UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2022

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

For the transition period from _____________ to _____________

Commission File Number: 001-40544

AEROVATE THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware		83-1377888
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

930 Winter Street, Suite M-500 Waltham, MA 02451		02116
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (617) 443-2400

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.0001 per share		AVTE		The Nasdaq Global Market

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

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

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

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒

Emerging growth company	☒

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

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

As of May 13, 2022, the registrant had 24,410,393 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	6
Item 1.	Financial Statements (Unaudited)	6
	Condensed Consolidated Balance Sheets	6
	Condensed Consolidated Statements of Operations and Comprehensive Loss	7
	Condensed Consolidated Statements of Redeemable Convertible and Convertible Preferred Stock and Stockholders’ Equity (Deficit)	8
	Condensed Consolidated Statements of Cash Flows	9
	Notes to Unaudited Condensed Consolidated Financial Statements	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II.	OTHER INFORMATION	26
Item 1.	Legal Proceedings	26
Item 1A.	Risk Factors	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	74
Item 3.	Defaults Upon Senior Securities	74
Item 4.	Mine Safety Disclosures	74
Item 5.	Other Information	74
Item 6.	Exhibits	75
Signatures		76

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SUMMARY OF THE MATERIAL AND OTHER RISKS ASSOCIATED WITH OUR BUSINESS

Our business is subject to numerous material and other risks and uncertainties that you should be aware of in evaluating our business. These risks include, but are not limited to, the following:

	●	We are a clinical-stage biopharmaceutical company with a limited operating history.
	●	We have incurred significant operating losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We may never achieve or maintain profitability.
	●	We have no products approved for commercial sale and have not generated any revenue from product sales.
	●	Our business is entirely dependent on the successful development, regulatory approval and commercialization of AV-101, our only product candidate under development.
	●	The ongoing COVID-19 pandemic, or a similar pandemic, epidemic, or outbreak of an infectious disease, may materially and adversely affect our business and our financial results and could cause a disruption to the development of AV-101. As a result of medical complications associated with PAH, the patient populations that AV-101 targets may be particularly susceptible to COVID-19, which may make it more difficult for us to identify patients able to enroll in our current and future clinical trials and may impact the ability of enrolled patients to complete any such trials.
	●	We have only recently begun testing of AV-101, a dry powder formulation of imatinib for the treatment of PAH administered using a dry powder inhaler, to assess its safety and tolerability. Although we believe that AV-101 has therapeutic potential for PAH based on oral imatinib’s results in the Phase 3 IMPRES trial, we are utilizing a novel dry powder formulation which may not achieve better or similar levels of clinical activity or may have similar tolerability challenges as oral imatinib. The results of earlier studies and trials of oral imatinib in pulmonary arterial hypertension, or PAH, patients and our Phase 1 clinical trial of AV-101 may not be predictive of future trial results for AV-101.
	●	If we encounter difficulties with site initiation and patient enrollment in our clinical trials, our clinical development activities could be delayed or otherwise adversely affected.
	●	We face, and will continue to face, significant competition and our failure to effectively compete may prevent us from achieving significant market penetration for AV-101, if approved. Most of our competitors have significantly greater resources than we do and we may not be able to successfully compete.
	●	We rely, and intend to continue to rely, on qualified third parties to supply all components of AV-101. As a result, we are dependent on several third parties, some of which are sole source suppliers, for the manufacture of AV-101 and our supply chain, and if we experience problems with any of these suppliers, or they fail to comply with applicable regulatory requirements or to supply sufficient quantities at acceptable quality levels or prices, or at all, it would materially and adversely affect our business.
	●	We rely, and intend to continue to rely, on third parties in the conduct of all of our clinical trials. If these third parties do not successfully carry out their contractual duties, fail to comply with applicable regulatory requirements or meet expected deadlines, we may be unable to obtain regulatory approval for AV-101.
	●	We have many pending patent applications with respect to AV-101 (of which one has recently received a notice of allowance), and two issued U.S. patents. We can provide no assurance that any of our other current or future patent applications will result in issued patents. If we cannot protect our patent rights or our other proprietary rights, others may develop products similar or identical to ours, and we may not be able to compete effectively in our market or successfully commercialize any product candidates we may develop.
	●	We may be unable to obtain regulatory approval for AV-101 under applicable regulatory requirements. The denial or delay of any such approval would delay commercialization of AV-101 and adversely impact our potential to generate revenue, our business and our results of operations.
	●	AV-101 is a drug-device combination product, which may result in additional regulatory risks.
	●	We plan to conduct clinical trials for AV-101 outside the United States, and the U.S. Food and Drug Administration, European Medicines Agency, and applicable foreign regulatory authorities may not accept data from such trials.
	●	We will need to increase the size of our organization, and we may experience difficulties in managing growth.
	●	We are highly dependent on our key personnel and anticipate hiring new key personnel. If we are not successful in attracting and retaining highly qualified personnel, our business may be materially and adversely affected.
	●	Unfavorable global economic or political conditions could adversely affect our business, financial condition or results of operations.

The material and other risks summarized above should be read together with the text of the full risk factors below and in the other information set forth in this Quarterly Report on Form 10-Q, including our condensed consolidated financial statements and the related notes, as well as in other documents that we file with the U.S. Securities and Exchange Commission (“SEC”). If any such material and other risks and uncertainties actually occur, our business, prospects, financial condition and results of operations could be materially and adversely affected. The risks summarized above or described in full under Item 1A of this Quarterly Report on Form 10-Q are not the only risks that we face. Additional risks and uncertainties not currently known to us, or that we currently deem to be immaterial may also materially adversely affect our business, prospects, financial condition and results of operations.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains express or implied forward-looking statements that are based on our management’s belief and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future operational or financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Forward-looking statements contained in this Quarterly Report on Form 10-Q include, but are not limited to, statements about:

	●	the initiation, timing, progress, results and cost of our research and development program for AV-101 and our current and future clinical trials, including statements regarding the timing of initiation and completion of studies or trials and related preparatory work and the period during which the results of the trials will become available;

	●	our expectations regarding the potential market size and size of the potential patient populations for AV-101, if approved for commercial use;

	●	our clinical and regulatory development plans;

	●	our expectations with regard to the data to be derived from our planned Phase 2b/Phase 3 clinical trial; or any other product candidates that we may identify or develop;

	●	the timing or likelihood of regulatory filings and approvals for AV-101;

	●	our ability to commercialize AV-101, if approved;

	●	the pricing and reimbursement of AV-101, if approved;

	●	the implementation of our business model and strategic plans for our business and AV-101;

	●	estimates of our future expenses, revenues, capital requirements and our needs for additional financing, and our ability to obtain additional capital;

	●	the scope of protection we are able to establish and maintain for intellectual property rights covering AV-101, including the projected terms of patent protection;

	●	regulatory developments in the United States and foreign countries;

	●	our ability to enter into strategic collaborations, including for the commercialization of AV 101 outside the United States;

	●	the rate and degree of market acceptance of AV 101;

	●	our ability to contract with third-party suppliers, manufacturers and contract research organizations, or CROs, and their ability to perform adequately;

	●	the success of competing therapies for PAH that are or may become available;

	●	developments relating to our competitors and our industry, including the impact of government regulation;

	●	our ability to attract and retain key scientific or management personnel;

	●	our ability to obtain additional funding for our operations, when needed, including funding necessary to complete further development and commercialization of AV-101, if approved;

	●	our financial performance;

	●	the effect of the ongoing COVID-19 pandemic, including mitigation efforts and economic effects, on any of the foregoing or other aspects of our business operations, including but not limited to our clinical trials and any future studies or trials; and

	●	other risks and uncertainties, including those listed under the section titled “Risk Factors.”

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In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties, and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q. If one or more of these risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this Quarterly Report on Form 10-Q and the documents that we reference in this Quarterly Report on Form 10-Q and have filed with the SEC thereto completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. You should therefore not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this Quarterly Report on Form 10-Q.

This Quarterly Report on Form 10-Q also contains estimates, projections and other information concerning our industry, our business and the markets for our product candidates. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. Unless otherwise expressly stated, we obtained this industry, business, market, and other data from our own internal estimates and research as well as from reports, research surveys, studies, and similar data prepared by market research firms and other third parties, industry, medical and general publications, government data and similar sources. While we are not aware of any misstatements regarding any third-party information presented in this Quarterly Report on Form 10-Q, their estimates, in particular, as they relate to projections, involve numerous assumptions, are subject to risks and uncertainties and are subject to change based on various factors, including those discussed under the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

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PART I-FINANCIAL INFORMATION

Item 1. Financial Statements.

Aerovate Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except share and per share amounts)

	March 31,			December 31,
	2022			2021
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	28,137		$	54,197
Short-term investments		132,935			113,178
Prepaid expenses and other current assets (Note 4)		4,813			6,958
Total current assets		165,885			174,333
Property and equipment, net		288			186
Operating lease right-of-use asset		499			542
Other long-term assets		327			302
Total assets	$	166,999		$	175,363

Liabilities and Stockholders’ Equity

Current liabilities:
Accounts payable (including related party amounts of $4 and $2, respectively)	$	2,863		$	1,208
Accrued and other current liabilities (Note 4)		1,647			1,150
Operating lease liability		193			192
Total current liabilities		4,703			2,550
Operating lease liabilities, net of current portion		335			382
Other liabilities		14			13
Total liabilities		5,052			2,945

Commitments and contingencies (Note 5)		-
Stockholders’ equity:
Preferred stock, $0.0001 par value; 10,000,000 shares authorized and no issued or outstanding as of March 31, 2022 and December 31, 2021		-			-
Common stock, $0.0001 par value; 150,000,000 shares authorized at March 31, 2022 and December 31, 2021; 24,410,393 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively		2			2
Additional paid-in capital		209,891			208,867
Accumulated other comprehensive loss		(644	)		(59	)
Accumulated deficit		(47,302	)		(36,392	)
Total stockholders’ equity		161,947			172,418
Total liabilities and stockholders’ equity	$	166,999		$	175,363

See accompanying notes to unaudited interim condensed consolidated financial statements.

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Aerovate Therapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(in thousands, except share and per share amounts)

	2022			2021
	Three Months Ended March 31,
	2022			2021
Operating expenses:
Research and development (includes related party amounts of $8 and $15, respectively)	$	7,255		$	2,196
General and administrative (includes related party amounts of $0 and $5, respectively)		3,764			584
Total operating expenses		11,019			2,780
Loss from operations		(11,019	)		(2,780	)
Other income (expense):
Interest income		109			-
Other expense		-			(1	)
Total other income (expense)		109			(1	)
Net loss before income taxes		(10,910	)		(2,781	)
Net loss	$	(10,910	)	$	(2,781	)
Comprehensive loss:
Net loss	$	(10,910	)	$	(2,781	)
Other comprehensive loss:
Unrealized loss on available-for-sale investments		(585	)		-
Comprehensive loss	$	(11,495	)	$	(2,781	)
Net loss per share, basic and diluted	$	(0.45	)	$	(

SEC Form 10-Q filed by Aerovate Therapeutics Inc.