APPLIED GENETIC TECHNOLOGIES CORPORATION The following discussion and analysis provide an overview of our financial condition as ofSeptember 30, 2022 and our results of operations for the three months endedSeptember 30, 2022 and 2021. This discussion should be read in conjunction with the Unaudited Condensed Financial Statements and related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year endedJune 30, 2022 (the "2022 Form 10-K"). In addition to historical financial information, 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 under the heading "Risk Factors" in Part II, Item 1A, and elsewhere in this report, as well as those set forth in Part I, Item 1A, "Risk Factors," of the 2022 Form 10-K. Forward -looking statements include information concerning our possible or assumed future results of operations, including results and timing of our clinical trials and planned clinical trials, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as "anticipates," "believes," "could," "seeks," "estimates," "expects," "hopes," "intends," "likely," "may," "plans," "potential," "predicts," "projects," "should," "will," "would" or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management's plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.
As used herein, except as otherwise indicated by context, references to "we,"
"us," "our," "AGTC" or the "Company" refer to
Overview
We are a clinical-stage biotechnology company that uses our proprietary gene
therapy platform technology to develop transformational genetic therapies for
people suffering from rare and debilitating diseases. Our initial focus is in
the field of ophthalmology, where we have wholly owned clinical-stage
programs in X-linked retinitis pigmentosa ("XLRP") and achromatopsia ("ACHM"),
and an optogenetics program through our collaboration with Bionic Sight, Inc.
(previously Bionic Sight, LLC ) ("Bionic Sight"). Our preclinical pipeline
includes a program in dry age-related macular degeneration ("dAMD"), two
programs targeting central nervous system ("CNS") disorders, including
frontotemporal dementia ("FTD") and amyotrophic lateral sclerosis ("ALS"), and a
program in otology through our collaboration with Otonomy, Inc. ("Otonomy"). In
May 2022 , we released interim, masked, clinical data from the Skyline trial (as
defined below) in our XLRP program and we now have 24-month data from the XLRP
Phase 1/2 trial ("Horizon"). In addition to our product pipeline, we have also
developed broad technological and manufacturing capabilities, utilizing our
internal scientific resources and collaborating with others.
On October 23, 2022 , we entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Alliance Holdco Limited , a private limited company
organized under the laws of England and Wales (the "Parent"), and Alliance
Acquisition Sub, Inc. , a Delaware corporation and a wholly-owned subsidiary of
the Parent (the "Purchaser"). The Merger Agreement provides for the acquisition
of us by the Parent through a tender offer by the Purchaser for all of our
outstanding shares of common stock ("Common Stock") for (1) $0.34 per share of
Common Stock (the "Cash Consideration"), without interest and less any
applicable withholding taxes, and (2) one contingent value right (each a "CVR")
per share of Common Stock representing the right to receive potential milestone
payments. Additional information about the pending merger can be found in Note 9
to the Unaudited Condensed Financial Statements included in this Quarterly
Report on Form 10-Q.
Since our inception, we have devoted substantially all of our resources to the
development of our clinical and preclinical programs in ophthalmology, otology
and CNS, including manufacturing product candidates in compliance with good
manufacturing practices, preparing to conduct and conducting clinical trials of
our product candidates, providing general and administrative support for these
operations and protecting our intellectual property. We do not have any products
approved for sale and have not generated any revenue from product sales. To
date, we have funded our operations primarily through public offerings of our
common stock and warrants to purchase our common stock, private placements of
our preferred stock, collateralized borrowing and collaborations. We have also
been the recipient, either independently or with our collaborators, of grant
funding administered through federal, state, and local governments and agencies
and by patient advocacy groups such as The Foundation Fighting Blindness .
We have incurred losses from operations in each year since inception, except for
fiscal year 2017, wherein we reported net income of $0.4 million due, in part,
to profits from a collaboration agreement that was ultimately terminated in
March 2019 . For the three months ended September 30, 2022 and 2021, we reported
net losses of $18.4 million and $17.1 million , respectively. Substantially all
our net losses resulted from costs incurred in connection with our research and
development programs and general and administrative and other expenses
associated with our operations.
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As ofSeptember 30, 2022 , we had cash and cash equivalents totaling$34.2 million . We do not expect to generate revenue from product sales unless and until we successfully complete development of and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and which we believe is subject to significant uncertainty. We believe that our available cash and cash equivalents will be sufficient to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs through calendar year 2022. We will require substantial additional funding to continue our XLRP Phase 2/3 ("Vista") trial, move our ACHMB3 product candidate forward, obtain regulatory approval for our lead product candidates, build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, and execute our plan to open and operate a leased current Good Manufacturing Practices ("cGMP") manufacturing and quality control facility. Given our limited cash resources and the current business and financing environment, we do not believe that we have sufficient funds to allow us to generate additional clinical data from AGTC-501, our product candidate in development for the potential treatment of XLRP, with sufficient time to subsequently seek a suitable collaboration or financing arrangement. As a result, we entered into the Merger Agreement that is described above and in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. If the transaction contemplated by the Merger Agreement is unsuccessful, we will likely need to pursue an orderly wind down of the Company through bankruptcy proceedings.
Program Updates and Recent Developments
AGTC-501 for the Treatment of XLRP
AGTC-501, our lead gene therapy development program for the treatment of XLRP,
is designed to use an engineered adeno-associated virus ("AAV") vector to insert
a stabilized and functional copy of the Retinitis Pigmentosa GTPase Regulator
("RPGR") gene into a patient's photoreceptor cells. AGTC-501 is comprised of a
stabilized RPGR gene and a promoter that was specifically selected to drive
efficient gene expression in primate rods and cones, maintain photoreceptor
function and delay disease progression in preclinical models of disease. In
addition, published non-human primate studies showed that our proprietary AAV
capsid had as much as twice the transfection efficiency in photoreceptors when
compared to capsids used in competing programs.
We are currently conducting multiple clinical trials of AGTC-501 that are
intended to support the potential submission of a Biologics License Application
("BLA"), including a Phase 1/2 trial, Horizon, which incorporates an expansion
portion that we refer to as the Skyline trial. The 24-month data from our
Horizon trial show AGTC-501 continues to demonstrate a favorable safety profile
and is well tolerated by patients. No serious adverse events related to AGTC-501
have been reported through month 24. In addition to safety, Horizon is
evaluating biologic activity by assessing changes in several measures of visual
function. There were clinically meaningful improvements in visual sensitivity,
as measured by microperimetry, that continued through 24 months after treatment
in centrally treated patients. Specifically, a clinically significant treatment
effect in visual sensitivity was seen and sustained 24 months after treatment
when comparing treated eyes to fellow untreated eyes in this trial and
improvements in visual sensitivity continue to correlate with improvements in
retinal structure 24 months after treatment. In addition, improvements in best
corrected visual acuity seen 12 months after treatment continue to show evidence
of a biological response 24 months after treatment. Collectively, these clinical
data are encouraging and continue to inform our clinical development in patients
with XLRP.
The Skyline trial is a 14 patient multi-site, Phase 2 trial in which patients
are randomized to either a high dose of AGTC-501 (the dose received by patients
in Group 5 of Horizon), or a low dose of AGTC-501 (the dose received by patients
in Group 2 of Horizon). The primary endpoint in the Skyline trial is the
proportion of treated eyes with an improvement of 7 decibels ("dB") or greater
in visual sensitivity from baseline in at least 5 loci at 12 months as measured
by microperimetry. Secondary endpoints include the proportion of treated eyes
with improvements in best corrected visual acuity at twelve months, a patient's
ability to navigate a mobility maze more successfully under varying light and
challenge conditions at 12 months, and improvements in retinal structure at
twelve months. The Skyline trial is masked in that we, the patients and the
sites do not know which patient is in which dose group or which dose group
received the high or low dose. Accordingly, we refer to the two groups as Dose
Group A and Dose Group B. We completed enrollment in the Skyline trial in the
first quarter of calendar year 2022 and reported 3-month interim results for 13
of the 14 enrolled patients in May 2022 . Safety, visual sensitivity, visual
acuity and the mobility maze were the only endpoints evaluated at 3 months.
Retinal structure improvements, another important endpoint, was not evaluated as
changes in retinal structure are not expected until between 9 and 12 months.
Similar to safety results reported for Horizon, safety results to date for the
Skyline trial support that AGTC-501 is generally well tolerated and there are no
clinically significant safety concerns. There were non-serious ocular adverse
events (grade 2) related to the study agent that were similar between the two
dose groups and two ocular serious adverse events, including an increase in
intraocular pressure determined to be related to corticosteroids which has
resolved, and one of visual impairment deemed related to the surgical procedure
which is resolving.
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Demographic and baseline characteristics were well balanced between the two dose groups in the Skyline trial. Notably, compared to Horizon, patients in the Skyline trial were younger, with better baseline visual sensitivity and visual acuity. Improvements in visual sensitivity, the primary efficacy endpoint in the Skyline trial, were observed in both dose groups at three months. We define responders as patients who have at least 5 loci increase by at least 7 dB. The response rate in Dose Group A was 25% (1 of 4 patients, as one patient in this group was unevaluable) and in Dose Group B was 62.5% (5 of 8 patients), representing a clear difference between the two groups. Notably, while we did not observe an increase in visual sensitivity of at least 7 dB in 5 pre-specified loci as required based on feedback from theUnited States Food and Drug Administration , or FDA, we did observe an increase in visual sensitivity of at least 7 dB in 9 to 17 loci in the treated area. These responders also had improvements in mean visual sensitivity across the treated region versus the untreated eye per the repeatability coefficient. The 13 patients in the Skyline trial had better baseline best corrected visual acuity, a mean of 66.9 ETDRS letters on an eye chart, which correlates to a Snellen visual acuity equivalent of approximately 20/40. Because these patients started with better visual acuity, we believe that there was less ability for them to improve relative to patients in the Horizon trial. In addition, there was a correlation between visual sensitivity improvements and trends for patients able to complete the maze more rapidly and with fewer errors. We are working with the maze vendor on potential adjustments to account for the fact that only one eye was treated in this analysis, whereas previous use of the maze has been for patients treated in both eyes. It is possible that the better visual acuity of the patients in the Skyline trial at baseline affected the interpretation of the maze results. The Skyline trial has a similar design and endpoints to the Vista clinical trial. The Vista trial is a multi-site, Phase 2/3 clinical trial expected to include approximately 60 patients randomized across three arms: a low-dose group (the 1.2E+11 vg/mL dose from the ongoing Horizon and Skyline trials), a high-dose group (the 1.1E+12 vg/mL dose from the ongoing Horizon and Skyline trials) and an untreated control group. The primary endpoint will be improvement in visual sensitivity, defined as having at least a 7 dB increase in visual sensitivity in at least 5 pre-specified loci at Month 12. Together with a third-party vendor, we have developed a machine learning algorithm based on the available microperimetry data from our Horizon and Skyline trials that, on a patient-by-patient basis, predicts the loci most likely to improve through evaluation of baseline visual sensitivity. Secondary efficacy endpoints in the Vista trial include mean change in visual sensitivity, improvements in visual acuity and performance on the mobility maze as well as structural improvements in retinal health as measured by changes in the ellipsoid zone (the "EZ"), a defined region within the photoreceptor layer of the retina that degenerates over time and is eventually lost in patients with XLRP. To date, we have released a significant amount of preclinical and clinical data including improvements in visual sensitivity and visual acuity, as well as improvements in retinal health that we believe support both the potential safety and biological activity of AGTC-501. These data include the recent release of the interim data from the ongoing Horizon and Skyline trials. Data from the ongoing Horizon trial show improvements in visual sensitivity as measured by Macular Integrity Assessment ("MAIA") and continue to correlate with improvements in retinal structure as measured by EZ up to 24 months after treatment. There was moderate correlation 12 months after treatment and substantial correlation 24 months after treatment.
Given the efficacy and safety data generated to date, we believe that AGTC-501 is a potential best-in-class product candidate that may provide significant benefits to patients with XLRP, if approved.
AGTC-401 and AGTC-402 for the Treatment of ACHM
We have been developing two gene therapy product candidates for the treatment of
ACHM. The product candidates are designed to use the same engineered AAV vector
to insert a stabilized and functional copy of the Cyclic Nucleotide Gated
Channel Subunit Beta 3 (CNGB3) gene in the case of AGTC-401 and a stabilized and
functional copy of the Cyclic Nucleotide Gated Channel Subunit Alpha 3 (CNGA3)
gene in the case of AGTC-402. The product candidates are designed to use the
same proprietary cone-specific promoter that was designed to maximize gene
expression into a patient's photoreceptor cells. We chose the promoter based on
data from preclinical studies that showed the promoter drove efficient gene
expression in all three types of primate cone photoreceptors and restored cone
photoreceptor function in dog, mouse and sheep models of ACHM.
We are currently conducting a Phase 1/2 clinical trial of AGTC-401 in ACHM
patients with mutations of the CNGB3 gene (ACHMB3) and a separate Phase 1/2
clinical trial of AGTC-402 in ACHM patients with mutations of the CNGA3 gene
(ACHMA3). Each Phase 1/2 clinical trial is being conducted at multiple clinical
sites that specialize in inherited retinal diseases. The primary objective of
these trials is to identify a well-tolerated dose that provides clinical benefit
to patients. To date, we have enrolled a total of 31 adult and pediatric
patients into the ACHMB3 trial of AGTC-401 and 24 adult and pediatric patients
in the ACHMA3 trial of
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AGTC-402 and do not currently plan to enroll any additional patients in either trial. We have data from a portion of the patients in these trials up to 24 months after treatment, including our most recent release inFebruary 2022 of 3-month data for the two highest dose groups of ACHMB3 and ACHMA3 pediatric patients that also included updated adult safety data. These data are consistent with the data previously released in adult and pediatric ACHMB3 and ACHMA3 patients. In the Phase 1/2 dose escalation study of AGTC-401 in ACHMB3 patients, a total of 21 adults were treated over an approximately 80-fold dose range in five groups and a total of 10 pediatric patients were treated at the three highest dose groups. Secondary outcome measures evaluating efficacy were assessed by standard visual function tests, such as perimetry. We defined two pediatric patients (17 and 7 years old) in the 1.1E+12 vg/mL dose group as responders based on improvements in visual sensitivity as measured by the Octopus static perimeter. Therefore, of the three adults and four children (total n=7) in the 1.1E+12 vg/mL dose group, four (>50%) were responders based on improvements in visual sensitivity. These patients also reported improvements in quality of life as measured by a patient reported outcome survey developed specifically for patients with ACHM. The two other pediatric patients in the 1.1E+12 vg/mL dose group and three pediatric patients ages 7 years and younger in the 3.2E+12 vg/mL dose group (total n=5) could not sufficiently concentrate and consistently complete the visual sensitivity testing. Similar to other trials where endpoints are adapted for young children, we plan to work closely with clinicians and regulators to develop potential adaptations for younger patients for visual sensitivity testing. Despite their inability to complete the tests, we received anecdotal feedback from certain patients that indicate improvements in visual sensitivity. Based on the totality of data generated to date, we believe that the 1.1E+12 vg/mL dose has been well tolerated and has potential in both adult and pediatric patients. We also reported updated interim 3-month pediatric data and adult and pediatric safety data for the 24 patients enrolled in the Phase 1/2 study of AGTC-402 targeting CNGA3 mutations in patients with ACHMA3. Data from the five pediatric patients in the two highest dose groups were consistent with previously reported results, indicating no evidence of clinical improvements, and do not support further clinical development. Most patients with CNGA3 mutations express a mutant protein that is not typically found in patients with CNGB3 mutations, which we believe may have impacted the results seen in patients that received AGTC-402. We will continue to follow the ACHMA3 patients for long-term safety observations. As previously reported, in both the ACHMB3 and ACHMA3 trials, treatment with the highest dose (3.2 E+12vg/ml) of AGTC-401 and AGTC-402, respectively, led to three cases of severe ocular inflammation in pediatric patients, which were reported as Suspected Unexpected Serious Adverse Reactions, or SUSARs. No new additional SUSARs in any adult or pediatric patients have been reported and the inflammation in all previously reported SUSARs improved with an adjusted steroid regimen. Two SUSARs (ACHMA3) have since fully resolved and one (ACHMB3) continues to improve, with all three patients' best corrected visual acuity returning to baseline after initial declines in visual acuity were observed following the SUSARs. Importantly, we have not yet observed any comparable inflammation in any of our XLRP clinical trials. We had a collaborative and productive End of Phase 2 ("EOP2") meeting with the FDA to discuss the potential future development of AGTC-401 and received constructive feedback from the FDA on our proposed primary and secondary endpoints for a Phase 2/3 clinical trial. With respect to the primary endpoint of improvement in visual sensitivity relative to baseline, the FDA reiterated that a 7 dB change in at least 5 pre-specified loci is required. However, they indicated a willingness to review an alternative approach to perimetry from a model used in other trials, which would need to be adapted specifically for ACHMB3. The FDA also indicated that improvements in light discomfort may be an acceptable secondary endpoint in a Phase 2/3 clinical trial of AGTC-401. We are currently working through the details of the future development plan for AGTC-401, but we have paused development activities due to funding constraints.
Build-To-Suit Manufacturing and Quality Control Facility in
InMay 2021 , we signed a 20-year lease (subsequently modified to 20 years and one month) for a build-to-suit 21,250 square foot potential cGMP manufacturing and quality control facility adjacent to our existingFlorida facility to prepare for late-stage development and potential commercialization of our XLRP and ACHMB3 programs. We anticipate that the build-out of the new manufacturing and quality control facility will be completed during the first quarter of calendar year 2023.
Additional information regarding our new cGMP manufacturing and quality control
facility can be found in Note 3 to the Notes to Financial Statements in the
2022 Form 10-K under the heading "Build-To-Suit Manufacturing and Quality
Control Facility in
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Strategic Collaborations and Preclinical Pipeline
Bionic Sight
DuringFebruary 2017 , we entered into a strategic research and development collaboration agreement with Bionic Sight to develop product candidates for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC's deep experience in gene therapy and ophthalmology and Bionic Sight's innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to us, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire: (i) a majority equity interest in Bionic Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates. InMarch 2021 , Bionic Sight, which has responsibility for conducting the clinical trial, reported promising results in its first two cohorts of patients in the Phase 1/2 retinitis pigmentosa optogenetics study. Bionic Sight reported that these patients, all of whom have complete or near-complete blindness, can now see light and motion, and, in two cases, can detect the direction of motion. Bionic Sight also announced that the product candidate was well-tolerated and that it is continuing to enroll patients at higher doses.
Otonomy
DuringOctober 2019 , we entered into a strategic collaboration agreement with Otonomy to co-develop and co-commercialize an AAV-based gene therapy product candidate designed to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene - the most common cause of congenital hearing loss. Under the collaboration agreement, the parties began equally sharing the program costs and any proceeds from potential licensing transactions inJanuary 2020 and can include additional genetic hearing loss targets in the future. EffectiveJanuary 1, 2022 , we amended the Otonomy collaboration agreement to increase Otonomy's responsibility for the overall development and commercialization of the program, which resulted in (i) a reduction in our share of future product development costs and (ii) our potential receipt of future payments, and royalties on any product sales in lieu of equal sharing of any potential profits or proceeds related to the program.
Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 6 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
Preclinical Pipeline
We also have three wholly-owned product candidates in preclinical testing, including AGTC-701 for the treatment of dAMD, AGTC-601 for the treatment of FTD and AGTC-801 for the treatment of ALS.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is based on our financial statements, which have been prepared assuming that the Company will continue as a going concern and in accordance withU.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, judgments and methodologies, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, current conditions, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions. Moreover, we may need to change the assumptions underlying our estimates due to risks and uncertainties related to the COVID-19 pandemic or otherwise and those changes could have a material adverse effect on our statements of operations, financial condition and cash flows. Other than accounting for a certain warrant derivative liability, which required the use of judgment and estimation techniques, there were no significant changes to our critical accounting policies during the three months endedSeptember 30, 2022 . Our warrant derivative liability accounting and related assumptions are further discussed at Note 2, Note 4 and Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. For a description of the other accounting policies that, in our opinion, involve the most significant application of judgment or involve complex estimations and which could, if different judgments or estimates were made, materially affect our reported results of operations, financial position and cash flows, see "Management's Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates" in the 2022 Form 10-K. 22
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Table of Contents Financial Operations Review Revenue We generate revenue primarily through: (i) collaboration agreements; (ii) sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates; (iii) federal research and development grant programs; and (iv) licensing arrangements. However, we did not recognize any revenue during the three months endedSeptember 30, 2022 or the same period in the prior year. In the future, we may generate revenue from product sales (if any products are approved), license fees, milestone payments, development services, research and development grants, or from collaboration and royalty payments for the sales of products developed under licenses of our intellectual property. We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development programs, manufacturing efforts and reimbursements, collaboration milestone payments, and the sale of our products, to the extent that any are approved and successfully commercialized. We do not expect to generate revenue from product sales for the foreseeable future, if at all. If we or our collaborators fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue and our results of operations, financial position and cash flows would be materially adversely affected.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates and include:
• employee-related expenses, including salaries, benefits, travel and
share-based compensation expense;
• expenses incurred under agreements with academic research centers,contract research organizations and investigative sites that conduct our
clinical trials;
• license and sublicense fees and collaboration expenses;
• costs of acquiring, developing and manufacturing clinical trial
materials; and
• facilities, depreciation and other expenses, which include direct and
allocated expenses for rent and maintenance of facilities, insurance and
other supplies.
Research and development costs are expensed as incurred. Costs for certain
development activities are recognized based on an evaluation of the progress
toward completion of specific tasks, using information and data provided to us
by our vendors and our clinical sites.
We cannot determine with certainty the duration and completion costs of the
current or future clinical trials of our product candidates or if, when, or to
what extent we will generate revenue from the commercialization and sale of any
of our product candidates that obtain regulatory approval. We may never succeed
in achieving regulatory approval for any of our product candidates. The
duration, costs and timing of clinical trials and development of our product
candidates will depend on a variety of factors, including:
• the scope, rate of progress and expense of our ongoing clinical trials,
as well as any additional clinical trials that we are required to, ordecide to, initiate and other research and development activities;
• the timing and level of activity as determined by us or jointly with our
partners;
• the level of funding, if any, received from our partners;
• whether or not we elect to cost share with our collaborators;
• future clinical trial results;
• uncertainties in clinical trial enrollment rates or drop-out or
discontinuation rates of patients;
• increased cost and delay associated with manufacturing or testing issues,
including ongoing quality assurance, qualifying new vendors and
developing in-house capabilities through, among other things, our lease
of a new cGMP build-to-suit manufacturing and quality control facility;
• the countries in which trials are conducted;
• potential additional safety monitoring or other studies requested by
regulatory agencies or elected as best practice by us;
• significant and changing government regulation;
• the timing and receipt of any regulatory approvals; and
• broader market forces, such as inflation and wage/salary growth.
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Changes in any of these variables over time with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in or execution of any of our clinical trials, which could be adversely impacted by the COVID-19 pandemic, we could be required to expend significant additional financial resources and time on the completion of clinical trial activities and development of our product candidates. From our inception and throughSeptember 30, 2022 , we have incurred approximately$345.0 million in research and development expenses. We expect our research and development expenses to remain stable in the second quarter of our fiscal year as we are not currently enrolling any additional patients in our clinical trials and have worked to reduce our research and development expenses.
General and administrative and other expenses
General and administrative and other expenses primarily consist of salaries and related costs for personnel, including share-based compensation and travel expenses for our employees in executive, operational, legal, business development, finance and human resource roles. Other general and administrative expenses include costs to support employee training and development, board of directors' costs, depreciation, insurance, facility-related costs not otherwise included in research and development expenses, professional fees for legal services, patent-related expenses, and accounting, investor relations, corporate communications and information technology services. We anticipate that our general and administrative and other expenses will increase in the second quarter of our fiscal year due to the activities to support the negotiation and execution of our proposed merger with the Purchaser, as described above and in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
Investment income, net
Investment income, net consists of interest earned on cash and cash equivalents.
During the three months ended
Interest expense
Interest expense during the three months endedSeptember 30, 2022 declined by$12,000 when compared to the prior year. This decrease was primarily due to a lower average outstanding balance under our collateralized term loan agreement during the three months endedSeptember 30, 2022 , partially offset by higher interest rates. Additional information regarding our long-term loan agreement can be found in Note 5 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. OnNovember 2, 2022 , theFederal Reserve Board announced an increase of 0.75% in the federal funds rate and indicated that further rate increases will be announced in the short-term to combat persistently high inflation inthe United States . When the prime rate reported in The Wall Street Journal increases, as was the case with the most recent federal funds rate increase and is expected to continue in response to projected hikes in the federal funds rate by theFederal Reserve Board , the cost of borrowing and related interest expense on our variable-rate debt also increases.
Costs attributable to the issuance of freestanding warrants
As described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q, we closed an underwritten public offering of the Company's common stock, together with accompanying warrants, onJuly 15, 2022 . In connection with that equity offering, we expensed$0.3 million of costs that were allocated to the issuance of the warrants.
Change in fair value of derivative liability - warrants
We concluded that the warrants issued onJuly 15, 2022 met the definition of a derivative and required bifurcation from the related common stock on the date of warrant issuance and thereafter. Accordingly, the corresponding warrant liability is remeasured and recorded at fair value at the end of each reporting period with any adjustment recognized in our statement of operations. For the three months endedSeptember 30, 2022 , the related expense was$0.2 million .
Additional information regarding our warrant and the related derivative accounting can be found in Note 2, Note 4 and Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
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Provision for (benefit from) income taxes
There was no provision for (benefit from) income taxes during each of the three months endedSeptember 30, 2022 and 2021 because, among other things, during those reporting periods, (i) the Company had no uncertain tax positions that would require the recognition of interest and penalties and (ii) any net deferred tax assets that were generated were fully offset by a valuation allowance. Additional information regarding our income taxes can be found in Note 10 to the Notes to Financial Statements in the 2022 Form 10-K.
Results of Operations
Comparison of the three months ended
Research and development expenses
The table below summarizes our research and development expenses by product candidate or program for the periods indicated.
Three Months
Ended September 30, Increase % Increase
In thousands 2022 2021 (Decrease) (Decrease)
External research and development
expenses:
XLRP $ 3,189 $ 4,651 $ (1,462 ) (31 )%
ACHM 598 793 (195 ) (25 )%
Research and discovery programs 1,971 911 1,060 >100 %
Total external research and development
expenses 5,758 6,355 (597 ) (9 )%
Internal research and development
expenses:
Employee-related costs 4,257 3,716 541 15 %
Share-based compensation 323 431 (108 ) (25 )%
Other 2,546 1,823 723 40 %
Total internal research and development
expenses 7,126 5,970 1,156 19 %
Total research and development expenses
5 %
External research and development expenses consist of collaboration, licensing,
manufacturing, testing and other miscellaneous costs that are directly
attributable to our most advanced product candidates and discovery programs. We
do not allocate employee-related costs, including share-based compensation,
costs associated with broad technology platform improvements or other indirect
costs, to specific programs, as they are deployed across multiple projects under
development and, as such, are separately classified as internal research and
development expenses in the table above.
As part of the process of preparing our financial statements, estimates of
accrued expenses are necessary. The estimation process involves reviewing
quotations and contracts, identifying services that have been performed on our
behalf, and determining the level of services performed and associated costs
incurred for services for which we have not yet been invoiced or otherwise
notified of the actual cost. The majority of our service providers invoice
monthly in arrears for services performed or when contractual milestones are
met. We estimate our accrued expenses at the end of each reporting period based
on the facts and circumstances known at that time. As a result, estimates
recorded in our financial statements and disclosed in the accompanying notes may
change in the future and such changes in estimates, if any, will be recorded in
our operating results in the period they are identified by us. The significant
estimates in our accrued research and development expenses primarily relate to
expenses incurred with respect to academic research centers, contract research
organizations and other vendors in connection with research and development
activities for which we have not yet been invoiced.
Research and development expenses for the three months ended September 30, 2022
and 2021 were $12.9 million and $12.3 million , respectively, an increase of
$0.6 million , or 5%. The year-over-year increase was due to various factors,
including: (i) increased external spending for our research and discovery
programs, which was primarily for toxicology studies in support of our
preclinical programs (i.e., AGTC-701 for the treatment of dAMD and AGTC-601 for
the treatment of FTD); (ii) higher employee-related costs that were primarily
attributable to increased headcount and routine pay increases; and (iii) an
increase in internal research and development expenses related to certain assays
for the AGTC-501 development program that we are now conducting in-house, as
well as higher costs for consultants. These increases in research and
development expenses were partially offset by (i) a year-over-year reduction in
manufacturing activities for Vista clinical trial materials and (ii) decreases
in Skyline and ACHM expenses due to reduced site activity as those clinical
studies have progressed to a point where they are no longer activating new sites
or enrolling new patients.
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General and administrative and other expenses
The table below summarizes our general and administrative and other expenses for
the periods indicated.
Three Months
Ended
September 30, Increase % Increase
In thousands 2022 2021 (Decrease) (Decrease)
Employee-related costs $ 1,789 $ 1,221 $ 568 47 %
Share-based compensation 328 379 (51 ) (13 )%
Legal and professional fees 251 422 (171 ) (41 )%
Other 2,092 2,078 14 1 %
Total general and administrative and
other expenses $ 4,460 $ 4,100 $ 360 9 %
General and administrative and other expenses for the three months ended
September 30, 2022 and 2021 were $4.5 million and $4.1 million , respectively, an
increase of $0.4 million , or 9%. The increase was primarily due to (i) higher
employee-related costs from increased headcount and routine pay increases and
(ii) start-up costs for our build-to-suit manufacturing and quality control
facility, partially offset by lower legal, business development, investor
relations, and consulting costs.
Liquidity and Capital Resources
We have incurred cumulative losses and negative cash flows from operations since our inception and, as ofSeptember 30, 2022 , we had an accumulated deficit of$326.6 million . We believe that there is presently insufficient funding available to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs for a period exceeding 12 months from the date of this filing with theSecurities and Exchange Commission . Additionally, we believe that we will incur losses and generate negative operating cash flows for the foreseeable future. As such, these circumstances collectively raise substantial doubt about our ability to continue as a going concern. We are actively seeking to consummate the proposed merger that is described in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q; however, we may be unable to successfully close that pending transaction. If the proposed merger is not completed within a reasonable period of time, or at all, management will likely pursue an orderly wind down of the Company through bankruptcy proceedings. Most recently, we received: (i) net proceeds of$9.0 million from an underwritten public offering of our common stock, together with accompanying warrants, during the three months endedSeptember 30, 2022 , which is described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q; (ii) net proceeds of$9.2 million and$69.3 million during the years endedJune 30, 2022 and 2021, respectively, from underwritten public offerings and selling our common stock through an "at-the-market offering" program, which are described in Note 13 to the Notes to Financial Statements in the 2022 Form 10-K; and (iii)$9.9 million of loan proceeds, net of debt discounts, inMay 2021 . Moreover, through a tenant improvement allowance and tiered rental rates, we have structured the third-party leasing costs for our build-to-suit manufacturing and quality control facility inAlachua, Florida in a way that will not significantly impact our cash runway until the fiscal year endingJune 30, 2024 . Notwithstanding the foregoing, we used our available cash and cash equivalents to fund approximately$2.9 million of tenant fit out work at such facility inAugust 2022 , which represented our required contribution pursuant to a lease amendment. Additional information regarding our new manufacturing and quality control facility and long-term loan agreement can be found in Notes 3 and 7, respectively, to the Notes to Financial Statements in the 2022 Form 10-K. We are closely monitoring ongoing developments in connection with the COVID-19 pandemic, which may negatively impact our projected cash position and access to capital. We will continue to assess our cash position and any progress we make towards the completion of one or more strategic transactions and, if circumstances warrant, make appropriate adjustments to our operating plan. Cash in excess of immediate requirements is invested in accordance with our investment policy, which primarily seeks to maintain adequate liquidity and preserve capital by generally limiting investments to certificates of deposit and investment-grade debt securities that mature within twelve months. As ofSeptember 30, 2022 , our cash and cash equivalents were held in bank accounts and money market funds. 26
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Cash flows
The table below sets forth the primary sources and uses of cash, including cash equivalents and restricted cash, for the periods indicated.
Three Months
Ended September 30, Increase % Increase
In thousands 2022 2021 (Decrease) (Decrease)
Cash provided by (used in):
Operating activities $ (16,037 ) $ (15,936 ) $ (101 ) (1)%
Investing activities (304 ) 1,385 (1,689 ) >(100)%
Financing activities 7,137 14 7,123 >100%
Net decrease in cash and cash
equivalents and restricted cash $ (9,204 ) $ (14,537 ) $ 5,333 (37)%
Operating activities. For both the three months ended September 30, 2022 and
2021, cash used in operating activities was primarily the result of research and
development expenses and general and administrative and other expenses incurred
in conducting normal business operations. Specifically, the cash used in
operating activities of $16.0 million during the three months ended
September 30, 2022 was due to a net loss of $18.4 million , partially offset by
favorable changes in our operating assets and liabilities of $0.8 million
and non-cash items in our statement of operations of $1.6 million . The cash used
in operating activities of $15.9 million during the three months ended
September 30, 2021 was due to a net loss of $17.1 million and unfavorable
changes in our operating assets and liabilities of $0.3 million , partially
offset by non-cash items in our statement of operations of $1.5 million .
Investing activities. Cash used in investing activities of $0.3 million during
the three months ended September 30, 2022 consisted of purchases of property and
equipment of $0.2 million and intellectual property costs of $0.1 million . Cash
provided by investing activities of $1.4 million during the three months ended
September 30, 2021 consisted of cash proceeds of $2.0 million from the maturity
of an investment, partially offset by purchases of property and equipment of
$0.5 million and intellectual property costs of $0.1 million .
Financing activities. Cash provided by financing activities of $7.1 million
during the three months ended September 30, 2022 consisted of (i) proceeds of
$9.0 million from issuance of our common stock, together with accompanying
warrants, net of allocated issuance costs, and (ii) proceeds from the exercise
of pre-funded warrants of $0.4 million , partially offset by principal payments
on long-term debt of $2.2 million . The nominal cash provided by financing
activities during the three months ended September 30, 2021 consisted of
proceeds from exercises of common stock options, partially offset by
(i) payments for taxes related to equity awards and (ii) principal payments on a
finance lease.
Operating capital requirements
We believe that our available cash and cash equivalents, which totaled$34.2 million onSeptember 30, 2022 , will only allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs through calendar year 2022. As a result, we entered into the Merger Agreement that is described in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. If the merger is not consummated, we will likely need to pursue an orderly wind down of the Company through bankruptcy proceedings. Additional information regarding our liquidity and related matters can be found in Note 1 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q under the heading "Liquidity and Financial Condition." 27
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