We intend to seek approval to market our product candidates in both the U.S. and in foreign jurisdictions. If we obtain approval in one or more foreign jurisdictions, we will be subject to rules and regulations in those jurisdictions relating to our product candidates. In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. If reimbursement of our future products is unavailable or limited in scope or amount, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability.
Risks Related to Our Business Operations
Negative public opinion and increased regulatory scrutiny of gene therapy and genetic research may damage public perception of our product candidates or adversely affect our ability to conduct our business or obtain marketing approvals for our product candidates.
Public perception may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. In particular, our success will depend upon physicians specializing in the treatment of those diseases that our product candidates target prescribing treatments that involve the use of our product candidates in lieu of, or in addition to, existing symptomatic treatments they are already familiar with and for which greater clinical data may be available.
More restrictive government regulations or negative public opinion would have a negative effect on our business or financial condition and may delay or impair the development and commercialization of our product candidates or demand for any products we may develop. For example, in 2003, trials using early versions of murine gamma-retroviral vectors, which integrate with, and thereby alter, the host cell’s DNA, have led to several well-publicized adverse events, including reported cases of leukemia. Although none of our current product candidates utilize murine gamma-retroviral vectors, our product candidates use a viral delivery system. Adverse events in our clinical trials, even if not ultimately attributable to our product candidates, and the resulting publicity could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. Although none of our current product candidates utilize the gamma-retroviruses used in the 2003 studies, our product candidates do use a viral vector delivery system. The risk of cancer remains a concern for gene therapy and we cannot assure that it will not occur in any of our future clinical trials. In addition, there is the potential risk of delayed adverse events following exposure to gene therapy products due to persistent biological activity of the genetic material or other components of products used to carry the genetic material.
Adverse events in trials or studies conducted by us or other parties, in particular involving the same or similar AAVs to the ones we are using, even if not ultimately attributable to our product candidates, and resulting publicity, could result in increased governmental regulation, unfavorable public perception, potential regulatory delays in the testing or approval of our potential product candidates, stricter labeling requirements for those product candidates that are approved and a decrease in demand for any such product candidates. If any such adverse events occur, development and commercialization of our product candidates or advancement of any potential clinical trials could be halted or delayed, which would have a material adverse effect on our business and operations.
We are dependent on the services of our key executives and scientific staff, and if we are not able to retain these members of our management or recruit additional management, clinical and scientific personnel, our business will suffer.
We are dependent on the principal members of our management and scientific staff. The loss of service of any of our management could harm our business. In addition, we are dependent on our continued ability to attract, retain and motivate highly qualified additional management, clinical and scientific personnel. If we are not able to retain our management, and to attract, on acceptable terms, additional qualified personnel necessary for the continued development of our business, we may not be able to sustain our operations or grow. Although we have executed employment agreements with each member of our current executive management team, these agreements are terminable at will with or without notice and, therefore, we may not be able to retain their services as expected.
We will need to expand and effectively manage our managerial, operational, financial, and other resources in order to successfully pursue our development and commercialization efforts. Our success also depends on our continued ability to attract, retain and motivate highly qualified management and scientific personnel. We may not be able to attract or retain qualified management and scientific and clinical personnel in the future due to the intense competition for qualified personnel among biotechnology, pharmaceutical and other businesses, particularly in the San Francisco Bay Area. Our industry has experienced a high rate of turnover of management and scientific personnel in recent years. If we are not able to attract, retain and motivate necessary personnel to accomplish our business objectives, we may experience constraints that will significantly impede the achievement of our development objectives, our ability to raise additional capital and our ability to implement our business strategy.
Additionally, we do not currently maintain “key person” life insurance on the lives of our executives or any of our employees. This lack of insurance means that we may not have adequate compensation for the loss of the services of these individuals.
We may encounter difficulties in managing our growth and expanding our operations successfully.
We had 78 full-time employees as of February 28, 2018. We will need to grow our organization, or certain functions within our organization, substantially to continue development and pursue the potential commercialization of our product candidates, as well as function as a public company. As we seek to advance our product candidates, we may need to expand our financial, development, regulatory, manufacturing, marketing and sales capabilities or contract with third parties to provide these capabilities for us. As our operations expand, we expect that we will need to manage additional relationships with various strategic partners, suppliers and other third parties. Future growth will impose significant added responsibilities on members of management and require us to retain or otherwise manage additional internal capabilities. Our future financial performance and our ability to commercialize our product candidates and to compete effectively will depend, in part, on our ability to manage any future growth effectively. To that end, we must be able to manage our development efforts and clinical trials effectively and hire, train and integrate any additional management, clinical and regulatory, financial, administrative and sales and marketing personnel. We may not be able to accomplish these tasks, and our failure to so accomplish could prevent us from successfully growing our company.
If we fail to comply with applicable state and federal healthcare laws, we may be subject to civil or criminal penalties and/or exclusion from federal and/or healthcare programs.
In addition to FDA restrictions on the marketing of pharmaceutical products, several other types of state and federal healthcare fraud and abuse laws have been applied in recent years to restrict certain marketing practices in the pharmaceutical industry. These laws include anti-kickback, false claims, physician payment transparency and privacy and security laws and regulations. Because of the breadth of these laws and the narrowness of the safe harbors, it is possible that some of our business activities could be subject to challenge under one or more of these laws.
The federal Anti-Kickback Statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving remuneration to induce, or in return for, purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. Remuneration has been broadly defined to include anything of value, including cash, improper discounts, and free or reduced price items and services. This statute has been interpreted to apply to arrangements between pharmaceutical manufacturers on the one hand and prescribers, purchasers and formula managers on the other. Although there are several statutory exemptions and regulatory safe harbors protecting certain common activities from prosecution, the exemptions and safe harbors are drawn narrowly, and practices that involve remuneration intended to induce prescribing, purchasing or recommending may be subject to scrutiny if they do not qualify for an exemption or safe harbor. Many states have similar laws that apply to their state health care programs as well as private payers.
The federal Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) created new federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party payers, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. The Affordable Care Act, among other things, amended the intent requirement of the federal Anti-Kickback Statute and certain criminal statute governing healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of the statute or specific intent to violate it. In addition, the Affordable Care Act 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 False Claims Act.
Additionally, federal false claims laws and the civil monetary penalty law, including the False Claims Act, prohibits knowingly presenting or causing the presentation of a false, fictitious or fraudulent claim for payment to the U.S. government. Actions under the False Claims Act may be brought by the Attorney General or as a qui tam action by a private individual in the name of the government. Violations of the False Claims Act can result in significant monetary penalties and treble damages. The federal government is using the False Claims Act, and the accompanying threat of significant liability, in its investigation and prosecution of pharmaceutical and biotechnology companies throughout the country, for example, in connection with the promotion of products for unapproved uses and other sales and marketing practices. The government has obtained multi-million and multi-billion dollar settlements under the False Claims Act in addition to individual criminal convictions under applicable criminal statutes. Given the significant size of actual and potential settlements, it is expected that the government will continue to devote substantial resources to investigating healthcare providers’ and manufacturers’ compliance with applicable fraud and abuse laws.
In addition, there has been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Affordable Care Act, among other things, imposes new reporting requirements on drug manufacturers, under the federal Physician Payments Sunshine Act, for payments made by them to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of $0.2 million per year (or up to an aggregate of $1.0 million per year for “knowing failures”), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual submission. Certain states also mandate implementation of commercial compliance programs, impose restrictions on drug manufacturer marketing practices and/or require the tracking and reporting of gifts, compensation and other remuneration to physicians.
In the course of conducting our business, we may also obtain individually identifiable patient health information including retinal scans from subjects participating in our clinical trials. HIPAA, as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 (“HITECH”), imposes, among other things, certain standards relating to the privacy, security, transmission and breach reporting of individually identifiable health information, upon certain health plans, healthcare clearinghouses and healthcare providers, and their respective business associates that perform services for them involving individually identifiable health information. In the event we are subject to HIPAA, and fail to properly maintain the privacy and security of certain individually identifiable health information, or we are responsible for an inadvertent disclosure or security breach of such individually identifiable health information, we could be subject to enforcement measures, including civil and criminal penalties and fines for violations of state and federal privacy or security standards, such as HIPAA and HITECH, and their respective implementing regulations. Additionally, certain states have adopted comparable privacy and security laws and regulations, some of which may be more stringent than HIPAA. HIPAA, HITECH and comparable state laws and regulations will be subject to interpretation by various courts and other governmental authorities, thus creating potentially complex compliance issues for us and our future customers and strategic partners. Any liability from failure to comply with the requirements of these laws, to the extent such requirements are deemed to apply to our operations, could adversely affect our financial condition. The costs of complying with privacy and security related legal and regulatory requirements are burdensome and could have a material adverse effect on our results of operations.
The need to build and maintain a robust compliance program with different compliance and/or reporting requirements increases the possibility that a healthcare company may violate one or more of the requirements. If our operations are found to be in violation of any of such laws or any other governmental regulations that apply to us, we may be subject to penalties, including, without limitation, civil and criminal penalties, damages, fines, the curtailment or restructuring of our operations, exclusion from participation in federal and state healthcare programs, imprisonment, and additional reporting requirements and oversight if we become subject to a corporate integrity agreement or similar agreement to resolve allegations of non-compliance with these laws, any of which could adversely affect our ability to operate our business and our financial results.
We and our development partners, third-party manufacturer and suppliers use biological materials and may use hazardous materials, and any claims relating to improper handling, storage or disposal of these materials could be time consuming or costly.
We and our development partners, third-party manufacturer and suppliers may use hazardous materials, including chemicals and biological agents and compounds that could be dangerous to human health and safety or the environment. Our operations and the operations of our third-party manufacturers and suppliers also produce hazardous waste products. Federal, state and local laws and regulations govern the use, generation, manufacture, storage, handling and disposal of these materials and wastes. Compliance with applicable environmental laws and regulations may be expensive, and current or future environmental laws and regulations may impair our product development efforts. In addition, we cannot entirely eliminate the risk of accidental injury or contamination from these materials or wastes. We do not carry specific biological or hazardous waste insurance coverage, and our property, casualty and general liability insurance policies specifically exclude coverage for damages and fines arising from biological or hazardous waste exposure or contamination. Accordingly, in the event of contamination or injury, we could be held liable for damages or be penalized with fines in an amount exceeding our resources, and our clinical trials or regulatory approvals could be suspended.
If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to limit commercialization of our other product candidates.
We face an inherent risk of product liability as a result of the clinical testing of our product candidates and will face an even greater risk if we commercialize our product candidates. For example, we may be sued if our product candidates allegedly caused or cause injury or are found to be otherwise unsuitable during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product candidate, negligence, strict liability, and a breach of warranties. Claims could also be asserted under state consumer protection acts.
If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or be required to limit or cease the commercialization of our product candidates.
Even a successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims may result in:
decreased demand for our product candidates;
injury to our reputation;
withdrawal of clinical trial participants;
costs to defend the related litigation;
a diversion of management’s time and our resources;
substantial monetary awards to trial participants or patients;
product recalls, withdrawals or labeling, marketing or promotional restrictions;
loss of revenue;
the inability to commercialize our product candidates; and
a decline in our stock price.
We currently hold $5.0 million in product liability insurance, which may not adequately cover all liabilities that we may incur. 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. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of our product candidates. Although we plan to maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by our insurance, and we may not have, or be able to obtain, sufficient capital to pay such amounts.
We and any of our future development partners will be required to report to regulatory authorities if any of our approved products cause or contribute to adverse medical events, and any failure to do so would result in sanctions that would materially harm our business.
If we and any of our future development partners or CROs are successful in commercializing our products, the FDA and foreign regulatory authorities would require that we and any of our future development partners report certain information about adverse medical events if those products may have caused or contributed to those adverse events. The timing of our obligation to report would be triggered by the date we become aware of the adverse event as well as the nature of the event. We and any of our future development partners may fail to report adverse events we become aware of within the prescribed timeframe. We and any of our
future development partners may also fail to appreciate that we have become aware of a reportable adverse event, especially if it is not reported to us as an adverse event or if it is an adverse event that is unexpected or removed in time from the use of our products. If we and any of our future development partners fail to comply with our or their reporting obligations, the FDA or a foreign regulatory authority could take action, including criminal prosecution, the imposition of civil monetary penalties, and seizure of our products or delay in approval or clearance of future products.
Our internal computer systems, or those of our development partners, CROs or other contractors or consultants, may fail or suffer security breaches, which could result in a material disruption of our product development programs.
In the ordinary course of our business, we, our CROs, and other third parties on which we rely collect and store sensitive data, including legally protected patient health information, personally identifiable information about our employees, intellectual property, and proprietary business information. We manage and maintain our applications and data utilizing on-site systems. These applications and data encompass a wide variety of business critical information including research and development information and business and financial information.
The secure processing, storage, maintenance, and transmission of this critical information is vital to our operations and business strategy, and we devote significant resources to protecting such information. Despite the implementation of security measures to protect against unauthorized access or disclosure, our internal computer systems and those of our current and any future CROs and other contractors, consultants and collaborators are vulnerable to damage or attacks from computer viruses, unauthorized access, breaches, interruptions due to employee error, malfeasance or other disruptions, lapses in compliance with privacy and security mandates, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such material system failure, accident or security breach to date, any such event could compromise our networks and the information stored there could be accessed by unauthorized parties, publicly disclosed, lost or stolen. We have measures in place that are designed to detect and respond to such security incidents and breaches of privacy and security mandates. Any such access, disclosure or other loss of information could result in legal claims or proceedings, liability under laws that protect the privacy of personal information, such as the HIPAA, government enforcement actions and regulatory penalties. Unauthorized access, loss or dissemination could also disrupt our operations, including our ability to conduct research and development activities, process and prepare company financial information, manage various general and administrative aspects of our business and damage our reputation, any of which could adversely affect our business. For example, the loss of clinical trial data from completed or future clinical trials could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. Likewise, we rely on third parties to manufacture our product candidates and conduct clinical trials, and similar events relating to their computer systems could also have a material adverse effect on our business. In addition, there can be no assurance that we will promptly detect any such disruption or security breach, if at all. To the extent that any disruption or security breach were to result in a loss of, or damage to, our data or applications, or inappropriate disclosure of confidential or proprietary information, we could incur liability and the further development and commercialization of our product candidate could be delayed.
Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.
Our operations could be subject to earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics and other natural or manmade disasters or business interruptions, for which we are predominantly self-insured. We rely on third-party manufacturers to produce our product candidates. Our ability to obtain clinical supplies of our product candidates could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster or other business interruption. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses.
Our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.
We are exposed to the risk that our employees, independent contractors, principal investigators, CROs, consultants and vendors may engage in fraudulent conduct or other illegal activity. Misconduct by these parties could include intentional, reckless and/or negligent conduct or disclosure of unauthorized activities to us that violates: (1) FDA regulations, including those laws requiring the reporting of true, complete and accurate information to regulatory authorities, (2) manufacturing standards, (3) federal and state health care fraud and abuse laws and regulations or (4) laws that require the reporting of financial information or data accurately. Specifically, sales, marketing, and business arrangements in the health care industry are subject to extensive laws and regulations intended to prevent fraud, kickbacks, self-dealing and other abusive practices. These laws and regulations may restrict or prohibit a wide range of pricing, discounting, marketing and promotion, sales commission, customer incentive programs and other business arrangements. Activities subject to these laws also involve improper use 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 misconduct by employees and other third parties, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks
or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to 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, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business and our results of operations.
Risks Relating to Our Intellectual Property
Our rights to develop and commercialize our product candidates are subject in part to the terms and conditions of licenses granted to us by other companies and universities.
We currently are heavily reliant upon licenses of certain patent rights and proprietary technology from third parties that are important or necessary to the development of our technology and products, including technology related to our manufacturing process and our gene therapy product candidates. These and other licenses may not provide adequate rights to use such intellectual property and technology in all relevant fields of use and in all territories in which we may wish to develop or commercialize our technology and products in the future, or may contain other limitations on our ability to use such intellectual property or technology. As a result, our ability to develop or commercialize our processes and product candidates may be limited by the terms of such agreements. In addition, we may not be able to prevent competitors from developing and commercializing competitive products to the extent our licenses to patents are non-exclusive or limited with respect to fields of use or territories.
Licenses to additional third-party technology that may be required for our development programs may not be available in the future or may not be available on commercially reasonable terms, which could have a material adverse effect on our business and financial condition, results of operations and prospects.
•the USPTO and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other provisions during the patent process. There are situations in which noncompliance can result in abandonment or lapse of a patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. In such an event, competitors might be able to enter the market earlier than would otherwise have been the case;
•patent applications may not result in any patents being issued;
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•our competitors, many of whom have substantially greater resources than we do and many of whom have made significant investments in competing technologies, may seek or may have already obtained patents that will limit, interfere with, or eliminate our ability to make, use, and sell our potential product candidates;
•there may be significant pressure on the U.S. government and international governmental bodies to limit the scope of patent protection both inside and outside the U.S. for disease treatments that prove successful, as a matter of public policy regarding worldwide health concerns; and
•countries other than the U.S. may have patent laws less favorable to patentees than those upheld by the U.S. courts, allowing foreign competitors a better opportunity to create, develop and market competing product candidates.
•result in costly litigation;
•divert the time and attention of our technical personnel and management;
•cause development delays;
•prevent us from commercializing our product candidates until the asserted patent expires or is held finally invalid or not infringed in a court of law;
•require us to develop non-infringing technology, which may not be possible on a cost-effective basis; or
•require us to enter into royalty or licensing agreements, which may not be available on commercially reasonable terms, or at all.
Although no third party has asserted a claim of patent infringement against us as of the date of this current report on Form 8-K, others
product candidates and companion diagnostic may be adversely affected and we may not be able to prevent competitors from making, using and selling competing products.
Recent patent reform legislation could increase
On September 16, 2011, the Leahy-Smith America Invents Act (“Leahy-Smith Act”), was signed into law. The Leahy-Smith Act includesare therefore subject to certain federal regulations. As a number of significant changes to U.S. patent law. These include provisions that affect the way patent applications will be prosecuted and may also affect patent litigation. In particular, under the Leahy-Smith Act,result, the U.S. transitioned in March 2013 to a “first to file” system in which the first inventor to file a patent application will be entitled to the patent. Third parties are allowed to submit prior art before the issuance of a patent by the USPTO, and wegovernment may become involved in post-grant proceedings including opposition, derivation, reexamination, inter partes review or interference proceedings challenging our patent rights or the patent rights of others. An adverse determination in any such submission, proceeding or litigation could reduce the scope or enforceability of, or invalidate, our patent rights, which could adversely affect our competitive position.
We may not be successful in obtaining or maintaining necessary rights to our product candidates through acquisitions and in-licenses.
We currently have certain rights to intellectual property throughembodied in our current or future product candidates pursuant to the Bayh-Dole Act of 1980, or Bayh-Dole Act, and implementing regulations. These U.S. government rights in certain inventions developed under a government-funded program include a non-exclusive, non-transferable, irrevocable worldwide license to use inventions for any governmental purpose. In addition, the U.S. government has the right to require us or our licensors to grant exclusive, partially exclusive, or non-exclusive licenses fromto any of these inventions to a third partiesparty if it determines that: (i) adequate steps have not been taken to commercialize the invention; (ii) government action is necessary to meet public health or safety needs; or (iii) government action is necessary to meet requirements for public use under federal regulations (also referred to as “march-in rights”). The U.S. government also has the right to take title to these inventions if we, or the applicable licensor, fail to disclose the invention to the government and fail to file an application to register the intellectual property within specified time limits. These time limits have recently been changed by regulation, and may change in the future. Intellectual property generated under patents that we own,a government funded program is also subject to develop our product candidates. Because our programscertain reporting requirements, compliance with which may require us or the applicable licensor to expend substantial resources. In addition, the U.S. government requires that any products embodying the subject invention or produced through the use of proprietary rights held by third parties, the growthsubject invention be manufactured substantially in the United States. The manufacturing preference requirement can be waived if the owner of our business will likely depend in part on our ability to acquire, in-license, or use these proprietary rights. For example, our product candidates may require specific formulations to work effectively and efficiently and the rights to these formulations may be held by others. We may be unable to acquire or in-license any compositions, methods of use, processes, or other third-party intellectual property rights from third parties that we identify as necessary for our product candidates. The licensing and acquisition of third-party intellectual property rights is a competitive area, and a number of more established companies are also pursuing strategies to license or acquire third-party intellectual property rights that we may consider attractive. These established companies may have a competitive advantage over us due to their size, cash resources, and greater clinical development and commercialization capabilities. In addition, companies that perceive us to be a competitor may be unwilling to assign or license rights to us. We also may be unable to license or acquire third-party intellectual property rights on terms that would allow us to make an appropriate return on our investment.
We sometimes collaborate with U.S. and foreign academic institutions to accelerate our preclinical research or development under written agreements with these institutions. Typically, these institutions provide us with an option to negotiate a license to any of the institution’s rights in technology resulting from the collaboration. Regardless of such option, we may be unable to negotiate a license within the specified timeframe or under terms that are acceptable to us. If we are unable to do so, the institution may offer the intellectual property rightscan show that reasonable but unsuccessful efforts have been made to other parties, potentially blockinggrant licenses on similar terms to potential licensees that would be likely to manufacture substantially in the United States or that under the circumstances domestic manufacture is not commercially feasible. This preference for U.S. manufacturers may limit our ability, or that of our sublicensees, to pursuecontract with non-U.S. product manufacturers for products covered by such intellectual property. To the extent any of our program.
If we are unable to successfully obtain rights to required third-partycurrent or future intellectual property rights or maintainis generated through the existing intellectual property rights we have, weuse of U.S. government funding, the provisions of the Bayh-Dole Act may have to abandon development of that program and our business, financial condition, results of operations and prospects could be materially and adversely affected.
similarly apply.
•the scope of rights granted under the license agreement and other interpretation-related issues;
•the extent to which our technology and processes infringe on intellectual property of the licensor that is not subject to the licensing agreement;
•the sublicensing of patent and other rights;
•our diligence obligations under the license agreement, and what activities satisfy those diligence obligations;
•the ownership of inventions and know-how resulting from the creation or use of intellectual property by us, alone or with our licensors and collaborators;
•the scope and duration of our payment obligations;
•our rights upon termination of such agreement; and
•the scope and duration of exclusivity obligations of each party to the agreement.
We may be subject to claims challenging the inventorship or ownership of our patents and other intellectual property.
We may also be subject to claims that former employees, collaborators or other third parties have an ownership interest in our patents or other intellectual property. We may be subject to ownership disputes in the future arising, for example, from conflicting obligations of consultants or others who are involved in developing our product candidates. Litigation may be necessary to defend against these and other claims challenging inventorship or ownership. If we fail in defending any such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights, such as exclusive ownership of, or right to use, valuable intellectual property. Such an outcome could have a material adverse effect on our business. Even if we are successful in defending against such claims, litigation could result in substantial costs and be a distraction to management and other employees.
If we do not obtain patent term extension and data exclusivity for our product candidates, our business may be materially harmed.
If we are able to secure FDA marketing approval for one of our product candidates that is covered by an issued U.S. patent, that patent may be eligible for limited patent term restoration under the Drug Price Competition and Patent Term Restoration Act of 1984 (“Hatch-Waxman Act”). The Hatch-Waxman Act permits a patent restoration term of up to five years as compensation for patent term lost during product development and the FDA regulatory review process. However, we may not be granted an extension because of, for example, failing to apply within applicable deadlines, failing to apply prior to expiration of relevant patents or otherwise failing to satisfy applicable requirements. Moreover, the applicable time period or the scope of patent protection afforded could be less than we request. If we are unable to obtain patent term extension or restoration or the term of any such extension is less than we request, our competitors may obtain approval of competing products following our patent expiration, and our business, financial conditions and results of operations may be materially and adversely affected.
If our trademarks and trade names are not adequately protected, then we may not be able to build name recognition in our markets of interest and our business may be adversely affected.
Changes in
As iscandidates, and we cannot, therefore, predict the case with other biopharmaceutical companies,timing of any future revenue. We cannot commercialize our success is heavily dependent on intellectual property, particularly patents. Obtainingproduct candidates until the appropriate regulatory authorities have reviewed and enforcing patentsapproved the applicable applications. We cannot assure you that the regulatory agencies will complete their review processes in the biopharmaceutical industry involve a high degree of technological and legal complexity. Therefore, obtaining and enforcing biopharmaceutical patents is costly, time consuming and inherently uncertain.timely manner or that we will obtain regulatory approval for our product candidates. In addition, Congresswe may pass patent reformexperience delays or rejections based upon additional government regulation from future legislation thator administrative action or changes in policies from the FDA or other regulatory authorities outside the U.S. during the period of product development, clinical trials and FDA regulatory review. If marketing approval for any product candidate is unfavorable to us. The Supreme Court has ruled on several patent cases in recent years, either narrowing the scope of patent protection available in certain circumstancesdelayed, limited or weakening the rights of patent owners in certain situations. In addition to increasing uncertainty with regard todenied, our ability to obtain patents inmarket the future, this combination of events has created uncertainty with respect to the value of patents, once obtained. Depending on decisions by the U.S. Congress, the federal courtsproduct candidate, 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 our existing patents and patentsgenerate product sales, would be adversely affected.
Wereceive regulatory approval, we still may not be able to successfully commercialize any of our product candidates, and the revenue that we generate from its sales, if any, could be limited.
Filing, prosecuting, obtaining and defending patents ontarget indications of our product candidates that are approved, marketed more successfully, or demonstrated to be safer or more effective or easier to administer than our product candidates, our commercial opportunity will be reduced or eliminated.
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. For example:
others may be able to make gene therapiesmaintain insurance coverage at a reasonable cost or in an amount adequate to satisfy any liability that are similarmay arise. Our inability to obtain and retain sufficient product liability insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the commercialization of our product candidates butcandidates. Although we plan to maintain such insurance, any claim that may be brought against us could result in a court judgment or settlement in an amount that is not covered, in whole or in part, by our insurance or that is in excess of the limits of our insurance coverage. Our insurance policies will also have various exclusions, and we may be subject to a product liability claim for which we have no coverage. We may have to pay any amounts awarded by a court or negotiated in a settlement that exceed our coverage limitations or that are not covered by the claims of any patents that we own or have exclusively licensed;
we or our licensors or future collaborators might not have been the first to make the inventions covered by the issued patent or pending patent application that we own or have exclusively licensed;
we or our licensors or future collaborators might not have been the first to file patent applications covering certain of our inventions;
others may independently develop similar or alternative technologies or duplicate any of our technologies without infringing our intellectual property rights;
any patent applications that we have filed or may file in the future may not lead to issued patents;
any of the issued patents that we own or have exclusively licensed may be held invalid or unenforceable, as a result of legal challenges by our competitors;
our competitors might conduct researchinsurance, and development activities in countries where, or for products for which, we do not have patent rights and then use the information learned from such activities to develop competitive products for sale in our major commercial markets;
we may not develop additional proprietary technologieshave, or be able to obtain, sufficient capital to pay such amounts.
increase our potential liability, increase our compliance costs, and adversely affect our business. The obligations to comply with the patents of othersCCPA and evolving legislation may require us, among other things, to update our notices and develop new processes internally and with our partners.
Should anybusiness including through significant penalties or fines, monetary judgments or settlements including criminal and civil liability for us and our officers and directors, increased compliance costs, delays or impediments in the development of these events occur, they could significantlynew products, negative publicity, increased operating costs, diversion of management time and attention, or other remedies that harm our business, including orders that we modify or cease existing business practices.
Known Compliance with the GDPR will be a rigorous and time-intensive process that may increase our cost of doing business or require us to change our business practices, and despite those efforts, there is a risk that we may be subject to fines and penalties, litigation, and reputational harm in connection with any European activities.
personnel, agents, or partners, even if we do not explicitly authorize or have prior knowledge of such activities.
Our stock price has been and is likely to continue to be volatile. 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. The market price for our common stock may be influenced by many factors, including those discussed above and others such as: •our ability to enroll and dose patients in any clinical trials that are on-going, or that we plan to conduct in the future; •our ability to obtain regulatory approvals for our product candidates and delays or failure to obtain such approvals; •results of any clinical trials, and the results of trials of our competitors or those of other companies in our market sector;Risks Related to Our Common StockIf we fail to maintain proper and effective internal control over financial reporting in the future, our ability to prepare accurate and timely consolidated financial statements being prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) could be impaired, which could harm our operating results, investors’ views of us and, as a result, the value of our common stock.Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley”), our management is required to report upon the effectiveness of our internal control over financial reporting. When we lose our status as an “emerging growth company”, unless we have become a smaller reporting company, our independent registered public accounting firm will also be required to attest to the effectiveness of our internal control over financial reporting, and the related report will also be required to be included in our annual reports filed with the SEC. However, for so long as we remain an emerging growth company, we intend to take advantage of an exemption available to companies meeting these criteria from these auditor attestation requirements. Sarbanes-Oxley Section 404 compliance requirements are complex and require significant documentation, testing, and possible remediation. If we (or our auditors if they are required to assess and attest to the effectiveness of our internal control over financial reporting) are unable to conclude that our internal control over financial reporting is effective, investors may lose confidence in our financial reporting, and the trading price of our common stock may decline.Although we have determined that our internal control over financial reporting was effective as of December 31, 2017, we cannot assure you that there will not be material weaknesses in our internal control over financial reporting in the future. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition, results of operations or cash flows. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our common stock could decline, and we could be subject to sanctions or investigations by The Nasdaq Stock Market, the SEC or other regulatory authorities. Failure to implement and maintain effective internal control over financial reporting, including failure to remediate any material weaknesses we or our auditors identify, could also restrict our future access to the capital markets.The trading price of the shares of our common stock has been and could continue to be highly volatile, and purchasers of our common stock could incur substantial losses.our plans regarding further development of ADVM-043, ADVM-053, or ADVM-022;•our plans to conduct additional preclinical studies to determine the best gene therapy candidates to advance in development;
•regulatory developments in the U.S. and foreign countries;
•variations in our financial results or those of companies that are perceived to be similar to us;
•changes in the structure of healthcare payment systems, especially in light of current reforms to the U.S. healthcare system;
•announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;
•failure to maintain our existing third partythird-party license and collaboration agreements;
•delays in manufacturing adequate supply of our product candidates;
•adverse publicity relating to the gene therapy market generally, including with respect to other products and potential products in such markets;
•market conditions in the pharmaceutical and biotechnology sectors and issuance of securities analysts’ reports or recommendations;
•sales of our stock by insiders and stockholders;
•trading volume of our common stock;
•general economic, industry and market conditions other events or factors, many of which are beyond our control;
•additions or departures of key personnel; and
•intellectual property, product liability or other litigation against us.
In addition, in the past, stockholders have initiated class action lawsuits against biotechnology and pharmaceutical companies following periods of volatility in the market prices of these companies’ stock, and similar litigation has been instituted against us. Such litigation could cause us to incur substantial costs and divert management’s attention and resources, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
We and certain of our former officers have been named defendants in purported securities class action lawsuits. These, and any additional securities litigation, could result in substantial losses and may divert management’s time and attention from our business.
On June 15, 2015, we announced the top-line results of our Phase 2a clinical trial for AVA-101. In July 2015, three purported securities class action lawsuits were commenced in the U.S. District Court for the Northern District of California, naming as defendants us and certain of our former officers. These lawsuits assert that the defendants violated the Securities Exchange Act of 1934, as amended (“Exchange Act”), and the Securities Act of 1933, as amended (“Securities Act”), and allege that the defendants made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA-101 and the prospects of AVA-101. The plaintiffs seek unspecified damages, attorneys’ fees and other costs, each on behalf of a purported class of persons and entities who purchased or otherwise acquired our publicly traded securities between July 31, 2014 and June 15, 2015. It is possible that additional suits will be filed with respect to these same matters and also naming us and/or our officers and directors as defendants.
In addition, in December 2015, a putative securities class action lawsuit was filed against us, our board of directors, underwriters of our January 13, 2015, follow-on public stock offering, and two of our institutional stockholders, in the Superior Court of the State of California for the County of San Mateo. The complaint alleges that, in connection with our follow-on stock offering, the defendants violated the Securities Act by allegedly making materially false and misleading statements and by allegedly omitting material information related to the Phase 2a clinical trial for AVA-101 and the prospects of AVA-101. The complaint seeks unspecified compensatory and rescissory damages, attorneys’ fees and other costs.
In March 2017, we reached an agreement to settle the asserted actions. The proposed aggregate amount of the settlement is $13.0 million, of which $1.0 million would be contributed by us to cover our indemnification obligations to the underwriters, and the remainder would be contributed by our insurers. Notice of the settlement was provided to stockholders in the fall of 2017, and no stockholder objected to the settlement. In January 2018, the San Mateo Superior Court entered a judgment and order finally approving the settlement and, in February 2018, the U.S. District Court dismissed the consolidated federal action with prejudice. If the settlement does not become effective and litigation resumes, following an appeal or otherwise, adverse outcomes in the actions could result in substantial damages. We and the defendants have denied and continue to deny each and all of the claims alleged in the actions, and the settlement does not assign or reflect any admission of fault, wrongdoing or liability as to any defendant. If final court approval is not obtained with respect to the settlement or the settlement otherwise does not become effective and litigation resumes, adverse outcomes in the actions could result in substantial damages.
The current securities litigation and any future litigation of this type could result in diversion of management’s attention and resources, which could adversely impact our business. Monitoring and defending against legal actions is time-consuming for our management and detracts from our ability to focus fully on our business activities.
Our quarterly operating results may fluctuate significantly.
We expect our operating results to be subject to quarterly fluctuations. Our net loss and other operating results will be affected by numerous factors, including:
variations in the level of expenses related to our clinical trial and development programs;
addition or termination of clinical trials;
any intellectual property infringement lawsuit in which we may become involved;
regulatory developments affecting our product candidates;
our execution of any collaborative, licensing or similar arrangements and the timing of payments we may make or receive under these arrangements;
nature and terms of stock-based compensation grants; and
derivative instruments recorded at fair value.
If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.
If we sell shares of our common stock or securities convertible into or exercisable for shares of our common stock in future financings, pursuant to our at-the-market sales agreement, licensing or collaboration arrangements, or acquisitions, or additional shares under our at-the-market sales agreement, stockholders may experience immediate dilution and, as a result, our stock price may decline.
•the limitation of the removal of directors by the stockholders;
•a staggered board of directors;
•the prohibition of stockholder action by written consent, thereby requiring all stockholder actions to be taken at a meeting of our stockholders;
•the elimination of the ability of stockholders to call a special meeting of stockholders;
•the ability of our board of directors to accelerate the vesting of outstanding option grants, restricted stock units or other equity awards upon certain transactions that result in a change of control; and
•the establishment of advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings.
We Properties Disclosures Year ended December 31, 2017 High Low First Quarter $ 3.35 $ 2.55 Second Quarter $ 3.10 $ 2.50 Third Quarter $ 3.65 $ 2.45 Fourth Quarter $ 3.95 $ 2.85 Year ended December 31, 2016 High Low First Quarter $ 8.80 $ 4.15 Second Quarter $ 6.24 $ 3.02 Third Quarter $ 4.76 $ 3.04 Fourth Quarter $ 4.35 $ 2.80 As of February $100 investment in stock or index July 31, 2014 December 31, 2014 December 31, 2015 December 31, 2016 December 31, 2017 Adverum Biotechnologies, Inc. (ADVM) $ 100.00 $ 192.93 $ 34.01 $ 10.36 $ 12.50 Nasdaq Composite Index (IXIC) $ 100.00 $ 108.38 $ 114.58 $ 123.19 $ 157.98 Nasdaq Biotech (NBI) $ 100.00 $ 121.12 $ 134.95 $ 105.69 $ 127.94 Years ended December 31, 2017 2016 2015 2014 2013 (In thousands, except per share data) Consolidated Statements of Operations and Comprehensive Loss Data: Revenue Collaboration and license revenue $ 1,849 $ 1,455 $ 2,319 $ 572 $ — Government grant revenue — — — 480 Operating expenses: Research and development (1) 39,839 31,670 25,462 16,976 2,151 General and administrative (2) 20,857 24,355 22,107 7,998 1,783 Impairment of goodwill and intangible assets (3) — 60,714 — — — Restructuring charges (4) — — 2,573 — — Total operating expenses 60,696 116,739 50,142 24,974 3,934 Operating loss (58,847 ) (115,284 ) (47,823 ) (24,402 ) (3,454 ) Other income (expense) Interest expense — — — (18 ) (73 ) Other income (expense), net 2,700 762 370 (21 ) (4 ) Changes in fair value of embedded derivative — — — — 18 Changes in fair value of warrant liabilities — — — (759 ) (92 ) Loss on extinguishment of related-party convertible notes — — — (204 ) (1,671 ) Total other income (expense), net 2,700 762 370 (1,002 ) (1,822 ) Net loss before income tax benefit (56,147 ) (114,522 ) (47,453 ) (25,404 ) (5,276 ) Income tax benefit (5) — 775 — — — Net loss after income tax benefit (56,147 ) (113,747 ) (47,453 ) (25,404 ) (5,276 ) Deemed dividend (6) — — — (3,230 ) — Net loss attributable to common stockholders $ (56,147 ) $ (113,747 ) $ (47,453 ) $ (28,634 ) $ (5,276 ) Other comprehensive loss: Net unrealized loss on marketable securities (182 ) 6 (6 ) — — Foreign currency translation adjustment (774 ) (2 ) (15 ) (17 ) 19 Comprehensive loss $ (57,103 ) $ (113,743 ) $ (47,474 ) $ (25,421 ) $ (5,257 ) Net loss per share attributable to common stockholders-basic and diluted $ (1.29 ) $ (3.14 ) $ (1.86 ) $ (2.46 ) $ (1.44 ) Weighted-average common shares outstanding-basic and diluted 43,661 36,246 25,479 11,651 3,673 As of December 31, 2017 2016 2015 2014 2013 (In thousands) Consolidated Balance Sheet Data: Cash and cash equivalents $ 70,519 $ 222,170 $ 221,348 $ 159,404 $ 564 Short-term investments 119,966 — 37,732 — — Working capital 183,067 215,378 254,418 154,807 (340 ) Total assets 201,905 234,583 264,319 161,906 1,085 Other non-current liabilities 481 386 — — — Accumulated deficit (254,062 ) (197,915 ) (84,168 ) (36,715 ) (8,869 ) Total stockholders' equity (deficit) 184,028 215,600 252,592 149,483 (8,210 ) You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors.” the risks we face as a result of the COVID-19 pandemic. net proceeds after deducting underwriting discounts and commissions and estimated offering expenses. In August fund operations into mid-2022. Our ability to generate product revenue and become profitable depends upon our ability to successfully develop and commercialize our product candidates. Because of the numerous risks and uncertainties associated with product development, we are unable to predict the amount or timing of product revenue. Even if we are able to generate revenue from the sale of our products, our sales may not be sufficient to generate cash from operations, in which case we may be unable to continue our operations at planned levels and be forced to reduce our operations. Examples of estimated accrued research and development expenses include fees to: •contract manufacturers in connection with the production of clinical trial materials; •CROs and other service providers in connection with clinical studies; •investigative sites in connection with clinical studies; •vendors in connection with preclinical development activities; and •services providers for professional service fees such as consulting and related services. We record unrecognized tax benefits as liabilities and adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the unrecognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. Our policy is to recognize interest and penalties related to income taxes as a component of income tax expense. penalties related to uncertain tax positions and no amount was accrued for 2019. There are no ongoing examinations by taxing authorities at this time. material. 2019 Years ended December 31, 2017 2016 Increase/(Decrease) (In thousands) Collaboration and license revenue $ 1,849 $ 1,455 $ 394 Operating expenses: Research and development 39,839 31,670 8,169 General and administrative 20,857 24,355 (3,498 ) Impairment of goodwill and intangible assets — 60,714 (60,714 ) Total operating expenses 60,696 116,739 (56,043 ) Operating loss (58,847 ) (115,284 ) 56,437 Other income (expense), net 2,700 762 1,938 Net loss before income tax benefit (56,147 ) (114,522 ) 58,375 Income tax benefit — 775 (775 ) Net loss attributable to common stockholders $ (56,147 ) $ (113,747 ) $ 57,600 2019. 2019. Years ended December 31, 2016 2015 Increase/(Decrease) (In thousands) Collaboration and license revenue $ 1,455 $ 2,319 $ (864 ) Operating expenses: Research and development 31,670 25,462 6,208 General and administrative 24,355 22,107 2,248 Impairment of goodwill and intangible assets 60,714 — 60,714 Restructuring charges — 2,573 (2,573 ) Total operating expenses 116,739 50,142 66,597 Operating loss (115,284 ) (47,823 ) (67,461 ) Other income, net 762 370 392 Net loss before income tax benefit (114,522 ) (47,453 ) (67,069 ) Income tax benefit 775 — 775 Net loss attributable to common stockholders $ (113,747 ) $ (47,453 ) $ (66,294 ) Liquidity, Capital Resources and Plan of Operations 10,925,000 shares of our common stock for $140.8 million in net proceeds after deducting underwriting discounts and commissions and offering expenses. $1.7 million. If and when we seek additional funding, we will do so through equity or debt financings, collaborative or other arrangements with corporate sources or through other sources of financing. Adequate additional funding may not be available to us on acceptable terms or at all. Our failure to raise capital in the future could have a negative impact on our financial condition and our ability to pursue our business strategies. •the initiation, progress, timing, costs and results of preclinical studies and any clinical trials for our product candidates; •the outcome, timing of and costs involved in, seeking and obtaining approvals from the •the ability of our product candidates to progress through clinical development activities successfully; •our need to expand our research and development activities; •the rate of progress and cost of our commercialization of our products; •the cost of preparing to manufacture our products on a larger scale; •the costs of commercialization activities including product sales, marketing, manufacturing and distribution; •the degree and rate of market acceptance of any products launched by us or future partners; •the costs of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights; •our need to implement additional infrastructure and internal systems; •our ability to hire additional personnel; •our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such •the emergence of competing technologies or other adverse market Years ended December 31, 2017 2016 2015 (In thousands) Net cash (used in) provided by: Operating activities $ (45,421 ) $ (38,366 ) $ (35,338 ) Investing activities (122,204 ) 38,775 (41,569 ) Financing activities 16,748 556 138,860 Effect of changes in foreign currency exchange rates on cash and cash equivalents (774 ) (143 ) (9 ) Net (decrease) increase in cash and cash equivalents $ (151,651 ) $ 822 $ 61,944 change in prepaid expenses and other current assets and $2.2 million of amortization of our operating lease right-of-use assets. Net cash used in investing activities was leasehold improvements related to the new facility. 2018. 2029. Payment Due by Period Less Than 1 Year 1 to 3 Years Total (In thousands) Operating lease obligations $ 1,162 $ 1,600 $ 2,762 Master service agreement with Cornell (1) 2,000 — 2,000 BPI financing 120 397 517 Contractual obligations (2) 4,187 — 4,187 Total $ 7,469 $ 1,997 $ 9,466 AND FOR THE YEARS ENDED DECEMBER 31, 2018 the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 2021 expressed an unqualified opinion thereon. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. As of December 31, 2017 2016 Assets Current assets: Cash and cash equivalents $ 70,519 $ 222,170 Short-term investments 119,966 — Receivable from collaborative partner — 886 Prepaid expenses and other current assets 3,256 2,218 Total current assets 193,741 225,274 Property and equipment, net 3,024 4,169 Deposit and other non-current assets 140 140 Intangible asset 5,000 5,000 Total assets $ 201,905 $ 234,583 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 1,731 $ 1,474 Accrued expenses and other current liabilities 6,964 6,476 Deferred rent, current portion 129 96 Deferred revenue, current portion 1,850 1,850 Total current liabilities 10,674 9,896 Long-term liabilities: Deferred rent, net of current portion 222 352 Deferred revenue, net of current portion 5,250 7,099 Deferred tax liability, non-current 1,250 1,250 Other non-current liabilities 481 386 Total liabilities 17,877 18,983 Commitments and contingencies (Note 11) Stockholders’ equity: Preferred stock, $0.0001 par value, 5,000,000 shares authorized; no shares issued and outstanding — — Common stock, $0.0001 par value, 300,000,000 shares authorized at December 31, 2017 and 2016; 49,015,339 and 41,805,009 shares issued and outstanding at December 31, 2017 and 2016, respectively 5 4 Additional paid-in capital 439,048 413,518 Accumulated other comprehensive loss (963 ) (7 ) Accumulated deficit (254,062 ) (197,915 ) Total stockholders’ equity 184,028 215,600 Total liabilities and stockholders’ equity $ 201,905 $ 234,583 Years ended December 31, 2017 2016 2015 Collaboration and license revenue $ 1,849 $ 1,455 $ 2,319 Operating expenses: Research and development 39,839 31,670 25,462 General and administrative 20,857 24,355 22,107 Impairment of goodwill and intangible assets — 60,714 — Restructuring charges — — 2,573 Total operating expenses 60,696 116,739 50,142 Operating loss (58,847 ) (115,284 ) (47,823 ) Other income: Other income, net 2,700 762 370 Total other income, net 2,700 762 370 Net loss before income taxes (56,147 ) (114,522 ) (47,453 ) Income tax benefit — 775 — Net loss attributable to common stockholders $ (56,147 ) $ (113,747 ) $ (47,453 ) Other comprehensive loss: Net unrealized gain (loss) on marketable securities (182 ) 6 (6 ) Foreign currency translation adjustment (774 ) (2 ) (15 ) Comprehensive loss $ (57,103 ) $ (113,743 ) $ (47,474 ) Net loss per share attributable to common stockholders-basic and diluted $ (1.29 ) $ (3.14 ) $ (1.86 ) Weighted-average common shares outstanding-basic and diluted 43,661 36,246 25,479 COMMON STOCK $0.0001 PAR VALUE ADDITIONAL PAID-IN ACCUMULATED OTHER COMPREHENSIVE ACCUMULATED TOTAL STOCKHOLDERS' Shares Amount CAPITAL INCOME (LOSS) DEFICIT EQUITY Balance at December 31, 2014 22,754,037 $ 2 $ 186,186 $ 10 $ (36,715 ) $ 149,483 Issuance of common stock, net of issuance costs of $11,099 2,599,375 1 138,953 — — 138,954 Issuance of common stock warrants in consideration for services — — 218 — — 218 Stock-based compensation expense — — 11,505 — — 11,505 Common stock issued upon exercise of stock options 399,434 — 188 — — 188 Common stock issued under employee stock purchase plan 19,577 — 145 — — 145 Common stock issued upon release of restricted stock units 132,397 — — — — — Restricted stock surrendered for taxes (46,098 ) — (427 ) — — (427 ) Net unrealized loss on marketable securities — — — (6 ) — (6 ) Foreign currency translation adjustments — — — (15 ) — (15 ) Net loss — — — — (47,453 ) (47,453 ) Balance at December 31, 2015 25,858,722 3 336,768 (11 ) (84,168 ) 252,592 Issuance of common stock in consideration of acquisition 14,087,246 1 64,844 — — 64,845 Remeasurement of contingent common stock warrant in consideration for services — — 8 — — 8 Issuance of warrant in connection with financing arrangement — — 26 — — 26 Stock-based compensation expense — — 11,416 — — 11,416 Common stock issued upon exercise of stock options 1,525,687 — 763 — — 763 Common stock issued under employee stock purchase plan 56,696 — 186 — — 186 Common stock issued upon release of restricted stock units 385,524 — — — — — Restricted stock surrendered for taxes (108,866 ) — (493 ) — — (493 ) Net unrealized gain on marketable securities — — — 6 — 6 Foreign currency translation adjustments — — — (2 ) — (2 ) Net loss — — — — (113,747 ) (113,747 ) Balance at December 31, 2016 41,805,009 4 413,518 (7 ) (197,915 ) 215,600 Issuance of common stock, net of issuance costs of $230 5,130,339 1 16,518 — — 16,519 Remeasurement of contingent common stock warrant in consideration for services — — 60 — — 60 Stock-based compensation expense — — 8,723 — — 8,723 Common stock issued upon exercise of stock options 1,808,696 — 367 — — 367 Common stock issued under employee stock purchase plan 74,642 — 175 — — 175 Common stock issued upon release of restricted stock units 307,610 — — — — — Restricted stock surrendered for taxes (110,957 ) — (313 ) — — (313 ) Net unrealized loss on marketable securities — — — (182 ) — (182 ) Foreign currency translation adjustments — — — (774 ) — (774 ) Net loss — — — — (56,147 ) (56,147 ) Balance at December 31, 2017 49,015,339 $ 5 $ 439,048 $ (963 ) $ (254,062 ) $ 184,028 See accompanying notes to consolidated financial statements. Years ended December 31, 2017 2016 2015 Cash flows from operating activities: Net loss $ (56,147 ) $ (113,747 ) $ (47,453 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,096 1,603 812 Stock-based compensation expense 8,723 11,416 11,505 Amortization of premium on marketable securities 593 — 780 Impairment of goodwill and intangible assets — 60,714 — Non-cash research and development expense 60 8 218 Other 10 — 21 Changes in operating assets and liabilities: Accounts receivable, net 886 (437 ) (6 ) Prepaid expenses and other current assets (491 ) 71 (531 ) Deposit and other long-term assets — — (3 ) Accounts payable 333 (111 ) (312 ) Accrued expenses and other current liabilities 487 (190 ) 724 Restructuring liabilities (25 ) (988 ) 1,013 Deferred revenue (1,849 ) 3,360 (2,313 ) Deferred rent (97 ) (65 ) 207 Net cash used in operating activities (45,421 ) (38,366 ) (35,338 ) Cash flows from investing activities: Purchases of marketable securities (209,787 ) — (88,427 ) Sales of marketable securities 1,003 — — Maturities of marketable securities 87,596 37,738 49,850 Purchases of property and equipment (1,016 ) (2,412 ) (2,992 ) Cash acquired in business acquisition — 3,449 — Net cash (used in) provided by investing activities (122,204 ) 38,775 (41,569 ) Cash flows from financing activities: Proceeds from offering of common stock, net of issuance costs 16,519 — 138,954 Proceeds from issuance of common stock pursuant to option exercises 367 763 188 Taxes paid related to net share settlement of restricted stock units (313 ) (493 ) (427 ) Proceeds from employee stock purchase plan 175 186 145 Proceeds from a financing arrangement — 100 — Net cash provided by financing activities 16,748 556 138,860 Effect of foreign currency exchange rate on cash and cash equivalents (774 ) (143 ) (9 ) Net (decrease) increase in cash and cash equivalents (151,651 ) 822 61,944 Cash and cash equivalents at beginning of period 222,170 221,348 159,404 Cash and cash equivalents at end of period $ 70,519 $ 222,170 $ 221,348 Supplemental schedule of noncash investing and financing information Issuance of common stock and exchange of stock options for business acquisition $ — $ 64,845 $ — Fixed assets in accounts payable and current liabilities $ 115 $ 180 $ 178 See accompanying notes to consolidated financial statements. 2022. Use of Estimates—The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. The Company bases estimates and assumptions on historical experience when available and on various factors that it believes to be reasonable under the circumstances. . Property and Equipment—Property and equipment are recorded at cost, net of accumulated depreciation and amortization. Depreciation is recorded using the straight-line method over the estimated useful lives of the assets, generally three to five years. Leasehold improvements are capitalized and amortized over the shorter period of their expected lives or the lease term. Major replacements and improvements are capitalized, while general repairs and maintenance are expensed as incurred. year ended December 31, 2020 and 2019. elected to not separate lease components and non-lease components for its long-term real-estate leases. satisfied. The Company estimates the Company's common stock. In evaluating the ability to recover its deferred income tax assets, the Company considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. In the event the Company determines that it would be able to realize its deferred income tax assets in the future in excess of their net recorded amount, it would make an adjustment to the valuation allowance that would reduce the provision for income taxes. Conversely, in the event that all or part of the net deferred tax assets are determined not to be realizable in the future, an adjustment to the valuation allowance would be charged to earnings in the period when such determination is made. As of December 31, Fair value of common shares issued $ 58,321 Fair value of the Company's common share options exchanged for Annapurna stock options and other stock awards attributable to pre-combination services 7,422 Less: value of common stock and accelerated vesting of stock options at close date (898 ) Total purchase price consideration $ 64,845 Cash $ 3,449 Prepaid expenses and other assets 865 Property and equipment 185 Acquired intangible assets 16,200 Goodwill 49,514 Accounts payable (1,118 ) Accrued liabilities (1,848 ) Other noncurrent liabilities (377 ) Deferred tax liabilities (2,025 ) Total purchase price allocation $ 64,845 Alpha-1 antitrypsin deficiency ("A1AT"),or ADVM-043 $ 11,700 Hereditary angioedema ("HAE"), or ADVM-053 4,500 Total acquired IPR&D intangible assets $ 16,200 Years ended December 31, 2016 2015 Pro forma information Collaboration and license revenue $ 1,455 $ 2,319 Net loss $ (117,551 ) $ (61,774 ) Basic and diluted loss per share $ (2.85 ) $ (1.56 ) Weighted-average common shares outstanding - basic and diluted 41,288 39,566 One-Time Termination Benefits Non-Cash Charge Related to Acceleration of RSUs Total Restructuring liability as of December 31, 2014 $ — $ — $ — Costs incurred and recorded as restructuring charges 1,524 1,049 2,573 Cash payments (511 ) — (511 ) Non-cash settlements — (1,049 ) (1,049 ) Restructuring liability as of December 31, 2015 1,013 — 1,013 Cash payments (988 ) — (988 ) Restructuring liability as of December 31, 2016 25 — 25 Cash payments (25 ) — (25 ) Restructuring liability as of December 31, 2017 $ — $ — $ — December 31, 2017 Amortized Cost Basis Unrealized Gains Unrealized Loses Estimated Fair Value $ 65 $ — $ — $ 65 U.S. government and agency securities 58,351 — (145 ) 58,206 Commercial paper 71,427 — — 71,427 Corporate bonds 38,354 1 (38 ) 38,317 Certificates of deposit 9,731 — — 9,731 Total cash equivalents and short-term investments 177,928 1 (183 ) 177,746 Less: Cash equivalents (57,780 ) — — (57,780 ) Total short-term investments $ 120,148 $ 1 $ (183 ) $ 119,966 December 31, 2016 Money market funds - cash equivalent $ 215,916 $ — $ — $ 215,916 Total cash equivalents $ 215,916 $ — $ — $ 215,916 Amortized Estimated Cost Basis Fair Value (In thousands) Mature within one year $ 169,909 $ 169,758 Mature after one year to three years 8,019 7,988 Total cash equivalents and short-term investments $ 177,928 $ 177,746 Quoted Prices Significant Other Significant Total In Active Markets Observable Inputs Unobservable Inputs Carrying Value (Level 1) (Level 2) (Level 3) December 31, 2017 Assets: Money market funds $ 65 $ 65 $ — $ — U.S. government and agency securities 58,206 — 58,206 — Commercial paper 71,427 — 71,427 — Corporate bonds 38,317 38,317 Certificates of deposit 9,731 — 9,731 — Total cash equivalents and short-term investments $ 177,746 $ 65 $ 177,681 $ — Other noncurrent liability: Financing arrangement $ 157 $ — $ — $ 157 December 31, 2016 Assets: Money market funds $ 215,916 $ 215,916 $ — $ — Total cash equivalents $ 215,916 $ 215,916 $ — $ — Other noncurrent liability: Financing arrangement $ 74 $ — $ — $ 74 Weighted-Average (range - if applicable) Fair Value at December 31, Valuation Significant Unobservable as of December 31, 2017 2016 Methodology Input 2017 2016 (In thousands) TAP financing $ 157 $ 74 Expected value approach Milestone dates: 2018 - 2023 2017 - 2023 Discount rate: 5.8% 5.5% Percent probability of milestone achievements: 18.2% to 65.0% 18.2% to 80.0% 2018, respectively. The Company had 0 deferred revenue balance as of December 31, 2020 and 2019. these services as services were performed. In December 2016, the Company informed Cornell that the Company decided to terminate the MSA for material breach, effective January 6, 2017. Subsequently, Cornell informed the Company that it December 31, 2017 2016 (In thousands) Computer equipment and software $ 535 $ 300 Laboratory equipment 4,956 4,285 Furniture and fixtures 552 552 Leasehold improvements 1,549 1,522 Construction in progress 105 104 Total property and equipment 7,697 6,763 Less accumulated depreciation and amortization (4,673 ) (2,594 ) Property and equipment, net $ 3,024 $ 4,169 December 31, 2017 2016 (In thousands) Employees' compensation $ 2,259 $ 2,570 Accrued preclinical costs 1,255 1,683 Accrued professional fees 2,295 894 Accrued clinical and process development costs 910 1,142 Other 245 187 Total accrued expenses and other current liabilities $ 6,964 $ 6,476 The following table Years ended December 31, 2017 2016 (In thousands) Balance of TAP financing liability as of the beginning of the year (1) $ 74 $ — Funding (2) 100 100 Fair value of common stock warrant issued (see Note 12) (3) — (26 ) Gain on fair value of TAP financing liability (4) (17 ) — Balance of TAP financing liability as of the end of the year $ 157 $ 74 Years ended December 31, Future Commitments (In thousands) 2018 $ 1,162 2019 1,197 2020 403 Total minimum lease payments $ 2,762 (In thousands, except exercise prices and years) Options Outstanding Weighted- Average Exercise Price Weighted- Average Remaining Contract Life (in years) Aggregate Intrinsic Value (a) Balance at December 31, 2016 7,449 $ 4.46 8.4 $ 11,837 Granted 1,989 2.85 Exercised (1,808 ) 0.20 Cancelled/forfeited (935 ) 8.87 Balance at December 31, 2017 6,695 $ 4.51 7.4 $ 9,539 Vested and expected to vest as of December 31, 2017 6,695 $ 4.51 7.4 $ 9,539 Exercisable at December 31, 2017 3,202 $ 4.96 6.1 $ 6,207 (a)The aggregate intrinsic value is calculated as the difference between the stock option exercise price and the closing price Company’s common stock as quoted on a national exchange. Options Employee Stock Purchase Plan Years ended December 31, Years ended December 31, 2017 2016 2015 2017 2016 2015 Expected volatility 82 % 81 % 79 % 52 % 70 % 74 % Expected term (in years) 6.0 6.1 6.1 0.5 0.5 0.5 Expected dividend yield — — — — — — Risk-free interest rate 1.9 % 1.8 % 1.7 % 1.3 % 0.6 % 0.1 % Years ended December 31, 2017 2016 2015 Expected volatility 84 % 82 % 81 % Expected term (in years) 8.8 9.1 3.3 Expected dividend yield — — — Risk-free interest rate 2.3 % 2.1 % 1.0 % RSUs are share awards that entitle the holder to receive freely tradable shares of the Company’s common stock upon vesting. The fair value of RSUs is based upon the closing sales price of the Company’s common stock on the grant date. RSUs granted to employees generally vest over a (In thousands, except grant date fair value and years) Number of Units (in thousands) Weighted- Average Grant Date Fair Value (in dollars) Weighted- Average Remaining Contractual Term (in years) Balance at December 31, 2016 1,049 $ 5.47 1.7 Granted 2,543 2.81 Vested and released (307 ) 6.43 Forfeited (770 ) 3.58 Balance at December 31, 2017 2,515 $ 3.24 1.6 Stock-Based Compensation Recognized in the Consolidated Statement of Operations and Comprehensive Loss Years ended December 31, 2017 2016 2015 (In thousands) Research and development $ 5,253 $ 6,616 $ 4,009 General and administrative 3,470 4,800 6,447 Restructuring charges — — 1,049 Total share-based compensation expense $ 8,723 $ 11,416 $ 11,505 as follows: Years ended December 31, 2017 2016 2015 (In thousands) U.S. $ (36,923 ) $ (96,498 ) $ (47,235 ) Foreign (19,224 ) (18,024 ) (218 ) Loss before income taxes $ (56,147 ) $ (114,522 ) $ (47,453 ) Years ended December 31, 2017 2016 2015 (In thousands) Federal income tax expense at statutory rate $ (19,090 ) $ (38,938 ) $ (16,134 ) Non-deductible foreign research expenses 19 21 45 Stock-based compensation (76 ) 1,356 1,418 Non-deductible expenses 61 985 295 Goodwill impairment — 16,834 — Research and development tax credits (507 ) (326 ) (910 ) Change in valuation allowance 7,935 16,062 15,277 Foreign rate differential 1,495 3,231 9 Rate change 10,163 — — Total tax benefit $ — $ (775 ) $ — As of December 31, 2017 2016 2015 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 27,142 $ 15,785 $ 19,889 Accruals, reserve and other 2,586 3,071 2,681 Stock-based compensation 3,623 3,848 4,328 Tax credit carryforwards 1,774 574 1,945 Property and equipment 274 54 — Intangibles 64 68 45 Total deferred tax assets before valuation allowance 35,463 23,400 28,888 Valuation allowance (35,463 ) (23,400 ) (28,839 ) Total deferred tax assets — — 49 Deferred tax liabilities: Property and equipment — — (49 ) IPR&D (1,250 ) (1,250 ) — Total deferred tax liabilities $ (1,250 ) $ — $ (49 ) Net deferred tax assets $ — $ — $ — The Company has evaluated the positive and negative evidence bearing upon the realizability of its deferred tax assets. Based on the Company’s history of operating losses, the Company has concluded that it is more likely than not that the benefit of its deferred tax assets will not be realized. Accordingly, the Company has provided a full valuation allowance for deferred tax assets as of December 31, 2019, respectively. the utilization before expiration. Years ended December 31, 2017 2016 2015 (In thousands) Unrecognized tax benefits as of the beginning of the year $ 2,157 $ 1,568 $ 471 Increase (decrease) related to prior year tax provisions — — 172 Increase related to current year tax provisions 588 589 925 Unrecognized tax benefits as of the end of the year $ 2,745 $ 2,157 $ 1,568 The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, As of December 31, 2017 2016 2015 (In thousands) Stock options 6,695 7,449 5,494 Restricted stock units 2,515 1,049 632 ESPP 71 47 42 Warrants to purchase common stock 90 50 40 9,371 8,595 6,208 Quarterly Results of Operations Three Months Ended March 31, 2017 June 30, 2017 September 30, 2017 December 31, 2017 (In thousands, except per share amounts) Revenue $ 462 $ 463 $ 463 $ 461 Total operating expenses (1) (17,050 ) (12,556 ) (15,034 ) (16,056 ) Net loss (16,099 ) (11,430 ) (13,829 ) (14,789 ) Basic and diluted net loss per share (0.38 ) (0.27 ) (0.32 ) (0.32 ) Three Months Ended March 31, 2016 June 30, 2016 September 30, 2016 December 31, 2016 (In thousands, except per share amounts) Revenue $ 265 $ 307 $ 395 $ 488 Total operating expenses (2)(3)(4) (15,773 ) (62,189 ) (14,902 ) (23,875 ) Net loss (15,392 ) (61,660 ) (14,301 ) (22,394 ) Basic and diluted net loss per share (0.57 ) (1.76 ) (0.35 ) (0.54 ) Controls and Procedures Based on our assessment, management has concluded that our internal control over financial reporting was effective as of December 31, our opinion. Incorporated by Reference EXHIBIT EXHIBIT DESCRIPTION �� File Number Form Date EXHIBIT Number PROVIDED Herewith 2.1 001-36579 8-K February 1, 2016 2.1 2.2 Amendment No. 1 to the Acquisition Agreement, dated as of April 6, 2016. 001-36579 8-K April 7, 2016 2.1 3.1 001-36579 10-K March 9, 2017 3.1 3.2 001-36579 8-K May 12, 2016 3.2 4.1 Reference is made to Exhibits 3.1 through 3.2. 4.2 333-197133 S-1/A July 25, 2014 4.1 4.3 001-36579 8-K May 12, 2016 4.1 10.1† 333-197133 S-1/A July 29, 2014 10.1 10.2† 333-197133 S-1/A July 29, 2014 10.3 10.3† 001-36579 10-Q August 9, 2016 10.3 10.4† 001-36579 10-Q August 9, 2016 10.4 10.5† 001-36579 10-Q August 9, 2016 10.5 10.6† 001-36579 10-Q August 9, 2016 10.6 10.7† License Agreement between AAVLife and Inserm Transfert, dated July 4, 2014. 001-36579 10-Q August 9, 2016 10.9 10.8† Amendment No. 1 to License Agreement between AAVLife and Inserm Transfert, dated October 5, 2015. 001-36579 10-Q August 9, 2016 10.10 10.9† Collaboration, Option and License Agreement with Editas Medicine, Inc., dated August 8, 2016. 001-36579 10-Q November 8, 2016 10.1 10.10† X 10.11(#) Avalanche Biotechnologies, Inc. Amended and Restated 2006 Equity Incentive Plan. 333-197133 S-1 June 30, 2014 10.4 Incorporated by Reference EXHIBIT EXHIBIT DESCRIPTION File Number Form Date EXHIBIT Number PROVIDED Herewith X 10.31 S-1 June 30, 2014 10.11 10.32 001-36579 8-K September 12, 2014 10.1 10.33 001-36579 8-K November 4, 2014 10.1 10.34(#) Form of Indemnification Agreement for directors and executive officers. 333-197133 S-1/A July 18, 2014 10.12 10.35(#) 333-197133 S-1/A July 18, 2014 10.13 10.36(#) X 10.37(#) Form of Amendment to the Change in Control and Severance Agreement for Mehdi Gasmi. 001-36579 10-Q August 13, 2015 10.1 10.38(#) 001-36579 8-K November 20, 2015 10.3 10.39(#) 333-220894 S-8 October 11, 2017 99.1 10.40(#) Form of Stock Option Grant Notice and Option Agreement under the 2017 Inducement Plan. 333-220894 S-8 October 11, 2017 99.2 10.41(#) 333-220894 S-8 October 11, 2017 99.3 10.42 333-19890 S-3 August 10, 2017 1.2 10.43 Release Agreement, dated as of October 3, 2017, by and between the Company and Steven Schwartz, M.D. X 21.1 X 23.1 X 24.1 X 31.1 Certification of Principal Executive Officer, as required by Rule 13a-14(a) or Rule 15d-14(a). X 31.2 Certification of Chief Financial Officer, as required by Rule 13a-14(a) or Rule 15d-14(a). X 32.1 X Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. /s/ Chief Executive Officer and Director March (Principal Financial and Accounting Officer) /s/ Chairman of the Board March /s/ Eric G. Carter, M.D., Ph.D. do not intendhave been subject to pay dividendssecurities class action lawsuits in the past, and could be subject to additional such lawsuits in the future, which could result in substantial losses and may divert management’s time and attention from our business.In the past, we and certain of our former officers were involved in purported securities class action lawsuits, which have since been settled. The purported securities class action lawsuits asserted that the defendants violated the Exchange Act and the Securities Act of 1933, as amended (the “Securities Act”), and alleged that the defendants who are no longer at Adverum made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA‑101, a program which was discontinued in 2015, and the prospects of AVA-101. We settled these lawsuits for $13.0 million, of which $1.0 million we contributed to cover our indemnification obligations to the underwriters, and the remainder was contributed by our insurers. Any future litigation of this type could result in payment of damages or settlement fees and diversion of management’s attention and resources, any of which could adversely impact our business. Monitoring and defending against legal actions are time-consuming for our management and detracts from our ability to focus fully on our common stock,business activities.Our quarterly operating results may fluctuate significantly.We expect our operating results to be subject to quarterly fluctuations. Our net loss and consequently, your abilityother operating results will be affected by numerous factors, including:•variations in the level of expenses related to achieve a return on your investment will depend on appreciation, if our clinical trial and development programs;•addition or termination of clinical trials or addition of cohorts to clinical trials;•any intellectual property infringement lawsuit or other litigation in which we may become involved;•regulatory developments affecting our product candidates;•our execution of any collaborative, licensing or similar arrangements and the timing of payments we may make or receive under these arrangements;•nature and terms of stock-based compensation grants; and•derivative instruments recorded at fair value.If our quarterly operating results fall below the expectations of investors or securities analysts, the price of our common stock.We have never declaredstock could decline substantially. Furthermore, any quarterly fluctuations in our operating results may, in turn, cause the price of our stock to fluctuate substantially.Our certificate of incorporation and bylaws provide that the Court of Chancery of the State of Delaware and the federal district courts of the United States of America will be the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or paid our directors, officers, or employees.Our amended and restated certificate of incorporation provides that the Court of Chancery of the State of Delaware is the exclusive forum for the following types of actions or proceedings under Delaware statutory or common law:•any cash dividendderivative action or proceeding brought on our common stockbehalf;•any action asserting a breach of fiduciary duty;70•any action asserting a claim against us arising under the Delaware General Corporation Law; and do•any action asserting a claim against us that is governed by the internal-affairs doctrine.This provision would not currently intendapply to do so forsuits brought to enforce a duty or liability created by the foreseeable future. We currently anticipate that we will retain future earnings for the development, operation and expansionSecurities Exchange Act of our business and do not anticipate declaring or paying any cash dividends for the foreseeable future. Any return to stockholders will therefore be limited to the appreciation of their stock. Therefore, the success of an investment in shares of our common stock will depend upon any future appreciation in their value. There is no guarantee that shares of our common stock will appreciate in value or even maintain the price at which our stockholders have purchased their shares.We are an emerging growth company, and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.We are an emerging growth company,1934, as defined in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements ofamended. Furthermore, Section 404 of Sarbanes-Oxley, reduced disclosure obligations regarding executive compensation and our periodic reports and proxy statements and exemptions from the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company until the last day22 of the fiscal year 2019, although circumstances could cause us to lose that status earlier, including if we become a large accelerated filer (in which case we will cease to be an emerging company as of the date we become a large accelerated filer, which, generally, would occur if, at the end of a fiscal year, among other things, the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter), if we have total annual gross revenue of $1.0 billion or more during any fiscal year (in which cases we would no longer be an emerging growth company as of December 31 of such fiscal year), or if we issue more than $1.0 billion in non-convertible debt during any three year period before that time (in which case we would cease to be an emerging growth company immediately). Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to take advantage of many of the same exemptions from disclosure requirements including not being required to comply with the auditor attestation requirements of Section 404 of Sarbanes-Oxley and reduced disclosure obligations regarding executive compensation and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading marketSecurities Act creates concurrent jurisdiction for our common stock and our stock price may be more volatile.We have incurred and will continue to incur significant increased 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. We are subject to the reporting requirements of the Exchange Act, which require, among other things, that we file with the SEC annual, quarterly and current reports with respect to our business, results of operations and financial condition. In addition, Sarbanes-Oxley, as well as rules adopted by the SEC and The Nasdaq Global Market that implement provisions of Sarbanes-Oxley, impose significant requirements on public companies, including requiring establishment and maintenance of effective disclosure and financial controls and changes in corporate governance practices. Further, pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, the SEC adopted additional rules and regulations in these areas, such as mandatory “say on pay” voting requirements that will apply to us when we cease to be an emerging growth company. Stockholder activism, the current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in which we operate our business in ways we cannot currently anticipate.The rules and regulations applicable to public companies have substantially increased our legal and financial compliance costs and make some activities more time-consuming and costly. To the extent these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations and prospects. The increased costs will decrease our net income or increase our net loss, and may require us to reduce costs in other areas of our business or increase the prices of our products or services. For example, we expect these rules and regulations to make it more difficult and more expensive for us to obtain director and officer liability insurance, and we may be required to incur substantial costs to maintain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.If securities or industry analysts do not publish research or reports or publish unfavorable research or reports about our business, our stock price and trading volume could decline.The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us, our business, our market or our competitors. If one or more of the analysts who covers us downgrades our stock, our stock price would likely decline. If one or more of these analysts ceases to cover us or fails to regularly publish reports on us, interest in our stock could decrease, which could cause our stock price or trading volume to decline.The recently passed comprehensive tax reform bill could adversely affect our business, results of operations and financial condition.On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended (the “Code”). The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including adoption of a flat 21% corporate tax rate, limitation of the tax deduction for interest expense to 30% of adjusted earnings (except for certain small businesses), limitation of the deduction of net operating losses generated in tax years beginning after December 31, 2017 to 80% of taxable income and elimination of carrybacks of such net operating losses, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations for tax years beginning after January 1, 2018, mandatory capitalization of research and development expenses beginning in 2022, immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits (including reducing the business tax credit for certain clinical testing expenses incurred in the testing of certain drugs for rare diseases or conditions generally referred to as “orphan drugs”). Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, and our business, results of operations and financial condition could be adversely affected. In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse. Investors should consult with their legal and tax advisors with respect to this legislation and the potential tax consequences of investing in or holding our common stock.Our ability to use net operating loss carryforwards and other tax attributes may be limited by the Code.We have incurred substantial losses during our history and do not expect to become profitable in the near future and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. As of December 31, 2017, we had U.S. federal net operating loss (“NOL”) carryforwards of approximately $53.2 million to offset future federal income. NOLs expire at various years beginning with 2036. As of December 31, 2017, we also had U.S. state NOL carryforwards of approximately $37.8 million to offset future state income. U.S. State NOLs expire at various years beginning with 2036. At December 31, 2017, we also had approximately $44.1 million of foreign net operating loss carryforwards which may be available to offset future foreign income; these carryforwards do not expire.Under the newly enacted federal income tax law, federal NOLs incurred in 2018 and in future years may be carried forward indefinitely, but the deductibility of such federal net operating NOLs is limited. It is uncertain if and to what extent various states will conform to the newly enacted federal tax law. In addition, under Section 382 of the Code, our ability to utilize NOL carryforwards or other tax attributes, such as research tax credits, in any taxable year may be limited if we experience an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws. In connection with our acquisition of Annapurna in May 2016, we determined that certain NOLs for both federal and state purposescourts over all such Securities Act actions. Accordingly, both state and federal courts have jurisdiction to entertain such claims.To prevent having to litigate claims in multiple jurisdictions and the threat of inconsistent or contrary rulings by different courts, among other considerations, our amended and restated bylaws provide that the federal district courts of the United States of America will be the exclusive forum for resolving any complaint asserting a cause of action arising under the Securities Act. While the Delaware courts have determined that such choice of forum provisions are facially valid, a stockholder may nevertheless seek to bring a claim in a venue other than those designated in the exclusive forum provisions. In such instance, we would expect to vigorously assert the validity and enforceability of the exclusive forum provisions of our certificate of incorporation and bylaws. This may require significant additional costs associated with resolving such action in other jurisdictions and there can be no assurance that the provisions will be enforced by a court in those other jurisdictions.These exclusive forum provisions may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers, or other employees, which may discourage lawsuits against us and our directors, officers and other employees. If a court were severely limited and therefore we removed a significant amountto find either exclusive-forum provision in our certificate of NOLs from our deferred tax assets. In addition,incorporation or bylaws to be inapplicable or unenforceable in an action, we may have experienced an ownership change as a resultincur further significant additional costs associated with resolving the dispute in other jurisdictions, all of the February 2018 underwritten public offeringwhich could seriously harm our business.71Item 1B. Unresolved Staff CommentsNot applicable.Item 2. PropertiesOur corporate headquarters are located in Menlo Park,Redwood City, California, where we lease and occupyconsisting of approximately 36,00081,000 square feet of office, space. The current termlaboratory, and process development space under a lease that expires in 2029. We have also entered into a lease for a manufacturing facility consisting of ourapproximately 174,000 square feet in Durham, North Carolina, which lease expires on May 8, 2020, with an option to extend the term through May 8, 2024. in 2037.We believe that our existing facilities are adequate and suitable for our current needs. When our lease expires, we may exercise our renewal option or look forWe are currently considering leasing additional or alternate space for our operationsin Redwood City to accommodate anticipated expansion and we believe that, should it be needed, suitable additional or alternative space will be available in the future on commercially reasonable terms.to accommodate any such expansion of our operations.Item 3. Legal ProceedingsIn July 2015, three securities class action lawsuits were filed against us and certain of our officers in the U.S. District Court for the Northern District of California (“U.S. District Court”), each on behalf of a purported class of persons and entities who purchased or otherwise acquired our publicly traded securities between July 31, 2014 and June 15, 2015. The lawsuits assert claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Securities Act of 1933, as amended (the “Securities Act”) and allege that the defendants made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA-101, a product candidate which is no longer being developed, and the prospects of AVA-101. The complaints seek unspecified damages, attorneys’ fees and other costs.In December 2015, a putative securities class action lawsuit was filed against us, our board of directors, underwriters of our January 13, 2015, follow-on public stock offering, and two of our institutional stockholders, in the Superior Court of the State of California for the County of San Mateo (“San Mateo Superior Court”). The complaint alleges that, in connection with our follow-on stock offering, the defendants violated the Securities Act by allegedly making materially false and misleading statements and by allegedly omitting material information related to the Phase 2a clinical trial for AVA- 101 and the prospects of AVA-101. The complaint seeks unspecified compensatory and rescissory damages, attorneys’ fees and other costs. The plaintiff has dismissed the two institutional stockholder defendants.On March 16, 2017, we reached an agreement to settle the asserted actions. The proposed aggregate amount of the settlement is $13.0 million, of which $1.0 million would be contributed by us to cover our indemnification obligations to the underwriters, and the remainder would be contributed by our insurers. We and the defendants have denied and continue to deny each and all of the claims alleged in the actions, and the settlement does not assign or reflect any admission of fault, wrongdoing or liability as to any defendant. Notice of the settlement was provided to shareholders in the fall of 2017, and no shareholder objected to the settlement. On January, 19, 2018, the San Mateo Superior Court entered a judgment and order finally approving the settlement. And on February 5, 2018, the U.S. District Court entered an order dismissing the consolidated federal action with prejudice. If the settlement does not become effective and litigation resumes, following an appeal or otherwise, adverse outcomes in the actions could result in substantial damages. We recorded $1.0 million as general and administrative expense during the three months ended March 31, 2017, when the amount and time of settlement became estimable and probable.Not applicable.Item 4. Mine Safety Disclosures.Not applicable.72PART IIItem 5. Market for Registrant’s Common Equity, Related Stockholder Matters and IssueIssuer Purchases of Equity SecuritiesOur common stock has beenis listed on Thethe Nasdaq Global Market since July 31, 2014, and is currently listed under the symbol “ADVM”. Prior to July 31, 2014, there was no public trading market for our common stock. The following table sets forth for the periods indicated the high and low closing prices per shareHolders of our common stock as reported on The Nasdaq Global Market:Record28, 2018,22, 2021, we had approximately 1915 holders of record of our common stock. The actual number of stockholders is greater than this number of record holders, and includes stockholders who are beneficial owners, but whose shares are held in street name by brokers and other nominees. This number of holders of record also does not include stockholders whose shares may be held in trust by other entities.Dividend PolicyWe have never declared or paid cash dividends on our capital stock. We intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination related to dividend policy will be made at the discretion of our board of directors.The following graph illustrates a comparison of the total cumulative stockholder return of an investment of $100 in cash on July 31, 2014, which is the date our common stock first began trading on the Nasdaq Global Market, through December 31, 2017 for (i) our common stock, (ii) the Nasdaq Composite Index and (iii) the Nasdaq Biotech Index. Pursuant to applicable SEC rules, all values assume reinvestment of the full amount of all dividends, however no dividends have been declared on our common stock to date. The stockholder return shown in the graph below is not necessarily indicative of future performance, and we do not make or endorse any predictions as to future stockholder returns. This graph shall not be deemed “soliciting material” or be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any of our filings under the Securities Act, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.
Recent Sales of Unregistered SecuritiesNone.
NoneOn August 5, 2014, we closed our IPO and issued 6,900,000 shares of our common stock at an initial offering price of $17.00 per share. The offer and sale of all of the shares in the IPO were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File Nos. 333-197133 and 333-197739), which was declared effective by the SEC on July 30, 2014. The joint book-running managers for the IPO were Jefferies LLC, Cowen and Company, LLC and Piper Jaffray & Co. The aggregate offering price to the public for the shares sold in the IPO was $117.3 million. We received net proceeds from the IPO of approximately $106.5 million, after deducting underwriting discounts and commissions of approximately $8.2 million and expenses of approximately $2.6 million payable by us. None of the expenses associated with the IPO were paid to directors, officers, persons owning 10% or more of any class of equity securities, or to their associates, or to our affiliates.We have discontinued development of AVA-101, and so we will not use approximately $20.0 million of our net proceeds from the IPO to fund Phase 3 research and development startup activities for our AVA-101 study, as we had described in our final prospectus filed with the SEC on July 31, 2014 pursuant to Rule 424(b) of the Securities Act. Instead, we have reallocated such proceeds to fund research and development expenses for additional preclinical studies relating to our wAMD gene therapies, ADVM-022 and ADVM-032 and for ADVM-043 for A1AT deficiency and for ADVM-053 for HAE.Subsequent Stock OfferingsOn January 13, 2015, we completed a follow-on offering of 2,369,375 shares of our common stock, which included 359,918 shares we issued pursuant to the underwriters’ exercise of their option to purchase additional shares, and we received net proceeds of approximately $130.6 million, after underwriting discounts, commissions and offering expenses.In March 2015, (i) we received net proceeds of approximately $8.3 million, after discounts and other issuance costs, which resulted from the sale of 230,000 common shares, and (ii) we issued 230,000 common shares to a stockholder that exercised warrants prior to the IPO.In August 2017, we entered into an at-the-market sales agreement with an agent for the sales of our common stock at market price (the “2017 stock offering agreement”). Under the terms and conditions of the 2017 stock offering agreement, we may offer to sell our common stock for an aggregate offering price of up to $50.0 million through the agent from time to time. In January 2018, we sold a total of 1,419,893 shares of our common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of $5.7 million, net of issuance costs. We have sold a total of 6,550,232 shares of our common stock at market prices pursuant to the 2017 stock offering agreement and have raised total net proceeds of approximately $22.5 million, net of issuance costs.In February 2018, we completed an underwritten offering for the sale of 10,222,235 shares of our common stock and raised total net proceeds of approximately $64.3 million, after discounts and other issuance costs.We invested the funds received in short-term, interest-bearing investment-grade securities and government securities.Purchases of Equity Securities by the Issuer and Affiliated PurchasersNone.73Item 6. Selected Financial DataThe following selected consolidated financial data should be readWe have elected to early adopt the amendment to Item 301 of Regulation S-K and are omitting this disclosure in conjunction with “Management’sreliance thereon.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations”, the consolidated financial statements and related notes, and other financial information included in this Annual Report on Form 10-K.We derived the consolidated financial data for the years ended December 31, 2017, 2016 and 2015 and as of December 31, 2017 and 2016 from our consolidated financial statements, which are included elsewhere in this Annual Report on Form 10-K. The consolidated financial data for the years ended December 31, 2014 and 2013 and as of December 31, 2015, 2014 and 2013 are derived from our audited consolidated financial statements which are not included in this Annual Report on Form 10-K. Historical results are not necessarily indicative of the results to be expected in future periods.
Operations(1)During the year ended December 31, 2016, we recorded approximately $1.4 million of one-time stock-based compensation charge in connection with the separation agreement with a certain executive officer.(2)During the year ended December 31, 2015, we recorded approximately $2.4 million of one-time stock-based compensation expense in connection with the termination of a certain executive officer. During the year ended December 31, 2016, we recorded approximately $1.5 million of one-time stock-based compensation charges in connection with the separation agreements with our certain executive officers.(4)During the year ended December 31, 2015, we recorded a total of $2.6 million restructuring charges related to one-time termination severance payments and other employee-related benefits, including approximately $1.0 million of stock-based compensation expense related to the acceleration of stock awards.(5)During the year ended December 31, 2016, we recorded income tax benefit of $0.8 million related to the change in the deferred tax liabilities balances due to the impairment of our intangible assets.(6)In April 2014, we repurchased 531,208 shares of Series A convertible preferred stock for $4.0 million. The difference between the repurchase price of $7.53 per share and original issuance price of $1.45 per share was recorded as a deemed dividend of $3.2 million to a preferred stockholder and effected the calculation of net loss attributable to common stockholders and net loss per share for the year ended December 31, 2014.Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOverviewAdverum is a clinical-stage gene therapy company targeting unmet medical needs in seriousocular and rare and ocular diseases. We are leveraging our next-generation adeno-associated virus (“AAV”)-based directed evolution platform to generatedevelop gene therapy product candidates designedintended to provide durable efficacy by inducing sustained expression of a therapeutic protein. In May 2016, we closed our acquisition of Annapurna Therapeutics SAS (“Annapurna”), a privately-held French gene therapy company, (the “Annapurna acquisition”). Our core capabilities include novel vector discovery, preclinical and clinical development, novel vector development, and pre-commercial planning. In addition, we have in-house manufacturing expertise, specifically in scalable process development, assay development, and current Good Manufacturing Practices (“GMP”) quality control. Our leadership teamcontrol, and have leased and are building out a GMP commercial manufacturing facility to support our commercial plans for our lead product candidate, ADVM-022. We believe ADVM-022 has significant drug development andthe potential to be the first mass marketed gene therapy expertise.We are advancing our robust pipeline of gene therapy candidates designed to treat rare diseases alpha-1 antitrypsin (“A1AT”) deficiency and hereditary angioedema (“HAE”) as well as infor wet age-related macular degeneration (“wAMD”wet AMD”) and diabetic macular edema (“DME”).ForADVM-022 is a single, in-office intravitreal (“IVT”) injection gene therapy designed to deliver long-term durability with robust treatment response, reduce the treatment burden of frequent anti-vascular endothelial growth factor (“anti-VEGF”) injections, and improve real-world vision outcomes for patients. ADVM-022 is being developed for the treatment of A1AT deficiency, we are advancing our genepatients with chronic retinal diseases who respond to standard-of-care anti-VEGF therapy, product candidate ADVM-043, AAVrh.10-A1AT, inincluding wet AMD and DME. ADVM-022 utilizes a proprietary vector capsid, AAV.7m8, carrying an ongoing Phase 1/2 clinical trial (the “ADVANCE trial”). The ADVANCE trialaflibercept coding sequence under the control of a proprietary expression cassette.Wet AMD is a multi-center, open-label, dose-escalation study. The primary endpoint is safetyleading cause of blindness in patients over 65 years of age, with a prevalence of approximately 1.5 million individuals in the U.S. (with approximately 200,000 new diagnoses per year) and tolerability and secondary endpoints include changes in plasma concentrations of both total and M-specific A1AT levels. The study will include up to 20 patients across up to four planned dosing cohorts of up toover 5 patients each. The first three cohorts of patients will receive a single intravenous (“IV”) administration of ADVM-043 and the fourth cohort of patients will receive a single intrapleural (“IP”) administration of ADVM-043.million individuals worldwide. In the first cohort, patients (n=2) have been dosed and evaluated following a single administration of ADVM-043 at a dose of ~1E12 vg/kg (8E13 total vg). Based on a reviewrecognition of the preliminary safety data, the independent data monitoring committee (“DMC”) has recommended escalating to the intermediate dose (~5E12 vg/kg (4E14 total vg) of ADVM-043, which will be utilized in the second cohort of patients, which is openneed for enrollment. Further details about the study can be found at ClinicalTrials.gov under trial identifier number NCT02168686. We expect to report preliminary data from this trial in the second half of 2018.Fornew treatment of the rare disease HAE, we are advancing our preclinical gene therapy product candidate ADVM-053, AAVrh.10-C1EI. ADVM-053 is designed as a potential single-administration treatment to provide sustained release of the C1 esterase inhibitor (“C1EI”) protein to eliminate protein level variability and prevent breakthrough attacks. In preclinical studies, a single IV administration of ADVM-053 increased C1EI protein expression above therapeutic levels and decreased vascular permeability. We plan to submit an Investigational New Drug (“IND”) applicationoptions for ADVM-053 for HAE withwet AMD, the U.S. Food and Drug Administration (“FDA”) granted Fast Track designation for ADVM-022 for the treatment of wet AMD.We are conducting the OPTIC trial, designed as a multi-center, open-label, Phase 1, dose-ranging safety trial of ADVM-022 in patients with wet AMD who have demonstrated responsiveness to anti-VEGF treatment. Patients in OPTIC are treatment experienced, and previously required frequent anti-VEGF injections to control their wet AMD and to maintain functional vision. We completed enrollment for OPTIC in July 2020 and have regularly presented updated data from the trial.Diabetes impacts over 400 million people globally, including 30 million people in the United States, and is increasing in prevalence. Approximately 5% of adults with diabetes are impacted by DME, a vision-threatening complication of diabetic retinopathy (“DR”), the leading cause of vision loss in working-age adults.We are conducting the INFINITY trial, a multi-center, Phase 2, randomized, double-masked, active comparator-controlled study evaluating a single IVT injection of ADVM-022 in patients with DME. The INFINITY trial is designed to demonstrate superior control of disease activity following a single IVT injection of ADVM-022 compared to a single aflibercept injection, as measured by time to worsening of DME disease activity in the study eye. Additional objectives include assessments of treatment burden, visual acuity, retinal anatomy and safety outcomes. We have completed patient enrollment, and we plan to present clinical data in the second half of 2018.For wAMD,2021.74Based on the promising data observed in OPTIC to date and our discussions with the FDA, we are advancingbelieve we have reached alignment on our preclinical gene therapy product candidateclinical development and CMC requirements. We anticipate initiating two global Phase 3 trials for ADVM-022 AAV.7m8-aflibercept. With a proprietary vector capsid (“AAV.7m8”) and a proprietary expression cassette, ADVM-022 is administered as a single intravitreal injection and is designed to minimize the treatment burden of frequent injections, which is the current standard of care. We have presented preclinical proof-of-concept data of ADVM-022’s anti-angiogenic effectin wet AMD in the laser-induced choroidal neovascularization (“CNV”) model in non-human primates, the industry standard for testing new wAMD therapies. The datafourth quarter of 2021. In addition, we believe that approximately 6% of patients with wet AMD are treated bilaterally from a single injectiontime of ADVM-022 showed efficacy that was comparablediagnosis and this grows to the anti-Vascular Endothelial Growth Factor (“VEGF”) standard of care, which was the positive control in the CNV model. At scientific meetings in September 2017, we presented additional long-term data, which continued to demonstrate sustained expression of anti-VEGF protein following a single intravitreal injection of ADVM-022. Pharmacokinetic data on one non-human primate demonstrated sustained expression for 52 weeks. In a separate ongoing study, sustained expression for at least seven months has been observed in seven non-human primates. In this ongoing preclinical study, we continue to assess the durability of protein expression in non-human primates and expect to report 12-month data in the first half of 2018.almost one-third within four years. We plan to submit an IND applicationevaluate the potential for bilateral treatment with ADVM-022 in order to include data on bilateral administration in our Biologics License Application (BLA) submission for the wet AMD application.With this approach, we are targeting submitting this BLA in 2024. As we advance ADVM-022 for wAMD withthese two large ocular disease indications, we are continuing to develop our manufacturing expertise to support the FDApotential future commercial product launch. In addition, we are planning for in-house manufacturing capabilities, including building out our new GMP manufacturing facility in Durham, North Carolina. This new 174,000 square foot facility will be dedicated to providing commercial supply, if ADVM-022 is approved for marketing, while we will continue to leverage our contract manufacturing organization partnerships for clinical and additional commercial supply. We expect our GMP manufacturing facility will be production-ready by the end of 2023.Impact of COVID-19Our results of operations and financial condition for the year ended December 31, 2020 were not significantly impacted by the COVID-19 pandemic. However, the full extent to which the COVID-19 pandemic will directly or indirectly impact these areas in the second halffuture is unknown at this time and will depend on future developments that are unpredictable. We are actively monitoring and managing our response and assessing actual and potential impacts to these areas. Please refer to the “Risk Factors” section for further discussion of 2018.Impact on OperationsWe are continuously evaluating and addressing potential impacts of the COVID-19 pandemic on our operations. To date, we have experienced limited impact due to COVID-19 on our operations. Our earlier-stageoffices, laboratories, clinical trial sites, contract research organizations (“CROs”), contract manufacturing organizations, and other collaborators and partners are located in jurisdictions where quarantines, executive orders, shelter-in-place orders, guidelines, and other similar orders and restrictions intended to control the spread of the disease have been put in place by governmental authorities.We are committed to the health and safety of our employees and their families and doing our part to slow the community spread of COVID-19. In mid-March, we implemented a number of actions, including a work-from-home policy for employees whose jobs do not require them to be onsite, allowing for flexible work schedules, restricting in-person meetings, and limiting onsite activities to only the most time-critical or necessary operational activities. We have maintained certain essential in-person laboratory functions in order to advance key research and development initiatives, supported by the implementation of updated onsite procedures. We believe these measures and others have allowed us to mitigate, but not eliminate, the effects and risks on our on-site operations posed by the COVID-19 pandemic.Impact on Clinical TrialsThe ultimate impact of the COVID-19 pandemic on our ongoing and planned clinical trials is uncertain and subject to change. To date, we believe we have experienced limited impact due to COVID-19 on our ongoing clinical programs, include gene therapy product candidates targeting cardiomyopathy associatedincluding the OPTIC and INFINITY clinical trials. We are working closely with Friedreich’s ataxia (“FA”)our clinical trial sites to monitor and severe allergy.Our partnered programs include vectorsattempt to address or limit the potential negative impacts of the evolving COVID-19 outbreak on patient safety, continued participation of patients already enrolled in our clinical studies, protocol compliance, data quality, and overall study integrity. Despite these efforts, we are developing under collaboration agreements. Under an agreement with Editas Medicine, Inc. (“Editas”)unsure as to whether the COVID-19 pandemic will significantly impact future trial enrollment or completion of our current or planned clinical studies.Impact on Supply Chain and ManufacturingWhile we have not yet experienced significant disruptions to our supply chain and manufacturing as a result of the COVID-19 pandemic, we cannot be certain that this trend will continue. Based on current information, we believe that our partners in our supply chain have been and will continue to serve us continuously during the COVID-19 pandemic. However, certain of these partners including our bulk drug substance and drug product suppliers have prioritized and allocated more resources and capacity to supply drug product or raw materials to other companies engaged in the study and/or supply of potential treatments or vaccinations for COVID-19, which could result in supply interruptions for us. To mitigate against future potential delays in product supply, we are leveraging our AAV-vectors for use with Editas’ leading Clustered Regularly Interspaced Short Palindromic Repeats (“CRISPR”)-based genome editing technologiescontinuously implementing additional measures to treat up to five inherited retinal diseases. Our agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) provides for developmentaddress potential risks as we identify them, including securing additional supplies and manufacturing capacity reserve, which have resulted in additional expenses and may result in other additional expenses in the future.75Financial OverviewSummaryWe have not generated positive cash flow or net income from operations since our inception and, as of December 31, 2017,2020, we had an accumulated deficit of $254.1$502.5 million. We expect to incur substantial expenses and increasing losses from operations in the foreseeable future as we continue our research and development efforts, advance our product candidates through preclinical and clinical development, manufacture clinical study materials, seek regulatory approval, and prepare for and, if approved, proceed to commercialization. We are at an early stage of development and may never be successful in developing or commercializing our product candidates.While we may in the future generate revenue from a variety of sources, including license fees, milestone and research and development payments in connection with strategic partnerships, and potentially revenue from product sales if any of our product candidates are approved, to date we have not generated any revenue from product sales.We entered into our collaboration and license arrangements with Regeneron in May 2014 and Editas in August 2016. Both arrangements are revenue-generating arrangements, refer to Note 7, Significant Agreements, of the notes to consolidated financial statements included in this Form 10-K for details. Wecurrently have no operational clinical or commercial manufacturing facilities, and all of our clinical manufacturing activities are currently contracted out to third parties. Additionally, we use third-party clinical research organizations (“CROs”)CROs to carry out our clinical development and we do not have a sales organization.We expect to incur substantial and increasing expenditures in the foreseeable future for the development and potential commercialization of our product candidates. We will need substantial additional funding in the future to support our operating activities as we advance our product candidates through preclinical and clinical development, seek regulatory approval and prepare for and, if approved, proceed to commercialization. Adequate funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital, or to do so on acceptable terms, when needed, or to form additional collaboration partnerships to support our efforts, we could be forced to delay, reduce or eliminate our research and development programs or potential commercialization efforts.As of December 31, 2017,2020, we had $190.5$429.7 million in cash, cash equivalents and short-term investments. We believe thatIn February 2020, we have sufficient funds, together with the net proceeds from our February 2018 underwritten public offeringsold an aggregate of 10,925,000 shares of our common stock to continue our operations through the endfor $140.8 million of 2019.2017,2020, we sold an aggregate of 16,675,000 shares of our common stock for $203.5 million in net proceeds after deducting underwriting discounts and commissions and offering expenses. In December 2020, we entered into an at-the-market offering program sales agreement with an agent for the sales of our common stock at market price (the “2017 stock offering agreement”). Under the terms and conditions of the 2017 stock offering agreement,Cowen, pursuant to which we may offer to sell our common stock for an aggregate offering price of up to $50.0$150.0 million through the agent from time to time. In January 2018, we sold a total of 1,419,893 shares ofWe believe that our common stock at market prices under the 2017 stock offering agreementcash, cash equivalents and raised total net proceeds of $5.7 million, net of issuance costs. We have sold a total of 6,550,232 shares of our common stock at market prices pursuantshort-term investments are sufficient cash to the 2017 stock offering agreement and raised total net proceeds of approximately $22.5 million, net of issuance costs.In February 2018, we completed an underwritten public offering for the sale of 10,222,235 shares of our common stock and raised total net proceeds of approximately $64.3 million, after discounts and other issuance costs.RevenueTo date we have not generated any revenue from the sale of our products. We generatehave generated revenue through research, collaboration and license arrangements with our strategic partners. As of December 31, 2017, our total deferred revenue related to collaboration arrangements with our strategic partners was $7.1 million. We recognized $1.8 million, $1.5 million and $2.3 million of revenue associated with these collaboration arrangements during the years ended December 31, 2017, 2016 and 2015, respectively.In August 2016, we entered into a collaboration, option and license agreement with Editas. Under the terms of the agreement, we received $1.0 million non-refundable upfront payment, with $0.5 million of such payment to be credited against Editas’ obligation to fund research and development costs. As the agreement provides for multiple deliverables, we accounted for this agreement as a multiple elements revenue arrangement. At the inception of the agreement, identified deliverables include research services, manufacturing of viral vectors for research, participation in the joint research committee and exclusivity during the option period. These deliverables did not appear to have a standalone value and were combined into one unit of accounting. Options for each indication to license our AAV vector are considered substantive options and do not include significant incremental discounts. Therefore, they are not considered as deliverables under the agreement. We allocated the $1.0 million received to a single unit of accounting identified in the arrangement. We recognize $1.0 million ratably over the associated period of performance, which is the maximum research period of three years. As there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, we recognize revenue on a straight-line basis.In January 2018, we and Editas extended the collaboration, option and license agreement. In consideration for extending the agreement, Editas made a one-time payment to Adverum of $0.5 million in February 2018. Refer to Note 17 of the notes to consolidated financial statements included in this Form 10-K for details.Agreement with RegeneronIn May 2014, we entered into a research, collaboration and license agreement with Regeneron. Under the terms of the agreement, we received initial payments of $8.0 million that included payment for research license fees, prepaid collaboration research costs and the right of first negotiation for a potential license to develop and commercialize AVA-101, a prior wAMD gene therapy that is no longer in development. As the agreement provides for multiple deliverables, we account for this agreement as a multiple elements revenue arrangement. If deliverables do not appear to have a standalone fair value, they were combined with other deliverables into a unit of accounting with standalone fair value. We allocated the $8.0 million received to the fair values of the two units of accounting identified in the arrangement. We recognize $6.5 million allocated to the first unit of accounting for research licenses and related research and development services ratably over the associated period of performance, which is the maximum research period of eight years. As there was no discernible pattern of performance and/or objectively measurable performance measures did not exist, revenue associated with the first unit of accounting is recognized on a straight-line basis over the eight-year performance period. The remaining $1.5 million allocated to the second unit of accounting for the time-limited right of first negotiation for AVA-101 was deferred. In November 2015, Regeneron notified us that it did not exercise its right of first negotiation and, as a result, we recognized the entire $1.5 million as revenue during the year ended December 31, 2015. In February 2017, Regeneron notified us that pursuant to the terms of the research, collaboration and license agreement, it extended the initial research term for an additional three years, through May 1, 2020. The portion of the upfront payment that was applied to the original research budget was fully used in the fourth quarter of 2015, and we and Regeneron, through a joint review committee, agree annually on an updated research and development services budget through the research period. We invoice Regeneron quarterly for services performed in each prior quarter. These additional research fees are added to the research licenses and related research and development services unit of accounting, recorded as deferred revenue and recognized to revenue over the remaining maximum research term.Under our research, collaboration and license agreement with Regeneron, we are required to have a mutually agreed-on research plan with Regeneron in order to invoice Regeneron for services performed. We do not currently have a research plan in place, and, consequently, we are not currently receiving any reimbursements from Regeneron.As of December 31, 2020 and 2019, we had no deferred revenue related to collaboration arrangements with our strategic partners. We recognized $250,000 and $1.6 million of revenue associated with our collaboration arrangements during the years ended December 31, 2019 and 2018, respectively. No revenue was recognized during the year ended December 31, 2020.Research and Development ExpensesConducting a significant amount of research and development is central to our business model. Research and development expenses primarily include primarily personnel-related costs, stock-based compensation expense,expenses, laboratory supplies, consulting costs, external contract research and development expenses, including expenses incurred under agreements with CROs, the cost of acquiring, developing and manufacturing clinical study materials, and overhead expenses, such as rent, equipment depreciation, insurance and utilities.ResearchWe expense research and development costs are expensed as incurred. AdvanceWe defer and expense advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.76We estimate preclinical study 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 our behalf. 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. We estimate the amounts incurred through communications with third party service providers and our estimates of accrued expenses as of each balance sheet date are based on information available at the time. If the actual timing of the performance of services or the level of effort varies from the estimate, we will adjust the accrual accordingly.At this time, we cannot reasonably estimate the nature, timing or aggregate costs of the efforts that will be necessary to complete the development of any of our product candidates. The successful development and commercialization of a product candidate is highly uncertain, and clinical development timelines, the probability of success, and development and commercialization costs can differ materially from expectations.We received refundable tax credits from the Australian and French tax authorities in connection with certain research costs incurred by our subsidiary conducting research in Australia and France. These refunds do not depend on our taxable income or tax position and therefore we do not account for them under an income tax accounting model. We recognize such refunds as government grants in the period when qualified expenses are incurred as a reduction of research expenses. We have recorded the reimbursement from the Australian and French tax authorities as a reduction of research and development expense in the consolidated statements of operations and comprehensive loss for the applicable period. During the years ended December 31, 2017, 2016 and 2015, tax credits received were immaterial.General and Administrative ExpensesGeneral and administrative expenses primarily include primarily personnel-related costs, stock-based compensation, professional fees for legal, consulting, audit and tax services, overhead expenses, such as rent, equipment depreciation, insurance and utilities, and other general operating expenses not otherwise included in research and development expenses. Our general and administrative expenses may increase in future periods if and to the extent we elect to increase our investment in infrastructure to support continued research and development activities and potential commercialization of our product candidates. We will continue to evaluate the need for such investment in conjunction with our ongoing consideration of our pipeline of product candidates. We anticipate increased expenses related to audit, legal and regulatory functions, as well as director and officer insurance premiums and investor relations costs associated with being a public reporting company.Impairment of Goodwill and Intangible AssetsDuring the year ended December 31, 2016, due to a continuing decrease in our stock price that resulted in our market capitalization being less than the carrying value of our net assets and expected continuation of operating losses in subsequent years due to preclinical and expected clinical trials, we concluded that it was more likely than not that the fair value of our reporting unit was less than its carrying value. We performed a two-step goodwill impairment analysis and determined that our goodwill was fully impaired. As a result, we recorded a $49.5 million goodwill impairment charge in our consolidated statements of operations and comprehensive loss during the year ended December 31, 2016.Additionally, in the fourth quarter of 2016, we performed our annual assessment for impairment of our intangible assets, ADVM-043 and ADVM-053. As a result of our decision to change our manufacturing process for ADVM-043 and ADVM-053 by implementing our proprietary baculovirus-based production system, we updated the related product development and manufacturing costs. We also reviewed and updated our expected timing of clinical trials, receipts of regulatory approvals and costs to complete for our ADVM-043 and ADVM-053 programs. Based upon our impairment analysis, we determined that the total carrying value of $16.2 million of our intangible assets was higher than their total fair value of $5.0 million. Accordingly, we recorded an $11.2 million impairment charge related to our intangible assets for the year ended December 31, 2016.In the fourth quarter of 2017, we performed our annual impairment assessment of our intangible asset, ADVM-043, and concluded that our ADVM-043 intangible asset was not impaired.As of December 31, 2017 and 2016, our intangible asset of $5.0 million was associated with ADVM-043. We are required to test our indefinite-lived intangible asset for impairment on an annual basis or more frequently if indicators of impairment exist. We operate as one reporting unit.Other income (expense), net primarily comprises of interest income on our cash equivalents and investments in marketable securities.Critical Accounting Policies, Significant Judgments and Use of EstimatesThis discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported expenses incurred during the reporting periods. OurWe base our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. 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.Revenue RecognitionWe have primarily generated revenue through the license and research and collaboration arrangements with our strategic partners for the development and commercialization of product candidates.The terms of these types of agreements may include (i) licenses to our technology, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to us under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, and regulatory events, as well as royalties on sales of any commercialized products.In arrangements involving the delivery of more than one element, each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting. The determination is based on whether the deliverable has “standalone value” to the customer. If a deliverable does not qualify as a separate unit of accounting, it is combined with the other applicable undelivered item(s) within the arrangement and these combined deliverables are treated as a single unit of accounting.The arrangement’s consideration that is fixed or determinable is allocated to each separate unit of accounting based on the relative selling price methodology in accordance with the selling price hierarchy, which includes vendor-specific objective evidence (“VSOE”) of selling price, if available, or third-party evidence of selling price if VSOE is not available, or the best estimate of selling price, if neither VSOE nor third-party evidence is available.Payments or reimbursements for our research and development efforts for the arrangements where such efforts are considered as deliverables are recognized as the services are performed and are presented on a gross basis. When upfront payments are received and if there is no discernible pattern of performance and/or objectively measurable performance measures do not exist, we recognize revenue ratably over the associated period of performance.Our collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission for marketing approval of a covered product with regulatory authorities, upon receipt of actual marketing approvals of a covered product or for additional indications, or upon the first commercial sale of a covered product. Each contingent and milestone payment is evaluated to determine whether it is substantive and at risk to both parties. We recognize any payment that is contingent upon the achievement of a substantive milestone entirely in the period in which the milestone is achieved. Any payments that are contingent upon achievement of a non-substantive milestone are recognized as revenue prospectively, when such payments become due and collectible, over the remaining expected performance period under the arrangement, which is generally the remaining period over which the research and development services are expected to be provided.Accrued and Prepaid Research and Development ExpenseWe estimate our accrued and prepaid research and development expenses as of each balance sheet date. 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. Expenses that are paid in advance of performance are deferred as a prepaid expense and expensed as the services are provided.Our understanding of the status and timing of services performed relative to the actual status and timing 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 adjust our estimates in the future as we become aware of additional information about the status or conduct of our clinical studies or other research activities. For the years ended December 31, 20172020 and 2016,2019, there were no material changes from our estimates of accrued research and development expenses.Stock-Based77Stock-based Compensation ExpenseWe recognize compensation costs related to stock-based awards granted to employees based on the estimated fair value of the awards on the date of grant, net of estimated forfeitures.grant. We estimate the grant-date fair value, and the resulting stock-based compensation expense, using the Black-ScholesBlack‑Scholes valuation model for stock options, and using intrinsic value, which is the closing price of our common stock on the grant date of the grant for the restricted stock units or RSUs. The grant date(“RSUs”).We recognize the grant-date fair value of the stock-based awards is generally recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. Stock-basedPrior to January 1, 2019, we recognized stock-based compensation expense related to awards tofor non-employees is recognized based on the then-current fair value at each measurement date over the associated service period of the award which is generally the vesting term, using the accelerated attribution method. As of January 1, 2019, we adopted Accounting Standards Update No. 2018-07 (“ASU 2018-07”), Improvements to Nonemployee Share-Based Payment Accounting (“Topic 718”), which subjects nonemployee awards to fixed measurement over a vesting period.We use the Black-Scholes valuation model to assist us in determining the fair value of our stock options, which includes our employee stock purchase plan. As of January 1, 2017, we adopted Accounting Standard Update (“ASU”) No. 2016-09 and elected to account for forfeitures as they occur using a modified retrospective transition method, which requires us to record cumulative-effect adjustment to accumulated deficit. We determined that the impact of this adoption was immaterial, and no adjustments were recorded in our consolidated financial statements. Prior to the adoption of ASU No. 2016-09, stock-based compensation expense recognized for the portion of the award that is expected to vest was reduced by an estimated forfeiture rate. The Black-Scholes valuation model requires the use of following assumptions:Expected volatility.We estimatebase the expected volatility for the year ended December 31, 2020 on our historical stock price volatility. In prior years, we estimated expected volatility based on the average historical volatility of a peer group of comparable publicly traded life sciences and biotechnology companies with product candidates in similar stages of clinical development, as we do not have sufficientweighted with the historical volatility based on the trading history for our common stock. We will continue to apply this process until a sufficient amount of historical information regarding the volatility of our own stock price becomes available.Expected term. We derivedderive the expected term using the “simplified” method (thethat determines the expected term is determined as the average of the time-to-vesting and the contractual life of the options), as we have limited historical information to develop expectations about future exercise patterns and post vesting employment termination behavior. Expected term for non-employee awards is based on the remaining contractual term of an option on each measurement date.options. The expected term of the Employee Stock Purchase Plan (“ESPP”) rights equals to the six-month look-back period.Risk-free interest rate. TheWe base the risk-free interest rate is based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options.Expected dividend yield. We have never paid any dividends and do not plan to pay dividends in the foreseeable future, and, therefore, used an expected dividend yield of zero in the valuation model.Valuation of Long-Lived Assets and Purchased Intangible AssetWe evaluate the carrying value of amortizable long‑lived assets, whenever events, or changes in business circumstances or the planned use of long‑lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, we assess for recovery by comparing the carrying values of long‑lived assets with their future undiscounted net cash flows. If the comparison indicates that impairment exists, long‑lived assets are written down to their respective fair value based on discounted cash flows. Significant management judgment is required in the forecast of future operating results that is used in the preparation of expected undiscounted cash flows. If management’s assumptions about future operating results were to change as a result of events or circumstances, we may be required to record an impairment loss on these assets. No impairment indicators were noted for our amortizable long-lived assets, fixed assets, in the periods presented.We also evaluate the carrying value of our intangible asset, not subject to amortization, related to in‑process research and development (“IPR&D”), which is considered to be indefinite‑lived until the completion or abandonment of the associated research and development efforts. Accordingly, amortization of the IPR&D asset will not occur until the product reaches commercialization. During the period the asset is considered indefinite‑lived, it is tested for impairment on an annual basis, as well as between annual tests if we become aware of any events occurring or changes in circumstances that would indicate that the fair value of the IPR&D asset is less than its carrying amount. Impairment loss is recorded when fair value of an IPR&D asset is less than its carrying value. If the related project is terminated or abandoned, we will also have an impairment related to the IPR&D asset.If and when development is complete, which generally occurs when regulatory approval to market the product is obtained, the associated IPR&D asset would be deemed definite‑lived and would then be amortized based on its estimated useful life at that point in time based on respective patent term and tested for impairment only when impairment indicators are present as discussed above under long-lived assets.Income TaxOn December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly known as the Tax Cuts and Jobs Act of 2017, or the Act, which significantly reforms the Internal Revenue Code of 1986, as amended. The Act contains broad and complex changes to corporate taxation, including in part reduction of 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 considered permanently reinvested, and creates new taxes on certain foreign sourced earnings.As of December 31, 2017, we were able to determine a reasonable estimate, namely the one-time transition tax and the remeasurement of deferred tax at the new tax rate, we didn’t recognize any provisional tax expense due to our significant operating losses.The one-time transition tax is based on our post-1986 foreign earnings and profits which we had previously excluded from U.S. income taxes due to our position that we would permanently reinvest our future earnings. The one-time transition tax is applied at a 15.5% tax rate on cash assets and an 8% tax rate for other specified assets. Since our foreign operations incurred aggregated losses, we did not record provisional amount for our one-time transition tax liability for our foreign subsidiaries.Additionally, the SEC staff has issued SAB 118, which allows us to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. Because the Company is still in the process of analyzing certain provisions of the Act including the application of new executive compensation limitation provisions under Internal Revenue Section 162(m) in accordance with SAB 118, the Company determined that the adjustment to its deferred taxes was a provisional amount and a reasonable estimate at December 31, 2017.We recognize deferred income taxes for temporary differences between the basis of assets and liabilities for financial statement and income tax purposes. We periodically evaluate the positive and negative evidence bearing upon realizability of our deferred tax assets. Based upon the weight of available evidence, which includes our historical operating performance, reported cumulative net losses since inception and difficulty in accurately forecasting our future results, we maintained a full valuation allowance on the net deferred tax assets as of December 31, 20172020 and 20162019 of approximately $35.5$94.6 million and $23.4$66.2 million, respectively. We intend to maintain a full valuation allowance on the federal, state and foreign deferred tax assets until sufficient positive evidence exists to support reversal of the valuation allowance.As of December 31, 2017,2020, we had U.S. federal net operating loss (“NOL”) carryforwards of approximately $53.2$271.6 million to offset future federal income. Approximately $56.9 million of NOLs expire at various years beginning with 2036. As of December 31, 2017,2020, we also had U.S. state NOL carryforwards of approximately $37.8$33.5 million to offset future state income. U.S. Statestate NOLs expire at various years beginning with 2036. At December 31, 2017,2020, we also had approximately $44.1$56.5 million of foreign net operating loss carryforwards which may be available to offset future foreign income; these carryforwards do not expire.Under Section 382 of the Code, our ability to utilize NOL carryforwards or other tax attributes such as research tax credits, in any taxable year may be limited if we have experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who own at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws. Due to a May 11, 2016June 30, 2020 ownership change, we determined that certain NOLs and research and development tax credits for both federal and state purposes are severely limited and therefore we removed a significant amount NOL from our deferred tax assets.subject to the 382 limitation; however, it was determined that there should be no material impact to the ability of the utilization before expiration.NoWe recognize interest and penalties related to uncertain tax positions in income taxes have been recognized in the consolidated statementstax expense. As of operations and comprehensive loss during the years ended December 31, 2017, 2016782020, we accrued $257,000 interest and 2015.Recent Accounting Standard Update— In May 2014,June 2016, the Financial Accounting Standards Board (“FASB”("FASB") issued Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 326”) and also issued subsequent amendments to the initial guidance: ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11. The standard requires that financial assets measured at amortized cost be presented at the revenue recognition requirements in ASC 605, Revenue Recognition. This ASUnet amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. Topic 326 also eliminates the principleconcept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of a credit loss or other factors. An entity will recognize an allowance for credit losses on available-for-sale debt securities rather than an other-than-temporary impairment that revenue is recognized to depictreduces the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is required to be adopted, using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures. In July 2015, the FASB voted to approve a one-year deferralcost basis of the investment. Topic 326 will become effective date tofor us beginning after December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016, May 2016, December 2016 and November 2017 within ASU 2016-08 Revenue From Contracts With Customers: Principal vs. Agent Considerations, ASU 2016-10 Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing, ASU 2016-12 Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, ASU 2016-20 Technical Corrections and Improvement to Topic 606 – Revenue from Contracts with Customers and ASU 2017-14 Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606), respectively. We will adopt the new standard in the first quarter of 2018 using the retrospective approach noted in (ii) above.We concluded that our collaboration agreements with Regeneron and Editas will be impacted by the adoption of the new revenue standards. We are in the process of allocating the transaction price to the performance obligations in each of the contracts. Preliminarily, we anticipate a material impact to our accounting policies, business processes, internal controls and disclosures.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the current guidance on the classification and measurement of financial instruments. Although this ASU retains many current requirements, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years2022 and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted for certain changes. This ASU will be effective for us in the first quarter of 2018 and must be adopted using a modified retrospective approach, with certain exceptions. The adoption of this standard is not expected to have a significant impact on our consolidated financial statements and related disclosures.In February 2016, the FASB issued ASU No. 2016-2, Leases, which amends the current guidance on leasing activities to provide more transparency and comparability and requires that all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, which are currently accounted for as operating leases. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. This ASU will be effective for us in the first quarter of 2019 and must be adopted using a modified retrospective transition approach. We have not yet determined whether we will elect early adoption and are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.In June 2016, the FASB issued ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments. This ASU requires measurement and recognition of expected credit losses for financial assets held. The new standard is effective for fiscal years beginning after December 15, 2020 and interim periods beginning after December 15, 2021 with early adoption permitted beginning in the first quarter of 2019. This ASU will be effective for us in the first quarter of 2021 and must be adopted using a modified retrospective approach, with certain exceptions. We have not yet determined whether we will elect early adoption and are currently evaluating the impact of the adoption of this standard on our consolidated financial statements and related disclosures.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation and classification of certain cash receipts and cash payments in the statement ofcash flows. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period.years. Early adoption is permitted. This ASU will be effective for us in the first quarter of 2018. We are currently evaluating the impact of adopting Topic 326, but do not expect the adoptioneffect of this standard on our consolidated financial statements and related disclosures.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which provides amendments to current guidance to address the classification and presentation of changes in restricted cash in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. This ASU will be effective for us in the first quarter of 2018. We are currently evaluating the impact of the adoption of these standards on our consolidated financial statements and related disclosures.In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which provides amendments to the current guidance for modification accounting. This ASU clarifies that an entity should account for the effects of a modification unless all the following criteria are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. This ASU will be effective for us in the first quarter of 2018. We are currently evaluating the impact of the adoption of these standards on our consolidated financial statements and related disclosures.Emerging Growth Company StatusWe are an “emerging growth company” as defined in the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements. As an “emerging growth company,”we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;we will provide less extensive disclosure about our executive compensation arrangements; andwe will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.However, we are choosing to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. We will remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company” upon the earliest of: (1) December 31, 2019; (2) the last day of the first fiscal year in which our annual gross revenues are $1.0 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1.0 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Exchange Act.Results of OperationsOurThe following table summarizes our results of operations includedata for the operations of Annapurna since May 11, 2016, the dateyears indicated. These historical operating results may not be indicative of the Annapurna acquisition.results for any future period.Years ended December 31, 2020 2019 2018 (In thousands) Collaboration and license revenue $ — $ 250 $ 1,612 Operating expenses: Research and development 73,309 40,419 50,133 General and administrative 44,641 28,376 24,560 Impairment of goodwill and intangible assets — — 5,000 Total operating expenses 117,950 68,795 79,693 Operating loss (117,950) (68,545) (78,081) Other income, net 1,557 4,059 4,204 Net loss before income taxes (116,393) (64,486) (73,877) Income tax benefit (provision) (1,114) — 1,250 Net loss $ (117,507) $ (64,486) $ (72,627) Comparison of Results of Operations for the Years Ended December 31, 20172020 and 2016The following table summarizes our results of operations for the periods indicated:Years ended December 31, Increase/(Decrease) 2020 2019 (In thousands) Collaboration and license revenue $ — $ 250 $ (250) Operating expenses: Research and development 73,309 40,419 32,890 General and administrative 44,641 28,376 16,265 Total operating expenses 117,950 68,795 49,155 Operating loss (117,950) (68,545) (49,405) Other income, net Other income, net 1,557 4,059 (2,502) Net loss before income taxes Net loss before income taxes (116,393) (64,486) (51,907) Income tax benefit (provision) Income tax benefit (provision) (1,114) — (1,114) Net loss Net loss $ (117,507) $ (64,486) $ (53,021) 79RevenueCollaborationWe recognized no revenue for the year ended December 31, 2020. We recognized$250,000 of collaboration and license revenue for the year ended December 31, 2019 related to a milestone payment under our license agreement with GenSight.Research and Development ExpenseResearch and development expense increased $32.9 million to $1.8$73.3 million for the year ended December 31, 20172020 from $1.5$40.4 million for the year ended December 31, 2016. The2019. This overall increase was due to the recognition of additional deferred revenueprimarily related to billingsa $12.8 million increase in production costs related to product candidate ADVM-022 and earlier-stage research programs, a $10.2 million increase in personnel-associated costs including stock-based compensation expense, salaries and bonus mainly driven by headcount increase from 81 employees as of December 31, 2019 to 114 employees as of December 31, 2020, a $3.3 million increase in clinical trials-related expenses, a $2.3 million increase in laboratory costs, a $1.7 million increase in expenses for licenseconsultants, contractors, and researchother outside services, to Regeneron and Editasa $1.7 million increase in facilities costs as we moved into the new facility during the year ended December 31, 2016. During the year ended December 31, 2017, no additional deferred revenue or billings related to license andfirst quarter of 2020. Stock-based compensation expense included in research services were recorded.Research and Development ExpenseResearch and development expense increased to $39.8expenses was $7.1 million for the year ended December 31, 2017, from $31.72020, compared to $3.5 million for the year ended December 31, 2016. The increase in research and development expense was primarily due to higher material production costs mainly for ADVM-043 for A1AT deficiency.For the periods presented, our research and development activities are primarily forwere attributable to our A1AT deficiency, wAMD and HAEwet AMD, DME, rare disease programs and earlier-stage research programs. We expect that research and development expenses will increase in future periods as we continue to invest in advancing our three lead gene therapy programsproduct candidate ADVM-022 and earlier-stage research programs.General and Administrative ExpenseGeneral and administrative expense decreasedincreased $16.3 million to $20.9$44.6 million for the year ended December 31, 20172020 from $24.4$28.4 million for the year ended December 31, 2016.2019, primarily related to an increase of $11.6 million in personnel-associated costs including stock-based compensation expense, salaries and bonuses mainly driven by headcount increase from 26 employees as of December 31, 2019 to 53 employees as of December 31, 2020. The decreaseoverall increase was also caused by increases of $2.2 million in depreciation expense due to higher asset base of the new facility we moved into during the first quarter of 2020, $1.8 million in fees for audit, tax, patent and other professional services, and $0.7 million in insurance and license fees. Stock-based compensation expense included in general and administrative expenseexpenses was primarily due to $3.9$13.3 million of lower consulting and professional expenses, mainly attributable to the Annapurna acquisition activities and stockholders’ litigation the duringfor the year ended December 31, 2016, and $1.72020, compared to $6.4 million of lower compensation expense mainly attributable to one-time charges of stock-based compensation expense related accelerated vesting of exiting executive employees’ stock awards duringfor the year ended December 31, 2016. This decrease was partially offset by $2.0 million of estimated termination costs associated with our master service agreement with Cornell University recorded during the year ended December 31, 2017.We expect that general and administrative expenses will increase in future periods as we continue to support continued research and development initiatives ofadvancing our product candidates. We will continue to assess such expenses as we advance our three lead gene therapy programs and earlier-stage research programs.Goodwill and Intangible Assets Impairment ChargeDuring the year ended December 31, 2016, we fully impaired our goodwill from the Annapurna acquisition and recorded a goodwill impairment charge of $49.5 million. Additionally, we recorded $11.2 million impairment charge We anticipate increased expenses related to audit, legal, finance and investor functions to support our intangible assetsorganizational growth.Other Income, NetThe decrease of $2.5 million in net other income for the year ended December 31, 2016. No impairment charges were2020 as compared to 2019 was primarily due to lower yield from our short term investments.Income Tax ProvisionWe recognized an income tax provision of $1.1 million during the year ended December 31, 2020 related to foreign operations. There was no income tax provision recorded during the year ended December 31, 2017.2019.
Comparison of Results of Operations for the Years Ended December 31, 2019 and 2018Other income, net increased to $2.7 millionSee “Comparison of the Years Ended December 31, 2019 and 2018” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2017 from $0.8 million for the year ended December 31, 2016, primarily due to higher interest income as we increased our investments in marketable securities.Income Tax BenefitDuring the year ended December 31, 2016, we recorded income tax benefit of $0.8 million related to the change in the deferred tax liabilities balance due to intangible assets impairment recognized in the same years. During the year ended December 31, 2017, no income tax expense (benefit) was recorded due to overall operating loss.Comparison of the Years Ended December 31, 2016 and 2015The following table summarizes our results of operations for the periods indicated:RevenueCollaboration and license revenue decreased to $1.5 million for the year ended December 31, 2016, from $2.3 million for the year ended December 31, 2015. The decrease of $0.9 million was primarily due to the recognition of $1.5 million related to the Regeneron time-limited right of first negotiation to license AVA-101 future development and commercialization in fiscal year 2015 offset by $0.6 million related to license and research services that are deferred and recognized over maximum research terms under the Regeneron and Editas agreements.Research and Development ExpenseResearch and development expense increased to $31.7 million for the year ended December 31, 2016, from $25.5 million for the year ended December 31, 2015. The increase in research and development expense was primarily due to a $2.6 million increase in stock-based compensation expenses, including $0.9 million relating to the accelerated vesting of Annapurna options and shares recorded after the acquisition closing and $1.4 million related to the accelerated vesting of executive stock options and RSUs, $2.8 million increase for outside services expense related to the Cornell service agreement, $0.6 million increase in laboratory expense, $0.7 million increase in license fee expenses and $0.7 million increase in facilities allocation and depreciation charges, partially offset by $0.6 million decrease in materials expense, $0.4 million decrease in consulting and recruiting expenses, and $0.2 million decrease in compensation and benefits expenses.General and Administrative ExpenseGeneral and administrative expense increased to $24.4 million for the year ended December 31, 2016, from $22.1 million for the year ended December 31, 2015. The increase in general and administrative expense was primarily due to increases of $2.5 million in Annapurna acquisition related expenses, $0.6 million increase in compensation and benefits, and $0.7 million in facilities allocation and depreciation expense, offset by $1.6 million decrease in stock-based compensation expense related to stock modifications for an executive officer’s separation in 2015.Impairment of Goodwill and Intangible AssetsWe noted a continuing decrease in our stock price that resulted in our market capitalization being less than the carrying value of our net assets as of June 30, 2016 and the continuation of operating losses in subsequent years due to preclinical and expected clinical trials, we concluded that it is more likely than not that the fair value of our one reporting unit is less than its carrying value and concluded to perform a goodwill impairment analysis. We performed a two-step goodwill impairment analysis and recorded a $49.1 million and a $0.4 million goodwill impairment charge in the second and third quarter of 2016 in our consolidated statements of operations and comprehensive loss.In the fourth quarter of 2016, we performed our annual assessment of our IPR&D assets. Based on our decision to change our manufacturing process for ADVM-043 and ADVM-053 by implementing our proprietary baculovirus-based production system, we updated the related manufacturing costs. As a result, we revised our forecasts for the manufacturing and related costs. In addition, we also reviewed and updated our expected timing of clinical trials, receipts of regulatory approvals, and costs to complete. Based upon our analysis, we determined that the carrying value of $16.2 million for our ADVM-043 and ADVM-053 IPR&D assets was higher than their fair value of $5.0 million. Accordingly, we recorded an $11.2 million IPR&D impairment charge for the year ended December 31, 2016.Restructuring ChargesIn connection with the restructuring of our workforce in the fourth quarter of 2015, we incurred aggregate restructuring charges of approximately $2.6 million related to one-time termination severance payments and other employee-related benefits, including approximately $1.0 million of stock-based compensation expense related to the acceleration of restricted stock units.Other Income, NetOther income, net is comprised primarily of interest income on our cash equivalents and investments in marketable securities for the years ended December 31, 2016 and 2015.Income Tax BenefitDuring the fourth quarter of 2016, we recorded income tax benefit of $0.8 million related to the change in the deferred tax liabilities balance due to intangible assets impairment recognized in the same quarter. During the year ended December 31, 2015, no income tax expense (benefit) was recorded due to overall operating loss.We have not generated positive cash flow or net income from operations since our inception and as of December 31, 2017,2020, we had an accumulated deficit of $254.1$502.5 million. As of December 31, 2017,2020, we had $190.5$429.7 million in cash, cash equivalents and short-term investments.investments compared to $166.0 million as of December 31, 2019. We believe that our existing cash and cash equivalents and short-term investments as of December 31, 2017, together with the net proceeds the sales of our common stock pursuant to the 2017 stock offering agreement and from our February 2018 underwritten public offering of our common stock,2020 will be sufficient to fund our operations through the endinto mid-2022.In February 2020, we sold an aggregate of 2019.In August 2017,2020, we sold an aggregate of 16,675,000 shares of our common stock for $203.5 million in net proceeds after deducting underwriting discounts and commissions and offering expenses.80In December 2020, we entered into the 2017 stockan at-the-market offering agreement. Under the termsprogram sales agreement with Cowen and conditions of the 2017 stock offering agreement,Company, LLC, pursuant to which we may offer to sell our common stock for an aggregate offering price of up to $50.0$150.0 million through the sales agent from time to time. In January 2018,As of February 25, 2021, we have sold a totalan aggregate of 1,419,893121,000 shares of our common stock at market prices under the 2017 stock offering agreement and raised totalfor net proceeds of $5.7 million, net of issuance costs. We have sold a total of 6,550,232 million shares of our common stock at market prices pursuant to the 2017 stock offering agreement and raised total net proceeds of approximately $22.5 million, net of issuance costs.In February 2018, we completed an underwritten public offering for the sale of 10,222,235 shares of our common stock and raised total net proceeds of approximately $64.3 million, after discounts and other issuance costs.We expect to incur substantial expenditures in the foreseeable future for the development and potential commercialization of our product candidates and ongoing internal research and development programs.programs, and expenses to build out our new facility. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of such costs.costs for our development, potential commercialization, and internal research and development programs. However, in order to complete our planned preclinical trials and current and future clinical trials, and to complete the process of obtaining regulatory approval for our product candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our product candidates, if approved, we will require substantial additional funding in the future.In order toTo complete development and commercialization of any of our product candidates, we anticipate that we will need to raise substantial additional capital, the requirements of which will depend on many factors, including:Food and Drug Administration (FDA)FDA and other regulatory authorities, including the potential for the FDA and other regulatory authorities to require that we perform more studies than those that we currently expect;arrangements;arrangements, and;developments.•the effects of the COVID-19 pandemic on our business, results of operations, and financial condition.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 other technologies or clinical product candidates or programs that we would prefer to develop and commercialize ourselves.Cash FlowsThe following table sets forth the primary sources and uses of cash for each of the periods presented below:Years ended December 31, 2020 2019 2018 (In thousands) Net cash (used in) provided by: Operating activities $ (79,291) $ (49,170) $ (53,964) Investing activities (280,167) (68,073) 69,444 Financing activities 355,985 28,191 69,949 Net increase (decrease) in cash and cash equivalents and restricted cash Net increase (decrease) in cash and cash equivalents and restricted cash $ (3,473) $ (89,052) $ 85,429 Cash Used in Operating ActivitiesDuring the year ended December 31, 2020, net cash used in operating activities was $79.3 million, primarily as a result of net loss of $117.5 million due to the continued activities developing our product candidates, partially offset by $25.5 million of non-cash charges mainly related to $20.4 million of stock-based compensation expense and $4.2 million of depreciation and81amortization expenses, and $12.7 million of net increase in cash from changes in operating assets and liabilities, which fluctuate due to timing of expenses and payments.Net cash used in operating activities for the year ended December 31, 2017,2019 was $45.4$49.2 million, primarily as a result of the net loss of $56.1$64.5 million mainly driven by our continued research and development activities, partially offset by $10.3 million of non-cash charges mainly related to stock-based compensation expense, and $0.8$5.1 million of net decreasechange in operating assets and liabilities primarily caused by increases in our lease liability of $7.6 million primarily as a result of the receipt of tenant improvement allowance and $1.9 million in accrued expenses and other current liabilities, partially offset by $11.5$6.0 million for non-cash charges.Cash (Used in) Provided by Investing ActivitiesNet cash used in operatinginvesting activities for the year ended December 31, 2016, was $38.42020 consisted of $268.3 million primarily as a result of the net losspurchases of $113.7marketable securities and $11.8 million partially offset by $60.7 million for non-cash charge related to goodwillof purchases of property and IPR&D assets impairment, $11.4 million for non-cash charge related to stock-based compensation expense, $1.6 million for depreciation and amortization expense and $1.6 million for net increase in operating assets and liabilities.Net cash used in operating activities for the year ended December 31, 2015, was $35.3 million,equipment primarily as a result of the net loss of $47.5 million, partially offset by $11.5 million for non-cash charge related to stock-based compensation, a $0.2 million non-cash stock compensation charge related to the issuance of warrant, $0.8 million for depreciation and amortization expense, $0.8 million for amortization of premium on marketable securities and $1.2 million for net decrease in operating assets and liabilities.Cash (Used in) Provided by Investing Activities$122.2$68.1 million for the year ended December 31, 2017,2019, which consisted of the$48.8 million of net purchases of marketable securities of $209.8and $19.2 million andof purchases of property and equipment of $1.0 million, partially offset by $87.6 million maturities of marketable securities and $1.0 million sales of marketable securities.Net cash provided by investing activities was $38.8 million for the year ended December 31, 2016, which consisted of the maturities of marketable securities of $37.7 million and $3.4 million cash acquired through our Annapurna acquisition, partially offset by purchasesequipment. Purchases of property and equipment of $2.4 million.Net cash used in investing activities was $41.6 million for the year ended December 31, 2015, whichprimarily consisted of the purchases of marketable securities of $88.4 million, partially offset by maturities of marketable securities of $49.9 million and purchases of property and equipment of $3.0 million.Cash Provided by Financing ActivitiesNet cash provided by financing activities for year ended December 31, 2020 consisted of $344.3 million of net proceeds from the sale of our common stock, $12.7 million of net proceeds from the exercise of stock options, and $1.1 million in proceeds from employee stock purchase plan, partially offset by $2.0 million in taxes paid relating to net share settlement of restricted stock units and repayment of loans.Net cash provided by financing activities for the year ended December 31, 2017, of $16.7 million, which2019 consisted of $16.5$25.9 million of the net proceeds from the salessale of our common stock, underprimarily through our at-the-market offering program sales agreement with Cowen completed in December 2019, $3.9 million of the 2017 stock offering agreement, net of issuance costs, $0.5 million from proceeds from the exerciseexercises of stock options and purchases of common stock under employee stock purchase plan,purchases, partially offset by $0.3$1.5 million in taxes paid relating to net share settlement of restricted stock units.Net cash provided by financing activitiesunits and $0.1 million repayment of our Banque Publique d’Investissement (“BPI France”) loan.See “Liquidity and Capital Resources” in Part II, Item 7 of our 2019 Annual Report for discussion related to the year ended December 31, 2016, of $0.6 million, which consisted of $0.9 million from proceeds relating to the exercise of options for common shares and employee stock purchase plan purchases and $0.1 million relating to funds received from a financing arrangement, partially offset by $0.5 million in taxes paid relating to net share settlement of restricted stock units.Net cash provided by financing activities for the year ended December 31, 2015, of $138.9 million, which consisted of $130.6 million net proceeds from our follow-on offering in January 2015 and $8.3 million from sale of common shares.Contractual Obligations and CommitmentsWe have lease obligations consisting of an operating lease for our operating facility that expires in 2020. Additionally, we have contractual obligations to vendors.The following table summarizes our contractual obligations as of December 31, 2017:
2020:(1)Costs associated with the termination of the master service agreement with Cornell recorded within accrued expenses and other current liabilities in our consolidated balance sheet as of December 31, 2017 and within general and administrative expenses in our consolidated statement of operations and comprehensive loss for the year ended December 31, 2017.(2)Related to our contract manufacturing withPayment due by period Total Less than 1 year 1–3 years 3–5 years More than 5 years (In thousands) Operating lease obligations $ 43,382 $ 4,683 $ 9,862 $ 10,564 $ 18,273 BPI financing 235 235 — — — Total $ 43,617 $ 4,918 $ 9,862 $ 10,564 $ 18,273 Subsequent to December 31, 2020, we entered into a vendor for materials production for our three programs, ADVM-022, ADVM-043 and ADVM-053.The lease agreement provides for an escalation of rent payments each year and will expire on May 8, 2020. We may extend theto develop a manufacturing facility. For additional information regarding this lease term for upagreement, including our payment obligations, see Note 15 to four years. As of December 31, 2017, we had various open purchase orders with various vendors for our research and development and general and administrative activities.We have received $0.2 million funding from The Alpha-1 Project, Inc. (the “TAP financing”) for a sponsored research agreement entered into in July 2016. The TAP financing was recorded within other non-current liabilities in our balance sheets. We may pay up to 4.5 times of the received amount if and when certain product approval and sales milestones are achieved.We are obligated to make future payments to third parties under in-license agreements, including sublicense fees, royalties and payments that become due and payable on the achievement of certain development and commercialization milestones. As the amount and timing of sublicense fees and the achievement and timing of these milestones are not probable and estimable, such commitments have not been included on our balance sheet or in the contractual obligations tables above.Off Balance Sheet ArrangementsWe do not have any off-balance sheet arrangements as defined in Regulation S-K, Item 303(a)(4)(ii).82Item 7A. Quantitative and Qualitative Disclosures about Market RiskForeign Currency Exchange RiskA portion of our operating expenses are incurred outside the U.S. and are denominated in foreign currencies and are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro and Australian dollar. Additionally, fluctuations in foreign currency exchange rates may cause us to recognize transaction gains and losses in our statement of operations. To date, foreign currency transaction gains and losses have not been material to our consolidated financial statements, and we have not engaged in any foreign currency hedging transactions. As our international operations grow, we will continue to reassess our approach to managing the risks relating to fluctuations in currency rates.Interest Rate RiskWe had cash and cash equivalents and short-term investments of $190.5$429.7 million as of December 31, 2017,2020, consisting of cash, money market funds, government securities, commercial paper, certificates of deposit and corporate bond, and cash and cash equivalents of $222.2$166.0 million as of December 31, 2016,2019, consisting of cash and money market funds. To date, fluctuations in interest income have not been significant.We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates. A hypothetical 10% change in interest rates during any of the periods presented would not have had a material impact on our consolidated financial statements. We have not been exposed to, nor do we anticipate being exposed to, material risks due to changes in interest rates.83Item 8. Financial Statements and Supplementary Data.ADVERUM BIOTECHNOLOGIES, INC.CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2017AND 20162017, 20162020, 2019 AND 2015IndexPagesPAGES 80818283848584REPORT OF INDEPENDENT REGISTEREDREGISTERED PUBLIC ACCOUNTING FIRMTo theThe Board of Directors and Stockholders of Adverum Biotechnologies, Inc.Menlo Park, CaliforniaOpinion on the Financial StatementsWe have audited the accompanying consolidated balance sheets of Adverum Biotechnologies, Inc. and its subsidiaries (the "Company"“Company”) as of December 31, 20172020 and 2016,2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2017,2020, and the related notes (collectively referred to as the "financial statements"“consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172020 and 2016,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2020, in conformity with accounting principlesU.S. generally accepted accounting principles.We also have audited, in accordance with the United Statesstandards of America (GAAP).Adoption of ASU No. 2016-02As discussed in Note 2 to the consolidated financial statements, the Company changed its method for accounting for leases in 2019 due to the adoption of Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842), and the related amendments.Basis for OpinionThese financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)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 auditaudits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.Critical Audit MattersThe critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters 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 matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.Accrued research and development expenses – clinical and manufacturing costs Description of the Matter The Company recorded research and development expenses of $73.3 million for the year ended December 31, 2020. As described in Note 2, research and development costs are expensed as incurred. Research and development costs include fees paid to contract research organizations that conduct certain research and development activities on the Company’s behalf and contract manufacturing organizations in connection with the production of materials for clinical trials. Auditing the Company’s research and development expenses for contract research organizations and contract manufacturing organizations and related accruals was challenging due to the complex nature of evaluating the completeness and accuracy of the expenses and accruals. Research and development expenses are recognized as the services are being performed by the vendors, which requires management to accurately monitor the activity at the vendors to determine the extent of unbilled services performed during the reporting period 85How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company's process used to determine the completeness and accuracy of the research and development expenses and related accruals for contract research organizations and contract manufacturing organizations, including management’s controls to accurately monitor the activity at the vendors.To test the completeness and accuracy of the contract research organization and contract manufacturing organization expenses and related accruals, our audit procedures included, among others, testing a sample of research and development expenses recorded during the period and evaluating the timing, amount and project coding of the expense recognition, testing a sample of cash disbursements after period end to assess the completeness of the expense recognition, and confirming with a sample of vendors the progress of activities under research and development contracts at period end.Uncertain tax positions Description of the Matter The Company is subject to income taxes in the U.S. and certain foreign jurisdictions and, as discussed in Note 12 of the consolidated financial statements, during the ordinary course of business, there are tax positions for which the ultimate tax determination is uncertain. As a result, significant judgment is required in evaluating the Company’s tax positions and determining its provision for income taxes. The Company uses significant judgment in (1) determining whether a tax position’s technical merits are more likely than not to be sustained and (2) measuring the amount of tax benefit that qualifies for recognition. As of December 31, 2020, the Company accrued liabilities of $1.1 million for uncertain tax positions.Auditing the measurement of the Company’s tax contingencies was challenging because the evaluation of whether a tax position is more likely than not to be sustained and the measurement of the benefit of various tax positions can be complex, involves significant judgment, and is based on interpretations of tax laws.How We Addressed the Matter in Our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s process to assess the technical merits of its tax contingencies, including controls over the assessment as to whether a tax position is more likely than not to be sustained, management’s process to measure the benefit of its tax positions, and the development of the related disclosures.We involved our international tax and transfer pricing professionals in assessing the technical merits of certain of the Company’s tax positions. Our procedures included obtaining and examining the Company’s analysis and evaluating the underlying facts upon which the tax positions are based. We used our knowledge of, and experience with, international, transfer pricing, and other income tax laws by the relevant income tax authorities to evaluate the Company’s accounting for its tax contingencies. We evaluated developments in the applicable jurisdictions to assess potential effects on the Company’s positions. We analyzed the Company’s assumptions and data used to determine the amount of tax benefits to recognize and tested the accuracy of the Company’s calculations. We have also evaluated the Company’s income tax disclosures included in Note 12 in relation to these matters./s/ DeloitteErnst & ToucheYoung LLPSan Jose, CaliforniaMarch 6, 2018We have served as the Company's auditor since 2013.2018.
San Jose, CaliforniaMarch 1, 202186CONSOLIDATED BALANCE SHEETS(In thousands, except share and per share data)As of December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 62,424 $ 65,897 Short-term investments 367,305 100,138 Prepaid expenses and other current assets 4,709 9,835 Total current assets 434,438 175,870 Operating lease right-of-use assets Operating lease right-of-use assets 19,376 20,963 Property and equipment, net 27,725 24,884 Restricted cash Restricted cash 999 999 Deposit and other non-current assets 29 11 Total assets $ 482,567 $ 222,727 Liabilities and stockholders’ equity Current liabilities: Accounts payable $ 2,810 $ 4,103 Accrued expenses and other current liabilities 13,588 11,271 Lease liability, current portion Lease liability, current portion 4,473 4,034 Total current liabilities 20,871 19,408 Long-term liabilities: Lease liability, net of current portion Lease liability, net of current portion 26,235 28,214 Other non-current liabilities 1,114 148 Total liabilities 48,220 47,770 Commitments and contingencies (Note 8) Commitments and contingencies (Note 8) 0 0 Stockholders’ equity: Preferred stock, $0.0001 par value, 5,000 shares authorized; 0 shares issued and outstanding Preferred stock, $0.0001 par value, 5,000 shares authorized; 0 shares issued and outstanding 0 0 Common stock, $0.0001 par value, 300,000 shares authorized at December 31, 2020: 97,549 and 67,329 shares issued and outstanding at December 31, 2020 and 2019, respectively Common stock, $0.0001 par value, 300,000 shares authorized at December 31, 2020: 97,549 and 67,329 shares issued and outstanding at December 31, 2020 and 2019, respectively 10 7 Additional paid-in capital 937,134 560,704 Accumulated other comprehensive loss (261) (725) Accumulated deficit (502,536) (385,029) Total stockholders’ equity 434,347 174,957 Total liabilities and stockholders’ equity $ 482,567 $ 222,727 See accompanying notes to consolidated financial statements.87CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS(In thousands, except per share data)Years ended December 31, 2020 2019 2018 Collaboration and license revenue $ 0 $ 250 $ 1,612 Operating expenses: Research and development 73,309 40,419 50,133 General and administrative 44,641 28,376 24,560 Impairment of goodwill and intangible assets 0 0 5,000 Total operating expenses 117,950 68,795 79,693 Operating loss (117,950) (68,545) (78,081) Other income, net 1,557 4,059 4,204 Net loss before income taxes (116,393) (64,486) (73,877) Income tax benefit (provision) Income tax benefit (provision) (1,114) 0 1,250 Net loss Net loss $ (117,507) $ (64,486) $ (72,627) Other comprehensive income: Other comprehensive income: Net unrealized gain on marketable securities Net unrealized gain on marketable securities 93 33 168 Transfer of currency translation adjustments balance to other income related to the liquidation of foreign subsidiaries Transfer of currency translation adjustments balance to other income related to the liquidation of foreign subsidiaries 342 0 0 Foreign currency translation adjustment 29 41 (4) Comprehensive loss $ (117,043) $ (64,412) $ (72,463) Net loss per share - basic and diluted Net loss per share - basic and diluted $ (1.38) $ (1.01) $ (1.18) Weighted-average common shares outstanding-basic and diluted 85,146 64,102 61,375 See accompanying notes to consolidated financial statements.88CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY(In thousands except share and per share data)thousands)COMMON STOCK ADDITIONAL
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EQUITYBalance at December 31, 2017 Balance at December 31, 2017 49,015 $ 5 Issuance of common stock, net of issuance costs of $4,140 Issuance of common stock, net of issuance costs of $4,140 11,642 1 70,186 — — 70,187 Adoption of Topic 606 Adoption of Topic 606 — — — — 6,146 6,146 Stock-based compensation expense — — 13,432 — — 13,432 Common stock issued upon exercise of stock options 1,606 — 688 — — 688 Common stock issued under employee stock purchase plan 120 — 340 — — 340 Common stock issued upon release of restricted stock units 774 — — — — — Restricted stock surrendered for taxes (192) — (1,191) — — (1,191) Net unrealized gain on marketable securities — — — 168 — 168 Foreign currency translation adjustments — — — (4) — (4) Net loss — — — — (72,627) (72,627) Balance at December 31, 2018 Balance at December 31, 2018 62,965 6 522,503 (799) (320,543) 201,167 Issuance of common stock, net of issuance costs of $1,065 Issuance of common stock, net of issuance costs of $1,065 2,436 1 25,754 — — 25,755 Issuance of common stock, private placement Issuance of common stock, private placement 20 — 134 — — 134 Stock-based compensation expense — — 9,899 — — 9,899 Common stock issued upon exercise of stock options 1,397 — 3,442 — — 3,442 Common stock issued under employee stock purchase plan 86 — 442 — — 442 Common stock issued upon release of restricted stock units 663 — — — — — Restricted stock surrendered for taxes (238) — (1,470) — — (1,470) Net unrealized gain on marketable securities Net unrealized gain on marketable securities — — — 33 — 33 Foreign currency translation adjustments — — — 41 — 41 Net loss — — — — (64,486) (64,486) Balance at December 31, 2019 Balance at December 31, 2019 67,329 7 560,704 (725) (385,029) 174,957 Issuance of common stock, net of issuance costs of $676 Issuance of common stock, net of issuance costs of $676 27,600 3 344,295 — — 344,298 Stock-based compensation expense Stock-based compensation expense — — 20,391 — — 20,391 Common stock issued upon exercise of stock options Common stock issued upon exercise of stock options 2,043 — 12,687 — — 12,687 Common stock issued upon net exercise of warrants Common stock issued upon net exercise of warrants 36 — — — — — Common stock issued under employee stock purchase plan Common stock issued under employee stock purchase plan 114 — 1,100 — — 1,100 Common stock issued upon release of restricted stock units Common stock issued upon release of restricted stock units 591 — — — — — Restricted stock surrendered for taxes Restricted stock surrendered for taxes (164) — (2,043) — — (2,043) Net unrealized gain on marketable securities Net unrealized gain on marketable securities — — — 93 — 93 Transfer of currency translation adjustments balance to other income related to the liquidation of foreign subsidiaries Transfer of currency translation adjustments balance to other income related to the liquidation of foreign subsidiaries — — — 342 — 342 Foreign currency translation adjustments Foreign currency translation adjustments — — — 29 — 29 Net loss Net loss — — — — (117,507) (117,507) Balance at December 31, 2020 Balance at December 31, 2020 97,549 $ 10 $ 937,134 $ (261) $ (502,536) $ 434,347
See accompanying notes to consolidated financial statements.89CONSOLIDATED STATEMENTS OF CASH FLOWS(In thousands)Years ended December 31, 2020 2019 2018 Cash flows from operating activities: Net loss $ (117,507) $ (64,486) $ (72,627) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 4,158 1,573 1,750 Stock-based compensation expense 20,391 9,899 13,432 Amortization of premium and discounts on marketable securities, net Amortization of premium and discounts on marketable securities, net 521 (1,273) 24 Accreted interest on BPI Accreted interest on BPI 17 22 95 Impairment of goodwill and intangible assets 0 0 5,000 Foreign currency remeasurement loss Foreign currency remeasurement loss 342 0 0 Other 58 36 (17) Changes in operating assets and liabilities: Prepaid expenses and other current assets 5,854 (5,954) (793) Deposit and other long-term assets (18) 0 (16) Operating lease right-of-use assets Operating lease right-of-use assets 1,587 2,168 0 Accounts payable 1,585 (650) (67) Accrued expenses, other current and non-current liabilities Accrued expenses, other current and non-current liabilities 4,147 1,909 215 Deferred revenue 0 0 (953) Deferred rent 0 0 1,243 Other non-current liabilities Other non-current liabilities 1,114 0 0 Lease liability Lease liability (1,540) 7,586 0 Deferred tax liability Deferred tax liability 0 0 (1,250) Net cash used in operating activities (79,291) (49,170) (53,964) Cash flows from investing activities: Purchases of marketable securities (570,386) (197,343) (78,726) Maturities of marketable securities Maturities of marketable securities 295,315 148,517 148,979 Sales of marketable securities 6,748 0 0 Purchases of property and equipment (11,844) (19,247) (809) Net cash (used in) provided by provided by investing activities Net cash (used in) provided by provided by investing activities (280,167) (68,073) 69,444 Cash flows from financing activities: Proceeds from offering of common stock, net of issuance costs 344,302 25,755 70,187 Proceeds from issuance of common stock through private placement Proceeds from issuance of common stock through private placement 0 134 0 Proceeds from issuance of common stock pursuant to option exercises 12,687 3,442 688 Taxes paid related to net share settlement of restricted stock units (2,043) (1,470) (1,191) Proceeds from employee stock purchase plan 1,100 442 340 Repayment of BPI loan Repayment of BPI loan (61) (112) (175) Proceeds from a financing arrangement 0 0 100 Net cash provided by financing activities 355,985 28,191 69,949 Net increase (decrease) in cash and cash equivalents and restricted cash Net increase (decrease) in cash and cash equivalents and restricted cash (3,473) (89,052) 85,429 Cash and cash equivalents and restricted cash at beginning of period Cash and cash equivalents and restricted cash at beginning of period 66,896 155,948 70,519 Cash and cash equivalents and restricted cash at end of period Cash and cash equivalents and restricted cash at end of period $ 63,423 $ 66,896 $ 155,948 Supplemental schedule of noncash investing information Supplemental schedule of noncash investing information Fixed assets in accounts payable and current liabilities $ 403 $ 5,242 $ 1,616
See accompanying notes to consolidated financial statements.90Notes to Consolidated Financial Statements1. Description of the businessNature of Business—Adverum Biotechnologies, Inc. (the “Company” or “Adverum”) was incorporated in Delaware on July 17, 2006 as Avalanche Biotechnologies, Inc. and changed its name to Adverum Biotechnologies, Inc. on May 11, 2016. The Company is headquartered in Menlo Park,Redwood City, California. The Company is a clinical-stage gene therapy company targeting unmet medical needs in seriousocular and rare and ocular diseases. Leveraging a next-generation adeno-associated virus (“AAV”)-based directed evolution platform, theThe Company generatesdevelops gene therapy product candidates designedintended to provide durable efficacy by inducing sustained expression of a therapeutic protein. The Company’s core capabilities include novel vector discovery, preclinical and clinical development, and pre-commercial planning. In addition, the Company has in-house manufacturing expertise, specifically in scalable process development, assay development, and current Good Manufacturing Practices (“cGMP”GMP”) quality control. Adverum is advancingcontrol, and has leased a robust pipeline ofGMP commercial manufacturing facility to support its commercial plans for the Company’s lead product candidate, ADVM-022. The Company believes ADVM-022 has the potential to be the first mass-marketed gene therapy product candidates designed to treat rare diseases alpha-1 antitrypsin (“A1AT”) deficiency and hereditary angioedema (“HAE”), as well asfor wet age-related macular degeneration (“wAMD”wet AMD”) and diabetic macular edema (“DME”). Since the Company’s inception, it has devoted its efforts principally to performing research and development activities, including conducting preclinical studies, early clinical trials, filing patent applications, obtaining regulatory agreements, hiring personnel, and raising capital to support these activities.The Company has not generated any revenue from the sale of products since its inception. The Company has experienced net losses since its inception and had an accumulated deficit of $254.1$502.5 million as of December 31, 2017.2020. The Company expects to incur losses and have negative net cash flows from operating activities as it engages in further research and development activities. The Company believes that it has sufficient funds to continue operations through the end of 2019.In May 2016, the Company completed the acquisition of all the outstanding shares of Annapurna Therapeutics SAS (“Annapurna”), a privately-held French gene therapy company, in accordance with the terms of the acquisition agreement (the “Annapurna acquisition”) dated as of January 29, 2016, as amended on April 6, 2016. As a result, Annapurna is now a wholly owned subsidiary of the Company. Refer to Note 3 for more details.Upon completion of the Annapurna acquisition, the Company changed its name to “Adverum Biotechnologies, Inc.” The Company’s shares of common stock listed on The Nasdaq Global Market, previously trading through the close of business on Wednesday, May 11, 2016 under the ticker symbol “AAVL,” commenced trading on The Nasdaq Global Market under the ticker symbol “ADVM” on Thursday, May 12, 2016.Initial Public and Follow-on Offerings—In August 2014 and January 2015, the Company completed its initial public offering (IPO) and concurrent private placement and a follow-on offering and raised a total of net proceeds of $237.1 million. In March 2015, (i) the Company received net proceeds of approximately $8.3 million, after discounts and other issuance costs, which resulted from the sale of 230,000 shares of its common stock, and (ii) the Company issued 230,000 shares of its common stock to a stockholder that exercised warrants prior to the IPO.In August 2017, the Company entered into an at-the-market sales agreement with an agent for the sales of its common stock at market price (the “2017 stock offering agreement”). Under the terms and conditions of the 2017 stock offering agreement, the Company may offer to sell its common stock for an aggregate offering price of up to $50.0 million through the agent from time to time. During the year ended December 31, 2017, the Company issued and sold a total of 5,130,339 shares of its common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of $16.5 million, net of issuance costs. In January 2018, the Company issued and sold a total of 1,419,893 shares of its common stock at market prices under the 2017 stock offering agreement and raised total net proceeds of approximately $5.7 million, net of issuance costs (see Note 17).In February 2018, the Company completed an underwritten public offering for the sale of 10,222,235 shares of its common stock and raised total net proceeds of approximately $64.3 million, after discounts and other issuance costs (see Note 17). 2. Summary of significant accounting policiesBasis of Presentation and Principles of Consolidation— The Company’s consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company transactions and balances have been eliminated in consolidation.On an ongoing basis, theThe Company evaluates its estimates and assumptions, including those related to research and development expense accruals, stock-based compensation expense, income taxes, intangible asset, fair values of financial instruments, and fair value of common stock warrants.incremental borrowing rate. The Company’s actual results may differ from these estimates under different assumptions or conditions. There have been no significant changes from the Company’s original estimates in any periods presented.Foreign Currency Translation—The Company’s consolidated financial statements are prepared in U.S. dollars. The Company’s foreign subsidiaries use the Euro and Australian dollar as their functional currencies and maintain their records in their local currencies, except its Ireland subsidiary that uses the U.S. dollar as its functional currency. Assets and liabilities of non-U.S. subsidiaries that operate in a local currency environment, where the local currency is the functional currency, are re-measuredtranslated to U.S. dollars at exchange rates in effect at the endbalance sheet date, with the resulting translation adjustments directly recorded to a separate component of accumulated other comprehensive loss. Upon sale or upon complete or substantially complete liquidation of an investment in a foreign entity, the amount attributable to that entity and accumulated in the translation adjustment component of equity is removed from the separate component of equity and reported as part of the reporting periodgain or loss on sale or liquidation of the investment for the Company’s Frenchperiod during which the sale or liquidation occurs. Income and Australian subsidiaries, and at historical exchange rates for its Irish subsidiary. Equity is measured at historical rates and income and expensesexpense accounts are re-measuredtranslated at average exchange rates for the reporting period. The resulting foreign currency translation adjustment is recorded in accumulated other comprehensive lossTransactions which are not in the consolidated balance sheet. Transactions denominated in foreignfunctional currency of the entity are translated at exchange rates atremeasured into the date of transaction with foreignfunctional currency and gains (losses)or losses resulting from the remeasurement recorded in other income (expense), net in the consolidated statements of operations and comprehensive loss.Cash and Cash Equivalents—The Company considers all highly liquid investments purchased with original maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents include cash held in banks, money market accounts and highly liquid debt securities. Cash equivalents are stated at fair value.Restricted Cash—Restricted cash primarily consists of cash collateral to letter of credit provided to the landlord in relation to a lease agreement (see Note 5).91Short-Term Investments—All short-term investments which consist ofin debt securities and certificates of deposit, have been classified as “available for sale” and are carried at fair value. Unrealized gains and losses, net of any related tax effects, are excluded from earnings and are included in other comprehensive loss and reported as a separate component of stockholders’ equity until realized. Realized gains and losses and declines in value judged to be other than temporary, if any, on available-for-sale securities are included in other income (expense), net in the Company’s consolidated statements of operations and comprehensive loss. The cost of securities sold is based on the specific-identification method. The amortized cost of securities is adjusted for amortization of premiums and accretion of discounts to maturity. Interest on short-term investments is included in other income, net in the Company’s consolidated statements of operations and comprehensive loss. In accordance with the Company’s investment policy, management invests to diversify credit risk and only invests in securities with high credit quality, including U.S. government securities.The Company periodically evaluates whether declines in the fair value of its investments below their cost are other than temporary. The evaluation includes consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities, and whether it is more likely than not that the Company will be required to sell the securities before the recovery of their amortized cost basis. If the Company determines that the decline in fair value of an investment is below its accounting basis and this decline is other than temporary, the Company would reduce the carrying value of the security it holds and records a loss for the amount of such decline. The Company has not recorded any realized losses or declines in value judged to be other than temporary on its investments.Segment Reporting—The Company operates and manages its business as one1 reporting and operating segment, which is the business of developing and commercializing gene therapeutics. The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of allocating resources and evaluating financial performance.Concentrations of Credit Risk and Other Uncertainties—Financial instruments that potentially subject the Company to significant concentrations of credit risk consists primarily of cash, cash equivalents and short-term investments. Risks associated with cash, cash equivalents, short-term investments are mitigated by the Company’s investment policy, which limits the Company’s investing to only those marketable securities rated at least A-1/P-1 Short Term Rating and A/A2 Long Term Rating, as determined by independent credit rating agencies. Management believes that the Company is not exposed to significant credit risk.The Company is subject to certain risks and uncertainties, including, but not limited to changes in any of the following areas that the Company believes could have a material adverse effect on future financial position or results of operations: ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, the Company’s product candidates; performance of third-party clinical research organizations and manufacturers; development of sales channels; protection of the intellectual property; litigation or claims against the Company based on intellectual property, patent, product, regulatory or other factors; and the Company’s ability to attract and retain employees necessary to support the growth.Valuation of Long-Lived Assets and Purchased Intangible Assets—The Company evaluates the carrying value of amortizable long‑lived assets, whenever events, or changes in business circumstances or the planned use of long‑lived assets indicate that their carrying amounts may not be fully recoverable or that their useful lives are no longer appropriate. If these facts and circumstances exist, the Company assesses for recovery by comparing the carrying values of long‑lived assets with their future undiscounted net cash flows. If the comparison indicates that impairment exists, long‑lived assets are written down to their respective fair values based on discounted cash flows. Significant management judgment is required in the forecasting of future operating results that is used in the preparation of expected undiscounted cash flows. If management’s assumptions about future operating results were to change as a result of events or circumstances, the Company may be required to record an impairment loss on these assets. NoThere were 0 impairment indicators were noted for the Company’s amortizable long-lived assets, fixed assets, in the periods presented.92The Company also evaluates the carrying value of intangible asset (not subject to amortization) related to in‑process research and development (“IPR&D”) asset, which is considered to be indefinite‑lived until the completion or abandonment of the associated research and development efforts. Accordingly, amortization of the IPR&D assets will not occur until the product reaches commercialization. During the period the intangible asset is considered indefinite‑lived, it will be tested for impairment on an annual basis, as well as between annual tests if the Company becomes aware of any events occurring or changes in circumstances that would indicate that the fair value of the IPR&D asset is less than its carrying amount. If and when development is complete, which generally occurs when regulatory approval to market the product is obtained, the associated IPR&D asset would be deemed definite‑lived and would then be amortized based on its estimated useful life at that point in time based on respective patent term. If a potential impairment exists, an impairment loss is measured as the excess of the asset’s carrying value over its fair value. During the year ended December 31, 2016,2018, the Company recorded an impairment charge of $11.2$5.0 million related to its intangible assets (see Note 3).Financial Liabilitiesassets.Leases — During the year ended December 31, 2016,The Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“Topic 842”) on January 1, 2019. For its long-term operating leases, the Company entered intorecognizes a sponsored research agreement withright-of-use asset and a lease liability on its consolidated balance sheets. The Alpha-1 Project, Inc. (the “TAP”) withlease liability is determined as the present value of future lease payments using an embedded derivative,estimated rate of interest that the Company determinedwould pay to accountborrow equivalent funds on a collateralized basis at the lease commencement date. In order to determine the incremental borrowing rate, management estimates its credit rating, adjusts the credit rating for this financialthe nature of the collateral, and benchmarks the borrowing rate against observable yields on comparable securities with a similar term. The Company bases the right-of-use asset on the liability adjusted for any prepaid or deferred rent. The Company determines the lease term at fair valuethe commencement date by considering whether renewal options and recordedtermination options are reasonably assured of exercise.Rent expense for the operating lease is recognized on a straight-line basis over the lease term and is included in operating expenses on the statements of operations and comprehensive loss. Variable lease payments include lease operating expenses.Upon adoption of the lease standard on January 1, 2019, the Company elected the practical expedients permitted under Topic 842, which among other things, allowed the Company to carry forward the historical lease classification of those leases in place as other non-current liabilities inof January 1, 2019. The Company elected to exclude from its consolidated balance sheets (see Note 6). Change in fair value is recorded within other income, net in the Company’s consolidated statementrecognition of operationsleases having a term of 12 months or less (short-term leases) and comprehensive loss.Revenue Recognition—The Company has primarily generated revenue through license, research and collaboration arrangements with its strategic partners.The terms of these types of agreements may include (i) licenses to Adverum technology, (ii) research and development services, and (iii) services or obligations in connection with participation in research or steering committees. Payments to the Company under these arrangements typically include one or more of the following: nonrefundable upfront and license fees, research funding, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, and regulatory events, as well as royalties on sales of any commercialized products.In arrangements involving the delivery of more than one element, each required deliverable is evaluated to determine whether it qualifies as a separate unit of accounting. The determination is based on whether the deliverable has “standalone value” to the customer. If a deliverable does not qualify as a separate unit of accounting, it is combined with the other applicable undelivered item(s) within the arrangement and these combined deliverables are treated as a single unit of accounting.The arrangement’s consideration that is fixed or determinable is allocated to each separate unit of accounting based on the relative selling price methodology in accordance with the selling price hierarchy, which includes vendor-specific objective evidence (“VSOE”) of selling price, if available, or third-party evidence of selling price if VSOE is not available, or the best estimate of selling price, if neither VSOE nor third-party evidence is available.Payments or reimbursements for the Company’s research and development efforts for the arrangements where such efforts are considered as deliverables are recognized as the services are performed and are presented on a gross basis. When upfront payments are received and if there is no discernible pattern of performance and/or objectively measurable performance measures do not exist,Under Topic 606, the Company recognizes revenue ratably overwhen its customer obtains control of promised goods or services, in an amount that reflects the associated period of performance.The Company’s collaboration and license agreements may include contingent payments related to specified research, development and regulatory milestones. Such payments are typically payable under the collaborations when the collaboration partner claims or selects a target, or initiates or advances a covered product candidate in preclinical or clinical development, upon submission formarketing approval ofa covered product with regulatory authorities, upon receipt of actual marketing approvals of a covered productor for additional indications, or upon the first commercial sale of a covered product. Each contingent andmilestone payment is evaluated to determine whether it is substantive and at risk to both parties. The Company recognizes anypayment that is contingent upon the achievement of a substantive milestone entirely in the period inconsideration which the milestoneis achieved. Any payments that are contingent upon achievement of a non-substantive milestone are recognizedas revenue prospectively, when such payments become due and collectible, over the remainingexpected performance period under the arrangement, which is generally the remaining period over which the researchand development services are expected to beprovided.Collaboration and License RevenueEditas Agreement—In August 2016, the Company entered into a collaboration, option and license agreement with Editas Medicine, Inc. (“Editas”) (see Note 7). Under the terms of the agreement, the Company received initial payments of $1.0 million that included $0.5 million for research services during the year ended December 31, 2016. As the agreement provides for multiple deliverables, the Company accounts for this agreement as a multiple elements revenue arrangement. At the inception of the agreement, identified deliverables include research services, manufacturing of viral vectors for research, participation in joint research committee and exclusivity during the option period. These deliverables did not appear to have a standalone value and were combined into one unit of accounting. Options for each indication to license the Company’s AAV vector are considered substantive options and do not include significant incremental discounts. Therefore, they are not considered as deliverables under the agreement. In January 2018, the Company and Editas extended the research collaboration, option and license agreement (see Note 7). In consideration for extending the agreement, Editas made a one-time payment, non-refundable cash payment of $0.5 million to the Company in February 2018.The Company allocated the $1.0 million received to a single unit of accounting identified in the arrangement. The Company expects to recognize $1.0 million ratably over the associated period of performance, which is the maximum research period of three years. As there is no discernible pattern of performance and/receive in exchange for those goods or objectively measurable performance measures do not exist,services. To determine revenue recognition for arrangements that the Company recognizes revenue on a straight-line basis. Duringdetermines are within the years ended December 31, 2017 and 2016,scope of ASC 606, the Company recognized $0.3 millionperforms 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 $0.1 million, respectively, as collaboration and license(v) recognize revenue related to Editas agreement.Regeneron Agreement—In May 2014,when (or as) the Company entered intosatisfies a research collaborationperformance obligation. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and license agreement with Regeneron Pharmaceuticals, Inc. (“Regeneron”) to discover, develop and commercialize novel gene therapy products fordetermines those that are performance obligations. The Company then recognizes as revenue the treatment of ophthalmologic diseases (see Note 7). Under the termsamount of the agreement, during the year ended December 31, 2014, the Company received initial upfront non-refundable cash payments of $8.0 milliontransaction price that included payment for research license fees, prepaid collaboration research costs and the time-limited right of first negotiation for license to develop and commercialize AVA-101. As the agreement provides for multiple deliverables, the Company accounts for this agreement as a multiple elements revenue arrangement. If deliverables did not appear to have a standalone value, they were combined with other deliverables into a unit of accounting with a standalone value. The Company allocated the $8.0 million to the relative fair value of the two units of accounting identified in the arrangement. The Company recognizes $6.5 millionis allocated to the first unit of accounting forrespective performance obligation when (or as) the research licenses and related research and development services ratably over the associated period of performance whichobligation is the maximum research period of eight years. As there was no discernible pattern of performance and/or objectively measurable performance measures did not exist for the first unit of accounting, the Company recognizes revenue on a straight-line basis over the eight years performance period. The remaining $1.5 million allocated to the second unit of accounting for the time-limited right of first negotiation for license to develop and commercialize AVA-101 was deferred. On November 2, 2015, Regeneron notified the Company that it did not exercise this right of first negotiation and the Company recognized the entire $1.5 million as revenue during the year ended December 31, 2015.As original research budget was fully used in the fourth quarter of 2015, the Company and Regeneron will agree on the reimbursement of additional research expenses annually. The Company invoices for services performed quarterly. These additional research fees are added to the research licenses and related research and development services unit of accounting, recorded as deferred revenue and recognized to revenue over the remaining research term. During the years ended December 31, 2017, 2016 and 2015, the Company recognized $1.5 million, $1.4 million and $0.8 million, respectively, related to the research licenses and research and development services unit of accounting in the Regeneron agreement.Research and Development Expenses—Research and development expenses are charged to expense as incurred. Research and development expenses includeprimarily personnel-related costs, stock-based compensation expense, laboratory supplies, consulting costs, external contract research and development expenses, including expenses incurred under agreements with CROs, the cost of acquiring, developing and manufacturing clinical studytrial materials, and overhead expenses, such as rent, equipment depreciation, insurance and utilities.Advance payments for goods or services for future research and development activities are deferred and expensed as the goods are delivered or the related services are performed.preclinical studiesresearch 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 the Company’s behalf. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each period. These estimates are based on communications with the third-party service providers and the Company’s estimates of accrued expenses and on information available at each balance sheet date. 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. There have been no significant changes from the Company’s original estimates in any of the periods presented.The Company received tax credits from the Australian and French governments in connection with certain research costs incurred in conducting research by the Company’s Australian and French subsidiaries. These refunds do not depend on the taxable income or tax position93Fair Value Measurements—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The carrying amounts of the Company’s financial instruments, including cash equivalents, prepaid and other current assets, accounts payable, accrued expenses and other current liabilities approximate their fair values due to their short-term maturities. Refer to Note 63 for the methodologies and assumptions used in valuing financial instruments.Stock-BasedStock-based Compensation Expense—Stock-based compensation expense related to stock awards to employees is measured at fair value of the award on the date of the grant.The Company estimates the grant-date fair value, and the resulting stock-based compensation expense, using the Black-Scholes valuation model for stock options and using intrinsic value, which is the closing price of its common stock on the date of the grant, for the restricted stock units (“RSUs”).The fair value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. As of January 1, 2017, the Company adopted Accounting Standard Update (“ASU”) No. 2016-09 and elected to account for forfeitures as they occur using a modified retrospective transition method, which requires the Company to record cumulative-effect adjustment to accumulated deficit. The Company determined that the impact of this adoption was immaterial and no adjustments were recorded in its consolidated financial statements. Prior to the adoption of ASU No. 2016-09, stock-based compensation expense recognized for the portion of the award that is expected to vest was reduced by an estimated forfeiture rate.The Black-Scholes valuation model requires the use of following assumptions:Expected Term—The expected term assumption represents the period that the Company’s stock-based awards are expected to be outstanding and is determined using the simplified method.Expected Volatility—Expected volatility for the year ended December 31, 2020 is based on the Company’s historical stock price volatility. The expected volatility for the year ended December 31, 2019 and 2018 is estimated using a weighing of comparable public companies’ volatility of a peer group of comparable publicly traded life sciences and biotechnology companies withproduct candidates in similar stages of clinical development,weighted with the historical volatility based on thetrading history for similar terms.Expected Dividend—The Black-Scholes valuation model calls for a single expected dividend yield as an input. The Company has never paid dividends and has no plans to pay dividends.Risk-Free Interest Rate—The risk-free interest rate is based on the U.S. Treasury zero-coupon issues in effect at the time of grant for periods corresponding with the expected term of option.Stock-based compensation expense related to awards granted to non-employees is recognized based on the then-current fair value at each measurement date over the associated service period of the award, which is generally the vesting term, using the accelerated attribution method. The fair value of non-employee stock options is estimated using the Black-Scholes valuation model with assumptions generally consistent with those used for employee stock options, with the exception of the expected term, which is the remaining contractual life at each measurement date. Refer to Note 13 for more information on assumptions used in estimating stock-based compensation expense.Income Taxes—The Company accounts for income taxes using the asset and liability method. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. 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 reverse.20172020 and 2016,2019, the Company has recorded a full valuation allowance on its deferred tax assets.Tax benefits related to uncertain tax positions are recognized when it is more likely than not that a tax position will be sustained during an audit.upon examination. Interest and penalties related to unrecognized tax benefitsliabilities are included within the provision for income tax.Comprehensive Loss—Comprehensive loss is comprised ofcomprises net loss and other comprehensive income (loss).income. Other comprehensive income (loss) consists of foreign currency translation adjustments related to translation of the financial statements of the Company’s Australia and France subsidiaries and unrealized gain (loss) on marketable securities. The Company did not have reclassifications from other comprehensive income (loss) to the income (loss) during the years ended December 31, 2017, 2016 and 2015. Basic and Diluted Net Loss Per Share—Basic net loss per share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share is computed by giving effect to all potential dilutive common stock equivalents outstanding for the period using the treasury stock method. Outstanding stock options, RSUs, ESPPrestricted stock units (“RSUs”), employee stock purchase plan (“ESPP”) and warrants are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.94Recent Accounting Standard UpdatePronouncements Not Yet Effective— AdoptedIn May 2014,June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (2016-13, Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments (“Topic 606), which supersedes326”) and also issued subsequent amendments to the revenue recognition requirements in ASC 605, Revenue Recognition. Thisinitial guidance: ASU 2018-19, ASU 2019-04, ASU 2019-05, and ASU 2019-11. The standard requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The measurement of expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts that affect collectability. Topic 326 also eliminates the principleconcept of “other-than-temporary” impairment when evaluating available-for-sale debt securities and instead focuses on determining whether any impairment is a result of a credit loss or other factors. An entity will recognize an allowance for credit losses on available-for-sale debt securities rather than other-than-temporary impairment that revenue is recognized to depictreduces the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is required to be adopted, using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures. In July 2015, the FASB voted to approve a one-year deferralcost basis of the investment. Topic 326 will become effective date tofor the Company beginning after December 15, 2017 for interim and annual reporting periods beginning after that date and permitted early adoption of the standard, but not before the original effective date of December 15, 2016. The FASB issued supplemental adoption guidance and clarification to ASU 2014-09 in March 2016, April 2016, May 2016, December 2016 and November 2017 within ASU 2016-08 Revenue From Contracts With Customers: Principal vs. Agent Considerations, ASU 2016-10 Revenue From Contracts with Customers: Identifying Performance Obligations and Licensing, ASU 2016-12 Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients, ASU 2016-20 Technical Corrections and Improvement to Topic 606 – Revenue from Contracts with Customers and ASU 2017-14 Reporting Comprehensive Income (Topic 220), Revenue Recognition (Topic 605), and Revenue from Contracts with Customers (Topic 606), respectively. The Company will adopt the new standard in the first quarter of 2018 using the retrospective approach noted in (ii) above.The Company concluded that its collaboration agreements with Regeneron and Editas will be impacted by the adoption of the new revenue standards. The Company is in the process of allocating the transaction price to the performance obligations in each of the contracts. Preliminarily, the Company anticipates a material impact to its accounting policies, business processes, internal controls and disclosures.In January 2016, the FASB issued ASU No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the current guidance on the classification and measurement of financial instruments. Although this ASU retains many current requirements, it significantly revises an entity’s accounting related to (i) the classification and measurement of investments in equity securities and (ii) the presentation of certain fair value changes for financial liabilities measured at fair value. This ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years2022 and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted for certain changes. This ASU will be effective for the Company in the first quarter of 2018 and must be adopted using a modified retrospective approach, with certain exceptions. The adoption of this standard is not expected to have a significant impact on the Company’s consolidated financial statements and related disclosures.In February 2016, the FASB issued ASU No. 2016-2, Leases, which amends the current guidance on leasing activities to provide more transparency and comparability, and requires that all leases be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, which are currently accounted for as operating leases. The new standard is effective for fiscal years andinterim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. This ASU will be effective for the Company in the first quarter of 2019 and must be adopted using a modified retrospective transition approach. The Company has not yet determined whether it will elect early adoption and is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.In June 2016, the FASB issued ASU No. 2016-13 Measurement of Credit Losses on Financial Instruments. This ASU requires measurement and recognition of expected credit losses for financial assets held. The new standard is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted beginning in the first quarter of 2019. This ASU will be effective for the Company in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. The Company has not yet determined whether it will elect early adoption and is currently evaluating the impact of the adoption of this standard on its consolidated financial statements and related disclosures.In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which clarifies the presentation and classification of certain cash receipts and cash payments in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period.years. Early adoption is permitted. This ASU will be effective for the Company in the first quarter of 2018. The Company is currently evaluating the impact of adopting Topic 326, but does not expect the adoptioneffect of this standard on its consolidated financial statements and related disclosures.In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which provides amendments to current guidance to address the classification and presentation of changes in restricted cash in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. This ASU will be effective for the Company in the first quarter of 2018. The Company is currently evaluating the impact of the adoption of these standards on its consolidated financial statements and related disclosures.In May 2017, the FASB issued ASU No. 2017-09, Scope of Modification Accounting, which provides amendments to the current guidance for modification accounting. This ASU clarifies that an entity should account for the effects of a modification unless all the following criteria are met: (1) the fair value of the modified award is the same as the fair value of the original award immediately before the original award is modified, (2) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified, and (3) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award is modified. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within that reporting period. Early adoption is permitted. This ASU will be effective for the Company in the first quarter of 2018. The Company is currently evaluating the impact of the adoption of these standards on its consolidated financial statements and related disclosures.The Company has reviewed other recent accounting pronouncements and concluded they are either not applicable to the business or no material effect is expected on the consolidated financial statements as a result of future adoption.3. Acquisition of Annapurna(a)Purchase Price AllocationOn May 11, 2016, the Company completed the acquisition of all outstanding equity interests of Annapurna. Annapurna was a privately held French limited liability company and has two wholly-owned subsidiaries, Annapurna, Inc. in the U.S. and Annapurna Therapeutics Limited in Ireland. Annapurna was a biopharmaceutical company focused on discovering and developing novel gene therapy products for people living with severe rare diseases. The primary reasons for the acquisition were to expand the technology platforms within the Company’s research and development portfolio and to apply the Company’s resources and expertise in gene vectors development to advance Annapurna’s programs through development and clinical trials. Annapurna’s results of operations and fair value of assets acquired and liabilities assumed are included in the Company’s consolidated financial statements from the date of acquisition.The purchase price consideration was approximately $64.8 million based on the Company’s common stock closing price on Nasdaq on the acquisition closing date of $4.14 per share. A total of 14,087,246 shares of the Company’s common stock were issued to shareholders of Annapurna in exchange for all common and preferred stock outstanding at the closing date. Annapurna stockholders did not receive any fractional shares of the Company’s common stock in connection with the acquisition. Instead of receiving any fractional shares, each Annapurna stockholder was paid an amount in cash (without interest) equal to such fraction amount multiplied by the average 10 business days sale price of the Company’s common stock on Nasdaq from the acquisition date. Annapurna Series O preferred shares issued to founders were canceled prior to the acquisition date and were not included in the purchase price consideration. Vesting of certain of Annapurna’s stock options and unvested common shares was accelerated at the closing date. The fair value of stock awards related to the accelerated vesting of stock options and common shares of $0.9 million was excluded fromthe purchase price consideration and included in the Company’s operating expenses post acquisition. A portion of the purchase price was attributed to the exchange of Annapurna’s stock options and other rights to purchase capital stock outstanding at the acquisition closing date for corresponding common stock options of the Company at an exchange ratio of 9.54655.The Company reserved 3,673,940 shares for the future exercise of the Annapurna stock awards assumed in the acquisition. The total fair value of assumed Annapurna stock awards was approximately $14.7 million on the acquisition date, using the Black-Scholes option pricing model, assuming no dividends, expected volatilities of 80% and 89%, risk-free interest rates of 1.4% and 1.1%, and expected lives of six and ten years for employee and non-employee stock awards, respectively. Of the total fair value, $7.4 million was attributed as pre-acquisition service and included as part of the total purchase price consideration. The post-combination attribution amount of $7.2 million is recognized as compensation expense over the remaining requisite service period. The Company included $0.9 million in stock-based compensation expense related to the day-one post combination compensation expenses related to the accelerated vesting of stock options during the second quarter of 2016.Total purchase price consideration was estimated as follows (in thousands):The transaction was accounted for using the acquisition method under ASC 805, Business Combinations, with Adverum identified as the acquirer, based on the existence of a controlling financial interest of the combined entities. Under the acquisition method, assets acquired and liabilities assumed were recorded at their estimated fair values as of May 11, 2016. Goodwill, as well as intangible assets that do not qualify for separate recognition, is measured as of the acquisition date as the excess of consideration transferred, which is also measured at fair value, and the net of the fair values of the assets acquired and the liabilities assumed as of the acquisition closing date. Goodwill represents expected synergies of two combined companies. Acquisition costs of $2.5 million were expensed as incurred and recorded as general and administrative expenses in the Company’s consolidated statement of operations and comprehensive loss during the year ended December 31, 2016. The allocation of total purchase price consideration is as follows (in thousands):The identifiable intangible assets acquired consist of IPR&D assets related to products in development, as summarized in the table below (in thousands):The fair value of each IPR&D asset was estimated using the income approach and calculated using cash flow projections adjusted for inherent risks regarding regulatory approval, promotion, and distribution, discounted at a rate of approximately 11.0%. The Company acquired two additional intangible assets relating to the Friedreich’s Ataxia (“FA”) and severe allergy programs, but the fair value of each of these assets was determined to be nominal and was not included in the total acquired intangible assets. All IPR&D intangible assets acquired are classified as indefinite-lived and are not currently being amortized. Acquired IPR&D assets were impaired in the fourth quarter 2016 (see below discussion).Goodwill, which represents the excess of the purchase price over the fair values assigned to the net assets acquired, was $49.5 million on the acquisition date. The full amount of the goodwill was assigned to the entire Company, since management determined that the Company has only one reporting unit. The goodwill is not deductible for tax purposes. During the year ended December 31, 2016, the Company’s goodwill was fully impaired (see below discussion). The amount of net loss of Annapurna included in the consolidated statements of operations and comprehensive loss from the acquisition date through the period ended December 31, 2016 was $16.6 million, which included $11.2 million of impairment charges related to IPR&D assets. Annapurna did not generate any revenues prior or post acquisition.The pro forma financial information combines the results of operations of Adverum and Annapurna as though the businesses had been combined as of the beginning of fiscal 2015. The pro forma financial information is presented for informational purposes only, and is not indicative of the results of operations that would have been achieved in the current or any future periods. The following table presents the unaudited pro forma combined results of operations (in thousands, except per share data).Pro-forma adjustments included the following:material.Actual acquisition-related transaction costs of $2.5 million for year ended December 2016 were excluded from the 2016 pro forma results above. As these expenses were incurred prior to the closing of the acquisition, they were not included in the 2015 pro forma results.$0.9 million of stock-based compensation expense related to the accelerated vesting associated with the Annapurna acquisition was excluded from the 2016 pro forma results and was, instead, included in the 2015 pro forma results.Stock-based compensation expense of $0.2 million and $0.4 million related to stock options granted to executives upon the closing of the Annapurna acquisition was included in the 2016 and 2015 pro forma results, respectively.Interest expense related to convertible notes and changes in fair value of preferred stock warrants of $0.5 million for the year ended December 31, 2015 and $1.0 million for the year ended December 31, 2016, were excluded from 2015 and 2016 pro-forma results above, as the convertible notes and warrants were settled prior to the closing of the Annapurna acquisition.Bonuses of $0.4 million paid in connection with closing of the Annapurna acquisition were excluded from the 2016 pro forma results and were, instead, included in the 2015 pro forma results.The unaudited condensed pro forma information does not include any anticipated synergies that may be achievable subsequent to the date of acquisition.b)Impairment Evaluation for Goodwill and Intangible AssetsAs the Company recorded goodwill and IPR&D intangible assets upon the Annapurna acquisition, the Company is required to test goodwill and indefinite lived intangible assets for impairment on an annual basis or more frequently if indicators of impairment exist. The Company operates as one reporting unit and goodwill was allocated to this reporting unit.During the second quarter of 2016, the Company noted a continuing decrease in its stock price that resulted in the market capitalization being less than the carrying value of the Company’s net assets as of June 30, 2016. As the operating losses were expected to increase significantly in the following years due to continuing pre-clinical and expected clinical trials, the Company concluded that it was more likely than not that the fair value of the Company’s one reporting unit was less than its carrying value and, as a result, performed a step one goodwill impairment analysis.In performing the step one analysis, the Company determined the fair value of the reporting unit using a market-based approach. The Company multiplied the stock price of $3.16 by the 41.3 million of its common shares outstanding on June 30, 2016 and applied a control premium to estimate the common equity value on a controlling basis. As the fair value was less than the carrying value of the Company’s net assets, the Company proceeded to step two of the impairment analysis.The second step of the analysis includes allocating the calculated fair value (determined in the step one analysis) of the reporting unit to its assets and liabilities to determine an implied fair value of goodwill. The implied fair value of goodwill was determined in the same manner as the amount of goodwill recognized in an acquisition. That is, the estimated fair value of the reporting unit was allocated to all of the assets and liabilities as if the Company had been acquired and the estimated fair value was the purchase price paid. As part of this assessment the Company considered the preliminary valuation of Annapurna net assets acquired, excluding goodwill, as their fair value from May 11, 2016, the acquisition closing date, to June 30, 2016 did not change. The Company also noted that the fair value of current assets and liabilities approximated their carrying value due to their short-term nature, the Company’s cash and cash equivalent balance was higher than the fair value estimated in the step one analysis, and the fair value of fixed assets approximated their recorded value as most of the Company’s fixed assets were acquired in the last couple of years. Based on this analysis, the implied fair value of the goodwill was zero. Accordingly, the Company fully impaired its goodwill and recorded an impairment charge was $49.5 million, which is included within impairment of goodwill and intangible assets in the Company’s consolidated statements of operations and comprehensive loss for the year ended December 31, 2016.In the fourth quarter of 2016, the Company performed its annual impairment assessment of its intangible assets, ADVM-043 and ADVM-053. Based on the Company’s decision in the fourth quarter to change its manufacturing process for ADVM-043 and ADVM-053 by implementing its proprietary baculovirus-based production system, it updated the related development and manufacturing costs. As a result, the Company revised its forecasts for manufacturing and related costs. In addition, the Company also reviewed and updated its expected timing of clinical trials, receipts of regulatory approvals and costs to complete. Based upon the Company’s analysis, it determined that the total carrying value of $16.2 million for its intangible assets, ADVM-043 and ADVM-053, was higher than their total fair value of $5.0 million. Accordingly, the Company recorded $11.2 million impairment charge. Intangible asset related to ADVM-053 was fully impaired and intangible assets related to ADVM-043 was impaired and had fair value of $5.0 million as of December 31, 2016. Impairment charges for goodwill and intangible assets are included in the Company’s consolidated statements of operations and comprehensive loss.In the fourth quarter of 2017, the Company performed its annual impairment assessment of its intangible asset, ADVM-043. Based on the Company’s impairment analysis, it concluded that its ADVM-043 IPR&D asset was not impaired.4. Restructuring ChargesOn December 22, 2015, the Company implemented a restructuring plan to reduce operating costs and better align its workforce with the needs of its business following its decision to not initiate the Phase 2b clinical trial for AVA-101 during the second half of 2015. The plan resulted in a reduction of approximately 20% of the Company’s workforce, or a total of 15 employees. Affected employees were eligible to receive severance payments. The plan also triggered accelerated vesting of certain of the affected employees’ restricted stock units (“RSUs”).In connection with the restructuring plan, the Company estimated aggregate restructuring charges of approximately $2.6 million, which were recorded in the Company’s consolidated statements of operations and comprehensive loss during the year ended December 31, 2015, related to one-time termination severance payments and other employee-related benefits, which included approximately $1.0 million of stock-based compensation expense related to the acceleration of RSUs.The following table summarizes the restructuring activities (in thousands):5. Cash Equivalents and Short-Term InvestmentsThe following is a summary of the Company’s cash equivalents and short-term investments (in thousands):Management determined that the gross unrealized losses on the Company’s marketable securities as of December 31, 2017 were temporary in nature. Therefore, none of the Company’s marketable securities were other-than-temporarily impaired as of December 31, 2017. As of December 31, 2016, all of the Company’s investments in marketable securities were held in money market funds and were classified as cash equivalents.The following table is a summary of the cost and estimated fair value of the Company’s marketable securities based on stated effective maturities as of December 31, 2017:6.3. Fair Value Measurements and Fair Value of Financial InstrumentsThe authoritative guidance on fair value measurements establishes a three-tier fair value hierarchy for disclosure of fair value measurements as follows:Level 1: Quoted prices in active markets for identical assets or liabilities.Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, 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 assets or liabilities.Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability.The fair value of Level 1 securities is determined using quoted prices in active markets for identical assets. Level 1 securities consist of highly liquid money market funds. Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. U.S. government and agency securities, commercial paper, corporate bond and certificates of deposit are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2.In certain cases where thereThe following is limited activity or less transparency around inputs to valuation,a summary of the Company’s cash equivalents and short-term investments (in thousands):December 31, 2020 Amortized
Cost BasisUnrealized
GainsUnrealized
LosesEstimated
Fair ValueLevel 1 Money market funds $ 178 $ 0 $ 0 $ 178 Level 2 U.S. government and agency securities 328,583 121 (5) 328,699 Commercial paper 97,324 0 (5) 97,319 Total cash equivalents and short-term investments 426,085 121 (10) 426,196 Less: Cash equivalents (58,894) 0 3 (58,891) Total short-term investments $ 367,191 $ 121 $ (7) $ 367,305 95December 31, 2019 Amortized
Cost BasisUnrealized
GainsUnrealized
LosesEstimated
Fair ValueLevel 1 Money market funds $ 15,056 $ 0 $ 0 $ 15,056 Level 2 U.S. government and agency securities 37,974 14 (2) 37,986 Commercial paper 87,983 8 (8) 87,983 Corporate bonds 10,495 6 0 10,501 Total cash equivalents and short-term investments 151,508 28 (10) 151,526 Less: Cash equivalents (51,391) 0 3 (51,388) Total short-term investments $ 100,117 $ 28 $ (7) $ 100,138 As the Company may sell these securities at any time for use in current operations even if the securities have not yet reached maturity, all marketable securities are classified as Level 3 withincurrent assets in the valuation hierarchy. Level 3 liabilities that were measured atCompany’s consolidated balance sheet. Management regularly reviews all of the Company’s investments for other-than-temporary declines in estimated fair valuevalue. Management determined that the gross unrealized losses on a recurring basis consistthe Company’s marketable securities as of a financing arrangement entered during the year ended December 31, 2016.During2020 were temporary in nature and none were in continuous loss position for 12 months or more. Therefore, NaN of the periods presented,Company’s marketable securities were other-than-temporarily impaired as of December 31, 2020.As of December 31, 2020, $21.0 million of marketable securities had remaining maturities between one and two years. The remainder of the Company has not changed the manner in which it values liabilities that are measured at estimated fair value using Level 3 inputs. marketable securities have a remaining maturity of one year or less.There were no transfers within the hierarchy during the years ended December 31, 20172020 and 2016.The following table summarizes, for assets and liabilities recorded at fair value, the respective fair value and the classification by level of input within the fair value hierarchy as described above (in thousands):4. RevenueEditas — In August 2016,January 2018, the Company entered into a financing arrangement with the TAP for a total amount of up to $0.3 million (the “TAP financing”), of which approximately $0.2 million and $0.1 million, respectively, was outstanding as of December 31, 2017 and 2016 (see Note 10). The Company elected the fair value option to account for this financing arrangement. The fair value of the financing arrangement was determined based on the expected value approach and is classified as Level 3 within the fair value hierarchy. The Company determined that the changes in the fair value were immaterial during the years ended December 31, 2017 and 2016. The key unobservable inputs in the valuation model include timing of milestones, probability of achievement of development and commercial milestones, and a discount factor.The following table presents quantitative information about the inputs and valuation methodologies used for the fair value measurements classified in Level 3 of the fair value hierarchy:Non-financial assets such as intangible assets, property, plant, and equipment are evaluated for impairment and adjusted to their fair value using Level 3 inputs, only when impairment is recognized. Fair values are considered Level 3 when management makes significant assumptions in developing a discounted cash flow model based upon a number of considerations, including projections of revenues, earnings and a discount rate. In addition, in evaluating the fair value of goodwill impairment, further corroboration is obtained using the Company’s market capitalization.7. Significant AgreementsUniversity of California AgreementIn May 2010, the Company entered into a license agreement with the Regents of University of California (the “Regents”), as amended in September 2013. Under the license agreement, the Regents granted to the Company an exclusive (even as to the Regents) license, with the right to grant sublicenses, under the Regents’ undivided interest in patent rights covering a method of using recombinant gene delivery vectors, including AAV7m8 in the Company’s wet AMD product candidate ADVM-022, for treating or preventing diseases of the eye, to develop, make, have made, use offer for sale, import, export and sell products covered by such patent rights in all fields of use in the U.S. The licensed patent rights are jointly owned by the Regents and Chiron Corporation, which was acquired by Novartis AG, but the Company’s license extends only to the Regents’ interest in such patent rights.The Company is obligated to make milestone payments totaling up to $0.9 million upon reaching certain stages of development of the licensed products for one indication, and totaling up to $0.5 million for each subsequent indication for which licensed products are developed, for up to a maximum of two additional indications. Through December 31, 2017, none of these goals had been achieved, and no milestones were payable.The Company’s license agreement with the Regents continues in effect for the life of the last-to-expire patent. The Company expects the agreement to terminate prior to any commercialization of any product candidates to which they apply. The Company may terminate this agreement without cause at any time upon 30 days’ prior written notice to the Regents. The Regents may terminate this agreement for a breach by the Company that remains uncured for 60 days, if the Company becomes insolvent, if the Company directly or through a third party files a claim that a licensed patent right is invalid or unenforceable, or if the Company fails to meet or extend the date for meeting certain diligence milestones.Regeneron AgreementIn May 2014, the Company entered into a research collaboration and license agreement with Regeneron to discover, develop and commercialize novel gene therapy products for the treatment of ophthalmologic diseases. The collaboration covers up to eight distinct therapeutic targets (“collaboration targets”). The Company and Regeneron collaborated during the initial research period of three years. In February 2017, Regeneron exercisedamend its option to extend the research collaboration and license agreement for an additional three years, through May 1, 2020. During the research period, Regeneron has the option to obtain an exclusive worldwide license for a collaboration target’s further development by giving written notice to the Company and paying $2.0 million per target. If Regeneron exercises its option, it will be responsible for all further development and commercialization of the target. The Company is then eligible to receive contingent payments of up to $80.0 million upon achievement of certain development and regulatory milestones for product candidates directed toward each collaboration target, for a combined total of up to $640.0 million in potential milestone payments for product candidates directed toward all eight collaboration targets, plus a royalty in the low- to mid-single-digits on worldwide net sales of collaboration products.For any two collaboration targets, the Company has an option to share up to 35% of the worldwide product candidate development costs and profits. If the Company exercises this option, the Company will not be eligible for milestone and royalty payments as discussed above but rather the Company will share development costs and profits with Regeneron.The agreement will expire with respect to each collaboration target upon expiration of all payment obligations by Regeneron. In addition, the agreement, or Regeneron’s rights to any target development under the agreement, may terminate early under the following situations:Regeneron may terminate the agreement for convenience at any time on a target by target basis or in totality upon a 30-day notice.Each party can terminate the agreement if another party commits a material breach or material default in performance of its obligations and such breach or default is not cured within 60 days.The agreement is automatically terminated upon initiation of any bankruptcy proceedings, reorganization or dissolution of either party.The Company can terminate the agreement upon 30-day notice if Regeneron challenges the validity, scope or enforceability of any Company patent.Under the Company’s research, collaboration and license agreement with Regeneron, the Company is required to have a mutually agreed-on research plan with Regeneron in order to invoice Regeneron for services performed. The Company does not currently have a research plan in place, and, consequently, it does not currently receive any reimbursements from Regeneron.Editas AgreementIn August 2016, the Company entered into a collaboration, option and license agreement with Editas Medicine, Inc. The Company originally entered into an agreement with Editas in August 2016 pursuant to which the Company and Editas collaboratecollaborated on certain studies using AAV vectors in connection with Editas’ genome editing technology and the Company grantsgranted to Editas an exclusive option to obtain certain exclusive rights to use the Company’s proprietary vectors in up to five ophthalmic indications. The Company received a $1.0 million non-refundable upfront payment during the year ended December 31, 2016, with $0.5 million of such payment to be credited against Editas’ obligation to fund research and development costs. Under the terms of the agreement, both the Company and Editas are subject to exclusivity obligations. In January 2018, the Company and Editas extended the research collaboration, option and license agreement. In consideration for extending the agreement, Editas made a one-time, non-refundable cash payment of $0.5 million to the Company in February 2018 (see Note 17).Under the terms of the agreement, as amended, Editas mayhad until November 2018 to exercise the option with respect to a designated initial indication, until September 30, 2018.which Editas declined to do. With respect to the four other indications, Editas mayhad until August 2019 to exercise the option, until the fourth anniversary of the effective date, provided thatotherwise all options would expire. Editas did not exercise the option, will expireand the agreement terminated on August 8, 2019.Under Topic 606, the third anniversarytransaction price is $1.5 million, which includes the $1.0 million non-refundable upfront payment for license and research services at contract inception and the one-time, non-refundable cash payment of $0.5 million made by Editas in February 2018 in consideration for extending the effective date if Editas has not exercisedagreement. The transaction price of $1.5 million was allocated to a single performance obligation: research and development.During the option with respect to the initial indication or any other indication by such date. Upon Editas’ timely exercise of the option with respect to the designated initial indication, Editas will payyear ended December 31, 2018, the Company a $1.3recognized revenue of $1.5 million fee. Forassociated with Editas. The remaining performance obligations for Editas were completed during 2018. During the first additional indication for which Editas timely exercises its option, Editas will payyears ended December 31, 2020 and 2019, the Company a $1.5 million fee. Upon each subsequent exercisedid not recognize revenue from the Editas collaboration agreement. The Company had 0 deferred revenue balance as of the option, Editas will payDecember 31, 2020 and 2019.GenSight —In February 2014, the Company entered into an agreement with GenSight Biologics, S.A, in which the Company granted GenSight a $1.0 million fee per Indication. If Editas electsnon-exclusive license to its proprietary AAV.7m8 vector to develop a product usinggene therapy products to deliver certain oftherapeutic transgenes. Under the Company’s proprietary vectors,agreement, the Company will beis eligible to receive updevelopment, regulatory and commercial milestones. Also, the Company is eligible to $15.5 million inreceive low to mid-single digit royalties on sales of GenSight’s licensed products. During the year ended December 31, 2020, the Company had 0 recognized revenue from the GenSight agreement. During the years ended December 31, 2019 and 2018, GenSight achieved clinical development and commercializationmilestones pursuant to the agreement. These milestones were previously constrained under Topic 606. The Company earned milestone payments of $250,000 and $150,000, which were recognized as revenue for such product,the years ended December 31, 2019 and tiered royalties between the mid-single digits and low teens on net sales of such product, subject to certain adjustments.Unless earlier terminated, the agreement will be in effect until the later of the expiration of the option exercise period or the expiration of the royalty term of the last product. At any time after the option is first exercised, Editas may terminate the agreement for convenience in its entirety or on an indication-by indication or country-by-country basis, upon prior written notice to the Company. The Company may also terminate the agreement if Editas challenges the Company’s patents relating to its proprietary vectors and does not withdraw such challenge within a defined period of time. In addition, either party may terminate the agreement with written notice upon a bankruptcy of the other party or upon an uncured material breach by the other party.Cornell University Agreement965. LeasesThe Company leases its office and laboratory space pursuant to an operating lease with a term of 10 years, which expires in February 2029. The lease includes two options to extend the lease term for a period of seven years each. In connection with the lease, the Company received a lease incentive allowance of $8.1 million. The Company has provided the landlord with a letter of credit in the amount of $1.0 million, which is classified as restricted cash under long term assets on the Company's consolidated balance sheet.The Company adopted Topic 842 (See Note 2) and recorded right-of-use assets of $23.1 million and a lease liability of $24.7 million as of January 1, 2019. The estimated incremental borrowing rate used to measure the lease liability is 8.5%.Rent expense for the years ended December 31, 2020, 2019 and 2018 was $5.8 million, $6.5 million, and $3.3 million respectively, which includes variable lease costs for utilities, parking, maintenance, and real estate taxes. Variable lease expenses for the years ended December 31, 2020 and 2019 were $1.5 million and $1.6 million, respectively.The future non-cancellable lease payments under the Company’s operating leases as of December 31, 2020 was as follows:Years ending December 31, (In thousands) 2021 $ 4,683 2022 4,846 2023 5,016 2024 5,191 2025 5,373 Thereafter 18,273 Total undiscounted lease payments 43,382 Less: Present value adjustments (12,674) Total $ 30,708 6. Balance Sheet ComponentsProperty and Equipment, NetProperty and equipment, net consists of the following:December 31, 2020 2019 (In thousands) Computer equipment and software $ 599 $ 752 Laboratory equipment 9,354 6,291 Furniture and fixtures 1,259 678 Leasehold improvements 24,631 1,602 Construction in progress 1,954 23,553 Total property and equipment 37,797 32,876 Less accumulated depreciation and amortization (10,072) (7,992) Property and equipment, net $ 27,725 $ 24,884 Depreciation and amortization expense was $4.2 million, $1.6 million and $1.8 million for the years ended December 31, 2020, 2019 and 2018 respectively.97Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consist of the following:December 31, 2020 2019 (In thousands) Compensation expense $ 8,344 $ 4,055 Accrued professional fees 1,075 2,607 Accrued preclinical costs 1,824 1,002 Accrued clinical and process development costs 1,020 971 Other 1,325 2,636 Total accrued expenses and other current liabilities $ 13,588 $ 11,271 7. Financing ArrangementsBanque Publique d’Investissement (“BPI France”) AgreementThe Company has outstanding borrowings with BPI France with a principal amount of €200,000 and €250,000 as of December 31, 2020 and 2019, respectively. Payments are scheduled in equal quarterly amounts of €25,000 to maturity. The borrowing is carried at a discounted value, reflecting a 4% imputed interest rate. The discount is amortized as interest expense over the life of the borrowing. The carrying value of the borrowing was $235,000 and $256,000 as of December 31, 2020 and 2019, which approximates the fair value. Due to the intent to repay the borrowing in the near term, the borrowing is classified as current liability in accrued expenses and other current liabilities on the Company’s consolidated balance sheets as of December 31, 2020.8. Commitments and ContingenciesCollaborations and License AgreementsThe Company is a party to various agreements, principally relating to licensed technology that requires future payments relating to milestones or royalties on future sales of specified products. Through December 31, 2020, none of the goals had been achieved under the license agreements and 0 milestones were accrued or payable. Because the achievement of these milestones is not fixed and determinable, such commitments have not been included on the Company’s consolidated balance sheets.The Company was a party to a master serviceservices agreement (the “MSA”(“MSA”) with Cornell University (“Cornell”) originally established in August 2014 and amended in December 2015. Under the MSA, Cornell provided assistance in regulatory affairs, overall project management, and parameter development. SubsequentThis MSA included services relating to the Annapurna acquisition,gene therapy programs directed to A1AT deficiency, HAE and severe allergy. The MSA, as amended, provided for the Company recorded a total research and development expenses of $1.8to pay Cornell $13.3 million related to Cornell agreementsratably over four years for the year ended December 31, 2016.disputesdisputed the validity of the Company’s termination of the MSA. AlthoughIn June 2019, Cornell and the Company intends to defend the validityentered into a settlement agreement, as a result of its termination of the MSA,which the Company recordedpaid Cornell a $2.0 million ofsettlement payment. There was 0 current period expense from the settlement recorded in 2019, as the estimated costs associated with the termination of the MSA as of December 31, 2017. The MSA included services relating to the Company’s gene therapy programs ADVM-043, ADVM-053 and severe allergy. The Company’s three licensing agreements with Cornell for these programs remain unchanged.The decision to terminate the MSA was due to Cornell’s failure to deliver therapeutic material of ADVM-043 suitable for use in human patients. As a result of this decision, the Company contracted with large-scale contract manufacturing organizations that comply with current good manufacturing practice industry standards and can produce product quantities for both the Company’s planned clinical trials and potential commercial supply. This is part of the Company’s upgrade of the manufacturing process for ADVM-043.In December 2015, the Company entered into three licensing agreements with Cornell, pursuant to which the Company will advance its gene therapy programs ADVM-043, ADVM-053, and severe allergy, which originally were initiated at the Department of Genetic Medicine at Weill Cornell.A1AT Deficiency License Agreement—Under this agreement, the Company holds an exclusive license to certain know-how related to A1AT deficiency and rights to an Investigational New Drug (IND) application to initiate clinical studies of gene therapy for A1AT.HAE License Agreement—Under this agreement, the Company holds an exclusive license to certain technology related to hereditary angioedema (HAE) and a non-exclusive license to certain other intellectual property related to the HAE program.Allergy License Agreement—Under this agreement, the Company holds an exclusive license to certain patents related to allergens and a non-exclusive license to certain other technology related to allergens.Across these three license agreements, Cornell is entitled to receive aggregate annual maintenance fees ranging from $30,000 to $0.3 million per year, up to $16.0 million in aggregate milestone payments and royalties on sales in the low single-digits, subject to adjustments and minimum thresholds. For the year ended December 31, 2017 and 2016, annual maintenance fees were immaterial. No milestone payments were probable to achieve and none were recorded as of December 31, 2017 and 2016.Dr. Crystal, Chairman of Genetic Medicine, the Bruce Webster Professor of Internal Medicine and a Professor of Genetic Medicine and of Medicine at Weill Cornell, served as a consultant to the Company since the inception of Annapurna and continues to provide services for annual base compensation of $0.2 million.REGENXBIO AgreementA1AT Deficiency/Allergy License Agreement—In October 2015, the Company entered into an exclusive worldwide license to certain intellectual property in order to make, have made, use, import, sell and offer for sale certain licensed products for the treatment ofA1AT deficiency. Under this agreement, the Company has an option to be granted an exclusive worldwide license to certain intellectual property related to the treatment of severe allergies, which option expired in October 2016. Also, under this license agreement, REGENXBIO, Inc. (“REGENXBIO”) is eligible to receive annual maintenance fees, up to approximately $20.0 million in combined milestone payments and royalties in the mid-to-high single digits.In April 2017, the Company exercised its right to terminate the license agreement for any reason upon six months’ prior written notice. The termination was effective in October 2017.FA License Agreement—In April 2014, the Company entered into an exclusive worldwide license to certain intellectual property related to the FA program to make, have made, use, import, sell and offer for sale licensed products using AAVrh10 for FA where the vector is administered by any route except directly to the central nervous system (“FA Systemic”). Under the terms of this license agreement, the Company also had an option to obtain a non-exclusive worldwide license to make, have made, use, import, sell and offer for sale licensed products using a single vector for each of FA where the vector is administered directly to the central nervous system (“FA CNS”) and FA Systemic. Under this license agreement, REGENXBIO is eligible to receive annual maintenance fees, up to $13.9 million in combined milestone fees and royalties in the mid-to-high single digits. The option to obtain a non-exclusive license to FA Systemic expired in April 2015 and the option to obtain a non-exclusive license for FA CNS expired in April 2016. The Company is obligated to achieve certain development milestones with respect to each licensed disease indication, including the filing of an IND application for each licensed disease indication within a specified time period, which it may extend for additional time for a specified number of extensions upon the payment of a fee. In October 2017, the Company notified REGENXBIO that the Company exercised its right to terminate this license agreement for any reason upon six months’ written notice. The termination will be effective in April 2018.Inserm TransfertIn July 2014, the Company entered into an agreement with Inserm Transfert (“Inserm”) whereby it holds an exclusive license to certain patents to develop, make, have made, use, import, offer for sale and sell or otherwise distribute products for the treatment of FA and a non-exclusive license to certain other intellectual property related to the FA program. The agreement was amended in October 2015 to increase the scope of the intellectual property under the licenses. Under this agreement, Inserm is entitled to receive certain de minimis license payments, certain development milestone payments of up to approximately €2.0 million in the aggregate and royalties on sales in the low single-digits, subject to adjustments. No milestone payments were probable to achieve and none were recorded as of December 31, 2017.Unless earlier terminated, this agreement will be in effect on a country-by-country, licensed product-by-licensed product basis until the later of the expiration of the last claim of the licensed intellectual property which cover the manufacture, use or sale of such product in such country or 10 years after the first commercial sale of such product in such country in which such product is sold. Upon a country-by-country and product-by-product basis, the Company will have a fully paid up, perpetual, irrevocable license with respect to such product in such country under the licensed intellectual property following expiration of this agreement with respect to such product in the applicable country. The Company may terminate this agreement upon 60 days’ prior written notice. Inserm may terminate this license agreement if the Company becomes the subject of a voluntary or involuntary petition in bankruptcy or fails tomeet development milestones and such failure is not cured within a specified number of days. Inserm may also terminate the license granted to the Company in a given country if the Company (i) before regulatory approval of a product in any country, has ceased conducting any development of products in all countries for 12 consecutive months or (ii) after regulatory approval of a product in a given country, has ceased marketing such product in such country for 12 consecutive months.Pursuant to the terms of the agreement with Inserm, due to the acquisition of Annapurna, the Company made a one-time payment of €0.3 million to Insermpreviously accrued during the year ended December 31, 2017.8. Property The Company’s license agreements with Cornell for A1AT deficiency and Equipment, NetProperty and equipment, net consists of the following:Depreciation and amortization expense related to property and equipment was $2.1 million, $1.6 million and $0.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.9. Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities consist of the following:10. Financing ArrangementsBanque Publique d’Investissement (“BPI France”) AgreementIn August 2015, BPI France granted Annapurna a €0.8 million interest-free conditional advance, of which €0.5 million was outstanding as of December 31, 2016. Payments are scheduled in equal quarterly amounts of €25,000 from September 30, 2017 to June 30, 2022. This payment schedule will be modified if the Company will receive revenue from license or product sales before advances are paid in full. The Company calculated 7% imputed interest expense on these advances that was recorded as a discount at the issuance date. The discount is amortized as an interest expense over the life of the advances. As of December 31, 2017 and 2016, the total carrying value, which approximates the fair value, of the conditional advance was $0.4 million, of which $0.3 million was recorded within other non-current liabilities and $0.1 million within accrued expenses and other current liabilities in the Company’s consolidated balance sheets.In July 2016, the Company entered into a sponsored research agreement with The TAP in which the TAP will fund the Company’s A1AT research activities of up to $0.3 million in cash in three different tranches. The Company may repay up to 4.5 times the received amount if and when certain product approval and sales milestones are achieved. In September 2016, the Company received $0.1 million and issued warrant to purchase 10,000 shares of its common stock exercisable anytime during five years from the issuance date at an exercise price of $4.33 per share (the “TAP warrant). In December 2017, the Company achieved a milestone which entitled the Company to receive $0.1 million. For the valuation details of the TAP financing, refer to Note 6.presentsbelow is the TAP financing activity:___________
summary of changes in warrants to purchase common stock:(1)Recorded within other non-current liabilities in the Company’s consolidated balance sheets.(2)Recorded as a receivable as of December 31, 2017. Payment was received in January 2018.Number of Warrant Shares Outstanding and Exercisable Exercise Price Per Share Balance at December 31, 2019 90,000 $6.77 Net exercise of warrants (50,000) $3.79 Expiry of warrants (40,000) $10.51 Balance at December 31, 2020 0 (3)Recorded within other non-current liabilities and additional paid-in capital in the Company’s consolidated balance sheets.98(4)Recorded within other non-current liabilities in the Company’s consolidated balance sheet and other income, net in the Company consolidated statement of operations and comprehensive loss.11. Commitments and ContingenciesFacility Lease AgreementThe Company leases its’ office building under a non-cancelable lease agreement, which expires on May 8, 2020. The Company may extend this lease for up to four years. The lease agreement provides for an escalation of rent payments each year. The Company records rent expense on a straight-line basis overIn February 2020, the term of the lease.As of December 31, 2017, future minimum commitments under the Company’s facility operating lease were as follows:Rent expense recognized under the operating lease, including additional rent charges for utilities, parking, maintenance, and real estate taxes was $1.8 million, $1.7 million and $1.5 millionwarrants for the years ended December 31, 2017, 2016 and 2015, respectively.Contractual ObligationsAspurchase of December 31, 2017, the Company had a contractual obligation of approximately $4.2 million for a contract manufacturing with a vendor for materials production related to our three programs, ADVM-022, ADVM-043 and ADVM-053.Collaborations and License AgreementsThe Company is a party to various agreements, principally relating to licensed technology that requires future payments relating to milestones or royalties on future sales of specified products. Through December 31, 2017, none of the goals had been achieved under the license agreements and no milestones were accrued or payable. Because the achievement of these milestones is not fixed and determinable, such commitments have not been included on the Company’s consolidated balance sheets. Aggregate annual maintenance fee’s payments were approximately $0.5 and $0.6 million for each of the years ended December 31, 2017 and 2016.Guarantees and IndemnificationsIn the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The 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. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations. The Company also has indemnification obligations to its directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. There have been no claims to date and the Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements as of December 31, 2017 and 2016.Legal ProceedingsFrom time to time, the Company may become involved in litigation and other legal actions. The Company estimates the range of liability related to any pending litigation where the amount and range of loss can be estimated. The Company records its best estimate of a loss when the loss is considered probable. Where a liability is probable and there is a range of estimated loss with no best estimate in the range, the Company records a charge equal to at least the minimum estimated liability for a loss contingency when both of the following conditions are met: (i) information available prior to issuance of the financial statements indicates that it is probable that a liability had been incurred at the date of the financial statements and (ii) the range of loss can be reasonably estimated.In July 2015, three securities class action lawsuits were filed against the Company and certain of its officers in the United States District Court for the Northern District of California (“U.S. District Court”), each on behalf of a purported class of persons and entities who purchased or otherwise acquired the Company’s publicly traded securities between July 31, 2014 and June 15, 2015. The lawsuits assert claims under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Securities Act of 1933, as amended (the “Securities Act”) and allege that the defendants made materially false and misleading statements and omitted allegedly material information related to, among other things, the Phase 2a clinical trial for AVA-101, a product candidate which is no longer being developed, and the prospects of AVA-101. The complaints seek unspecified damages, attorneys’ fees and other costs.In December 2015, a putative securities class action lawsuit was filed against the Company, the Company’s board of directors, underwriters of the Company’s January 13, 2015, follow-on public stock offering, and two of the Company’s institutional stockholders, in the Superior Court of the State of California for the County of San Mateo (“San Mateo Superior Court”). The complaint alleges that, in connection with the Company’s follow-on stock offering, the defendants violated the Securities Act by allegedly making materially false and misleading statements and by allegedly omitting material information related to the Phase 2a clinical trial for AVA- 101 and the prospects of AVA-101. The complaint seeks unspecified compensatory and rescissory damages, attorneys’ fees and other costs. The plaintiff has dismissed the two institutional stockholder defendants.On March 16, 2017, the Company reached an agreement to settle the asserted actions. The proposed aggregate amount of the settlement is $13.0 million, of which $1.0 million would be contributed by the Company to cover its indemnification obligations to the underwriters, and the remainder would be contributed by the Company’s insurers. The Company and the defendants have denied and continue to deny each and all of the claims alleged in the actions, and the settlement does not assign or reflect any admission of fault, wrongdoing or liability as to any defendant. Notice of the settlement was provided to shareholders in the fall of 2017, and no shareholder objected to the settlement. On January, 19, 2018, the San Mateo Superior Court entered a judgment and order finally approving the settlement. And on February 5, 2018, the U.S. District Court entered an order dismissing the consolidated federal action with prejudice. If the settlement does not become effective and litigation resumes, following an appeal or otherwise, adverse outcomes in the actions could result in substantial damages. The Company recorded $1.0 million as general and administrative expense during the three months ended March 31, 2017, when the amount and time of settlement became estimable and probable.Common Stock and Preferred StockThe Company’s authorized share capital is 300,000,00010,000 shares of common stock and 5,000,000issued in 2016 were net exercised for 7,250 shares of preferredcommon stock. AsIn August 2020, the warrants for the purchase of December 31, 2017 and 2016, the Company had no preferred stock issued and outstanding.Common Stock WarrantsThe Lions Eye Institute (“LEI”) Warrants. In connection with the Company’s research and collaboration agreement, as amended, with LEI (the “LEI Agreement”), the Company agreed to issue a warrant to purchase a certain number of the Company’s common stock upon the achievement of each milestones as set forth in the LEI Agreement.During the year ended December 31, 2015, the Company issued a warrant to purchase 40,000 shares of its common stock with an exercise price of $10.51 per share to LEI. This common stock warrant is exercisable immediately, and expires on October 15, 2020. The estimated the fair value of this warrant was approximately $0.2 million and was recorded within research and development expensesissued in the Company’s consolidated statement of operations and comprehensive loss and additional paid-in capital in the Company’s consolidated balance sheet2017 were net exercised for the year ended December 31, 2015. The fair value of the warrant was calculated using the Black-Scholes valuation model, and was based on the closing price29,209 shares of common stock on the issuance date of $8.35 per share, contractual term of the warrant of 5 years, a risk-free interest rate of 1.34%, an expected volatility of 75% and a 0% expected dividend yield.Additionally, in September 2017, the Company issued a warrant to purchasestock. The remaining 40,000 shares of its common stock with an exercise price of $3.65 per share to LEI. This common stock warrant is exercisable immediately, and expires on September 29, 2022. The estimated the fair value of this warrant was approximately $0.1 million and the fair value of this warrant was recorded as research and development expenses in the Company’s consolidated statement of operations and comprehensive loss and additional paid-in capital in the Company’s consolidated balance sheet for the year ended December 31, 2017. The fair value of the warrant was calculated using the Black-Scholes valuation model, and was based on the closing price of common stock on the issuance date of $3.65 per share, contractual term of the warrant of 5 years, a risk-free interest rate of 1.89%, an expected volatility of 91% and a 0% expected dividend yield.TAP Warrant. In July 2016, in connection with the TAP financing agreement (see Note 10), the Company issued a warrant to purchase 10,000 shares of its common stock exercisable anytime during five years from the issuance date at an exercise price of $4.33 per share. The estimated fair value of this warrant was $26,000 at the issuance date using the Black-Scholes valuation model with the following assumptions: exercise price of $4.33 per share, expected term of the warrant of 5 years, a risk-free interest rate of 1.07%, an expected volatility of 72% and a 0% expected dividend. The fair value of TAP warrant was recorded to non-current liabilities and additional paid-in-capital in the Company’s consolidated balance sheet for the year ended December 31, 2016.13.warrants expired unexercised.10. Stock PlansOn December 26, 2006, the Company adopted the 2006 Equity Incentive Plan, which was amended by the board of directors on November 15, 2012 (the “2006 Plan”). The 2006 Plan allowed for the granting of incentive stock options (“ISOs”) and non-qualified stock options (“NSOs”) to the employees, members of the board of directors and consultants of the Company. ISOs were granted only to the Company’s employees, including officers and directors who are also employees. NSOs were granted to the employees and consultants. In July 2014, the Company’s board of directors and its stockholders approved the establishment of the 2014 Equity Incentive Award Plan (the “2014 Plan”). Options may no longer be issued under the 2006 Plan after July 30, 2014. In addition, the 2014 Plan provides for annual increases in the number of shares available for issuance thereunder on the first business day of each fiscal year, beginning with the year ended December 31, 2015, equal to four percent (4%) of the number of shares of the Company’s common stock outstanding as of such date or a lesser number of shares as determined by the Company’s board of directors.In October 2017, the Company adopted the 2017 Inducement Plan (the “Inducement Plan”). The Company reserved 600,000 shares for issuance pursuant to stock options and RSUs under the Inducement Plan. The only persons eligible to receive grants of stock options and RSUs under Inducement Plan are individuals who satisfy the standards for inducement grants under Nasdaq guidance that is, generally, a person not previously an employee or director of Adverum, or following a bona fide period of non-employment, as an inducement material to the individual's entering into employment with Adverum.The 2006 Plan, 2014 Plan and Inducement Plan are referred to collectively as the Plans. As of December 31, 2017,2020, a total of 17,167,85628,563,616 shares of common stock were reserved for issuance and 2,830,0105,071,602 shares were available for future grants under the Plans.Stock options under the 2014 Plan and the Inducement Plan may be granted for periods of up to 10 years and at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an ISO and NSO granted to a 10% stockholder may not be less than 110% of the estimated fair value of the shares on the date of grant. Stock options granted to employees and non-employees generally vest ratably over four years.The following table summarizes stock option activity under the Company’s stock plans and related information:(In thousands, except exercise prices and years) Options
OutstandingWeighted-
Average
Exercise
PriceWeighted-
Average
Remaining Contract
Life (in years)AggregateIntrinsic Value (a)Balance at December 31, 2017 Balance at December 31, 2017 6,695 $ 4.51 7.4 $ 9,539 Granted 2,049 5.94 Exercised (1,606) 0.43 Cancelled/forfeited (691) 5.90 Balance at December 31, 2018 Balance at December 31, 2018 6,447 $ 5.83 7.6 $ 3,594 Granted Granted 4,978 7.16 Exercised Exercised (1,397) 2.46 Cancelled/forfeited Cancelled/forfeited (1,033) 4.93 Balance at December 31, 2019 Balance at December 31, 2019 8,995 $ 7.19 7.6 $ 48,073 Granted Granted 4,126 18.52 Exercised Exercised (2,043) 6.21 Cancelled/forfeited Cancelled/forfeited (646) 10.67 Balance at December 31, 2020 Balance at December 31, 2020 10,432 $ 11.65 8.2 $ 31,626 Vested and expected to vest as of December 31, 2020 Vested and expected to vest as of December 31, 2020 10,432 $ 11.65 8.2 $ 31,626 Exercisable at December 31, 2020 Exercisable at December 31, 2020 3,903 $ 7.82 7.0 $ 19,722 (a) of the Company’s common stock of $3.5 per share as of December 31, 2017.In June 2017 and 2016, the Company granted 150,000 stock options and 518,000 stock options, respectively, outside the Plans to its certain executive officers. In December 2015, the Company granted 910,000 stock options outside of the Plans to its new Principal Executive Officer.99The total intrinsic value of stock options exercised during the years ended December 31, 2017, 20162020, 2019 and 2015 were $4.8 million, $7.12018 was $20.8 million and $11.2$10.7 million and $8.2 million, respectively.Stock Options Granted to Employees. The fair value of each stock option issued to employees was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:Options Employee Stock Purchase Plan Years ended December 31, Years ended December 31, 2020 2019 2018 2020 2019 2018 Expected volatility 87% 81% 80% 89% 105% 78% Expected term (in years) 6.0 6.2 6 0.5 0.5 0.5 Expected dividend yield 0 0 0 0 0 0 Risk-free interest rate 0.8% 2.1% 2.8% 0.1% 1.9% 2.3% The weighted-average fair values of options granted during the years ended December 31, 2017, 20162020, 2019 and 20152018 were $1.99, $3.35$13.39 $5.04 and $15.91,$4.15, respectively.As of December 31, 2017,2020, there was $8.9$54.9 million of unrecognized stock-based compensation expense related to employee stock options that is expected to be recognized over a weighted-average period of 2.22.7 years.Stock Options Granted to Non-Employees. Stock-based compensation expense related to stock options granted to non-employees is recognized as the stock options are earned. The Company believes that the estimated fair value of the stock options is more readily measurable than the fair value of the services rendered.
RSUsThe following table presents the weighted-average assumptions used in the Black-Scholes valuation model to estimate the fair value of non-employee stock options:As of December 31, 2017, unrecognized stock-based compensation expense related to unvested non-employees stock options was approximately $0.4 million, which is expected to be recognized over a weighted-average period of 1.5 years, based on the estimated fair value at December 31, 2017.RSUstwo to four-year2–4 year period.The following table summarizes the RSU activity under the Company’s stock plans and related information:(In thousands, except grant date fair value and years) Number of
Units
(in thousands)Weighted-
Average
Grant Date
Fair Value
(in dollars)Weighted-
Average
Remaining
Contractual Term
(in years)Balance at December 31, 2017 Balance at December 31, 2017 2,515 $ 3.24 1.6 Granted 1,381 5.94 Vested and released (774) 3.46 Forfeited (725) 4.28 Balance at December 31, 2018 Balance at December 31, 2018 2,397 $ 9.23 4.8 Granted Granted 250 3.95 Vested and released Vested and released (663) 4.84 Forfeited Forfeited (863) 4.86 Balance at December 31, 2019 Balance at December 31, 2019 1,121 $ 4.59 0.9 Granted Granted 105 15.75 Vested and released Vested and released (590) 4.49 Forfeited Forfeited (96) 7.17 Balance at December 31, 2020 Balance at December 31, 2020 540 $ 6.41 0.8 The weighted-average grant-date fair value of RSUs granted during the years ended December 31, 2017, 20162020, 2019 and 20152018 were $2.81, $4.40$15.75 and $13.85,$3.95, $5.94, respectively. During the years ended December 31, 2017, 20162020, 2019 and 2015,2018 total fair value of RSUs vested was $2.0$2.7 million, $1.7$3.4 million and $1.4$2.7 million, respectively. The number of RSUs vested includes shares of common stock that the Company withheld on behalf of employees or sold to cover to satisfy the minimum statutory tax withholding requirements. As of December 31, 2017,2020, there was $6.4$2.2 million of unrecognized compensation cost related to unvested RSUs that is expected to be recognized over a weighted-average period of 2.91.5 years.100ESPPIn July 2014, the Company approved the establishment of the 2014 Employee Stock Purchase Plan (the “ESPP”). The Company reserved 208,833 shares of its common stock for issuance and provided for annual increases in the number of shares available for issuance on the first business day of each fiscal year, beginning in 2015, equal to the lesser of one percent (1%) of the number of shares of the Company’s common stock shares outstanding as of such date or a number of shares as determined by the Company’s board of directors. During the yearsyear ended December 31, 2017, 74,6422020, 113,900 shares were issued under the ESPP. As of December 31, 2017,2020, a total of 962,0952,434,004 shares of common stock were available for future issuance under the ESPP. As of December 31, 2017,2020, there was $313,565 of unrecognized compensation cost related to the ESPP was immaterial.ESPP.The following table presents, by operating expense, the Company’s stock-based compensation expense:Years ended December 31, 2020 2019 2018 (In thousands) Research and development $ 7,120 $ 3,536 $ 4,820 General and administrative 13,271 6,363 8,612 Total share-based compensation expense $ 20,391 $ 9,899 $ 13,432 During the yearyears ended December 31, 2016, stock-based compensation expense included one-time charges of $1.5 million, which was recorded in general2020, 2019 and administrative expense, and $1.4 million, which was recorded in research and development expense, related to stock award modifications in connection with the separation agreements for four of Company’s executive officers.During the year ended December 31, 2015,2018, the Company recorded a one-time stock-basedapproximately $0.3 million, $1.2 million, and $4.1 million, respectively of stock‑based compensation expense as a result of $2.4 million related to the cancellationmodification of unvestedthe vesting and exercisability of stock options in connectionawards associated with the separation agreement for onedeparture of the Company’s executive officers.14.its executives, and directors.11. 401(k) Savings PlanThe Company established a defined-contribution savings plan under Section 401(k) of the Code. The 401(k) Plan covers all employees who meet defined minimum age and service requirements, and allows participants to defer a portion of their annual compensation on a pretax basis. The amount of contributions that the Company made to the 401(k) Plan during the yearyears ended December 31, 2017, 20162020, 2019 and 20152018 was $0.3$0.7 million, $0.3$0.4 million and $0.1$0.4 million respectively15.respectively.12. Income TaxesThe Company recorded $0.8 millioncomponents of the Company’s income tax benefit related to the change in the deferred tax liabilities balance due to intangible assets impairment recognized in the fourth quarter of 2016 and no income tax benefit or expenseprovision (benefit) were recorded for the years ending December 31, 2017 and 2015.Years ended December 31, 2020 2019 2018 (In thousands) Current: Foreign 1,114 0 0 Total current tax provision 1,114 0 0 Deferred Foreign 0 0 (1,250) Total deferred tax provision (benefit) 0 0 (1,250) Total income tax provision (benefit) $ 1,114 $ 0 $ (1,250) The following table presents domestic and foreign components of loss before provision (benefit) for income taxes:Years ended December 31, 2020 2019 2018 (In thousands) U.S. $ (110,327) $ (59,426) $ (45,024) Foreign (6,066) (5,060) (28,853) Loss before income taxes $ (116,393) $ (64,486) $ (73,877) A reconciliation101Income tax expenseprovision (benefit) for the years ended December 31, 2020, 2019 and 2018 differed from the amounts computed atby applying the statutory federal income tax rate of 34%21% to pretax income taxes(loss) as reflected ina result of the financial statements is as follows:Years ended December 31, 2020 2019 2018 (In thousands) Federal income tax expense at statutory rate $ (24,442) $ (13,542) $ (15,514) Stock compensation (2,787) (1,212) (1,512) Non-deductible expenses 941 307 75 Other 166 298 41 Research and development tax credits (3,150) (948) (1,215) Change in valuation allowance 24,817 18,312 11,219 Foreign rate differential 595 (212) (586) Impact of internal reorganization 2,669 0 0 Uncertain tax positions 2,305 (6,242) 6,242 State deferred tax adjustment 0 3,239 0 Total tax provision (benefit) $ 1,114 $ 0 $ (1,250) Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The following table presents significant components of the Company’s deferred tax assets:As of December 31, 2020 2019 (In thousands) Deferred tax assets: Net operating loss carryforwards $ 74,023 $ 53,309 Accruals, reserve and other 1,588 834 Tax credit carryforwards Tax credit carryforwards 11,727 6,008 Stock-based compensation 5,975 4,767 Intangibles 18 24 Lease obligation Lease obligation 6,630 6,896 Other Other 2 151 Total deferred tax assets before valuation allowance 99,963 71,989 Valuation allowance (94,645) (66,201) Total deferred tax assets 5,318 5,788 Deferred tax liabilities: Right-of-use assets Right-of-use assets (4,183) (4,483) Property and equipment (1,135) (1,305) Total deferred tax liabilities $ (5,318) $ (5,788) Net deferred tax assets $ 0 $ 0 On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly known as the Tax Cuts and Jobs Act of 2017 (the “Act”), which significantly reforms the Internal Revenue Code of 1986, as amended. The Act contains broad and complex changes to corporate taxation, including in part reduction of 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 considered permanently reinvested, and creates new taxes on certain foreign sourced earnings.As of December 31, 2017, the Company was able to determine a reasonable estimate, namely the one-time transition tax and the remeasurement of deferred tax at the new tax rate. The Company did not recognize any provisional tax expense due to its significant operating losses. The effect on the Company’s deferred tax balance due to the change of net tax rate was $10.2 million and was fully offset by its valuation allowance, therefore, there was no net effect to the Company’s effective tax rate for the year ended December 31, 2017.The one-time transition tax is based on the Company’s post-1986 foreign earnings and profits which the Company had previously excluded from U.S. income taxes due to its position that it would permanently reinvest its future earnings. The one-time transition tax is applied at a 15.5% tax rate on cash assets and an 8% tax rate for other specified assets. Since the Company’s foreign operations incurred aggregated losses, the Company did not record provisional amount for its one-time transition tax liability for its foreign subsidiaries due to overall cumulative foreign losses.Additionally, the SEC staff has issued SAB 118, which allows the Company to record provisional amounts during a measurement period not to extend beyond one year of the enactment date. On December 22, 2017, Staff Accounting Bulletin No. 118 ("SAB 118") was issued to address the application of U.S. GAAP in situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. Because the Company is still in the process of analyzing certain provisions of the Act including the application of new executive compensation limitation provisions under Internal Revenue Section 162(m) in accordance with SAB 118, the Company determined that the adjustment to its deferred taxes was a provisional amount and a reasonable estimate at December 31, 2017.2017, 20162020 and 2015.2019. The valuation allowance increased approximately $12.0$28.4 million and $18.9 million during the years ended December 31, 20172020 and decreased approximately $5.3 million during the year ended December 31, 2016.As of December 31, 2017,2020, the Company had U.S. federal net operating losses (“NOLs”) carryforwards of approximately $53.2$271.6 million to offset any future federal income. Approximately $56.9 million of NOLs expire at various years beginning with 2036. As of December 31, 2017,2020, the Company also had U.S. state NOL carryforwards of approximately $37.8$33.5 million to offset any future state income. U.S. Statestate NOLs expire at various years beginning with 2036. At December 31, 2017,2020, the102Company also had approximately $44.1$56.5 million of foreign net operating loss carryforwards which may be available to offset future foreign income; these carryforwards do not expire.As of December 31, 2017,2020, the Company had federal research and development tax credit carryforwards of approximately $0.8$9.5 million available to reduce future tax liabilities which expire at various years beginning with 2036. As of December 31, 2017,2020, the Company had state credit carryforwards of approximately $1.0$8.6 million available to reduce future tax liabilities which do not expire.Under Section 382 of the Internal Revenue Code, of 1986, as amended (Code), the Company’sour ability to utilize NOL carryforwards or other tax attributes such as research tax credits, in any taxable year may be limited if the Company experienceswe have experienced an “ownership change.” Generally, a Section 382 ownership change occurs if there is a cumulative increase of more than 50 percentage points in the stock ownership of one or more stockholders or groups of stockholders who ownsown at least 5% of a corporation’s stock within a specified testing period. Similar rules may apply under state tax laws. The Company believesDue to a June 30, 2020 ownership change, we determined that it has experienced ownership changes under Section 382, which will result in limitations in the Company’s ability to utilize net operating losses and credits. As a result, the amount of thecertain NOLs and research and credit carryforwards presented indevelopment tax credits for both federal and state purposes are subject to the Company’s consolidated financial statements are limited and will expire unutilized, and382 limitation; however, it was determined that there should be no material impact to the Company removed a significant amountability of NOLs and credits from its deferred taxes.The Company files income tax returns in the U.S., and federal, state, and foreign jurisdictions. The federal, state and foreign income tax returns are open under the statute of limitations subject to tax examinations for the tax years ended December 31, 20122016 through December 31, 2017.2019. To the extent the Company has tax attribute carryforwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, state or foreign tax authorities to the extent utilized in a future period.The Company has total unrecognized tax benefits as of December 31, 2017, 20162020, 2019 and 20152018 of approximately $2.7 million, $2.1$8.7 million and $1.6$3.6 million, 8.8 million, respectively. NoNaN amount of the unrecognized tax benefits, if recognized, would reduce the Company’s annual effective tax rate because the benefits are in the form of deferred tax assets for which a full valuation allowance has been recorded. The Company does not anticipate a significant change to its unrecognized tax benefits over the next twelve months. A reconciliation of the unrecognized tax benefits is as follows:Years ended December 31, 2020 2019 2018 (In thousands) Unrecognized tax benefits as of the beginning of the year $ 3,558 $ 8,805 $ 2,745 Increase (decrease) related to prior year tax provisions 0 (6,242) 1,941 Increase related to current year tax provisions 5,119 995 4,119 Unrecognized tax benefits as of the end of the year $ 8,677 $ 3,558 $ 8,805 2017 and 2016,2020, the Company had no accrued $257,000 interest orand penalties related to uncertain tax positions and no amounts have been recognized in the Company’s consolidated statements of operations and comprehensive loss.0 amount was accrued for 2019. There are no ongoing examinations by taxing authorities at this time.16.13. Net Loss per ShareThe following common stock equivalents outstanding at the end of the periods presented were excluded from the calculation of diluted net loss per share for the periods indicated because including them would have had an anti-dilutive effect:As of December 31, 2020 2019 2018 (In thousands) Stock options 10,432 8,995 6,447 Restricted stock units 540 1,121 2,397 ESPP 26 15 62 Warrants to purchase common stock 0 90 90 10,998 10,221 8,996 17.14. Related Party TransactionsIn the February 2020 underwritten public offering of the Company's common stock, a member of our board of directors purchased 10,000 shares of our common stock at a price of $13.75 per share, the public offering price in our February 2020 underwritten public offering of common stock, for an aggregate purchase price of $0.1 million, payable in cash.103In the August 2020 underwritten public offering of common stock, the Company's CEO and one other executive officer purchased an aggregate of 15,384 shares of our common stock at a price of $13.00 per share, the public offering price in our August 2020 underwritten public offering of common stock, for an aggregate purchase price of $0.2 million, payable in cash.15. Subsequent EventsEditas AgreementNorth Carolina LeaseOn January 25, 2018,8, 2021, the Company entered into a long-term lease agreement (“Lease”) pursuant to which the Company will lease approximately 174,000 rentable square feet located at 14 TW Alexander Drive, Durham, North Carolina (the “Premises”). The Premises will support the Company’s commercial manufacturing of its novel gene therapy candidates and is expected to be production-ready by the end of 2023.The term of the Lease commences upon delivery of the Premises to the Company and Editas extendedruns for 16.5 years, with 2 consecutive five-year extension options. Rent on the research collaboration, optionPremises will commence eighteen months after such delivery at a rate of $477,426 per month, and license agreement. In consideration for extending the agreement, Editas madewill be increased annually by a one-time payment, non-refundable cash payment of $0.5 million3% rent adjustment. According to the Company in February 2018.UnderLease, the terms of the agreement, as amended, Editas may exercise the option with respect to a designated initial indication until September 30, 2018. With respect to the four other indications, Editas may exercise the option until the fourth anniversary of the effective date, provided that the option will expire on the third anniversary of the effective date if Editas has not exercised the option with respect to the initial indication or any other indication by such date. Upon Editas’ timely exercise of the option with respect to the designated initial indication, EditasCompany will pay the CompanyLandlord certain operating expenses property management fees, and taxes related to the Premises incurred by the Landlord, as well as a $1.3security deposit of $2.8 million.Landlord has agreed to provide Adverum with: a tenant improvement allowance of up to $135/rentable square foot and a warm shell improvement allowance of up to $2.0 million, fee. Forwhich are included in the firstbase rent; and an additional indication fortenant improvement allowance of up to $100/rentable square foot, which Editas timely exercises its option, Editas will payAdverum is required to repay over the term of the Lease with an interest rate of 8%.The undiscounted future non-cancellable lease payments under the Lease is as follows:Years ending December 31, (In thousands) 2021 $ 0 2022 2,865 2023 5,901 2024 6,078 2025 6,260 Thereafter 87,050 Total undiscounted lease payments $ 108,154 ATM SalesAs of February 25, 2021, the Company a $1.5 million fee. Upon each subsequent exercisehas sold an aggregate of the option, Editas will pay the Company a $1.0 million fee per indication.Follow-on Offerings of Common StockIn January 2018, the Company issued and sold a total of 1,419,893121,000 shares of its common stock at market prices under the 2017 stock offering agreement and raised totalfor $1.7 million of net proceeds of approximately $5.7 million, net of issuance costs.In February 2018, the Company completed an underwritten public offering for the sale of 10,222,235 shares of its common stock and raised total net proceeds of approximately $64.3 million, after deducting underwriting discounts and other issuance costs.18. Selected Quarterly Financial Information (Unaudited)The Company’s quarterly consolidated results of operations are shown below: (1)During the year ended December 31, 2017, the Company recorded a total of $2.0 million of estimated costs associated with the termination of MSA with Cornell University (see Note 7). During the three months ended March 31, 2017, the Company recorded a total of $2.3 million of these estimated costs, which was subsequently adjusted by $0.3 million during the three months ended June 30, 2017.(2)During the year ended December 31, 2016, the Company performed a two-step goodwill impairment analysis and recorded $49.1 million and $0.4 million of goodwill impairment charge, respectively, during the three months ended June and September, 2016. (3)During the three months ended December 31, 2016, the Company performed its annual assessment of its intangible assets, ADVM-043 and ADVM-053, and recorded a total of $11.2 million of impairment charge related to its intangible assets.(4)During the three months ended March 31, 2016, two officers of the company resigned and the Company recorded $2.2 million of one-time stock-based compensation charge related to the accelerated vesting of their stock-based awards.Basic and diluted net loss per share is computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share amounts may not equal annual basic and diluted net loss per share amounts.Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.None.104Item 9A. CONTROLS AND PROCEDURESEvaluation of disclosure controls and proceduresManagement, including Mr. Fisher, our PrincipalChief Executive Officer and PrincipalLeone Patterson, our Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of December 31, 2017.2020. The evaluation of our disclosure controls and procedures included a review of our processes and implementation and the effect on the information generated for use in this Annual Report on Form 10-K. In the course of this evaluation, we sought to identify any material weaknesses in our disclosure controls and procedures to determine whether we had identified any acts of fraud involving personnel who have a significant role in our disclosure controls and procedures, and to confirm that necessary corrective action, including process improvements, was taken. This type of evaluation is done quarterly so that our conclusions concerning the effectiveness of these controls can be reported in our periodic reports filed with the SEC. The overall goals of these evaluation activities are to monitor our disclosure controls and procedures and to make modifications as necessary. We intend to maintain these disclosure controls and procedures, modifying them as circumstances warrant.Based on that evaluation, the PrincipalChief Executive Officer and PrincipalChief Financial Officer concluded that as of December 31, 2017,2020, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the PrincipalChief Executive Officer and PrincipalChief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.Management’s Annual Report on Internal Control over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.Management assessed our internal control over financial reporting as of December 31, 2017,2020, the end of our fiscal year. Management based its assessment on criteria established in "Internal“Internal Control—Integrated Framework (2013)"” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included evaluation of such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal accounting and finance organization.2017.2020. The results of management's assessment were reviewed with the Audit Committee.Our independent registered public accounting firm, Ernst & Young LLP, has audited the financial statements included in this Annual Report and has issued a report on the effectiveness of our internal control over financial reporting. The report of Ernst & Young LLP is included below.105Attestation Report of the Registered Public Accounting FirmThisREPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMThe Board of Directors and StockholdersAdverum Biotechnologies, Inc.Opinion on Internal Control Over Financial ReportingWe have audited Adverum Biotechnologies, Inc. internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), (the COSO criteria). In our opinion, Adverum Biotechnologies, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated March 1, 2021 expressed an unqualified opinion thereon.Basis for OpinionThe Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Form 10-K does not includeInternal Control over Financial Reporting. Our responsibility is to express an attestation report ofopinion on the Company’s internal control over financial reporting based on our registeredaudit. We are a public accounting firm dueregistered with the 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 audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.Our audit included obtaining an exemption established byunderstanding of internal control over financial reporting, assessing the JOBS Actrisk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for “emerging growth companies.”Definition and Limitations of Internal Control Over Financial ReportingA company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate./s/ Ernst & Young LLPSan Jose, CaliforniaMarch 1, 2021106Changes in Internal Control over Financial ReportingThere were no changes in our internal control over financial reporting during the yearquarter ended December 31, 20172020 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.Inherent Limitations on Controls and ProceduresOur management, including the PrincipalChief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures and our internal controls will prevent all error and all fraud. A control system, no matter how well designed and operated, can only provide reasonable assurances that the objectives of the control system are met. The design of a control system reflects resource constraints; the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been or will be detected. As these inherent limitations are known features of the financial reporting process, it is possible to design into the process safeguards to reduce, though not eliminate, these risks. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns occur because of simple error or mistake. Controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events. While our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives, there can be no assurance that any design will succeed in achieving its stated goals under all future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis and to improve our controls and procedures over time and to correct any deficiencies that we may discover in the future. While our PrincipalChief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2017,2020, the design of our disclosure controls and procedures, as defined in Rule 13a-15(e) under the Exchange Act, was effective, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.Item 9B. Other Information.Not applicable.
None107PART IIIItem 10. Directors, Executive Officers and Corporate Governance.The information required by this item will be contained in our definitive proxy statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A in connection with our 20182020 Annual Meeting of Stockholders (the “Proxy Statement”), which is expected to be filed not later than 120 days after the end of our fiscal year ended December 31, 2017,2020 , under the headings “Executive Officers,” “Election of Directors,” “Corporate Governance,” and ““Delinquent Section 16(a) Beneficial Ownership Reporting Compliance,Reports,” and is incorporated herein by reference.We have adopted a written code of business conduct and ethics that applies to our directors, officers and employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. A current copy of the code is posted on the Corporate Governance section of our website, which is located at www.adverum.com. If we make any substantive amendments to, or grant any waivers from, the code of business conduct and ethics for our principal executive officer, principal financial officer, principal accounting officer, controller or persons performing similar functions, or any officer or director, we will disclose the nature of such amendment or waiver on our website or in a current report on Form 8-K.8-K.We have recently expanded our Board with the addition of Dawn Svoronos in December 2020 and Reed Tuckson, M.D., in February 2021, both of whom bring unique skills that we feel will be particularly important as we advance ADVM-022 into pivotal Phase 3 studies and towards potential commercialization. The addition of Ms. Svoronos and Dr. Tuckson also contributes further to the diversity of our board. Ms. Svoronos and Dr. Tuckson, along with incumbent directors Eric Carter, M.D., Ph.D., Rekha Hemrajani and Thomas Woiwode, Ph.D., are Class I directors with terms expiring at our 2021 annual meeting of stockholders. Based on discussions with our Nominating and Corporate Governance Committee, we anticipate that, in connection with our 2021 annual meeting, our Board will nominate a slate consisting of Ms. Svoronos and Dr. Tuckson for reelection as Class I directors with terms expiring at our 2024 annual meeting of stockholders.Item 11. Executive Compensation.The information required by this item will be contained in the Proxy Statement under the headings “Executive Compensation” and “Non-Employee“Non-employee Director Compensation,” and is incorporated herein by reference.Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.The information required by this item will be contained in the Proxy Statement under the headings “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information,” and is incorporated herein by reference.Item 13. Certain Relationships and Related Transactions, and Director Independence.The information required by this item will be contained in the Proxy Statement under the headings “Certain Relationships and Related Party Transactions” and “Corporate Governance,” and is incorporated herein by reference.Item 14. Principal Accountant Fees and Services.The information required by this item will be contained in the Proxy Statement under the heading “Ratification of Selection of Independent Registered Public Accounting Firm” and is incorporated herein by reference.108PART IVItem 15. Exhibits and Financial Statement Schedules.(a) The financial statements schedules and exhibits filed as part of this Annual Report on Form 10-K are as follows:See Index to Consolidated Financial Statements in Item 8 of this Annual Report on Form 10-K. No financial statement schedules are provided because the information called for is not required or is shown in the consolidated financial statements or related notes.(b) The following exhibits are included herein or incorporated by reference:EXHIBIT INDEXINCORPORATED BY REFERENCE EXHIBIT
NUMBEREXHIBIT DESCRIPTION FILE NUMBER FORM DATE EXHIBIT
NUMBERPROVIDED
HEREWITH3.1 001-36579 10-K March 9, 2017 3.1 3.2 001-36579 8-K December 16, 2019 3.1 4.1 4.2 X 10.1† 001-36579 10-Q August 9, 2016 10.9 10.2† 001-36579 10-Q August 9, 2016 10.10 10.3† 001-36579 10-K March 6, 2019 10.46 10.4† 001-36579 10-K March 6, 2019 10.47 10.5 001-36579 10-Q August 8, 2018 10.2 10.6(#) 001-36579 10-Q August 10, 2020 10.9 10.7(#) 333-220894 S-8 October 11, 2017 99.2 10.8(#) 333-220894 S-8 October 11, 2017 99.3 10.9(#) 001-36579 8-K November 20, 2015 10.3 10.10(#) 333-218465 S-8 June 2, 2017 99.6 10.11(#) 001-36579 10-Q August 10, 2020 10.8 10.12(#) 333-197133 10-K March 6, 2018 10.14 10.13(#) 001-36579 10-K March 6, 2018 10.16 109INCORPORATED BY REFERENCE EXHIBIT
NUMBEREXHIBIT DESCRIPTION FILE NUMBER FORM DATE EXHIBIT
NUMBERPROVIDED
HEREWITH10.14(#) 333-197133 S-1/A July 25, 2014 10.18 10.15(#) 001-36579 10-K March 6, 2019 10.16 10.16(#) 001-36579 10-Q August 10, 2020 10.7 10.17(#) 333-197133 S-1/A July 25, 2014 10.16 10.18(#) 333-197133 S-1/A July 18, 2014 10.13 10.19(#) 001-36579 10-K March 6, 2018 10.36 10.20(#) 001-36579 10-Q August 10, 2020 10.1 10.21(#) 001-36579 10-Q August 10, 2020 10.2 10.22(#) 001-36579 10-Q August 10, 2020 10.3 10.23(#) 001-36579 10-Q August 10, 2020 10.5 10.24(#) 001-36579 10-Q May 8, 2019 10.1 10.25(#) 001-36579 10-Q November 7, 2019 10.1 10.26(#) 001-36579 10-Q November 7, 2019 10.2 10.27(#) 001-36579 10-Q May 28, 2020 10.2 10.28(#) 001-36579 10-Q May 28, 2020 10.3 10.29(#) 001-36579 10-Q May 28, 2020 10.1 10.30(#) 001-36579 10-Q August 10, 2020 10.6 21.1 X 23.1 X 24.1 X 31.1 X 31.2 X 32.1 X 110INCORPORATED BY REFERENCE EXHIBIT
NUMBEREXHIBIT DESCRIPTION FILE NUMBER FORM DATE EXHIBIT
NUMBERPROVIDED
HEREWITH32.2 X 101.INS XBRL Instance Document. X 101.SCH XBRL Taxonomy Extension Schema Document. X 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. X 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. X 101.LAB XBRL Taxonomy Extension Label Linkbase Document. X 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. X † Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC.# Indicates management contract or compensatory plan.* The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Adverum Biotechnologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.Item 16. Form 10-K SummaryNone.
NUMBER
None.Incorporated by ReferenceEXHIBIT
NUMBEREXHIBIT DESCRIPTIONFile NumberFormDateEXHIBITNumberPROVIDEDHerewith333-197133S-1/AJuly 25, 201410.1610.13(#)Adverum Biotechnologies, Inc. 2014 Equity Incentive Award Plan.X10.14(#)X10.15(#)333-197133S-1/AJuly 25, 201410.1810.16(#)X10.17(#)Adverum Biotechnologies, Inc. 2014 Employee Stock Purchase Plan.X10.18(#)333-197133S-1June 30, 201410.1010.19(#)333-197133S-1December 18, 201410.15 10.20(#)001-365798-KSeptember 1, 201710.110.21(#)Special Bonus Letter, dated July 23, 2015, for Mehdi Gasmi, Ph.D.001-365798-KJuly 23, 201510.310.22(#)001-3657910-QAugust 13, 201510.510.23(#)001-365798-KNovember 20, 201510.1 10.24(#)001-365798-KFebruary 1, 201610.210.25(#)001-365798-KFebruary 1, 201610.310.26(#)Offer Letter, dated June 10, 2016, by and between Adverum Biotechnologies, Inc. and Leone Patterson001-365798-KJune 13, 201610.110.27(#)001-3657910-KMarch 9, 201710.3910.28(#)001-3657910-KMarch 9, 201710.4010.29(#)001-365798-KJune 20, 201710.1111
NUMBERIncorporated by ReferenceEXHIBIT
NUMBEREXHIBIT DESCRIPTIONFile NumberFormDateEXHIBITNumberPROVIDEDHerewith101.SCHXBRL Taxonomy Extension Schema Document.X101.CALXBRL Taxonomy Extension Calculation Linkbase Document.X101.DEFXBRL Taxonomy Extension Definition Linkbase Document.X101.LABXBRL Taxonomy Extension Label Linkbase Document.X101.PREXBRL Taxonomy Extension Presentation Linkbase Document.X†Portions of this exhibit (indicated by asterisks) have been omitted pursuant to a request for confidential treatment and this exhibit has been filed separately with the SEC.#Indicates management contract or compensatory plan.*The certification attached as Exhibit 32.1 that accompanies this Annual Report on Form 10-K is not deemed filed with the SEC and is not to be incorporated by reference into any filing of Adverum Biotechnologies, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Form 10-K, irrespective of any general incorporation language contained in such filing.Date: March 6, 20181, 2021ADVERUM BIOTECHNOLOGIES, INC. By: By:Amber SalzmanLaurent Fischer, M.D.Chief Executive Officer(Principal Executive Officer)Amber SalzmanBy: /s/ Leone Patterson Leone PattersonPresident and Chief ExecutiveFinancial Officer(Principal Financial and Accounting Officer)Power of AttorneyEach person whose individual signature appears below hereby authorizes and appoints Amber SalzmanLaurent Fischer and Leone Patterson, and each of them, with full power of substitution and resubstitution and full power to act without the other, as his or her true and lawful attorney-in-fact and agent to act in his or her name, place and stead and to execute in the name and on behalf of each person, individually and in each capacity stated below, and to file any and all amendments to this annual report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing, ratifying and confirming all that said attorneys-in-fact and agents or any of them or their or his substitute or substitutes may lawfully do or cause to be done by virtue thereof.Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this annual report on Form 10-K has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.112SIGNATURETITLEDATESIGNATURE TITLE DATE /s/ Amber SalzmanLaurent Fischer, M.D.March 1, 2021 Laurent Fischer (Principal Executive Officer) /s/ Leone Patterson President and Chief ExecutiveFinancial Officer6, 2018Amber Salzman(Principal Executive Officer)/s/Leone PattersonChief Financial OfficerMarch 6, 2018Leone PattersonPaul B. Cleveland6, 2018Paul B. ClevelandMitchell H. FinerDirectorMarch 6, 2018Mitchell H. Finer, Ph.D./s/ Thomas F. WoiwodeDirectorMarch 6, 2018Thomas F. Woiwode, Ph.D./s/ Eric G. CarterDirectorMarch 6, 2018Director March 1, 2021 Eric G. Carter, M.D., Ph.D. /s/ Patrick MachadoDirectorMarch 6, 2018Patrick MachadoDirector March 1, 2021 Mehdi Gasmi, Ph.D. /s/ Richard N. SpiveyDirectorMarch 6, 2018Richard N. Spivey, Pharm. D.Director March 1, 2021 Rekha Hemrajani, M.B.A. /s/ Mark Lupher, Ph.D. Director March 1, 2021 Mark Lupher, Ph.D. /s/ James Scopa, J.D., M.B.A. Director March 1, 2021 James Scopa, J.D., M.B.A. /s/ Dawn Svoronos Director March 1, 2021 Dawn Svoronos /s/ Reed Tuckson, M.D. Director March 1, 2021 Reed Tuckson, M.D. /s/ Scott M. Whitcup, M.D. Director March 1, 2021 Scott M. Whitcup, M.D. /s/ Thomas F. Woiwode, Ph.D. Director March 1, 2021 Thomas F. Woiwode, Ph.D. 118113