(1) Organization

AVEO Pharmaceuticals, Inc. (the “Company”) is a biopharmaceutical company dedicated to advancing a broad portfolio of targeted therapeutics for oncology and other areas of unmet medical need. The Company’s proprietary platform has delivered unique insights into cancer and related diseases. The Company’s strategy is to leverage these biomarker insights and partner resources to advance the development of its clinical pipeline.

The Company’s pipeline includes its lead candidate tivozanib, an oral, once-daily, vascular endothelial growth factor (“VEGF”) tyrosine kinase inhibitor (“TKI”). Tivozanib is a potent, selective and long half-life inhibitor of all three VEGF receptors and is designed to optimize VEGF blockade while minimizing off-target toxicities, potentially resulting in improved efficacy and minimal dose modifications. Tivozanib has been investigated in several tumor types, including renal cell, colorectal and breast cancers

In June 2013, the U.S. Food and Drug Administration (“FDA”) issued a complete response letter denying the Company’s application for approval of the use of tivozanib in first-line treatment of advanced renal cell carcinoma (“RCC”), citing concerns regarding the negative trend in overall survival in the Company’s first pivotal phase 3 trial (the “TIVO-1” study). In May 2016, the Company initiated enrollment and treatment of patients in a new phase 3 trial of tivozanib in the third-line treatment of patients with refractory RCC (the “TIVO-3” study), seeking to address the overall survival concerns presented in the June 2013 complete response letter from the FDA and to support a request for regulatory approval of tivozanib in the United States as a third-line treatment and as a first-line treatment for RCC. The Company expects to complete enrollment in the TIVO-3 study in June 2017 and to report top line data in the first quarter of 2018. TIVO-3 is also expected to undergo a pre-planned futility analysis approximately mid-year 2017.

In March 2017, the Company initiated enrollment in a phase 1/2 trial of tivozanib in combination with Opdivo® (“nivolumab”), an immune checkpoint (“PD-1”) inhibitor, for the treatment of advanced RCC (the “TiNivo” trial). Bristol-Myers Squibb is supplying nivolumab for the TiNivo trial, and the Company is the trial sponsor. The study is being led by the Institut Gustave Roussy in Paris under the direction of Professor Bernard Escudier, MD, Chairman of the Genitourinary Oncology Committee. The phase 1 trial will primarily evaluate the safety of tivozanib in combination with nivolumab at escalating doses of tivozanib and, assuming favorable results, is expected to be followed by a phase 2 expansion at the established combination dose. The Company expects to receive initial data from the phase 1 portion of the TiNivo trial in the first half of 2017.

In February 2016, EUSA Pharma (UK) Ltd. (“EUSA”), the Company’s European licensee, submitted a Marketing Authorization Application (“MAA”) for tivozanib with the European Medicines Agency (“EMA”) for the treatment of RCC. The EMA validated the MAA in March 2016, confirming that the submission was complete and that it would initiate its review process. EUSA received the Day 120 List of Questions from the Committee for Medicinal Products for Human Use (“CHMP”) of the EMA in July 2016, and submitted its responses in November 2016. In January 2017, EUSA received the Day 180 List of Outstanding Issues (“LOI”) from the CHMP of the EMA. The Day 180 LOI signifies that the MAA is not approvable at the present time, and outlines outstanding deficiencies, which are then required to be satisfactorily addressed in an oral explanation and/or in writing prior to a final application decision. EUSA has informed the Company that it expects to submit written responses to the Day 180 LOI in April 2017, and the EMA has tentatively scheduled EUSA to provide an oral explanation to the CHMP in May 2017.

The Company also has a pipeline of monoclonal antibodies, including:

(i)

Ficlatuzumab, a potent hepatocyte growth factor (“HGF”) antibody that inhibits the activity of the HGF/c-Met pathway. Ficlatuzumab has ongoing clinical trials in acute myloid leukemia (“AML”) and squamous cell cancer of the head and neck. The Company and its worldwide partner Biodesix, Inc (“Biodesix”) will share equally in all future costs and profits relating to the development of ficlatuzumab.

(ii)

AV-203, a potent, high-affinity inhibitor of the ErbB3 pathway. The Company’s partner CANbridge Life Sciences Ltd. (“CANbridge”) will fund manufacturing and clinical development through proof-of-concept in esophageal squamous cell carcinoma.

(iii)

AV-380, a potent, humanized IgG1 inhibitory monoclonal antibody targeting growth differentiating factor-15 (“GDF15”), a divergent member of the TGF-ß family, for the potential treatment or prevention of cachexia. The Company has licensed AV-380 to Novartis International Pharmaceutical Ltd. (“Novartis”), which will fund all development, manufacturing and commercialization; and

(iv)

The AV-353 platform, a family of potent inhibitory antibody candidates specific to Notch 3, one of which has demonstrated an ability in preclinical models to potentially reverse disease phenotype for pulmonary arterial hypertension (“PAH”). The Company is currently seeking a partner to advance development of the AV-353 platform for the potential treatment of PAH.

As used throughout these condensed consolidated financial statements, the terms “AVEO,” and the “Company” refer to the business of AVEO Pharmaceuticals, Inc. and its two wholly-owned subsidiaries, AVEO Pharma Limited and AVEO Securities Corporation.

Liquidity and Going Concern

The Company has financed its operations to date primarily through private placements and public offerings of its common stock and preferred stock, license fees, milestone payments and research and development funding from strategic partners, and loan proceeds. The Company has devoted substantially all of its resources to its drug development efforts, comprising research and development, manufacturing, conducting clinical trials for its product candidates, protecting its intellectual property and general and administrative functions relating to these operations. The future success of the Company is dependent on its ability to develop its product candidates and ultimately upon its ability to attain profitable operations. As of December 31, 2016, the Company had cash, cash equivalents and marketable securities totaling approximately $23.3 million, working capital of $16.0 million and an accumulated deficit of $521.9 million.

The Company is subject to a number of risks, including the need for substantial additional capital for clinical research and product development and the risk that it is unable to maintain compliance with its financial covenant pursuant to its Loan Agreement with Hercules, which requires the Company to maintain unrestricted cash (defined as cash and liquid cash, including marketable securities) greater than or equal to $10.0 million through the date of completion of the Company’s Phase 3 TIVO-3 trial. Non-compliance with the financial covenant would be considered an event of default that could result in Hercules, at its option, accelerating and demanding payment of all outstanding obligations together with a prepayment charge. Refer to Note 6 for further description of the Company’s loan and security agreement.

Based upon the Company’s approximately $23.3 million in existing cash, cash equivalents and marketable securities as of December 31, 2016, the Company does not have sufficient existing cash, cash equivalents and marketable securities to support operations and maintain compliance with the financial covenant for at least the next year following the date that the financial statements are issued. These conditions raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

Management’s plans to alleviate these conditions that raise substantial doubt regarding the Company’s ability to continue as a going concern include pursuing one or more of the following steps to raise additional funding, none of which can be guaranteed or are entirely within the Company’s control:

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Raise funding through the possible sales of the Company’s common stock, including public or private equity financings.

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Raise funding through the possible sales of the Company’s common stock under the at-the-market issuance sales agreement (the “Sales Agreement”) with FBR & Co. (formerly MLV & Co. LLC) (“FBR”), as discussed in Note 7.

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Raise funding under the Company’s loan and security agreement (the “Loan Agreement”) with Hercules Technology II, L.P. and Hercules Technology III, L.P., affiliates of Hercules Technology Growth (collectively, “Hercules”), which, as described in Note 6, provides access to additional funding only if certain specified conditions are met.

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Continue to seek a partner to advance development of the AV-353 platform for the potential treatment of PAH.

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Earn milestone payments pursuant to collaboration and license agreements described in Note 4 or restructure / monetize existing potential milestone and/or royalty payments under those collaboration and license agreements.

There can be no assurance, however, that the Company will receive cash proceeds from any of these potential resources or, to the extent cash proceeds are received, those proceeds would be sufficient to support the Company’s operations and allow the Company to maintain compliance with its financial covenant for at least the next year following the date that the financial statements are issued. Management has concluded the likelihood that its plan to obtain sufficient funding from one or more of these sources will be successful, while reasonably possible, is less than probable. Accordingly, management has concluded that substantial doubt exists regarding the Company’s ability to continue as a going concern.

If the Company is unable to raise capital when needed or on attractive terms, or if it is unable to procure partnership arrangements to advance its programs, or if it is unable to maintain compliance with the financial covenant in the loan and security agreement, the Company would be forced to delay, reduce or eliminate its research and development programs and any future commercialization efforts.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.