☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2022
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Delaware | 59-3553710 | |
(State or Other Jurisdiction of
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Suite 10,
Alachua, Florida 32615
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common Stock, |
AGTC | 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 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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Emerging growth company ☒
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2022
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Item 1. | BUSINESS |
Overview
Applied Genetic Technologies Corporation (“AGTC”) is
Strategy
Develop and commercialize
Expand
Continue our leadership position in orphan ophthalmology.We have developed significant experience in the orphan ophthalmology space through our work on XLRS, ACHM, XLRP and Lebers Congenital Amourosis Type 2 (LCA2) and have significantly advanced our knowledge and experience through the programsbelieve that we have advancedcontrolling manufacturing is a critical component of successful gene therapy drug development due to the clinic sincecomplexity and uniqueness of the process of each gene therapy product candidate and an overall lack of capabilities and capacity at Contract Development and Manufacturing Organizations, or CDMOs, that focus on gene therapies. Furthermore, given the productivity and scalability of our initial public offering.
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Extend our expertise in adeno-associated virus, or AAV, vector design,square foot current Good Manufacturing Practices (“cGMP”) manufacturing and delivery.quality control facility adjacent to our current Florida facility. This facility is intended to supply materials for clinical trials and potential commercial supply of our most advanced product candidates, if approved. We believe that our investment in this facility will facilitate the more rapid advancement of our product candidates through regulatory approval while reducing risk and enhancing the therapeutic and commercial potential of our gene therapy platform. However,
Expandimprove our manufacturing capabilities. We continue to invest in the development and expansion of our internal manufacturing capabilities. Our new process development and pilot manufacturing facility is now operational, and as we advance further into clinical development we plan to further develop our internal manufacturing capabilities. We have decreased our dependence on a single contract manufacturer by qualifying and contracting with multiple backup contractors. Further, we continue to invest in process and analytical improvements that we expect to lead to higher manufacturing yields and robust quality control of our final products. We believe these investments will facilitate the more rapid advancement of our product candidates through regulatory approval while reducing risk, and will enhance the therapeutic and commercial potential of our gene therapy platform.
Pursue orphan indications with high unmet medical need and strong probability of a streamlined clinical, regulatory and commercial pathway. We will continue to focus on diseases for which the underlying genetic defect is well characterized and can be addressed by correcting or inserting a single gene, for which predictive animal models exist and for which clinical endpoints are objective and are accepted by the FDA. We believe that focusing on these types of indications will enable us to obtain data more rapidly and accelerate clinical studies and regulatory approval of our products. Given the relatively low prevalence of patients who have each of these orphan diseases and the strong key opinion leader communities and patient advocacy groups around them, we also believe these markets can be served with a small, targeted commercial infrastructure.
Evaluate opportunities to leverage our gene therapy platform to address indications outside of ophthalmology. We intend to develop and partner selectively to expand the scope of our pipeline and the utilization of our gene therapy platform beyond ophthalmology. The adaptability of our platform also presents an opportunity for us to selectively form collaborative alliances to expand our capabilities and product offerings into a range of genetically defined diseases and potentially to accelerate the development and commercialization of gene therapy products more broadly. Also, we have ongoing preclinical efforts in otology and a partnered programs in CNS for which we intend to use our platform capabilities to develop potential therapies.
and Other Areas
XLRS is characterized by abnormal splitting of the layers of the retina, resulting incause poor visual function that significantly affects daily activities and worsens over time. XLRP is commonly observed in boys and young boys, which can progressmen who notice problems with vision under low light conditions, or night blindness, followed by a restriction of peripheral visual fields, or tunnel vision, leading to legal blindness in adult men. Additionally, approximately 40% of patients are at risk of vitreous hemorrhage or detachment. Initial safety data from our Phase 1/2 clinical trial were presented in June 2017poor central vision and demonstrated that our product candidate was generally well tolerated and demonstrated across treatment groups. eventually to total blindness. According to a published study, the incidence rate for XLRSretinitis pigmentosa is betweenabout one in 5,0004,000 people and one in 20,000 males. Using an incidence rate of 1 in 11,500 and assuming half the population is male, we estimate that there are about 35,000200,000 patients in the United States and Europe combined. We currently are enrolling patients in a Phase 1/2 clinical trial for our XLRS product candidate.
daydaytime blindness and complete loss of color discrimination. Best-corrected visual acuity in persons affected by ACHM, even under subdued light conditions, is usually about 20/200, a level at which people are considered legally blind. According to a published study, the incidence rate for ACHM is approximately one in 30,000 people, and we therefore estimate that there are about 27,000 patients in the United States and Europe combined. Of these patients, about 75% to 85% have the form of disease caused by mutations in the CNGB3 gene or the CNGA3 gene. We currently are enrolling patients in Phase 1/2 clinical trials for both our ACHM CNGB3 product candidate and our ACHM CNGA3 product candidate.
XLRP is a disease of the rod and cone photoreceptors characterized by progressive degeneration of the retina, which can lead to total blindness in adult men. According to a published study, the incidence rate for retinitis pigmentosa is about one in 4,000 peoplegene and we estimatebelieve that there are about 200,000approximately 14,000 patients in the United States and Europe combined. It is estimated that about ten percent, or 20,000, of these people have XLRP. We filed an Investigational New Drug application (IND) with the FDACNGB3 mutation and ACHMB3. We believe that theon August 9, 2017but we have paused development activities due to funding constraints. We do not believe, however, that the data generated to date in ACHMA3 support continued development. We intend to follow both the ACHMB3 and are initiating a Phase 1/2 clinical trial at multiple sites in the United States.
Corporate History and Significant Milestones
On April 1, 2014, we completed our initial public offeringThis clinical stage program leverages a unique optogenetic protein, administered by intravitreal injection in which we sold 4,791,667 shares of common stock and now trade on NASDAQan adeno-associated virus (“AAV”) vector, that is activated with a neural coding device using Bionic Sight’s proprietary algorithm to convert what the patient is viewing into signals the brain can understand. We currently have no financial obligations to Bionic Sight under the ticker symbol AGTC.
On July 30, 2014, we completed a follow on public offering in which we sold 2,000,000 shares of common stock.
On June 4, 2015, we started enrolling patients in a Phase 1/2 trial designed to test the safety and efficacy of our gene-therapy product candidate for the treatment of XLRS.
In July 2015, we entered into arelated collaboration agreementagreement.
On May 26, 2016, we started enrolling patients in a Phase 1/2 trial designed to test the safety and efficacy of our gene-therapy product candidate for the treatment of ACHM caused by mutations in the CNGB3 gene.
In November 2016, we completed the manufacture of our XLRP product candidate clinical trial material, bringing the total number of batches of clinical trial material that we have produced to seven over a number of clinical trials and disease indications.
In February 2017, we entered into a collaboration agreement with Bionic Sight, LLC to develop aComplement Factor H (“CFH”) gene, therapy treatment to be used with Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. Together we are working to develop an optogenetic therapy for patients with visual deficits or blindness due to retinal disease. This approach could be beneficial to a wide range of patients as it is independent of the patients’ specific genetic mutation.
In June 2017, we published the results of a follow up study demonstrating durability of treatment with our alpha-1 anti-trypsin product candidate. The study showed that treatment with our alpha one anti-trypsin product candidate resulted in sustained expression of alpha one anti-trypsin for five years after intramuscular administration.
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On July 27, 2017, we started enrolling patients in a Phase 1/2 trial designed to test the safety and efficacy of our gene-therapy product candidate for the treatment of ACHM caused by mutations in the CNGA3 gene.
In August 2017, we filed an IND to conduct a Phase 1/2 clinical trial designed to test the safety and efficacy of our gene-therapy product candidate for the treatment of XLRP caused by mutations in the RPGR gene.
Our Strengths
We believe the combination of our technology expertise and product development know-how position us well to be leaders in the gene therapy field. We believe our strengths include:
Product candidates in clinical development, including four ongoing Phase 1/2 clinical trials with sufficient capital to complete enrollment and initial data analysis on all four of these trials;
Significant relationships with key opinion leaders in the fields of ophthalmology, otology, CNS, and AAV production;
Robust preclinical product development pipeline including ophthalmology, otology and CNS disorders;
Biogen collaboration for the development and commercialization of two clinical programs (XLRS and XLRP) and rights for them to develop three additional discovery programs (ALD and two ophthalmology programs);
A collaboration with Bionic Sight for the development and commercialization of an optogenetic gene therapy and a neuroprosthetic device;
Proprietary gene therapy manufacturing system capable of making significant quantities of high quality viral vectors and execution on the system in accordance with Good Manufacturing Practice (GMP) standards over seven different clinical trials;
Product candidates which, to date, use recombinant AAV vector technology, which is a well-studied, versatile and efficientcomponent of the dysregulated complement pathway, have an increased risk of developing AMD that is six times greater than those who do not have such mutation. Preclinical data in relevant animal models support the approach of CFH gene augmentation as a potential therapeutic strategy for AMD. Based on market research, we believe there may be up to one million patients in the United States that would benefit from a CFH gene therapy approach;
Technical expertise in manufacturing and analytical techniques, synthetic promoter development, engineered capsids, optimized capsids and specialized formulation and delivery techniques; and
Initial safety data
the prevalence of FTD is on the rise due to the aging population, and there are currently no approved treatments for FTD. Mutations in the Progranulin (PGRN) gene are one of the three main genetic causes of FTD, representing approximately 20% of familial FTD, and accounting for 7,500 to 15,000 cases in the United States and European Union. We have identified a unique capsid, gene, and promoter construct that we believe, based on our preclinical data generated to date, will be more effective in patients than other approaches. Our product candidate for FTD is currently in IND-enabling safety and biodistribution studies. Future development of this product candidate is subject to the availability of additional funding. |
Gene Therapy Platform
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indications.indications.
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type.type. We make our selection by comparing different promoters in the specific type of cells that are affected in each disease target, ideally in an animal whose physiology is close to that of humans, to find the promoter that best enables production of therapeutic levels of protein in that cell type. Not only do we engineer theseWe have conducted internal and external research to design promoters in-house, we also work with a collaborator, Synpromics, that specializes in designing promoter elements to optimize therapeutic constructs for maximum expression with a smaller size, better expression and increased cell specificity.
Capsid: afterAfter the promoter and gene of interest are selected, these elements must be packaged into thean AAV capsid. There are thousands of 10
Manufacturing
clinical development.
We ownowned or have licensed 64 issued37 patents and 12 pending patent applications covering our manufacturing technology. We believe that our core competency and intellectual property estate in vector manufacturing differentiate us competitively and provide a key differentiating element of our gene therapy platform.
Delivery
In ophthalmology, the product candidate can best be delivered to cells in the eye by either injecting the product candidate under the retina (a
Surgical techniques usedtrials and have developed an extensive training program for surgeons in order to introduce AAV in otology indications include microinjection intoassure consistent delivery across patients. Bionic Sight is using an intravitreal injection as the cochlea via an apical cochleostomy or throughmethod of delivery for the round window membrane. Like the eye, the inner ear sensory organ – the organ of Corti – is bathed by fluid-filled spaces, enabling accessible vector administration.
Once aoptogenetic product candidate.
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The graphic below summarizes
Our four most advanced product candidates address ophthalmology indications XLRS, ACHM B3, ACHM A3, and XLRP, which are orphan diseases ofdevelopment program for the eye that are caused by mutations in single genes, significantly affect visual function starting at birth and currently lack effective medical treatments. Ophthalmology is attractive to us as a clinical stage company because treatments for diseases affecting vision have clearly defined, objective clinical endpoints with validated measurement tools that are accepted by the United States FDA. Other orphan drug companies have spent considerable time and resources working with the FDA to identify acceptable clinical endpoints and develop measurement tools in sometimes ill-defined diseases. In ophthalmology four accepted endpoints—visual acuity, visual fields, contrast sensitivity and color vision—are well understood by clinicians. In addition, the FDA consistently applies these endpoints and works with industry to provide guidance on how much improvement is required for clinical relevancy. We believe that these end points could help accelerate the process of clinical study and regulatory approval for our ophthalmic products.
Finally, through our internal research work and in collaboration with partners, we have obtained preliminary safety data in clinical trials using delivery routes by both intravitreal and subretinal injection. In June 2017, we released topline safety data from the dose escalation portion of our XLRS trial indicating that our product candidate delivered by intravitreal injection was generally safe and well tolerated across treatment groups. Subretinal injections of AAV vectors have also been studied in other clinical trials conducted by us (wet AMD and LCA2) and there were no reports of serious adverse events attributed to the vector used in either of those studies. Although there were differences in clinical outcomes in the initial three patients enrolled in our ACHM B3 trial, these results were most likely due to differences in surgical technique rather than the candidate drug product. We have made changes to our clinical study to address the differences in outcomes by using the same surgeon in the near term to treat patients in this trial.
Our lead programs
X-linked Retinoschisis (XLRS)
XLRS is an inherited retinal disease, meaning that children are born with the defective gene that causes poor visual function that significantly affects daily living activities. XLRS is specifically caused by mutations in the RS1 gene, which is located on the X chromosome and encodes the retinoschisin, or RS1, protein. Retinoschisin is expressed and secreted primarily from photoreceptor cells and binds strongly and specifically to the surface of photoreceptor and bipolar cells in the retina. Mutated forms of retinoschisin are unable to bind properly, resulting in schisis, or splitting of the layers of the retina, primarily in the macula. The disease begins early in childhood, and affected boys typically have best-corrected visual acuity of 20/60 to 20/120 at initial diagnosis. Complications such as vitreous hemorrhage or retinal detachment occur in up to 40% of patients, especially in older patients. According to a published study, the incidence rate for XLRS is between one in 5,000 and one in 20,000 males. Using a conservative incidence rate of 1 in 11,500 and assuming half the population is male, we estimate that there are about 35,000 persons with XLRS in the United States and Europe combined with XLRS.
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The diagnosis of XLRS is made based on clinical findings and results of imaging studies and Electroretinogram (ERG). ERG is a clinical test that measures the electrical function of the retina. Clinical findings include reduced visual acuity and a characteristic spoke-wheel appearance of the macula when viewed by an ophthalmoscope, which is the instrument commonly used by ophthalmologists and optometrists to view the retina. Images obtained by optical coherence tomography, or OCT, a method of viewing layers of the eye somewhat like a sonogram, show spaces between the layers of the retina within the macula and fovea in most school-age boys with XLRS. These spaces mean that electrical signals cannot move from the photoreceptors to other retinal neurons and on to the brain, resulting in poor vision.
There is currently no approved treatment for. Management of disease manifestations includes low vision aids such as large-print textbooks, preferential seating in the front of the classroom and use of handouts with high contrast. Surgery may be required to address complications of vitreous hemorrhage or full-thickness retinal detachment, which occur in approximately 40% of patients.
Previous anecdotal evidence has indicated that treatment with carbonic anhydrase inhibitors may provide a reduction in the degree of schisis. However, data from our natural history study demonstrated that topical carbonic anhydrase inhibitors provided reduction in the degree of schisis in only some patients. In any case, the absence of controlled clinical trials makes interpretation of these data difficult. In addition, treatment with carbonic anhydrase inhibitors does not address the fundamental genetic defect in persons affected by XLRS. Neither carbonic anhydrase inhibitors nor any other medicinal products have been approved by regulatory agencies for treatment of XLRS.
Our XLRS product candidate
Our gene therapy approach involves usingXLRP, is designed to use an engineered AAV vector to insert a stabilized and functional copy of the RS1RPGR gene into the patient’s retinal cells, thereby inducing those cells to produce the normal retinoschisin protein. Our XLRS product candidate contains the RS1photoreceptor cells.
The Phase 1/2 clinicalSkyline trial is currently being conducted at six clinicalmasked in that we, the patients, and the sites that specializedo not know which patient is in inherited retinal diseases.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 have completed treatment of patients in groups 1a, 1b, 2 and 3 of the dose escalation phase of our Phase 1/2 clinical trial and we currently are enrolling adult patients in group 4 at the highest dose level and children between 6 and 18 in group 2b at the mid-dose group prior to making a decision to dose children between 6 and 18 at the highest dose level.
In June 2017, Mark Pennesi, M.D., Ph.D., one of our investigators, presented safety data at the Macula Society Annual Meeting from the first twelve patients, some of which have been followed for more than one year. The data demonstrates that our XLRS product candidate has been generally well tolerated. We did observe mild to moderate ocular inflammationenrollment in the majority of patientsSkyline trial in the treated eye, which resolved either without treatment or after treatment with topical or oral corticosteroids. We amended the protocol to provide for standard prophylactic corticosteroids versus the original protocol that allowed for treatment with corticosteroids only after inflammation was observed. No treatment related serious adverse events have been reported.
We have also completed a natural history study in persons affected by XLRS. The results from 56 participants with XLRS were evaluated on cross sectional and longitudinal measures of visual acuity, visual field sensitivity, microperimetry, cyst volume and ERG. The data suggest that patients with XLRS show a spectrum of visual function, with baseline visual acuity ranging from 0 to 82 ETDRS letters (average = 55.5; approximately 20/80). Changes in measures of visual function were minor and, in fact, stable over time and weakly correlated to changes in cyst volume or age.
In the patients dosed to date in our Phase 1/2 trial, we have continued to note variation in visual function from patient to patient. We believe that in addition to the three patients initially enrolled in the high-dose group, the full group of patients in the expansion group need to be enrolled and followed for at least six months before meaningful conclusions can be drawn regarding biological activity. We expect to fully enroll this expansion group by the first quarter of 2018calendar year 2022 and will presentreported
CompletionSkyline expansion portion of the Phase 1/2 clinical trial and the natural history study will guide us, and our collaborator Biogen, in finalizing the design of a pivotal clinical trial. In the planned pivotal trial, we would expect to enroll between 40 and 75 patients who will be evaluated for changes in visual function over a 12-month period. If successful, we believe the results of this second trial could support submission of a Biologics License Application, or BLA, to the FDA in the United Statesfirst quarter of calendar year 2023; and a Marketing Authorization Application, or MAA, to the EMA in Europe for our XLRS product candidate.
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As a part of our collaboration, Biogen has obtained worldwide commercialization rights for the XLRS program. We will be responsible for the clinical development program through product approval. Biogen will support the clinical development costs, subject to certain conditions, following the first-in-human study. We have an option to share development costs and profits after the initial clinical
Achromatopsia (ACHM)
ACHM is an inherited retinal disease, meaning that children are born with the defective gene that causes poor visual function, which significantly affects daily activities. ACHM is present from birth and throughout life and is characterized by a lack of cone photoreceptor function. Cone photoreceptors which are concentrated in the macula and the fovea, respond to moderate or bright intensity light and mediate fine visual acuity. Individuals with ACHM have markedly reduced visual acuity, photophobia or light sensitivity, and complete loss of color discrimination. Their only functioning photoreceptors are rod photoreceptors, which respond to low intensity light conditions and mediate night vision but cannot achieve fine visual acuity. Best-corrected visual acuity in persons affected by ACHM, even under subdued light conditions, is usually about 20/200, a level at which people are considered legally blind. They also experience extreme light sensitivity resulting in even worse visual acuity under normal daylight conditions, or day blindness.
ACHM can be caused by mutations in any of at least five genes that are required for normal cone photoreceptor function. The most common causes are mutations in the CNGB3 gene (aboutfirst half of all cases) or CNGA3 gene (about one-fourthcalendar year 2023.
Our ACHM product candidates
Our gene therapy approach to treatment of ACHM involves using an
Preclinical proof of concept for our ACHM product candidates
In mouse, dog and sheep models of ACHM, our product candidates were able to restore photoreceptor function, improve visual acuity and mitigate photophobia and day blindness.
ACHM naturally occurs in two breeds of dogs. Treatment by subretinal injection of an AAV vector expressing human CNGB3 restored cone function in both breeds of dogs. Cone-specific ERG responses were undetectable in these dogs before treatment but were clearly detected after treatment. Day blindness was demonstrated before treatment by testing the ability of the dogs to navigate a maze under progressively brighter conditions. Before treatment, it took the ACHM dogs progressively longer to navigate the maze as the ambient light increased from dim light to normal room lighting and even longer with normal outdoor daytime lighting. After treatment, the day blindness was substantially eliminated, and the treated ACHM dogs were able to navigate the maze under bright light conditions at almost the same speed as normal dogs.
Untreated ACHM dogs also demonstrated photophobia and day blindness when outdoors in daylight, which severely limited their ability to interact with people and objects in their environment. After treatment, there was a dramatic improvement in these important clinical manifestations of ACHM. The restored function persisted for more than 2.5 years (the longest duration tested).
In addition, a mouse model of ACHM was developed by knocking out the CNGB3 gene. Treatment by subretinal injection of an AAV vector expressing human CNGB3 in the knockout mice improved cone-specific ERG responses to nearly normal levels and improved visual acuity, as measured by their ability to follow a rotating pattern of vertical stripes of varying thickness.
There are also sheep models of ACHM caused by mutations in the CNGA3 gene. These sheep have clinical characteristics similar to human ACHM patients, with day blindness and absence of retinal cone function as measured by ERG. In collaboration with scientists at three academic centers in Israel, we conducted a preclinical study evaluating the safety and efficacy of our product candidate for CNGA3-related ACHM using one of the sheep models, which uses the same promoter and capsid used in our CNGB3 product candidate, administered by subretinal injection. Cone-specific ERG responses, which were undetectable in these sheep before treatment, were clearly detected after treatment. Day blindness was demonstrated before treatment by testing the ability of the sheep to
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navigate a maze under bright light conditions. After treatment, the day blindness was substantially reduced, and the treated sheep were able to navigate the maze under bright light conditions. At both the higher and lower doses tested, the maze transit time was similar, and clearly improved over the pre-dose performance.
Humans and non-human primates (NHP), unlike lower mammals, have three sets of cones, so we also conducted studies in NHP to select both a capsid and promoter that would allow expression of the protein in all three primate cone types. These studies showed that our proprietary promoter allowed for robust expression in red, green and blue cones.
Thethe CNGA3 gene (ACHMA3). Each Phase 1/2 clinical trial is being conducted at fourmultiple clinical sites that specialize in inherited retinal diseases. An additional siteThe primary objective of these trials is performing advanced optical testing onto identify a well-tolerated dose that provides clinical benefit to patients.
We are continuing To date, we have enrolled a total of 31 adult and pediatric patients into the ACHMB3 trial of
We have completed enrollmentdata previously released in a natural history study in persons affected by ACHM caused by CNGB3 mutationsadult and results from the study will be presented in appropriate scientific meetingspediatric ACHMB3 and publications.
Completion ofACHMA3 patients.
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Clinical development of our CNGA3-related ACHM product candidate
A Phase 1/2 clinical trial in which the primary endpoint of improvement in visual sensitivity relative to baseline, the FDA reiterated that a 7 dB change in at least 5
The Phase 1/22/3 clinical trial is being conducted at five sites that specialize in inherited retinal diseases, fourof
We have nearly completed enrollment in a natural history study in persons affected by ACHM caused by CNGA3 mutations and results from the study will be presented in appropriate scientific meetings and publications.
Completion of the Phase 1/2 clinical study and the natural history study will guide us in finalizing the design of a pivotal clinical trial. In the planned pivotal trial, we expect that between 40 and 75 patients will be enrolled and evaluated for changes in visual function over a 12-month period following treatment. If successful, we believe the results of this pivotal trial could support our submission of a BLA to the FDA and of an MAA to the EMA for our ACHM-A3 product candidate.
X-linked Retinitis Pigmentosa (XLRP)
Retinitis pigmentosa is an inherited retinal disease with progressive loss of vision, meaning children are born with defective genes that cause poor visual function that significantly affects daily activities and worsens over time. XLRP is commonly first observed in boys and young men who notice problems with vision under low light conditions, or night blindness, followed by a restriction of peripheral visual fields, or tunnel vision, leading to poor central vision and eventually to total blindness.
The incidence rate for retinitis pigmentosa is about one in 4,000 people, according to a published study, and we estimate that there are about 75,000 people in the United States and 125,000 people in Europe with retinitis pigmentosa, or 200,000 people in the United States and Europe. According to a published study, about 10% of cases of retinitis pigmentosa are XLRP, from which we therefore estimate that there are about 20,000 persons with XLRP in the United States and Europe combined.
Our XLRP product candidates
Our gene therapy approach to treatment of XLRP involves using an AAV vector to insert a functional copy of the RPGR gene into the patient’s photoreceptor cells. Our XLRP product candidates contain an optimized and stabilized RPGR gene and a promoter that has been shown in preclinical studies to drive efficient gene expression in primate rods, cones and photoreceptors and restores photoreceptor function dog and mouse models of XLRP.
Pre-clinical development of our XLRP Product
Preclinical studies in a dog model of XLRP caused by mutations in the RPGR gene demonstrated a reduction in the rate of disease progression in eyes that received a subretinal injection of an AAV vector expressing a codon-optimized form of the RPRG-
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ORF15 gene. A comparative dose range finding study of our XLRP product candidate in dogs demonstrated expression of the RPGR protein in both cone and rod photoreceptors, and improvement in structural and functional parameters associated with disease progression in this model. IND-enabling good laboratory practices, or GLP, toxicology studies have been completed in two relevant disease models (a dog model of the disease and in an RPGR knockout mouse model), providing guidance on the appropriate choice of dose levels to test in initial clinical studies.
Clinical development of our XLRP product candidate
On August 9, 2017, we filed an IND with the FDA in support of a Phase 1/2 trial for this product candidate.
The Phase 1/2 clinical trial is expected to be conducted at four clinical sites that specialize in inherited retinal diseases. We are currently conducting site initiation activities at the four clinical sites.
We are conducting a natural history study in patients with XLRP caused by RPGR mutations. This study documents the progression of the disease in the absence of treatment and is providing important information about the best methods for measuring visual function and other parameters in these patients, which will guide us in the design of subsequent clinical trials in which our product candidate will be tested for safety and efficacy.
Completion of the Phase 1/2 clinical study and the natural history study will guide us, and our collaborator Biogen, in finalizing the design of a pivotal clinical trial. In the planned pivotal trial, we expect that between 80 and 120 patients will be enrolled and evaluated for changes in visual function over a 24-month period following treatment. If successful, we believe the results of this pivotal trial could support our submission of a BLA to the FDA and of an MAA to the EMA for our XLRP product candidate.
As a part of our collaboration, Biogen obtained worldwide commercialization rights for our XLRP program. We will lead the clinical development program through the completion of first-in-human trials. Biogen will support the clinical development costs, subject to certain conditions, following the IND-enabling studies. We have an option to share development costs and profits after the initial clinical trial data are available, and an option to co-promote the second of two products (XLRS and XLRP) to be approved in the United States.
Treat Advanced Retinal Disease
As part of our collaboration
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intact and functional.
brain.
Central Nervous System
Our collaboration with Biogen includes options for three discovery programs, twoß-glucocerebrosidase and cathepsin D. PGRN haploinsufficiency (the loss of gene expression from one allele, resulting in ophthalmic diseasesreduced levels) is causally connected to FTD, and one in a non-ophthalmic condition. On February 8, 2016, we announced that Biogen had selected adrenoleukodystrophy (ALD) as the indication for the non-ophthalmic discovery program.
ALD is an X-linked disorder of fatty acid metabolism that leadsPGRN-deficient neurons are prone to accumulation of very long chain fatty acids in tissues throughout the body, mainly in the central nervous system and the adrenal gland. Clinically, ALDprotein
Otology
We continue developing and improving our products through pre-clinical work in order to add to our clinical candidate pipeline. On May 9, 2016, we announced a new initiativeenhance PGRN expression in the areabrain following direct vector administration into the cerebrospinal fluid. We measured in dosed NHPs the cerebrospinal fluid levels of otologyPGRN and confirmed that projected therapeutic levels are achievable within a defined dose range without affecting PGRN levels in which we will use our capabilitiesplasma. This program is currently in
Research Programs
Additionally, in order(replace) combination to develop optimized next generation capsids to target specific cell populations within the human retina we continue to collaborate with 4DMT. After extensive library screening in non-human primates, a shortlist of potential novel capsid variants with improved penetration after intravitreal injection, totherapeutic AAV that addresses all cell layersaspects of the retina, in particular photoreceptors, are being
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further characterized. We have an option to enter into a licensing agreement if the confirmatory studies are successful. We also have a licensing arrangement with the University of Florida where we are screening their extensive library in a similar fashion.
Wedisease-causing mutation, which work will continue to collaborate with Synpromics to use their proprietary technology to develop and optimize synthetic promoters. Promising novel synthetic promoter candidates specific for retinal cell types, such as RPE, have been identified and are undergoing further testing in vivo. We have an option to enter into a licensing agreement if the Synpromics develops improved promoters that we decide to use in our clinical candidates.
Manufacturing
Historically, there has been a lack of manufacturing infrastructure to enable the production of gene therapies in a reliable and reproducible manner at a commercially viable scale. The historical challenges for gene therapy manufacturing relatesubject to the difficultyavailability of developing constructs that provide the necessary helper functions, and in having systems that provide adequate yield, scalability and purity. We have made significant investments in developing improved manufacturing processes, which include the following:
Our proprietary manufacturing method for AAV production is highly efficient and selective, generating more packaged vector with higher fidelity of target sequences than other methods.
We have developed proprietary AAV vector manufacturing processes and techniques that produce a more purified and concentrated product candidate,
Our propriety platform for AAV production uses robust cell substrates that are well characterized and have been in several regulatory submissions in the US, Israel and Europe.
We do not need a specially cloned and isolated cell line for each of our disease targets; we instead use specially engineered replication-incompetent herpes simplex helpers, or HSV helpers, which are stable and straightforward to clone.
We have developed over 30 assays to accurately characterize our process and the HSV and AAV vectors we produce.
We have developed a purification system applicable to multiple AAV capsids.
We are investing in the development of mid- to large-scale manufacturing processes to enable the manufacture of our product candidates at commercial scale.
We believe these improvements and our continued investment in our manufacturing platform will enable us to develop best-in-class, next generation gene therapy products and that our viral vector production platform for AAV-based gene therapies offers significant benefits in comparison with the methods used by others to manufacture AAV vectors.
Strategic collaborations
We have formed strategic alliances in which both parties contribute expertise to enable the discovery and development of potential gene therapy product candidates. To access the substantial funding and other resources required to develop and commercialize gene therapy products, we intend to seek additional opportunities to form strategic alliances with collaborators who can augment our industry-leading gene therapy expertise.
Biogen will also receive an exclusive licenseprogram, 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 use our proprietary manufacturing technology platform to make AAV vectors for up to six genes, three of which are chosen at our discretion, in exchange for payment of milestones and royalties.
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the companies seekare seeking to develop a new optogenetic therapy that leverages AGTC’sour deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding.
AGTC will receive additional equity, based on the valuation in place at the beginning of the agreement, for its cash and in-kind research and development contributions and will be obligated to purchase additional equity in Bionic Sight for $4.0 million, upon the filing offile an IND for the selected product atcandidate and to achieve successful clearance by a pre-determined valuation.
Werelevant Institutional Review Board (IRB). Our current equity ownership in Bionic Sight is approximately 15.2%.
We will continue to in-license additional intellectual property to support our current programs, to establish newXLRS program but discontinued development programs and to support our manufacturing technology. Additionally, we will seek to partner with other commercial gene therapy companies and academic institutions to leverage our expertise in vector design, research, manufacturing and the regulatory process.2018 because defined efficacy endpoints were not met using intravitreal injection. The goal of these collaborations wouldthe licensing agreement is to evaluate whether a
per product basis (if any products are approved).
the Alliance for Regenerative Medicine.
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and collaborate with us on grant proposals. Since our inception, we have been awarded a variety of grant funding, either independently or with our collaborators. This funding has provided peer-reviewed scientific validation of our programs and has facilitated critical early stageearly-stage research for our lead product candidates.
product candidates.
2025 to 2029.
”
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based on one product.product candidate. Similar provisions are available in Europe and other foreign jurisdictions to extend the term of a patent that covers an approved drug. When possible, depending upon the length of clinical trials and other factors involved in the filing of a BLA, we expect to apply for patent term extensions for patents covering our product candidates and their methods of use.
We currently have three
This license will terminate upon the earlier to occur of the expiration of all of the patents subject to the license and the date on which royalty payments, once commenced, cease for more than three calendar quarters. Additionally, UFRF and JHU may terminate this license upon certain breaches by us of the terms of the license and we may terminate the license at any time by submitting written notice to UFRF.
The longest-lived patent covered by this license is expected to expire in 2022.
year-by-year
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annual maintenance payments in the mid four figures under these licenses, which payments are creditable against royalty payments on a
The University of Alabama at Birmingham
A license agreement
field of otology. Under the terms of this license,the agreement, we made a cash up-front paymentundertook the evaluation of
multiple promising capsid candidates for potential application in otology. In December 2019, we entered into a non-exclusive license agreement for three capsids that showed the most potential to support therapeutic development. Under the terms of the license agreement, we made a cashup-front payments to UFRF and will be required to make payments ranging from themid-five figures to thelow-six figures based upon development, regulatory and commercial milestones for any product candidates covered by thein-licensed intellectual property. Assuming that we meet each of the specified development, regulatory and commercial milestones not more than once for each product candidate, the maximum aggregate milestone payments payable under these licenses with respect to any individual product that we commercialize will be $0.25 million. We will also be required to pay a royalty on net sales of products covered by thein-licensed intellectual property in thelow-single digits. We have the right to sublicense our rights under these agreements, and we will be required to pay a percentage of such license income in themid-single digits. We are required to make annual maintenance payments in the low four figures under these licenses until such time as royalties on commercial sales exceeds these amounts. |
This license will terminate upon the expiration of all of the patents subject to the license. Additionally, the UAB Research Foundation may terminate this license upon certain breaches by us of the terms of the license and we may terminate the license at any time by submitting written notice to the UAB Research Foundation.
Collaborations with 4DMT and Synpromics
We continue to collaborate with 4DMT and Synpromics in order to develop optimized capsids to target specific cell populations and novel synthetic promoters, respectively.
Competition
Gene Therapy Space
candidates.
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foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be able to obtain the required regulatory approvals.
INDs, and gene therapy products for rare diseases and retinal disorders. The FDA’s guidance for Human Gene Therapy for Retinal Disorders, which was finalized in January 2020, provides recommendations for product development, preclinical testing and clinical trial design for these products. The FDA also issued draft guidance in January 2021 for sponsors developing human gene therapy for neurodegenerative diseases.
efficacy data.
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When a gene therapy trial is conducted at,
conducted there.
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The FDA may recommend the establishment of a patient registry after licensure specifically to collect adverse event data from gene therapy patients.
the early stages of development as well as throughout the development and clinical study process. This guidance provides the FDA’s recommendations for manufacturing, preclinical and clinical trial design issues for all phases of the clinical development program.
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Orphan drug If the FDA issues a complete response letter at the end of the initial review cycle and the sponsor resubmits its BLA addressing all deficiencies, a new two or
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200,000 or more than 200,000 individuals in the United States if there is no reasonable expectation that the cost of developing and making a drug or biological product available in the United States for this type of disease or condition will be recovered from sales of the product candidate. Orphan productOrphan-drug designation must be requested before submitting ana New Drug Application, or NDA, or BLA. After the FDA grants orphan productorphan-drug designation, the identity of the therapeutic agent and its potential orphan use are disclosed publicly by the FDA. Orphan productOrphan-drug designation does not convey any advantage in or shorten the duration of the regulatory review and approval process.
Orphan-drug designation may also be rescinded if the product candidate no longer meets the criteria for designation.
Any product candidate submitted
Lastly, under
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We
actions are not taken voluntarily.
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protection or patent term, may be granted based on the voluntary completion of a pediatric study in accordance with an
A
reimbursement
healthcare laws
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administering all payroll functions, including tax withholding,withholdings, and providing health insurance and other benefits for theseto those individuals. We reimburse TriNetInsperity for theseits costs and pay TriNetInsperity an administrative fee for its services. We are responsible for, and control, all aspects of the hiring, retention, compensation, management and supervision of our personnel. We consider the terms of our contract with TriNetInsperity to be reasonable and customary and believe that this arrangement provides substantial benefit to us in the form of lower costs for employee benefits and a reduced administrative burden on us.
Implications of being an emerging growth company
As a company with less than $1 billion in revenue during our last fiscal year, we qualify as an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other requirements that are otherwise applicable generally to public companies. These provisions include:
only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;
reduced disclosure about our executive compensation arrangements;
no non-binding advisory votes on executive compensation or golden parachute arrangements; and
Item 1A. | RISK FACTORS |
exemption from
We may take advantage of these exemptions for up to five years from the date of our initial public offering of common stock speculative or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1 billion in annual revenue, we have more than $700 million in market value of our stock held by non-affiliates or we issue more than $1 billion of non-convertible debt over a three-year period. We may choose to take advantage of some, butrisky. This summary does not address all of the risks that we face. Additional discussion of the risks summarized in this risk factor summary, and other risks that we face, can be found below under the heading “Risk Factors” and should be carefully considered, together with other information in this
In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with newon acceptable terms, or revised accounting standards. This allows an emerging growth companyat all. Failure to obtain necessary capital when needed may force us to delay, the adoption of certain accounting standards until those standards would otherwise apply to private companies. limit or terminate our product development efforts or other operations.
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seek to enter into strategic business transactions, including a merger, which may disrupt our business or divert management attention.
We are a clinical-stage biotechnology company, and we have not yet generated revenues from product sales. With the exceptionscope of the fiscal year ended June 30, 2017, in which we reported net income of $1.7 million due in part to the amortization associated with our collaboration agreement with Biogen, we have incurred losses from operations in each year since our inception in 1999. We reported net losses of $1.4 million and $24.3 million for each of the fiscal years ended June 30, 2016 and 2015, respectively. As of our most recent fiscal year ended June 30, 2017, we had an accumulated deficit of $88.3 million. Our prior losses, combined with expected future losses, have had and may continue to have an adverse effect on our stockholders’ equity and working capital.
We have devoted most of our financial resources to research and development, including our clinical and preclinical development activities. To date, we have financedprograms and/or limit or cease our operations if we are unable to obtain additional funding. As of June 30, 2022, we had cash and cash equivalents totaling $46.4 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 filing this Annual Report on
We expect to continue to incur significant expenses and increasing operating losses for the foreseeable future. We anticipate that our expenses will increase substantially if and as we:
continue our research and preclinical and clinical development of our product candidates;
expand the scope of our current clinical trials for our product candidates;
initiate additional preclinical studies, clinical trials or other studies for our product candidates;
further develop our gene therapy platform, including the process for design, delivery and manufacturing of our vectors for our product candidates;
change or add additional manufacturers or suppliers;
seek regulatory and marketing approvals for our product candidates that successfully complete clinical trials;
establish a sales, marketing and distribution infrastructure to commercialize any products for whichsources. However, we may obtain marketing approval;
seekbe unable to identify and validate additional product candidates;
acquire or in-license other product candidates and technologies;
make milestone or other payments under any in-license agreements;
maintain, protect and expand our intellectual property portfolio;
attract and retain skilled personnel;
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experience any delays or encounter issues withsuccessfully execute any of the above.
The net losses we incur may fluctuate significantly from quarter to quarter and year to year,plans described above, raise additional funds or enter into such that a period-to-period comparisonother arrangements when needed on favorable terms, or at all. On September 21, 2022, the Federal Reserve Board announced an increase of our results of operations may not be a good indication of our future performance. In any particular quarter or quarters, our operating results could be below the expectations of securities analysts or investors, which could cause our stock price to decline.
Our ability to generate revenue from product sales is highly uncertain and we may never achieve or sustain profitability, which could depress the market price of our common stock, and could cause you to lose part or all of your investment.
All of our revenue generated to date has come from research grants from third parties or license fees or milestone payments from collaborations. Our ability to generate substantial revenue and achieve profitability depends on our ability, alone or with strategic collaboration partners such as Biogen and Bionic Sight, to successfully complete the development of, and obtain the regulatory approvals necessary to commercialize, our product candidates. We do not anticipate generating revenues from product sales for at least the next several years, if ever. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability0.75% in the future, wefederal funds rate and indicated that further rate increases will be announced in the short-term to combat rising inflation in the United States. Such rate increases may not be able to sustain profitability in subsequent periods. Our ability to generate future revenues from product sales depends heavilyhave an adverse impact on our success in:
completing research and preclinical and clinical development of our product candidates;
seeking and obtaining regulatory and marketing approvals for product candidates for which we complete clinical trials;
establishing and maintaining supply and manufacturing relationships with third parties that can provide adequate (in amount and quality) products and services to support clinical development and the market demand for our product candidates, if approved;
launching and commercializing product candidates for which we obtain regulatory and marketing approval, either by collaborating with a partner or, if launched independently, by establishing a sales, marketing and distribution infrastructure;
obtaining and maintaining adequate coverage and reimbursement from third-party payors for our product candidates;
obtaining market acceptance of our product candidates and gene therapy as a viable treatment option;
addressing any competing technological and market developments;
implementing additional internal systems and infrastructure, as needed;
identifying and validating new gene therapy product candidates;
negotiating favorable terms in any collaboration, licensing or other arrangements into which we may enter;
maintaining, protecting and expanding our portfolio of intellectual property rights, including patents, trade secrets and know-how; and
attracting, hiring and retaining qualified personnel.
Even if one or more of the product candidates that we develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing any approved product candidate, particularly to the extent that we seek to commercialize any product for an indication, such as wet AMD, that has a patient population significantly larger than those addressed by our current lead product candidates. Our expenses could increase beyond expectations if we are required by the FDA, the EMA or other regulatory agencies, domestic or foreign, to perform clinical trials and other studies in addition to those that we currently anticipate. Even if we are able to generate revenues from the sale of any approved products, we may not become profitable and may need to obtain additional funding to continue operations. Our failure to become and remain profitable would depress the market price of our common stock and could impair our ability to raise funds through the offering of our securities or through the issuance of debt due to higher debt capital expandcosts, diminished credit availability and less favorable equity markets. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, diversifyresults of operations and financial condition and would jeopardize our product offerings orability to continue our operations.
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These factors raise substantial doubt about our ability to continue as a going concern.
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product candidate.
total or partial
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Regulatory requirements governing
trials or that a product candidate will receive FDA approval.
For example, we recently reported three-month interim results from our ongoing Phase 2 Skyline trial of
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interpretations, which may delay, limit or prevent regulatory approval. In addition, we may experience regulatory delays or rejections as a result of many factors, including due to changes in regulatory policy during the period of our product candidate development.
candidates.
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delays in raising,
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failure by us or our vendors to manufacture our product candidate in accordance with the FDA’s good manufacturing practice, orcurrent GMP requirements or applicablesimilar regulatory requirements and guidelines in other countries;
delays in having patientspatients’ complete participation in a trial or return for post-treatment
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profile.
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have, in fact, been observed in our XLRStrials, including in the XLRP and ACHM CNGB3 trials. In August 2021, for example, three new SAEs of significant inflammation that are considered a suspected unexpected serious adverse reaction, or SUSAR, occurred in pediatric patients at the highest trial dose concentration in both the ACHMB3 and ACHMA3 trials. 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. There is also the potential risk of delayed adverse eventsreactions 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. If any such adverse eventsreactions occur, our clinical trials could be suspended or terminated and the FDA, the EMA or other foreign regulatory authorities could order us to cease further development of or deny approval of our product candidates for any or all targeted indications. The product-related side effects could affect patient recruitment or the ability of enrolled patients to complete the trial. If we elect or are required to delay, suspend or terminate any clinical trial of any of our product candidates, the commercial prospects of such product candidates will be harmed and our ability to generate product revenuesrevenue from any of these product candidates will be delayed or eliminated. Any of these occurrences may harm our business, financial condition and prospects significantly.
Orphan-drug designation may also be rescinded before approval if the FDA concludes that the product candidate no longer meets the criteria for designation.
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manufacturer is unable to assure the regulatory body that it can provide sufficient quantity of the product to meet the needs of patients with the rare disease or condition, or if a gene therapy product considered to be the same as our product candidate is superior in certain respects.
In addition, biological product advertising and promotional materials intended to be used during the first 120 days after approval must be submitted to the FDA during the BLA review period. After approval, advertising and promotional materials must be submitted to the FDA 30 days prior to their intended use.
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revenue.
and our plans to develop manufacturing capacity
We
Additionally, we may experience delays in the
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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 and trial protocols. If these third parties do not successfully carry out their contractual duties, meet expected deadlines or conduct our studies in accordance with regulatory requirements or our stated study and trial plans and protocols, or if there are disagreementsdisagreements between us and these third parties, we will not be able to complete, or may be delayed in completing, the preclinical studies and clinical trials required to support future BLA or IND submissions and approval of our product candidates. In some such cases, we may need to locate an appropriate replacement third-party relationship, which may not be readily available or on acceptable terms, which would cause additional delay with respect to the approval of our product candidates and would thereby have a material adverse effect on our business, financial condition, results of operations and prospects.
As described above in “Business,” we have encountered delays in clinical trial material availability as a result of difficulties in proper testing.
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We have a collaboration with Biogen to develop, seek regulatory approval for and commercialize gene therapy products to treat XLRS and XLRP. The collaboration agreement also provides for discovery programs targeting three indications whereby we will conduct discovery, research and development activities for those additional drug candidates through the stage of clinical candidate designation, after which, Biogen may exercise an option to continue to develop, seek regulatory approval for and commercialize the designated clinical candidate.
If we enter into such
take-over or
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In the event Biogen terminates the collaboration for a material breach by us, we will be restricted from competing with Biogen for two years in the terminated programs with Biogen having the right, in lieu of termination, to elect to maintain the license from us and reduce the royalties and milestones in a manner specified in the agreement.
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of our research and development partnerships or similar agreements. Despite our efforts to protect our trade secrets, our competitors may discover our trade secrets, either through breach of these agreements, independent development or publication of information including our trade secrets in cases where we do not have proprietary or otherwise protected rights at the time of publication. A competitor’s discovery of our trade secrets would impair our competitive position and have an adverse impact on our business.
revenue.
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costs in general, particularly prescription drugs and surgical procedures and other treatments, has become very intense. As a result, increasingly high barriers are being erected to the entry of new products.
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the potential for
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We 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 that we did not incur as a private company. In addition, the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as rules subsequently implemented by the Securities and Exchange Commission, or SEC, and The NASDAQ Global Market impose various requirements on public companies. In July 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, was enacted. There are significant corporate governance and executive compensation related provisions in the Dodd-Frank Act that require the SEC to adopt additional rules and regulations in these areas. 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.
We may not be successful in complying with these obligations, and compliance with these obligations could be time-consuming and expensive. If 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. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. For example, we expect that these rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance, which in turn could make it more difficult for us to attract and retain qualified members of our board of directors. 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.
We have identified material weaknesses in our internal control over financial reporting, and if we are unable to maintain effective internal control over financial reporting, investors could lose confidence in our financial statements and our company which could have a material adverse effect on our business and our stock price.
Our management previously determined that as of June 30, 2016, 2015 and 2014, we had material weaknesses in our internal control over financial reporting, which related to the design and operation of our closing and financial reporting processes and our
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accounting for debt, equity and convertible instruments (as described in our Annual Reports on Form 10-K for such fiscal years). Management has determined that as of June 30, 2017, a material weakness in our internal control over financial reporting related to the design and operation of our closing and financial reporting processes still existed, as described in Item 9A of this Annual Report on Form 10-K.
If we fail to maintain effective internal controls in the future, it could result in a material misstatement of our financial statements, which could cause investors to lose confidence in our financial statements and our company or cause our stock price to decline. Our independent registered public accounting firm has not assessed the effectiveness of our internal control over financial reporting and, under the JOBS Act, will not be required to provide an attestation report on the effectiveness of our internal control over financial reporting so long as we qualify as an emerging growth company, which may increase the risk that weaknesses or deficiencies in our internal control over financial reporting go undetected.
If we are unable to manage expected growth in the scale and complexity of our operations, our performance may suffer.
If we are successful in executing our business strategy, we will need to continue to expand our managerial, operational, financial and other systems and resources to manage our operations, continue our research and development activities, and, in the longer term, build a sales force and commercial infrastructure to support commercialization of any of our product candidates that are approved for sale. Future growth would impose significant added responsibilities on members of management. It is possible that our management, finance, development personnel, systems and facilities currently in place may not be adequate to support this future growth. Our need to effectively manage our operations, growth and products requires that we continue to develop more robust business processes and improve our systems and procedures in each of these areas and to attract and retain sufficient numbers of talented employees. We may be unable to successfully implement these tasks on a larger scale and, accordingly, may not achieve our research, development and growth goals.
We may enter into or seek to enter into business partnerships, combinations and/or acquisitions which may be difficult to integrate, disrupt our business, divert management attention or dilute stockholder value.
A key element of our strategy is to enter into business partnerships, combinations and/or acquisitions. We have limited experience in making acquisitions, which are typically accompanied by a number of risks, including:
the difficulty of integrating the operations and personnel of the acquired companies;
the potential disruption of our ongoing business and distraction of management;
potential unknown liabilities and expenses;
the failure to achieve the expected benefits of the combination or acquisition;
the maintenance of acceptable standards, controls, procedures and policies; and
the impairment of relationships with employees as a result of any integration of new management and other personnel.
If we are not successful in completing acquisitions that we may pursue in the future, we would be required to reevaluate our business strategy and we may have incurred substantial expenses and devoted significant management time and resources in seeking to complete the acquisitions. In addition, we could use substantial portions of our available cash as all or a portion of the purchase price, or we could issue additional securities as consideration for these acquisitions, which could cause our stockholders to suffer significant dilution.
Our future success depends on our ability to retain key employees, consultants and advisors and to attract, retain and motivate qualified personnel.
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our stock price that are beyond our control and may at any time be insufficient to counteract more lucrative offers from other companies.
Our employees, principal investigators, consultants and commercial partners may engage in misconduct or other improper activities.
We are exposed to the risk that our employees, CROs, principal investigators, consultants and commercial partners may engage in fraudulent conduct or other illegal activity or may fail to disclosure unauthorized activities to us. Misconduct by these parties could include intentional, reckless and/or negligent failures to comply with:
the laws and regulations of the FDA and non-U.S. regulators, including those laws requiring the reporting of true, complete and accurate information to such regulatory bodies;
manufacturing standards we have established;
healthcare fraud and abuse laws and regulations in the United States and similar foreign laws; or
laws requiring the accurate reporting of financial information or data or the disclosure of unauthorized activities to us.
In particular, sales, marketing and business arrangements in the healthcare industry are subject to extensive laws and regulations intended to prevent fraud, misconduct, 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. Such misconduct could also involve the improper use of information obtained in the course of clinical trials, which could result in regulatory sanctions and cause serious harm to our reputation. We have adopted a code of conduct applicable to all of our employees, but it is not always possible to identify and deter employee misconduct, 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 comply with these 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 significant fines or other sanctions.
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We may be subject, directly or indirectly, to federal and state healthcare fraud and abuse laws, false claims laws and health information privacy and security laws. If we are unable to comply, or have not fully complied, with such laws, we could face substantial penalties.
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possible that some of our business activities could be subject to challenge under one or more of such laws. In addition, recent health carehealthcare reform legislation has strengthened these laws. For example, the PPACA,ACA, among other things, amends the intent requirements of the federal Anti-Kickback Statute and the criminal statute governing healthcare fraud. A person or entity can now be found guilty of violating the Anti-Kickback Statute and the federal criminal healthcare fraud statute without actual knowledge of the statute or specific intent to violate it. In addition, the PPACAACA provides 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 federal False Claims Act.
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If we fail to comply with environmental, health and safety laws and regulations, we could become subject to fines or penalties or incur costs that could have a material adverse effect on the success of our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use, storage, treatment, manufacture and disposal of hazardous materials and wastes. Our operations
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involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally contract with third parties for the disposal of these materials and wastes. Although we believe that our procedures for using, handling, storing and disposing of these materials comply with legally prescribed standards, we cannot eliminate the risk of contamination or injury from these materials. In the event of contamination or injury resulting from our use of hazardous materials, we could be held liable for any resulting damages, and any liability could exceed our resources. We also could incur significant costs associated with civil or criminal fines and penalties.
Although we maintain workers’ compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the use of hazardous materials or other work-related injuries, this insurance may not provide adequate coverage against potential liabilities. In addition, we may incur substantial costs in order to comply with current or future environmental, health and safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts. Failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions.
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demand. Any unforeseen failure in the storage of the product or loss in supply could delay our clinical trials and, if our product candidates are approved, result in a loss of our market share and negatively affect our revenuesrevenue and operations.
Cyber attacks
Cyber attacks
If we were to experience a significant cybersecurity breach of our information systems or data, the costs associated with the investigation,
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behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after filing, or in some cases notif at all. Therefore, we cannot know with certainty whether we were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. Our pending and future patent applications may not result in issued patents that protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of our patents or narrow the scope of our patent protection.
Similarly, if any third-party patents were held by a court of competent jurisdiction to cover aspects of our formulations, methods for manufacture or methods of use, including combination therapy, and are not held to be invalid or unenforceable, the holders of any such patents may be able to block our ability to develop and commercialize the applicable product candidate unless we obtained a license or until such patent expires. In either case, such a license may not be available on commercially reasonable terms or at all. Even if we were able
Parties making claims against us may obtain injunctive or other equitable relief, which could effectively block our ability to further develop and commercialize one or more of our product candidates. candidates, including
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involve substantial litigation expense and would be a substantial diversion of employee resources from our business.
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the ownership of inventions and
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administrative bodies in the United States or abroad, even outside the context of litigation. Such mechanisms include
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compliance
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enforce our intellectual property rights around the world may be inadequate to obtain a significant commercial advantage from the intellectual property that we develop or license.
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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,” as defined in the Jumpstart Our Business Startups Act of 2012, or 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 of Section 404 of the Sarbanes-Oxley Act t, reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company through June 30, 2019, which is the fifth anniversary of the end of the fiscal year in which our initial public offering closed. However, circumstances could cause us to lose that status earlier, including if the market value of our common stock held by non-affiliates exceeds $700.0 million as of any December 31 before that time or if we have total annual gross revenue of $1.0 billion or more during any fiscal year before that time, in which cases we would no longer be an emerging growth company as of the following June 30 or, if we issue more than $1.0 billion in non-convertible debt during any three-year period before that time, 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 the Sarbanes-Oxley Act and reduced disclosure obligations regarding executive compensation. 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 market for our common stock and our stock price may be more volatile.
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies. As a result, changes in rules of U.S. generally accepted accounting principles or their
59
interpretation, the adoption of new guidance or the application of existing guidance to changes in our business could significantly affect our financial position and results of operations.
Future sales and issuances of our common stock or rights to purchase common stock, including pursuant to our equity incentive plans, could result in additional dilution of the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital may be needed in the future to continue our planned operations, including conducting clinical trials, commercialization efforts, expanded research and development activities, potential acquisitions, in-licenses, or collaborations and costs associated with operating a public company. To raise capital, we may sell common stock, convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities in more than one transaction, investors may be materially diluted by subsequent sales. Such sales may also result in material dilution to our existing stockholders, and new investors could gain rights, preferences and privileges senior to the holders of our common stock.
We do not currently intend to pay dividends on our common stock and, consequently, your ability to achieve a return on your investment will depend on the appreciation in the price of our common stock.
We have never declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings to fund our future growth and do not expect to declare or pay any dividend on shares of our common stock in the foreseeable future. As a result, you may only receive a return on your investment in our common stock if the market price of our common stock appreciates and you sell your shares at a price above your cost.
Anti-takeover provisions in our amended and restated certificate of incorporation and amended and restated bylaws, as well as provisions in Delaware law, might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.
Our certificate of incorporation, bylaws and Delaware law contain provisions that could have the effect of rendering more difficult or discouraging an acquisition deemed undesirable by our board of directors, even if doing so would benefit our stockholders or remove our current management. Our corporate governance documents include provisions:
providing for three classes of directors with the term of office of one class expiring each year, commonly referred to as a staggered board;
authorizing blank check preferred stock, which could be issued with voting, liquidation, dividend and other rights superior to our common stock;
limiting the liability of, and providing indemnification to, our directors and officers;
eliminating the ability of our stockholders to call and bring business before special meetings and to take action by written consent in lieu of a meeting;
requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;
controlling the procedures for the conduct and scheduling of board and stockholder meetings;
limiting the determination of the number of directors on our board and the filling of vacancies or newly created seats on the board to our board of directors then in office; and
providing that directors may be removed by stockholders only for cause.
These provisions, alone or together, could delay hostile takeovers and changes in control or changes in our management.
As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation Law, which prohibits a publicly-held Delaware corporation from engaging in a business combination with an interested
60
stockholder, generally a person which together with its affiliates owns, or within the last three years has owned, 15% of our voting stock, for a period of three years after the date of the transaction in which the person became an interested stockholder, unless the business combination is approved in a prescribed manner.
The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that you could receive a premium for your common stock in an acquisition.
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 2. | PROPERTIES |
Cambridge, Massachusetts
In August 2015, we entered into a two-year lease to, occupyamong other things, extended the lease term from 20 years to 20 years and one month. The facility is also intended to provide supply chain redundancy, reduce manufacturing risk and enhance quality controls. We anticipate
ITEM 3. | LEGAL PROCEEDINGS |
ITEM 4. | MINE SAFETY DISCLOSURES |
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
| 2017 |
|
| 2016 |
| ||||||||||
| High |
|
| Low |
|
| High |
|
| Low |
| ||||
First fiscal quarter | $ | 17.00 |
|
| $ | 8.50 |
|
| $ | 20.10 |
|
| $ | 12.43 |
|
Second fiscal quarter | $ | 10.85 |
|
| $ | 6.35 |
|
| $ | 21.43 |
|
| $ | 12.04 |
|
Third fiscal quarter | $ | 10.15 |
|
| $ | 6.08 |
|
| $ | 20.13 |
|
| $ | 12.12 |
|
Fourth fiscal quarter | $ | 7.05 |
|
| $ | 4.70 |
|
| $ | 19.86 |
|
| $ | 12.76 |
|
Moreover, as discussed in Note 7 to our financial statements in this Annual Report on Form
62
The following stock performance graph compares the cumulative total return to stockholders for our common stock for the period commencing March 27, 2014 (the date on which our common stock commenced trading on The NASDAQ Global Market) and ended June 30, 2017 against the cumulative total return of the NASDAQ Composite Index and the NASDAQ Biotechnology Index. The calculation of total cumulative returns assumes a $100 investment in our common stock, the NASDAQ Composite Index and the NASDAQ Biotechnology Index, and assumes reinvestment of all dividends, if any. The historical information set forth below is not necessarily indicative of future performance.
|
| 3/14 |
|
| 6/14 |
|
| 6/15 |
|
| 6/16 |
|
| 6/17 |
| |||||
Applied Genetic Technologies Corporation |
|
| 100.00 |
|
|
| 156.50 |
|
|
| 103.93 |
|
|
| 95.73 |
|
|
| 34.55 |
|
NASDAQ Composite |
|
| 100.00 |
|
|
| 105.23 |
|
|
| 119.93 |
|
|
| 117.34 |
|
|
| 149.68 |
|
NASDAQ Biotechnology |
|
| 100.00 |
|
|
| 109.25 |
|
|
| 149.07 |
|
|
| 107.52 |
|
|
| 124.72 |
|
63
ITEM | [RESERVED] |
The following selected financial data should be read in conjunction with our financial statements and related notes in Part II, Item 8 of this Annual Report on Form 10-K and with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of this Annual Report on Form 10-K.
Our selected statement of operations data for the fiscal years ended June 30, 2017, 2016 and 2015 and our selected balance sheet data as of June 30, 2017 and 2016 are derived from our audited financial statements included elsewhere in this report. The selected statements of operations data for the fiscal years ended June 30, 2014 and 2013 and the balance sheet data as of June 30, 2015, 2014 and 2013 are derived from our audited financial statements not included in this Annual Report on Form 10-K. Our historical results are not necessarily indicative of results to be expected for any future period. The selected financial data in this section are not intended to replace our financial statements and the related notes.
Selected Financial Data
|
| Fiscal Year Ended June 30, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (in thousands except per share data) |
| |||||||||||||||||
Statement of Operations Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collaboration Revenue |
| $ | 39,282 |
|
| $ | 46,751 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
Grant revenue |
|
| 191 |
|
|
| 610 |
|
|
| 1,682 |
|
|
| 917 |
|
|
| 439 |
|
Sponsored research and other revenue |
|
| - |
|
|
| - |
|
|
| 672 |
|
|
| 212 |
|
|
| 503 |
|
Total revenue |
|
| 39,473 |
|
|
| 47,361 |
|
|
| 2,354 |
|
|
| 1,129 |
|
|
| 942 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development |
|
| 26,217 |
|
|
| 39,376 |
|
|
| 18,118 |
|
|
| 8,503 |
|
|
| 3,133 |
|
General and administrative |
|
| 11,354 |
|
|
| 10,074 |
|
|
| 8,768 |
|
|
| 5,182 |
|
|
| 1,403 |
|
Total operating expenses |
|
| 37,571 |
|
|
| 49,450 |
|
|
| 26,886 |
|
|
| 13,685 |
|
|
| 4,536 |
|
Income (loss) from operations |
|
| 1,902 |
|
|
| (2,089 | ) |
|
| (24,532 | ) |
|
| (12,556 | ) |
|
| (3,594 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income, net |
|
| 952 |
|
|
| 711 |
|
|
| 216 |
|
|
| 42 |
|
|
| 10 |
|
Interest expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (191 | ) |
Fair value adjustments to warrant liabilities |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (441 | ) |
|
| (8 | ) |
Fair value adjustments to Series B purchase rights |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (2,904 | ) |
|
| (1,207 | ) |
Other |
|
| (47 | ) |
|
| (3 | ) |
|
| (2 | ) |
|
| (49 | ) |
|
| — |
|
Total other income (expense), net |
|
| 905 |
|
|
| 708 |
|
|
| 214 |
|
|
| (3,352 | ) |
|
| (1,396 | ) |
Income (loss) before provision for income taxes |
|
| 2,807 |
|
|
| (1,381 | ) |
|
| (24,318 | ) |
|
| (15,908 | ) |
|
| (4,990 | ) |
Provision for income taxes |
|
| 2,400 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income (loss) |
| $ | 407 |
|
| $ | (1,381 | ) |
| $ | (24,318 | ) |
| $ | (15,908 | ) |
| $ | (4,990 | ) |
Net income (loss) per share, basic (1) |
| $ | 0.02 |
|
| $ | (0.08 | ) |
| $ | (1.50 | ) |
| $ | (4.46 | ) |
| $ | (45.78 | ) |
Net income (loss) per share, diluted (1) |
| $ | 0.02 |
|
| $ | (0.08 | ) |
| $ | (1.50 | ) |
| $ | (4.46 | ) |
| $ | (45.78 | ) |
Weighted-average shares outstanding, basic |
|
| 18,072 |
|
|
| 17,810 |
|
|
| 16,253 |
|
|
| 3,568 |
|
|
| 109 |
|
Weighted-average shares outstanding, diluted |
|
| 18,385 |
|
|
| 17,810 |
|
|
| 16,253 |
|
|
| 3,568 |
|
|
| 109 |
|
�� |
| As of June 30, |
| |||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
|
| 2014 |
|
| 2013 |
| |||||
|
| (in thousands) |
| |||||||||||||||||
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,706 |
|
| $ | 28,868 |
|
| $ | 39,187 |
|
| $ | 8,623 |
|
| $ | 8,893 |
|
Short and long-term investments |
| $ | 107,743 |
|
| $ | 143,847 |
|
| $ | 46,083 |
|
| $ | 64,450 |
|
| $ | 14,000 |
|
Total assets |
| $ | 147,923 |
|
| $ | 180,797 |
|
| $ | 90,174 |
|
| $ | 77,407 |
|
| $ | 25,490 |
|
Current liabilities |
| $ | 28,156 |
|
| $ | 54,743 |
|
| $ | 4,642 |
|
| $ | 2,534 |
|
| $ | 3,460 |
|
Convertible preferred stock |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 58,103 |
|
Total stockholders’ equity (deficit) |
| $ | 115,329 |
|
| $ | 109,288 |
|
| $ | 85,532 |
|
| $ | 74,873 |
|
| $ | (36,183 | ) |
ITEM 7. |
|
64
|
|
others.
Although we recorded income from operations of $1.9 million for the year ended June 30, 2017 due in part to the amortization of revenue associated with our collaboration agreement with Biogen, weBlindness.
continue our research and development efforts, including exploration through early preclinical studies of potential applications of our gene therapy platform in::
|
|
|
|
|
|
manufacture clinical trial materials and develop larger-scale manufacturing capabilities;
further develop our gene therapy platform;
add personnel to support our scientific, collaboration and product development and commercialization efforts; and
65
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 existingavailable cash and cash equivalents, and investments at June 30, 2017, will be along with net proceeds of approximately $9.0 million from an underwritten public offering of our common stock, together with accompanying warrants, which is described in Note 15 to our financial statements in this Annual Report on Form
Strategic Collaborations
Biogen
In July 2015, we enteredproduct candidates and continue our research and development efforts.
Under the collaboration agreement, we received a non-refundable upfront payment of $94.0 million in August 2015. As a result of the upfront payment made by Biogen, we became liable to our various research partner institutions for sub-license payments, which led us to record an expense for collaboration-related license fees of $12.0 million. We paid these license fees in full during the fiscal year ended June 30, 2016.
During 2017 and 2016, we recognized revenue of approximately $39.3 million and $46.8 million, respectively from our collaboration with Biogen. We are also eligible to receive payments of up to $467.5 million based on the successful achievement of future milestones under the two lead programs and up to $592.5 million based on the exercise of the option for and the successful achievement of future milestones under the three discovery programs. Biogen will pay revenue-based royalties for each licensed product at tiered rates ranging from high single digit to mid-teen percentages of annual net sales of the XLRS or XLRP products and at rates ranging from mid-single digit to low-teen percentages of annual net sales for the discovery products. Due to the uncertainty surrounding the achievementdetails of the future milestones, such payments were not considered fixed or determinable at development plan for
In additioncompleted during the fourth quarter of calendar year 2022.
66
percenta limited period of time to acquire: (i) a majority equity interest in Bionic Sight. In additionSight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the initial investment,product to which the collaboration agreement relates.
Synpromics
In December 2015, we entered into an agreement with Synpromics Limited (“Synpromics”) to utilize Synpromics' proprietary technology to develop and optimize synthetic promoters. In the event that results from the research are promising, we have options to license promoters that result from the collaboration efforts.
4DMT
In April 2015, we signed an agreement with 4DMT to conduct research on optimized next generation capsids to target specific target cell populations within the human retina using 4DMT’s Directed Evolution AAV vector discovery platform. If promising capsids result from the research, we have an option to enter into a licensing agreement.
Financial operations overview
Revenue
Ourtimely manner or obtain regulatory approval for them, our ability to generate productfuture revenue and become profitable depends upon our ability to successfully commercialize products. To date, we have not generated any revenues from the salesresults of products. During the fiscal years ended June 30, 2017operations, financial position and 2016, we recognized $39.3 million and $46.8 million of revenue from our collaboration with Biogen, respectively. In the fiscal year ended June 30, 2015, all our revenues were derived from grants and sponsored research arrangements. Revenues from grants and sponsored research arrangements are recognized when there is reasonable assurance that they willcash flows would be received and we have complied with the terms of the grant or the sponsored research arrangement.
materially adversely affected.
the cost
the countries in which trials are conducted;
future clinical trial results;
uncertainties in clinical trial enrollment rates or
potential additional safety monitoring or other studies requested by regulatory agencies or elected as best practice by us;
increased cost and delay associated with manufacturing or testing issues, including ongoing quality assurance, qualifying new vendors and developing
A change
As of June 30, 2017, we had a total of 53 researchtrial activities and development personnel. of our product candidates.
indications and execute our plan to open and operate a leased cGMP manufacturing and quality control facility.
Otherplan to open and operate a leased cGMP manufacturing and quality control facility.
Other
68
The following discussionEstimates
Revenue recognition
We have generated revenue primarily through sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates and revenues from federal research and development grant programs. We recognize revenue when amounts are realizedassumptions or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
We evaluate the terms of sponsored research agreement grants and federal grants to assess our obligations and if our obligations are satisfied by the passage of time, revenue is recognized on a straight-line basis. In situations where the performance of our obligations has been satisfied when the grant is received, revenue is recognized upon receipt of the grant. Certain grants contain refund provisions. We review those refund provisions to determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, the grant is recognized as revenue. If the probability of repayment is determined to be more than remote, we record the grant as a deferred revenue liability, until such time that the grant requirements have been satisfied.
Collaboration revenue
As described above, on July 1, 2015, we entered into a collaboration agreement with Biogen. The terms of this agreement and other potential collaboration or commercialization agreementsconditions. Moreover, we may enter into generally contain multiple elements, or deliverables, which may include, among others, (i) licenses, or optionsneed to obtain licenses,change the assumptions underlying our estimates due to our technology,risks and (ii) research and development activities to be performed on behalf of the collaborative partner. Payments made under such arrangements typically include one or more of the following: non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Multiple element arrangements are analyzed to determine whether the deliverables within the agreement can be separated or whether they must be accounted for as a single unit of accounting.
Deliverables under an agreement are required to be accounted for as separate units of accounting provided that (i) a delivered item has value to the customer on a stand-alone basis; and (ii) if the agreement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. The allocation of consideration amongst the deliverables under the agreement is derived using a “best estimate of selling price” if vendor specific objective evidence and third party evidence of fair value is not available. If the delivered element does not have stand-alone value or if the fair value of any of the undelivered elements cannot be determined, the arrangement is then accounted for as a single unit of accounting, and we recognize the consideration received under the arrangement as revenue on a straight-line basis over our estimated period of performance.
We determine the estimated selling price for deliverables within each agreement using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE are available. Determining the best estimate of selling price for a deliverable requires significant judgment. We use BESP to estimate the selling priceuncertainties related to licenses to our proprietary technology, since we often do not have VSOE
If the delivered element does not have stand-alone value or if the fair value of any of the undelivered elements cannot be determined, the arrangement is then accounted for as a single unit of accounting, and we recognize the consideration received under the arrangement as revenue on a straight-line basis over our estimated period of performance. Our anticipated periods of performance, typically the terms of our research and development obligations, are subject to estimates by management and may change over the
69
course of the collaboration agreement. Such changes could have a material impactadverse effect on our statements of operations, financial condition and cash flows. While our significant accounting policies are described in Note 2 to our financial statements in this Annual Report on Form
the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or the customer’s control, such as regulatory approvals, are not included in the transaction price. At the end of each subsequent reporting period, we reevaluate the probability of achievement of such development milestones and any related constraint and, if necessary, adjust our estimate of the overall transaction price. Any such adjustments are recorded on a
and earnings in the period of adjustment.
We assess whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed non-substantive, we account for that milestone payment in accordance with the multiple element arrangements guidance and recognize revenue consistent with the related units of accounting for the arrangement over the related performance period.
unconditional.
70
we may change the input factors used in determining stock-basedshare-based compensation costs for future grants.awards. These changes, if any, may materially impact our results of operations in the period that such changes are made.
Year Ended June 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||
In thousands | 2022 | 2021 | ||||||||||||||
External research and development expenses: | ||||||||||||||||
XLRP | $ | 13,489 | $ | 15,250 | $ | (1,761 | ) | (12 | )% | |||||||
ACHM | 3,345 | 4,720 | (1,375 | ) | (29 | )% | ||||||||||
Research and discovery programs and X-linked retinoschisis | 4,930 | 3,113 | 1,817 | 58 | % | |||||||||||
Total external research and development expenses | 21,764 | 23,083 | (1,319 | ) | (6 | )% | ||||||||||
Internal research and development expenses: | ||||||||||||||||
Employee-related costs | 16,717 | 12,663 | 4,054 | 32 | % | |||||||||||
Share-based compensation | 1,685 | 1,110 | 575 | 52 | % | |||||||||||
Other | 9,349 | 7,544 | 1,805 | 24 | % | |||||||||||
Total internal research and development expenses | 27,751 | 21,317 | 6,434 | 30 | % | |||||||||||
Total research and development expenses | $ | 49,515 | $ | 44,400 | $ | 5,115 | 12 | % | ||||||||
Year Ended June 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||
In thousands | 2022 | 2021 | ||||||||||||||
Employee-related costs | $ | 6,301 | $ | 5,312 | $ | 989 | 19 | % | ||||||||
Share-based compensation | 1,740 | 1,568 | 172 | 11 | % | |||||||||||
Legal and professional fees | 876 | 1,636 | (760 | ) | (46 | )% | ||||||||||
Other | 8,068 | 6,035 | 2,033 | 34 | % | |||||||||||
Total general and administrative and other expenses | $ | 16,985 | $ | 14,551 | $ | 2,434 | 17 | % | ||||||||
Year Ended June 30, | Increase (Decrease) | % Increase (Decrease) | ||||||||||||||
In thousands | 2022 | 2021 | ||||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operating activities | $ | (65,748 | ) | $ | (51,173 | ) | $ | (14,575 | ) | (28 | )% | |||||
Investing activities | (14 | ) | 38,147 | (38,161 | ) | >(100 | )% | |||||||||
Financing activities | 7,076 | 79,615 | (72,539 | ) | (91 | )% | ||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (58,686 | ) | $ | 66,589 | $ | (125,275 | ) | >(100 | )% | ||||||
ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Page | ||||
| 98 | ||||
| Financial Statements | ||||
| 100 | ||||
| 101 | ||||
| 102 | ||||
| 103 | ||||
| 104 | ||||
Description of the Matter | As of June 30, 2022, the Company had $6.3 million of accrued research and development expenses in accrued and other liabilities on its balance sheet. As described in Note 2 to the financial statements, this accrual includes costs incurred for services related to the Company’s obligations under its contracts with vendors in connection with research and development efforts. Because the financial terms and billing frequency of these contracts vary, the Company may make vendor payments that differ from the periods during which materials are consumed or services are provided. The Company develops estimates of costs incurred based on reviewing quotations and contracts, identifying services that have been performed on the Company’s behalf and estimating the level of services performed and the associated costs incurred for services for which the Company has not yet been invoiced or otherwise notified of the actual cost. Auditing the Company’s accrued research and development expenses was complex because the financial terms and billing frequency of vendor contracts may differ from when the services are actually provided, and the estimate can incorporate significant assumptions such as progress towards the achievement of project milestones. | |
How We Addressed the Matter in Our Audit | To evaluate the accrued research and development expenses, our audit procedures included, among others, inspecting a sample of the Company’s contracts with its research and development vendors and evaluating the underlying data used in the estimates of the services provided. We also corroborated for a sample of accrued amounts, the progress of research and development activities through inquiry with the Company’s contract monitors and with information obtained directly from third-party vendors, as well as tested invoices received from vendors throughout the Company’s fiscal year and subsequent to the balance sheet date. | |
June 30, | ||||||||
In thousands, except per share data | 2022 | 2021 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 46,366 | $ | 105,052 | ||||
Investments | — | 2,000 | ||||||
Prepaid and other current assets | 3,195 | 2,655 | ||||||
Total current assets | 49,561 | 109,707 | ||||||
Property and equipment, net | 4,714 | 4,658 | ||||||
Intangible assets, net | 1,433 | 1,287 | ||||||
Investment in Bionic Sight (see Note 8) | 7,807 | 8,000 | ||||||
Right-of-use - operating leases | 3,043 | 3,167 | ||||||
Right-of-use - financing lease | — | 34 | ||||||
Other assets | 126 | 113 | ||||||
Total assets | $ | 66,684 | $ | 126,966 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 2,911 | $ | 1,879 | ||||
Accrued and other liabilities | 11,727 | 14,500 | ||||||
Lease liabilities - operating | 1,271 | 1,116 | ||||||
Lease liability - finance | — | 38 | ||||||
Current portion of long-term debt | 9,298 | 2,181 | ||||||
Total current liabilities | 25,207 | 19,714 | ||||||
Lease liabilities - operating, net of current portion | 2,780 | 3,418 | ||||||
Long-term debt, net of debt discounts and deferred financing fees | 9,122 | 17,727 | ||||||
Other liabilities | 98 | 299 | ||||||
Total liabilities | 37,207 | 41,158 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.001 per share, 5,000 shares authorized; no shares issued and outstanding | — | — | ||||||
Common stock, par value $0.001 per share, 150,000 shares authorized; 51,011 and 42,835 shares issued; 50,957 and 42,794 shares outstanding at June 30, 2022 and 2021, respectively | 51 | 43 | ||||||
Additional paid-in capital | 337,894 | 325,245 | ||||||
Treasury stock at cost; 54 and 41 shares at June 30, 2022 and 2021, respectively | (256 | ) | (211 | ) | ||||
Accumulated deficit | (308,212 | ) | (239,269 | ) | ||||
Total stockholders’ equity | 29,477 | 85,808 | ||||||
Total liabilities and stockholders’ equity | $ | 66,684 | $ | 126,966 | ||||
Year Ended June 30, | ||||||||
In thousands, except per share data | 2022 | 2021 | ||||||
Revenue: | ||||||||
License fee revenue | $ | — | $ | 500 | ||||
Other | 325 | — | ||||||
Total revenue | 325 | 500 | ||||||
Operating expenses: | ||||||||
Research and development | 49,515 | 44,400 | ||||||
General and administrative and other | 16,985 | 14,551 | ||||||
Total operating expenses | 66,500 | 58,951 | ||||||
Loss from operations | (66,175 | ) | (58,451 | ) | ||||
Other income (expense), net: | ||||||||
Investment income, net | 99 | 116 | ||||||
Interest expense | (2,674 | ) | (1,506 | ) | ||||
Total other income (expense), net | (2,575 | ) | (1,390 | ) | ||||
Loss before benefit from income taxes | (68,750 | ) | (59,841 | ) | ||||
Benefit from income taxes | — | (2,108 | ) | |||||
Loss before equity in net losses of an affiliate | (68,750 | ) | (57,733 | ) | ||||
Equity in net losses of an affiliate | (193 | ) | (96 | ) | ||||
Net loss | $ | (68,943 | ) | $ | (57,829 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic | 45,031 | 32,756 | ||||||
Diluted | 45,031 | 32,756 | ||||||
Net loss per common share: | ||||||||
Basic | $ | (1.53 | ) | $ | (1.77 | ) | ||
Diluted | $ | (1.53 | ) | $ | (1.77 | ) | ||
Common Stock | Treasury Stock | Additional | ||||||||||||||||||||||||||
In thousands | Outstanding Shares | Amount | Shares | Amount | Paid-in Capital | Accumulated Deficit | Totals | |||||||||||||||||||||
Balances at June 30, 2020 | 25,793 | $ | 25 | 20 | $ | (88 | ) | $ | 252,519 | $ | (181,440 | ) | $ | 71,016 | ||||||||||||||
Issuance of common stock and accompanying warrants, net of issuance costs | 16,742 | 17 | — | — | 69,244 | — | 69,261 | |||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 2,678 | — | 2,678 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 259 | 1 | 21 | (123 | ) | 804 | — | 682 | ||||||||||||||||||||
Net loss | — | — | — | — | — | (57,829 | ) | (57,829 | ) | |||||||||||||||||||
Balances at June 30, 2021 | 42,794 | 43 | 41 | (211 | ) | 325,245 | (239,269 | ) | 85,808 | |||||||||||||||||||
Issuance of common stock, net of issuance costs | 7,753 | 8 | — | — | 9,091 | — | 9,099 | |||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 3,425 | — | 3,425 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 410 | — | 13 | (45 | ) | 133 | — | 88 | ||||||||||||||||||||
Net loss | — | — | — | — | — | (68,943 | ) | (68,943 | ) | |||||||||||||||||||
Balances at June 30, 2022 | 50,957 | $ | 51 | 54 | $ | (256 | ) | $ | 337,894 | $ | (308,212 | ) | $ | 29,477 | ||||||||||||||
Year Ended June 30 | ||||||||
In thousands | 2022 | 2021 | ||||||
Operating activities: | ||||||||
Net loss | $ | (68,943 | ) | $ | (57,829 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share-based compensation expense | 3,425 | 2,678 | ||||||
Expense for shares of common stock issued to a vendor | 32 | — | ||||||
Depreciation and amortization | 1,512 | 1,460 | ||||||
Investment discount accretion, net | — | (13 | ) | |||||
Amortization of debt discounts and deferred financing fees | 693 | 381 | ||||||
Reduction in the carrying amount of operating lease right-of-use | 524 | 366 | ||||||
Income tax benefit from the reversal of uncertain tax position liabilities | — | (2,171 | ) | |||||
Equity in net losses of an affiliate | 193 | 96 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid and other assets | (553 | ) | 311 | |||||
Accounts payable | 991 | 497 | ||||||
Operating lease liabilities | (883 | ) | (705 | ) | ||||
Accrued and other liabilities | (2,739 | ) | 3,756 | |||||
Cash used in operating activities | (65,748 | ) | (51,173 | ) | ||||
Investing activities: | ||||||||
Purchases of property and equipment | (1,670 | ) | (1,457 | ) | ||||
Purchases of and capitalized costs related to intangible assets | (344 | ) | (404 | ) | ||||
Maturities of investments | 2,000 | 61,000 | ||||||
Purchases of investments | — | (20,992 | ) | |||||
Cash provided by (used in) investing activities | (14 | ) | 38,147 | |||||
Financing activities: | ||||||||
Proceeds from the issuance of common stock and accompanying warrants, net of issuance costs | 9,207 | 69,261 | ||||||
Proceeds from exercises of common stock options | 133 | 804 | ||||||
Proceeds from long-term debt borrowing, net of debt discounts | — | 9,850 | ||||||
Payments for deferred financing fees | — | (129 | ) | |||||
Principal payments on long-term debt | (2,181 | ) | — | |||||
Taxes paid related to equity awards | (45 | ) | (123 | ) | ||||
Principal payments on finance lease | (38 | ) | (48 | ) | ||||
Cash provided by financing activities | 7,076 | 79,615 | ||||||
Net increase (decrease) in cash and cash equivalents | (58,686 | ) | 66,589 | |||||
Cash and cash equivalents, beginning of the year | 105,052 | 38,463 | ||||||
Cash and cash equivalents, end of the year | $ | 46,366 | $ | 105,052 | ||||
Supplemental information: | ||||||||
Cash paid (refunds received) during the year for income taxes, net | $ | — | $ | (396 | ) | |||
Cash paid during the year for interest | 1,977 | 1,346 | ||||||
Costs for purchases of property and equipment included in accounts payable/accrued and other liabilities | 107 | 448 | ||||||
Costs for intangible assets included in accounts payable/accrued and other liabilities | 34 | 27 | ||||||
1. | Organization and Operations |
2. | Summary of Significant Accounting Policies |
We use
As required by U.S. GAAP, we recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Any interest and penalties related to uncertain tax postions will be reflected in income tax expense. The Company is subject to examination of its income tax returns in the federal and state income tax jurisdictions in which it operates. On December 28, 2015, the United States Internal Revenue Service, or IRS, notified the Company of an income tax audit for the tax period ending June 30, 2014. As of June 30, 2017, the IRS audit was closed and the Company incurred no penalties or payment liabilities for its income tax positions.
For the fiscal year ended June 30, 2017, the Company recorded an income tax provision, related to the Company’s Federal alternative minimum taxable income (“AMTI”) and state income tax in multiple states where the Company is doing business. The Company calculates its AMTI using the alternative minimum tax (“AMT”) system. The Company’s federal income tax liability is the greater of the tax computed using the regular tax system or the tax under the AMT system. Corporations are exempt from AMT for all prior years in which their annual gross receipts for the 3-year period ending before the current tax year did not exceed $7.5 million. For the fiscal year ending June 30, 2017, the Company no longer qualifies for the small company exclusion. The AMT system limits the use of net operating losses used by taxpayers to offset taxable income.
Recent Accounting Pronouncements
In May 2017, the FASB issued Accounting Standards Update (“ASU”) No. 2017-09, Scope of Modification Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments are effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our financial statements.
In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The amendments simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, forfeitures, and classification on the statement of cash flows. The amendments are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years and early adoption is permitted. We have adopted this standard for our 2018 fiscal year and do not expect it to have a material effect on our balance sheets, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases previously classified as operating leases under GAAP. The standard requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to use the underlying asset for the lease term. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those periods, using a modified retrospective approach and early adoption is permitted. We are currently in the process of evaluating the impact of adoption of this standard on our financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606)which replaces the existing accounting standards for revenue recognition with a single comprehensive five-step model. The core principle is to recognize revenue upon the transfer of goods or services to customers at an amount that reflects the consideration expected to be received. It also requires enhanced disclosures about revenue, provides guidance for transactions that were not previously addressed comprehensively, and improves guidance for multiple-element arrangements. The guidance applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. Since its issuance, the FASB has amended several aspects of the new guidance, including provisions that address revenue recognition associated with the licensing of intellectual property. In July 2015, the FASB delayed the effective date of this guidance by one year. The guidance is now effective for public companies for annual periods beginning after December 15, 2017 as well as interim periods within those annual periods using either the full retrospective approach or modified retrospective approach.
71
We are working through an adoption plan which will include a review of collaboration agreements, applying the five-step model of the new standard and comparing results to our current accounting. As part of this, we are evaluating the method of adoption and assessing changes that might be necessary to our processes, internal controls and address changes in financial reporting. Because of the nature of the work that remains, at this time we are unable to reasonably estimate the impact of adoption on our financial statements.
Emerging growth company status
The JOBS Act permits an “emerging growth company” such as ours to take advantage of an extended transition period to comply with new or revised accounting standards applicable to public companies. We have chosen to “opt out” of this provision and, as a result, we will comply with new or revised accounting standards as required when they are adopted. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.
72
Comparison of the fiscal years ended June 30, 2017 and 2016
Revenue
|
| Fiscal year ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Collaboration revenue |
| $ | 39,282 |
|
| $ | 46,751 |
|
| $ | (7,469 | ) |
|
| (16 | )% |
Grant revenue |
|
| 191 |
|
|
| 610 |
|
|
| (419 | ) |
|
| (69 | )% |
Total revenue |
| $ | 39,473 |
|
| $ | 47,361 |
|
| $ | (7,888 | ) |
|
| (17 | )% |
Total revenue for fiscal year 2017 decreased by $7.9 million to $39.5 million compared to fiscal year 2016. This decrease is primarily due to recognizing $5.0 million of milestone revenue in fiscal year 2016 associated with achieving a XLRS patient enrollment milestone under our collaboration arrangement with Biogen, and to a lesser extent due to reduced revenue associated with the amortization of upfront fees associated with the Biogen collaboration due to certain delays which have extended our estimate of period of performance and reduced research and development activities under grant-funded projects.
Research and development expenses
Research and development expenses for fiscal year 2017 decreased by $13.2 million to $26.2 million compared to fiscal year 2016. This decrease was primarily driven by a $12.0 million reduction in sublicense expenses associated with our collaboration arrangement with Biogen on the XLRS and XLRP programs and a $3M reduction in licensing and milestones fees paid to 4D Molecular Therapeutics and Synpromics Limited associated with our research and discovery programs. These decreases were partially offset by increased employee-related expenses related to the hiring of additional employees to support clinical trial execution and research and development activities.
The following table summarizes our research and development expenses by product candidate or program for the fiscal year ended June 30, 2017 and 2016:
|
| Fiscal Year Ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
External research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACHM |
| $ | 3,699 |
|
| $ | 3,648 |
|
| $ | 51 |
|
|
| 1 | % |
XLRS |
|
| 2,062 |
|
|
| 9,237 |
|
|
| (7,175 | ) |
|
| (78 | )% |
XLRP |
|
| 1,788 |
|
|
| 8,604 |
|
|
| (6,816 | ) |
|
| (79 | )% |
Research and discovery programs |
|
| 3,677 |
|
|
| 6,911 |
|
|
| (3,234 | ) |
|
| (47 | )% |
Total external research and development expenses |
|
| 11,226 |
|
|
| 28,400 |
|
|
| (17,174 | ) |
|
| (202 | )% |
Internal research and development expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee-related costs |
|
| 7,808 |
|
|
| 5,631 |
|
|
| 2,177 |
|
|
| 39 | % |
Share-based compensation |
|
| 2,546 |
|
|
| 2,147 |
|
|
| 399 |
|
|
| 19 | % |
Other |
|
| 4,637 |
|
|
| 3,198 |
|
|
| 1,439 |
|
|
| 45 | % |
Total internal research and development expenses |
|
| 14,991 |
|
|
| 10,976 |
|
|
| 4,015 |
|
|
| 37 | % |
Total research and development expense |
| $ | 26,217 |
|
| $ | 39,376 |
|
| $ | (13,159 | ) |
|
| (33 | )% |
In fiscal year 2016, we began tracking external spending for our most advanced product candidates. External research and development costs consist of collaboration, licensing, manufacturing, testing, and other miscellaneous expenses that are directly attributable to our most advanced product candidates and discovery programs. We do not allocate personnel-related costs, including stock-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.
73
General and administrative expenses
|
| Fiscal Year Ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2017 |
|
| 2016 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Employee-related costs |
| $ | 3,952 |
|
| $ | 2,827 |
|
| $ | 1,125 |
|
|
| 40 | % |
Share-based compensation |
|
| 3,060 |
|
|
| 2,860 |
|
|
| 200 |
|
|
| 7 | % |
Legal and professional fees |
|
| 1,058 |
|
|
| 1,144 |
|
|
| (86 | ) |
|
| (8 | )% |
Other general and administrative expenses |
|
| 3,284 |
|
|
| 3,243 |
|
|
| 41 |
|
|
| 1 | % |
Total general and administrative expenses |
| $ | 11,354 |
|
| $ | 10,074 |
|
| $ | 1,280 |
|
|
| 13 | % |
General and administrative expenses for fiscal year 2017 increased by $1.3 million to $11.4 million compared to fiscal year 2016. The increase was primarily driven by the hiring of additional employees which resulted in higher share-based compensation and other employee-related costs.
Other income (expense), net
For fiscal year 2017, other income (expense), net, which was primarily comprised of investment income, increased to $0.9 million from $0.7 million generated in 2016 due largely to modestly better investment performance.
Provision for income taxes
Income tax expense was $2.4 million for the year ended June 30, 2017 compared to no tax expense in fiscal year 2016. The fiscal year 2017 income tax expense results from the recognition of revenue related to the Biogen agreement for tax purposes, which is accelerated compared to our GAAP revenue, resulting in significantly more taxable income than GAAP net income. While our taxable income is largely offset by the use of NOLs, our income tax expense is primarily due to federal alternative minimum tax expense, the apportionment of income to certain state jurisdictions where we do not have NOLs and the recognition of a reserve for uncertain tax positions.
74
Comparison of the fiscal years ended June 30, 2016 and 2015
Revenue
|
| Fiscal year ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2016 |
|
| 2015 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Collaboration revenue |
| $ | 46,751 |
|
| $ | — |
|
| $ | 46,751 |
|
| n/m |
| |
Grant revenue |
|
| 610 |
|
|
| 1,682 |
|
|
| (1,072 | ) |
|
| (64 | )% |
Sponsored research and other revenue |
|
| — |
|
|
| 672 |
|
|
| (672 | ) |
| n/m |
| |
Total revenue |
| $ | 47,361 |
|
| $ | 2,354 |
|
| $ | 45,007 |
|
| n/m |
| |
Total revenue for fiscal year 2016 was $47.4 million compared to $2.4 million generated during fiscal year 2015. The increase was driven by revenue generated from our collaboration with Biogen, primarily comprised of the amortization of upfront fees and $5.0 million of milestone revenue earned during the fiscal year following achievement of a patient enrollment-based milestone under the terms of the collaboration agreement. Grant revenue generated during fiscal year 2016 decreased compared to 2015 due largely to reduced research and development activities under grant-funded projects. Other revenue recorded in 2015 related primarily to sponsored research revenue earned from a patient advocacy group and income that was generated from a right of reference agreement entered into with a strategic partner during that period.
Research and development expenses
|
| Fiscal Year Ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2016 |
|
| 2015 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Collaboration costs |
| $ | 12,034 |
|
| $ | — |
|
| $ | 12,034 |
|
| n/m |
| |
Outside program costs |
|
| 11,965 |
|
|
| 10,800 |
|
|
| 1,165 |
|
|
| 11 | % |
Employee-related costs |
|
| 5,631 |
|
|
| 2,923 |
|
|
| 2,708 |
|
|
| 93 | % |
Licenses, milestones and related fees |
|
| 4,402 |
|
|
| 1,590 |
|
|
| 2,812 |
|
|
| 177 | % |
Share-based compensation |
|
| 2,147 |
|
|
| 908 |
|
|
| 1,239 |
|
|
| 136 | % |
Other |
|
| 3,197 |
|
|
| 1,897 |
|
|
| 1,300 |
|
|
| 69 | % |
Total research and development expenses |
| $ | 39,376 |
|
| $ | 18,118 |
|
| $ | 21,258 |
|
|
| 117 | % |
Research and development expenses for fiscal year 2016 increased by $21.3 million to $39.4 million compared to fiscal year 2015, driven largely by $12.0 million of incremental sublicensing costs associated with our collaboration arrangement with Biogen. Also contributing to the higher research and development expenses were $3.0 million of increased license and milestone fees from new collaboration arrangements with external partners 4D Molecular Therapeutics and Synpromics Limited. In addition, employee-related and share-based compensation costs also increased year-over-year due primarily to the hiring of additional employees to support this increased level of research and development activity and the impact of new share-based incentives awarded during the year.
General and administrative expenses
|
| Fiscal Year Ended June 30, |
|
| Increase |
|
| % Increase |
| |||||||
|
| 2016 |
|
| 2015 |
|
| (Decrease) |
|
| (Decrease) |
| ||||
|
| (dollars in thousands) |
| |||||||||||||
Employee-related costs |
| $ | 2,827 |
|
| $ | 2,231 |
|
| $ | 596 |
|
|
| 27 | % |
Share-based compensation |
|
| 2,860 |
|
|
| 1,912 |
|
|
| 948 |
|
|
| 50 | % |
Legal and professional fees |
|
| 1,144 |
|
|
| 1,909 |
|
|
| (765 | ) |
|
| (40 | )% |
Other |
|
| 3,243 |
|
|
| 2,716 |
|
|
| 527 |
|
|
| 19 | % |
Total general and administrative expenses |
| $ | 10,074 |
|
| $ | 8,768 |
|
| $ | 1,306 |
|
|
| 15 | % |
General and administrative expenses for fiscal year 2016 increased by $1.3 million to $10.1 million compared to fiscal year 2015. The increase was primarily driven by the hiring of additional employees which resulted in higher share-based compensation and other employee-related costs. Other administrative expenses were also higher compared to 2015 due primarily to our ongoing expansion and the increasing costs of operating as a publicly-traded company. The impact of these incremental costs was partially offset by decreased legal and professional fees.
75
For fiscal year 2016, other income (expense), net, which was primarily comprised of investment income, increased to $708,000 from $214,000 generated in 2015 due largely to comparatively higher cash and investment balances.
Liquidity and capital resources
We have incurred cumulative losses and negative cash flows from operations since our inception in 1999, and as of June 30, 2017, we had an accumulated deficit of $89.6 million. It will be several years, if ever, before we have a product candidate ready for commercialization. We expect that our research and development and general and administrative expenses will continue to increase and as a result, we anticipate that we will require additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
During fiscal year 2016, we received a non-refundable upfront cash payment of $94.0 million under our collaboration arrangement with Biogen. Contemporaneous with this collaboration arrangement, we also entered into an equity agreement with Biogen under which we received an additional $30.0 million in cash in exchange for 1,453,957 shares of common stock that we issued to Biogen at a purchase price of $20.63 per share. During fiscal year 2017, we made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. 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 24 months. As of June 30, 2017, we had cash and cash equivalents and investments of $138.4 million.
As of June 30, 2017, our cash and cash equivalents were held in bank accounts and money market funds, while our short and long-term investments consisted of certificates of deposit and corporate and government bonds, none of which mature more than 24 months after the balance sheet date, consistent with our investment policy that seeks to maintain adequate liquidity and preserve capital.
Cash flows
The following table sets forth the primary sources and uses of cash for each of the periods set forth below:
| Fiscal Year Ended June 30, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
| (in thousands) |
| |||||||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
Operating activities | $ | (31,001 | ) |
| $ | 70,991 |
|
| $ | (19,485 | ) |
Investing activities |
| 32,811 |
|
|
| (100,804 | ) |
|
| 17,892 |
|
Financing activities |
| 28 |
|
|
| 19,494 |
|
|
| 32,157 |
|
Net (decrease) increase in cash and cash equivalents | $ | 1,838 |
|
| $ | (10,319 | ) |
| $ | 30,564 |
|
Operating activities. Cash used in operating activities of $31.0 million during the fiscal year ended June 30, 2017 was primarily due to changes in operating assets and liabilities of $38.4 million, partially offset by non-cash items of $7.0 million, including $5.6 million of stock-based compensation expense, and net income of $0.4 million. The change in operating assets and liabilities was primarily due to the amortization of upfront fees associated with our Biogen collaboration. For fiscal year 2016, net cash provided by operating activities of $80.0 million was primarily associated with the upfront cash proceeds of $104.8 million received in connection with the entry into our collaboration with Biogen, which included an allocation of $10.8 million from the equity agreement, and a milestone payment from Biogen of $5.0 million. These proceeds were partially offset by the impact of our net loss, including the amortization of deferred revenue and payments to certain research partner institutions in the aggregate amount of $12.0 million for sub-license, milestone and other costs which were all associated with the Biogen collaboration, and changes during the period in our working capital accounts. Cash used in operating activities of $19.5 million during the fiscal year ended June 30, 2015 was primarily a result of our $24.3 million net loss, partially offset by non-cash items of $3.2 million, including $2.8 million of stock-based compensation expense, and changes in operating assets and liabilities of $1.6 million.
Investing activities. Cash provided by investing activities of $32.8 million for the fiscal year ended June 30, 2017 was primarily due to maturity of investments of $103.2 million, partially offset by purchases of investments of $67.5 million, a $2.0 million payment to Bionic Sight for an equity interest in that company and purchases of property and equipment of $0.7 million. For the fiscal year 2016, net cash used in investing activities consisted primarily of cash outflows of $208.2 million related to the purchase of investments and $2.6 million related to the purchase of property and equipment and the acquisition of intellectual property, including leasehold improvements at our new facility in Alachua, Florida. These cash outflows were partially offset by $110.0 million of
76
proceeds from the maturity of investments. Net cash provided by investing activities during fiscal year 2015 of $17.9 million was primarily comprised of proceeds totaling $121.1 million from the maturity of investments, partially offset by cash outflows of $102.9 million related to the purchase of investments and $323,000 related to the acquisition and maintenance of intellectual property and purchase of property and equipment.
Financing activities. Net cash provided by financing activities was $28,000 during fiscal year 2017 and was due to proceeds received from the exercise of stock options. Net cash provided by financing activities during fiscal year 2016 was $19.5 million and consisted of $19.2 million of cash received in connection with our sale of shares of common stock to Biogen pursuant to the equity agreement executed on July 1, 2015 and $283,000 of cash received in connection with the exercise of stock options. Net cash provided by financing activities during fiscal year 2015 was $32.2 million, of which $32.0 million was related to the follow on public offering that we completed during our first quarter ended September 30, 2014 and $148,000 consisted of cash received in connection with the exercise of stock options.
Operating capital requirements
To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks incident in the development of new gene therapy products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.
We believe that our existing cash and cash equivalents and investments at June 30, 2017, will be will be sufficient to allow us to generate data from our ongoing clinical programs, to move our pre-clinical optogenetic program in collaboration with Bionic Sight into the clinic and to fund our currently planned research and discovery programs for at least the next two years. In order to complete the process of obtaining regulatory approval for our lead product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, we will require substantial additional funding.
We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
the timing and costs our planned clinical trials for our XLRS and ACHM product candidates;
the timing and costs of our planned preclinical studies of our XLRP product candidate;
the timing and level of activity as determined by us or jointly with our partners;
the level of funding received from our partners;
whether or not we elect to cost share with our partners;
the initiation, progress, timing, costs and results of preclinical studies relating to potential applications of our gene therapy platform in other indications;
our success in scaling our manufacturing method and expanding our manufacturing capabilities;
the number and characteristics of product candidates that we pursue;
the outcome, timing and costs of seeking regulatory approvals;
subject to receipt of marketing approval, revenue received from commercial sales of our product candidates;
the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;
the amount and timing of any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
the costs of preparing, filing and prosecuting patent applications, maintaining and protecting our intellectual property rights and defending against intellectual property related claims; and
the extent to which we in-license or acquire other products and technologies.
77
Contractual obligations and commitments
The following table summarizes our contractual obligations at June 30, 2017:
|
|
|
|
|
| Less |
|
|
|
|
|
|
|
|
|
| More |
| ||
|
|
|
|
|
| than 1 |
|
| 1 to 3 |
|
| 3 to 5 |
|
| than 5 |
| ||||
In thousands |
| Total |
|
| Year |
|
| Years |
|
| Years |
|
| Years |
| |||||
|
|
|
| |||||||||||||||||
Operating lease obligations (1) |
| $ | 13,021 |
|
| $ | 1,157 |
|
| $ | 2,983 |
|
| $ | 3,094 |
|
| $ | 5,787 |
|
Purchase obligations (2) |
|
| 919 |
|
|
| 165 |
|
|
| 162 |
|
|
| 173 |
|
|
| 419 |
|
Total |
| $ | 13,940 |
|
| $ | 1,322 |
|
| $ | 3,145 |
|
| $ | 3,267 |
|
| $ | 6,206 |
|
|
|
|
|
Contingent contractual obligations
We also have obligations arising under our license agreements to make future payments to third parties that become due and payable on the achievement of certain development, regulatory and commercial milestones (such as the start of a clinical trial, filing of a Biologics License Application, or BLA, approval by the FDA or product launch). We have not included these obligations on our balance sheet or in the table above because the achievement and timing of these milestones is not fixed nor determinable. These obligations include:
Under each of our various licenses with the University of Florida Research Foundation, or UFRF, covering the AAV construct containing the AAT gene and the method to treat AAT deficiency using this construct, a small cone cell specific promoter, and the use of engineered capsids and under our joint license with UFRF and Johns Hopkins University covering a particular HSV construct and various compositions thereof, we will be required to make payments based upon development, regulatory and commercial milestones for any products covered by the in-licensed intellectual property. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of such license income. We are required to make annual maintenance payments under these licenses, which payments are creditable against royalty payments on a year-by-year basis.
Under our license agreement with the UAB Research Foundation pursuant to which we license a patent covering the use of HSV helpers to produce AAV vectors, we will be required to make payments based upon development and regulatory milestones for any products covered by the in-licensed intellectual property. We will also be required to pay a royalty on net sales of products covered by the in-licensed intellectual property. We have the right to sublicense our rights under this agreement, and we will be required to pay a percentage of such license income. We are required to make annual maintenance payments under this license, which payments are creditable against royalty payments on a year-by-year basis.
If any of our product candidates that utilize technology licensed under these agreements reached commercialization, we will be obligated to make royalty payments ranging from 0.5% to 4.0% of our net sales of the applicable product. We are responsible for a portion of the costs related to the preparation, filing, issuance, prosecution and maintenance of the patents covered by the license agreements. In fiscal years 2017, 2016 and 2015, we paid annual royalty and milestone payments in the aggregate amounts of $54,000, $963,000 and $122,000, respectively.
78
We enter into contracts in the normal course of business with contract research organizations for preclinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments.
Off-balance sheet arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the Securities and Exchange Commission.
Interest Rate Sensitivity
Our financial instruments at June 30, 2017 consisted primarily of cash and cash equivalents and short-term and long-term investments totaling $138.4 million. These financial instruments are exposed to the impact of interest rate changes which may result in fluctuations to our interest income. Due to the nature of our investments in money market funds, certificates of deposits, and debt instruments of corporations and U.S. government agencies, all of which generally mature within a two-year period of their purchase date, the estimated fair values of these financial instruments approximate their carrying amounts at June 30, 2017.
We maintain our investment portfolio in accordance with our investment policy. The primary objectives of this investment policy are to maintain adequate liquidity, preserve capital and to meet our operating needs. Although our investments are subject to credit risk, our investment policy specifies credit quality standards for our investments and limits the amount of credit exposure from any single issue, issuer or type of investment. Our investments are also subject to interest rate risk and may decrease in value if market interest rates increase. However, due to the conservative nature of our investments and relatively short investment periods, we believe interest rate risk is mitigated and an immediate 10% increase in interest rates would not have a material effect on the fair market value of our portfolio. We do not own derivative financial instruments. Accordingly, we do not believe that there is any material market risk exposure with respect to derivative or other financial instruments.
79
APPLIED GENETIC TECHNOLOGIES CORPORATION
INDEX TO FINANCIAL STATEMENTS
80
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Applied Genetic Technologies Corporation
We have audited the accompanying balance sheets of Applied Genetic Technologies Corporation (the Company) as of June 30, 2017 and 2016, and the related statements of operations, stockholders’ equity and cash flows for each of the three years in the period ended June 30, 2017. Our audits also included the financial statement schedule of the Company listed in Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, 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. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Applied Genetic Technologies Corporation as of June 30, 2017 and 2016, the results of its operations and its cash flows for each of the three years in the period ended June 30, 2017, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
/s/ RSM US LLP
Raleigh, North Carolina
September 13, 2017
81
APPLIED GENETIC TECHNOLOGIES CORPORATION
|
| At June 30, |
| |||||
In thousands, except per share data |
| 2017 |
|
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,706 |
|
| $ | 28,868 |
|
Investments |
|
| 95,994 |
|
|
| 69,664 |
|
Grants receivable |
|
| 174 |
|
|
| 954 |
|
Prepaid and other current assets |
|
| 3,361 |
|
|
| 3,089 |
|
Total current assets |
|
| 130,235 |
|
|
| 102,575 |
|
Investments, net of current portion |
|
| 11,749 |
|
|
| 74,183 |
|
Property and equipment, net |
|
| 2,661 |
|
|
| 2,627 |
|
Intangible assets, net |
|
| 1,219 |
|
|
| 1,321 |
|
Investment in Bionic Sight |
|
| 2,000 |
|
|
| — |
|
Other assets |
|
| 59 |
|
|
| 91 |
|
Total assets |
| $ | 147,923 |
|
| $ | 180,797 |
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 998 |
|
| $ | 1,331 |
|
Accrued and other liabilities |
|
| 6,162 |
|
|
| 6,514 |
|
Deferred revenue |
|
| 20,996 |
|
|
| 46,898 |
|
Total current liabilities |
|
| 28,156 |
|
|
| 54,743 |
|
Deferred revenue, net of current portion |
|
| 4,438 |
|
|
| 16,766 |
|
Total liabilities |
|
| 32,594 |
|
|
| 71,509 |
|
Stockholders' equity: |
|
|
|
|
|
|
|
|
Common stock, par value $.001 per share, 150,000 shares authorized; 18,088 and 18,053 shares issued and outstanding at June 30, 2017 and June 30, 2016, respectively |
|
| 18 |
|
|
| 18 |
|
Additional paid-in capital |
|
| 204,937 |
|
|
| 199,303 |
|
Accumulated deficit |
|
| (89,626 | ) |
|
| (90,033 | ) |
Total stockholders' equity |
|
| 115,329 |
|
|
| 109,288 |
|
Total liabilities and stockholders' equity |
| $ | 147,923 |
|
| $ | 180,797 |
|
The accompanying notes are an integral part of the financial statements.
82
APPLIED GENETIC TECHNOLOGIES CORPORATION
| For the fiscal years ended June 30, |
| |||||||||
In thousands, except per share amounts | 2017 |
|
| 2016 |
|
| 2015 |
| |||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
Collaboration revenue | $ | 39,282 |
|
| $ | 46,751 |
|
| $ | — |
|
Grant revenue |
| 191 |
|
|
| 610 |
|
|
| 1,682 |
|
Sponsored research and other revenue |
| — |
|
|
| — |
|
|
| 672 |
|
Total revenue |
| 39,473 |
|
|
| 47,361 |
|
|
| 2,354 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
Research and development |
| 26,217 |
|
|
| 39,376 |
|
|
| 18,118 |
|
General and administrative |
| 11,354 |
|
|
| 10,074 |
|
|
| 8,768 |
|
Total operating expenses |
| 37,571 |
|
|
| 49,450 |
|
|
| 26,886 |
|
Income (loss) from operations |
| 1,902 |
|
|
| (2,089 | ) |
|
| (24,532 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
Investment income, net |
| 952 |
|
|
| 711 |
|
|
| 216 |
|
Other expense |
| (47 | ) |
|
| (3 | ) |
|
| (2 | ) |
Total other income (expense), net |
| 905 |
|
|
| 708 |
|
|
| 214 |
|
Income (loss) before provision for income taxes |
| 2,807 |
|
|
| (1,381 | ) |
|
| (24,318 | ) |
Provision for income taxes |
| 2,400 |
|
|
| — |
|
|
| — |
|
Net income (loss) | $ | 407 |
|
| $ | (1,381 | ) |
| $ | (24,318 | ) |
Net income (loss) per share, basic | $ | 0.02 |
|
| $ | (0.08 | ) |
| $ | (1.50 | ) |
Net income (loss) per share, diluted | $ | 0.02 |
|
| $ | (0.08 | ) |
| $ | (1.50 | ) |
Weighted average shares outstanding, basic |
| 18,072 |
|
|
| 17,810 |
|
|
| 16,253 |
|
Weighted average shares outstanding, diluted |
| 18,385 |
|
|
| 17,810 |
|
|
| 16,253 |
|
The accompanying notes are an integral part of the financial statements.
83
APPLIED GENETIC TECHNOLOGIES CORPORATION
STATEMENTS OF STOCKHOLDERS’ EQUITY
|
| Common Stock |
|
| Additional |
|
|
|
|
|
|
|
|
| ||||||
|
| Outstanding |
|
|
|
|
|
| Paid-in |
|
| Accumulated |
|
|
|
|
| |||
In thousands |
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Total |
| |||||
Balance, June 30, 2014 |
|
| 14,082 |
|
| $ | 14 |
|
| $ | 139,193 |
|
| $ | (64,334 | ) |
| $ | 74,873 |
|
Issuance of common stock, net of issuance costs |
|
| 2,300 |
|
|
| 2 |
|
|
| 32,007 |
|
| — |
|
|
| 32,009 |
| |
Share-based compensation expense |
| — |
|
| — |
|
|
| 2,820 |
|
| — |
|
|
| 2,820 |
| |||
Shares issued under employee plans |
|
| 94 |
|
| — |
|
|
| 148 |
|
| — |
|
|
| 148 |
| ||
Exercise of Warrants |
|
| 15 |
|
| — |
|
| — |
|
| — |
|
| — |
| ||||
Net loss |
| — |
|
| — |
|
| — |
|
|
| (24,318 | ) |
|
| (24,318 | ) | |||
Balance, June 30, 2015 |
|
| 16,491 |
|
| $ | 16 |
|
| $ | 174,168 |
|
| $ | (88,652 | ) |
| $ | 85,532 |
|
Issuance of common stock, net of issuance costs |
|
| 1,494 |
|
|
| 2 |
|
|
| 19,805 |
|
| — |
|
|
| 19,807 |
| |
Share-based compensation expense |
| — |
|
| — |
|
|
| 5,007 |
|
| — |
|
|
| 5,007 |
| |||
Shares issued under employee plans |
|
| 59 |
|
| — |
|
|
| 283 |
|
| — |
|
|
| 283 |
| ||
Exercise of warrants |
|
| 9 |
|
| — |
|
|
| 40 |
|
| — |
|
|
| 40 |
| ||
Net loss |
| — |
|
| — |
|
| — |
|
|
| (1,381 | ) |
|
| (1,381 | ) | |||
Balance, June 30, 2016 |
|
| 18,053 |
|
| $ | 18 |
|
| $ | 199,303 |
|
| $ | (90,033 | ) |
| $ | 109,288 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| 5,606 |
|
|
| — |
|
|
| 5,606 |
|
Shares issued under employee plans |
|
| 31 |
|
|
| — |
|
|
| 28 |
|
|
| — |
|
|
| 28 |
|
Exercise of warrants |
|
| 4 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net income |
|
| — |
|
|
| — |
|
|
|
|
|
|
| 407 |
|
|
| 407 |
|
Balance, June 30, 2017 |
|
| 18,088 |
|
| $ | 18 |
|
| $ | 204,937 |
|
| $ | (89,626 | ) |
| $ | 115,329 |
|
The accompanying notes are an integral part of the financial statements.
84
APPLIED GENETIC TECHNOLOGIES CORPORATION
|
| For the fiscal years ended June 30, |
| |||||||||
In thousands |
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
| $ | 407 |
|
| $ | (1,381 | ) |
| $ | (24,318 | ) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| 5,606 |
|
|
| 5,007 |
|
|
| 2,820 |
|
Share-based collaboration expense |
|
| — |
|
|
| 636 |
|
|
| — |
|
Depreciation and amortization |
|
| 912 |
|
|
| 567 |
|
|
| 376 |
|
Investment premium accretion |
|
| 402 |
|
|
| 448 |
|
|
| 158 |
|
Loss on disposal of property, plant and equipment |
|
| 47 |
|
|
| — |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in grants receivable |
|
| 780 |
|
|
| 409 |
|
|
| (876 | ) |
Increase (decrease) in prepaid and other assets |
|
| (240 | ) |
|
| (1,562 | ) |
|
| 261 |
|
(Decrease) increase in accounts payable |
|
| (333 | ) |
|
| 140 |
|
|
| 228 |
|
Increase (decrease) in deferred revenues |
|
| (38,230 | ) |
|
| 63,664 |
|
|
| — |
|
Increase in accrued and other liabilities |
|
| (352 | ) |
|
| 3,063 |
|
|
| 1,866 |
|
Net cash (used in) provided by operating activities |
|
| (31,001 | ) |
|
| 70,991 |
|
|
| (19,485 | ) |
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (739 | ) |
|
| (2,471 | ) |
|
| (225 | ) |
Purchase of and capitalized costs related to intangible assets |
|
| (152 | ) |
|
| (121 | ) |
|
| (98 | ) |
Investment in Bionic Sight |
|
| (2,000 | ) |
|
| — |
|
|
| — |
|
Maturity of investments |
|
| 103,244 |
|
|
| 109,968 |
|
|
| 121,079 |
|
Purchase of investments |
|
| (67,542 | ) |
|
| (208,180 | ) |
|
| (102,864 | ) |
Net cash provided by (used in) investing activities |
|
| 32,811 |
|
|
| (100,804 | ) |
|
| 17,892 |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock, net of issuance costs |
| — |
|
|
| 19,211 |
|
|
| 32,009 |
| |
Proceeds from exercise of common stock options |
|
| 28 |
|
|
| 283 |
|
|
| 148 |
|
Net cash provided by financing activities |
|
| 28 |
|
|
| 19,494 |
|
|
| 32,157 |
|
Net (decrease) increase in cash and cash equivalents |
|
| 1,838 |
|
|
| (10,319 | ) |
|
| 30,564 |
|
Cash and cash equivalents, beginning of period |
|
| 28,868 |
|
|
| 39,187 |
|
|
| 8,623 |
|
Cash and cash equivalents, end of period |
| $ | 30,706 |
|
| $ | 28,868 |
|
| $ | 39,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for income taxes |
| $ | 887 |
|
| $ | — |
|
| $ | — |
|
The accompanying notes are an integral part of the financial statements.
85
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
Applied Genetic Technologies Corporation (the “Company” or “AGTC”) was incorporated as a Florida corporation on January 19, 1999 and reincorporated as a Delaware corporation on October 24, 2003. The Company is a clinical-stage biotechnology company that uses a proprietary gene therapy platform to develop transformational genetic therapies for patients suffering from rare and debilitating diseases.
In July 2015, the Company entered into a collaboration agreement (the “Collaboration Agreement”) with Biogen MA, Inc., a wholly owned subsidiary of Biogen Inc. (“Biogen”), pursuant to which the Company and Biogen will collaborate to develop, seek regulatory approval for and commercialize gene therapy products to treat X-linked retinoschisis (“XLRS”), X-linked retinitis pigmentosa (“XLRP”), and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. The Collaboration Agreement became effective in August 2015. The Collaboration Agreement and other transactions with Biogen are discussed further in Note 7 to these financial statements.
The Company has devoted substantially all of its efforts to research and development, including clinical trials. The Company has not completed the development of any products. The Company has generated revenue from collaboration agreements, sponsored research payments and grants, but has not generated product revenue to date and is subject to a number of risks similar to those of other early stage companies in the biotechnology industry, including dependence on key individuals, the difficulties inherent in the development of commercially viable products, the need to obtain additional capital necessary to fund the development of its products, development by the Company or its competitors of technological innovations, risks of failure of clinical studies, protection of proprietary technology, compliance with government regulations and ability to transition to large-scale production of products. As of June 30, 2017, the Company had an accumulated deficit of $89.6 million. While the Company expects to continue to generate some revenue from partnering, including under the collaboration with Biogen, the Company expects to incur losses for the foreseeable future. The Company has funded its operations to date primarily through public offerings of its common stock, private placements of its preferred stock, and collaborations. At June 30, 2017, the Company had cash and cash equivalents and investments of $138.4 million.
|
|
Basis of Presentation
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for each period presented.
Certain amounts reported previously have been reclassified to conform to the current year presentation, with no effect on stockholders’ equity or net loss as previously presented.
Segment Reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, we have viewed our operations and managed our business as one segment.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash consists of funds held in bank accounts. Cash equivalents consist of short-term, highly liquid investments with original maturities of 90 days or less at the time of purchase and generally include money market accounts.
86
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company’s investments consist of certificates of deposit and debt securities classified as held-to-maturity. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest on securities classified as held-to-maturity is included in investment income.
The Company uses the specific identification method to determine the cost basis of securities sold.
Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to other income (expense) and a new cost basis in the investment is established.
Concentrations of Credit Risk
The Company maintains its cash and cash equivalents and certificates of deposit with two financial institutions that are federally insured. Some of these financial instruments are in excess of federally insured limits and as a result, could potentially expose the Company to significant concentrations of credit risk. To date, the Company has not experienced any losses associated with this credit risk and continues to believe that this exposure is not significant. The Company invests its excess cash primarily in money market funds, certificates of deposit, and debt instruments of corporations and U.S. government agencies. These investments generally mature within a two-year period from their purchase date, in line with the Company’s investment policy that seeks to maintain adequate liquidity and preserve capital.
Inventory
Purchases of clinical materials stored for master and working viral banks that remain at the sites in anticipation of their future use at that site are charged to expense when they are incurred. Since the Company can use each of the raw materials in only a single product, each raw material is deemed to have no future economic value independent of the development status of that single drug.
87
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
Fair value of financial instruments
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, Fair Value Measurements and Disclosures (“ASC 820”), establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are those that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of financial instruments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:
Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and are unobservable.
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Property and equipment
Property and equipment, consisting of laboratory equipment, furniture and fixtures, computer equipment and leasehold improvements, are recorded at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are generally three to seven years. Leasehold improvements are stated at cost and are amortized over the shorter of the estimated useful lives of the assets or the lease term, including any renewal periods that are deemed to be reasonably assured. Repair and maintenance costs that do not improve service potential or extend an asset’s economic life are recorded as an expense when incurred.
Intangible assets
Intangible assets primarily include licenses and patents. The Company obtains licenses from third parties and capitalizes the costs related to exclusive licenses that have alternative future use in multiple potential programs. The Company also capitalizes costs related to filing, issuance, and prosecution of patents. The Company reviews its capitalized costs periodically to determine that such costs relate to patent applications that have future value and an alternative future use, and writes off any costs associated with patents that are no longer being actively pursued or that have no future benefit.
Amortization expense is computed using the straight-line method over the estimated useful lives of the assets, which are generally eight to twenty years. The Company amortizes in-licensed patents and patent applications from the date of the applicable license and internally developed patents and patent applications from the date of the initial application. Licenses and patents converted to research use only are immediately written off to expense.
Impairment of long-lived assets
The Company reviews its long-lived assets for impairment when impairment indicators are present. If impairment indicators exist, management determines whether impairment in value has occurred by comparing the estimated undiscounted cash flows from future operations with the carrying values of the assets. Management considers several indicators in assessing impairment, including trends and prospects, as well as the effects of obsolescence, demand, competition and other economic factors. No impairment charges were recorded for each of the fiscal years ended June 30, 2017, 2016, and 2015.
88
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company has primarily generated revenue through collaboration agreements, sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates and revenues from federal research and development grant programs. The Company recognizes revenue when amounts are realized or realizable and earned. Revenue is considered realizable and earned when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the price is fixed or determinable; and (4) collection of the amounts due are reasonably assured.
Amounts received prior to satisfying the revenue recognition criteria are recorded as deferred revenue in the Company’s balance sheets. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current liabilities. The Company recognizes revenue for reimbursements of research and development costs under collaboration agreements as the services are performed. The Company records these reimbursements as revenue and not as a reduction of research and development expenses, as the Company has the risks and rewards as the principal in the research and development activities.
The Company evaluates the terms of sponsored research agreement grants and federal grants to assess the Company’s obligations and if the Company’s obligations are satisfied by the passage of time, revenue is recognized on a straight-line basis. In situations where the performance of the Company’s obligations has been satisfied when the grant is received, revenue is recognized upon receipt of the grant. Certain grants contain refund provisions. The Company reviews those refund provisions to determine the likelihood of repayment. If the likelihood of repayment of the grant is determined to be remote, the grant is recognized as revenue. If the probability of repayment is determined to be more than remote, the Company records the grant as a deferred revenue liability, until such time that the grant requirements have been satisfied.
Collaboration revenue
On July 1, 2015, the Company entered into a Collaboration Agreement with Biogen. This collaboration is discussed further in Note 7 of notes to the financial statements. The terms of this agreement and other potential collaboration or commercialization agreements the Company may enter into generally contain multiple elements, or deliverables, which may include, among others, (i) licenses, or options to obtain licenses, to its technology, and (ii) research and development activities to be performed on behalf of the collaborative partner. Payments made under such arrangements typically include one or more of the following: non-refundable, up-front license fees; option exercise fees; funding of research and/or development efforts; milestone payments; and royalties on future product sales.
Multiple element arrangements are analyzed to determine whether the deliverables within the agreement can be separated or whether they must be accounted for as a single unit of accounting. Deliverables under an agreement are required to be accounted for as separate units of accounting provided that (i) a delivered item has value to the customer on a stand-alone basis; and (ii) if the agreement includes a general right of return relative to the delivered item, delivery or performance of the undelivered item is considered probable and substantially in the control of the vendor. The allocation of consideration amongst the deliverables under the agreement is derived using a “best estimate of selling price” if vendor specific objective evidence and third-party evidence of fair value is not available. If the delivered element does not have stand-alone value or if the fair value of any of the undelivered elements cannot be determined, the arrangement is then accounted for as a single unit of accounting, and the Company recognizes the consideration received under the arrangement as revenue on a straight-line basis over the estimated period of performance.
The Company determines the estimated selling price for deliverables within each agreement using vendor-specific objective evidence, or VSOE, of selling price, if available, third-party evidence, or TPE, of selling price if VSOE is not available, or best estimate of selling price, or BESP, if neither VSOE nor TPE are available. Determining the best estimate of selling price for a deliverable requires significant judgment. The Company uses BESP to estimate the selling price related to licenses to its proprietary technology, since it often does not have VSOE or TPE of selling price for these deliverables. In those circumstances where it utilizes BESP to determine the estimated selling price of a license to our proprietary technology, the Company considers market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well as internally developed models that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating its best estimate of selling price, the Company evaluates whether changes in the key assumptions used to determine the best estimate of selling price will have a significant effect on the allocation of arrangement consideration among multiple deliverables.
89
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
If the delivered element does not have stand-alone value or if the fair value of any of the undelivered elements cannot be determined, the arrangement is then accounted for as a single unit of accounting, and the Company recognizes the consideration received under the arrangement as revenue on a straight-line basis over our estimated period of performance. The Company’s anticipated periods of performance, typically the terms of our research and development obligations, are subject to estimates by management and may change over the course of the collaboration agreement. Such changes could have a material impact on the amount of revenue we record in future periods.
Milestone revenue
The Company applies the milestone method of accounting to recognize revenue from milestone payments when earned, as evidenced by written acknowledgement from the collaborator or other persuasive evidence that the milestone has been achieved and the payment is non-refundable, provided that the milestone event is substantive. A milestone event is defined as an event (i) that can only be achieved based in whole or in part on either the Company’s performance or on the occurrence of a specific outcome resulting from the Company’s performance; (ii) for which there is substantive uncertainty at the inception of the arrangement that the event will be achieved; and (iii) that would result in additional payments being due to the Company. Events for which the occurrence is either contingent solely upon the passage of time or the result of a counterparty’s performance are not considered to be milestone events. A milestone event is substantive if all of the following conditions are met: (i) the consideration is commensurate with either the Company’s performance to achieve the milestone, or the enhancement of the value to the delivered item(s) as a result of a specific outcome resulting from the Company’s performance to achieve the milestone; (ii) the consideration relates solely to past performance; and (iii) the consideration is reasonable relative to all the deliverables and payment terms (including other potential milestone consideration) within the arrangement.
The Company assesses whether a milestone is substantive at the inception of the arrangement. If a milestone is deemed non-substantive, the Company accounts for that milestone payment in accordance with the multiple element arrangements guidance and recognizes revenue consistent with the related units of accounting for the arrangement over the related performance period.
During the fiscal year ended June 30, 2016 the Company recognized milestone revenue in the amount of $5.0 million. No milestone revenues were recognized during the fiscal years ended June 30, 2017 or 2015.
Income taxes
The Company uses the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
For the fiscal year ended June 30, 2017, the Company recorded an income tax provision of $2.4 million, related to the Company’s federal alternative minimum taxable income (“AMTI”) and state income tax in multiple states where the Company is doing business. The Company calculates its AMTI using the alternative minimum tax (“AMT”) system. The Company’s federal income tax liability is the greater of the tax computed using the regular tax system or the tax under the AMT system. Corporations are exempt from AMT for all prior years in which their annual gross receipts for the 3-year period ending before the current tax year did not exceed $7.5 million. For the fiscal year ending June 30, 2017, the Company no longer qualifies for the small company exclusion. The AMT system limits the use of net operating losses used by taxpayers to offset taxable income.
As required by U.S. GAAP, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting
90
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
For the year ended June 30, 2017, the Company’s $2.4 million of tax expense includes an uncertain tax position liability of $950,000 related to uncertainty in how states may tax income from the Biogen collaboration agreement. This collaboration agreement is described in more detail in Note 7 of the notes to the financial statements. No similar liability was recorded for the years ended June 30, 2016 and 2015.
Financial Statements.
Prepayments related to research and development activities were $1.5$1.3 million and $2.0$0.9 million at June 30, 20172022 and 2016,2021, respectively, and are included within the Prepaidin prepaid and other current assets line item on the Company’s balance sheets.
the related service period.
92
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
exercise price of such warrants was greater than the average market price of the Company’s common stock during the related periods.
loss.
In May 2017, the FASBStandards Board (the “FASB”) issued Accounting Standards Update (“ASU”)
3. | Leases |
Year Ended June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Lease cost: | ||||||||
Finance lease cost | ||||||||
Amortization of right-of-use | $ | 34 | $ | 46 | ||||
Interest on lease liability | 1 | 5 | ||||||
Operating lease cost | 894 | 779 | ||||||
Short-term lease cost | 29 | 32 | ||||||
Variable lease cost | 564 | 409 | ||||||
Total lease cost | $ | 1,522 | $ | 1,271 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
Operating cash flows used for a finance lease | $ | 1 | $ | 5 | ||||
Operating cash flows used for operating leases | $ | 1,251 | $ | 1,160 | ||||
Financing cash flows used for a finance lease | $ | 38 | $ | 48 | ||||
Right-of-use (non-cash) | $ | 400 | $ | 111 | ||||
Other information (as of the end of the year): | ||||||||
Weighted average remaining lease term—operating leases (in years) | 4.2 | 5.1 | ||||||
Weighted average remaining lease term—finance lease (in years) | — | 0.8 | ||||||
Weighted average discount rate—operating leases | 8.6 | % | 8.6 | % | ||||
Weighted average discount rate—finance lease | — | 6.9 | % | |||||
In thousands | ||||
2023 | $ | 1,333 | ||
2024 | 1,311 | |||
2025 | 939 | |||
2026 | 515 | |||
2027 | 515 | |||
Thereafter | 215 | |||
Total future minimum payments for operating leases | 4,828 | |||
Imputed interest | (777 | ) | ||
Operating lease liabilities per the balance sheet | $ | 4,051 | ||
In March 2016,landlord’s contribution to the FASB issued ASU No. 2016-09, Improvementstenant fit out work is $8.0 million and the Company’s contribution to Employee Share-Based Payment Accounting,the fit out work is approximately $2.9 million, which amends ASC Topic 718, Compensation – Stock Compensation. was paid by the Company into an escrow account during August 2022.
Lease Months | ||||
1 | $ | — | ||
2-7 | $ | 743,750 | ||
8-19 | $ | 1,336,625 | ||
Base rent shall increase 1.5% each lease year (12-month period) thereafter commencing in month 20 for the remainder of the Term. | ||||
In February 2016,certain customary mutual indemnities. No security deposit was required upon lease execution, provided that the FASB issued ASU No. 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities onlandlord reserves the balance sheet for those leases previously classified as operating leases under GAAP. The standard requires, in most instances, a lessee to recognize on its balance sheet a liability to make lease payments (the lease liability) and also a right-of-use asset representing its right to useinstate a security deposit if the underlying asset for theCompany defaults in its lease term. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those periods, using a modified retrospective approach and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of this standard on its financial statements.In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contractsobligations.
93
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
4. | Investments and Fair Values of Financial Instruments |
The following table summarizesAt June 30, 2021, the Company’s investments by category asconsisted of
|
| June 30, |
|
| June 30, |
| ||
In thousands |
| 2017 |
|
| 2016 |
| ||
Investments - Current: |
|
|
|
|
|
|
|
|
Certificates of deposit |
| $ | 3,500 |
|
| $ | 18,093 |
|
Debt securities - held-to-maturity |
|
| 92,494 |
|
|
| 51,571 |
|
|
| $ | 95,994 |
|
| $ | 69,664 |
|
Investments - Noncurrent: |
|
|
|
|
|
|
|
|
Certificates of deposit |
| $ | 2,111 |
|
| $ | 2,544 |
|
Debt securities - held-to-maturity |
|
| 9,638 |
|
|
| 71,639 |
|
|
| $ | 11,749 |
|
| $ | 74,183 |
|
A summary of the Company’s debt securities classified as held-to-maturity is as follows:
|
| At June 30, 2017 |
| |||||||||||||
In thousands |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Investments - Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
| $ | 92,494 |
|
| $ | - |
|
| $ | (147 | ) |
| $ | 92,347 |
|
Corporate obligations |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| $ | 92,494 |
|
| $ | - |
|
| $ | (147 | ) |
| $ | 92,347 |
|
Investments - Noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
| $ | 7,552 |
|
| $ | - |
|
| $ | (52 | ) |
| $ | 7,500 |
|
Corporate obligations |
|
| 2,086 |
|
|
| - |
|
|
| (12 | ) |
|
| 2,074 |
|
|
| $ | 9,638 |
|
| $ | - |
|
| $ | (64 | ) |
| $ | 9,574 |
|
|
| At June 30, 2016 |
| |||||||||||||
In thousands |
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
| ||||
Investments - Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
| $ | 40,609 |
|
| $ | 12 |
|
| $ | (2 | ) |
| $ | 40,619 |
|
Corporate obligations |
|
| 10,962 |
|
|
| 3 |
|
|
| (1 | ) |
|
| 10,964 |
|
|
| $ | 51,571 |
|
| $ | 15 |
|
| $ | (3 | ) |
| $ | 51,583 |
|
Investments - Noncurrent: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. government and agency obligations |
| $ | 71,639 |
|
| $ | 53 |
|
| $ | (11 | ) |
| $ | 71,681 |
|
|
| $ | 71,639 |
|
| $ | 53 |
|
| $ | (11 | ) |
| $ | 71,681 |
|
The amortized cost and fair value of held-to-maturity debt securities as of June 30, 2017, by contractual maturity, were as follows:
In thousands |
| Amortized Cost |
|
| Fair Value |
| ||
Due in one year or less |
| $ | 92,494 |
|
| $ | 92,347 |
|
Due after one year through two years |
|
| 9,638 |
|
|
| 9,574 |
|
|
| $ | 102,132 |
|
| $ | 101,921 |
|
94
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company believes that the unrealized losses disclosed above were primarily driven by interest rate changes rather than by unfavorable changes in the credit ratings associated with these securities and as a result, the Company continues to expect to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At each reporting period, the Company evaluates securities for impairment when the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor other factors leading to an other-than-temporary impairment. Therefore, the Company believes these losses to be temporary. As of June 30, 2017, the Company did not have any intent to sell any of the securities that were in an unrealized loss position at that date.
|
|
Certain assets and liabilities are measured at fair value in the Company’s financial statements or have fair values disclosed in the notesthese Notes to the financial statements. TheseFinancial Statements. Such assets and liabilities are classified into one of the three levels of athe fair value hierarchy defined by U.S. GAAP. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.
The following methods and assumptions described below were used to estimate the fair valuevalues and determine the fair value hierarchy classification of each class of financial instrument included inheld by the table below:
Company.
Certificates of Deposit. The Company’s certificates of deposit are placed through an account registry service. The fair value measurement of the Company’s certificates of deposit is considered Level 2 of the fair value hierarchy as the inputs are based on quoted prices for identical assets in markets that are not active. The carrying amounts of the Company’s certificates of deposit reported in the balance sheets approximate fair value.
95
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
In thousands |
| Quoted prices in active markets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
|
| Total Fair Value |
|
| Total Carrying Value |
| |||||
June 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 30,706 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,706 |
|
| $ | 30,706 |
|
Certificates of deposit |
|
| — |
|
|
| 5,601 |
|
|
| — |
|
|
| 5,601 |
|
|
| 5,610 |
|
Held-to-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations |
|
| — |
|
|
| 2,074 |
|
|
| — |
|
|
| 2,074 |
|
|
| 2,086 |
|
U.S. government and agency obligations |
|
| 79,476 |
|
|
| 20,372 |
|
|
| — |
|
|
| 99,848 |
|
|
| 100,046 |
|
Total assets |
| $ | 110,182 |
|
| $ | 28,047 |
|
| $ | — |
|
| $ | 138,229 |
|
| $ | 138,448 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 28,868 |
|
| $ | — |
|
| $ | — |
|
| $ | 28,868 |
|
| $ | 28,868 |
|
Certificates of deposit |
|
| — |
|
|
| 20,626 |
|
|
| — |
|
|
| 20,626 |
|
|
| 20,637 |
|
Held-to-maturity investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations |
|
| — |
|
|
| 10,964 |
|
|
| — |
|
|
| 10,964 |
|
|
| 10,962 |
|
U.S. government and agency obligations |
|
| 73,809 |
|
|
| 38,491 |
|
|
| — |
|
|
| 112,300 |
|
|
| 112,248 |
|
Total assets |
| $ | 102,677 |
|
| $ | 70,081 |
|
| $ | — |
|
| $ | 172,758 |
|
| $ | 172,715 |
|
96
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE
In thousands | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
June 30, 2022 | ||||||||||||||||
Cash and cash equivalents | $ | 46,366 | $ | — | $ | — | $ | 46,366 | ||||||||
June 30, 2021 | ||||||||||||||||
Cash and cash equivalents | $ | 105,052 | $ | — | $ | — | $ | 105,052 | ||||||||
Held-to-maturity | 2,000 | — | — | 2,000 | ||||||||||||
Total assets | $ | 107,052 | $ | — | $ | — | $ | 107,052 | ||||||||
5. |
Property
|
| At June 30, |
| |||||
In thousands |
| 2017 |
|
| 2016 |
| ||
Laboratory equipment |
| $ | 2,645 |
|
| $ | 2,414 |
|
Leasehold improvements |
|
| 1,198 |
|
|
| 883 |
|
Office equipment |
|
| 470 |
|
|
| 514 |
|
Property and equipment, gross |
|
| 4,313 |
|
|
| 3,811 |
|
Less: Accumulated depreciation and amortization |
|
| (1,652 | ) |
|
| (1,184 | ) |
Property and equipment, net |
| $ | 2,661 |
|
| $ | 2,627 |
|
Depreciation
June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Laboratory equipment | $ | 6,422 | $ | 5,822 | ||||
Leasehold improvements | 3,886 | 3,881 | ||||||
Office equipment and furniture | 907 | 845 | ||||||
Equipment designated for future use | 661 | — | ||||||
Property and equipment, gross | 11,876 | 10,548 | ||||||
Accumulated depreciation and amortization | (7,162 | ) | (5,890 | ) | ||||
Property and equipment, net | $ | 4,714 | $ | 4,658 | ||||
6. | Intangible Assets, |
Intangible
|
| At June 30, 2017 |
| |||||||||
|
|
|
|
|
|
|
|
|
| Net of |
| |
|
|
|
|
|
| Accumulated |
|
| Accumulated |
| ||
In thousands |
| Cost |
|
| Amortization |
|
| Amortization |
| |||
Patents |
| $ | 2,135 |
|
| $ | (1,205 | ) |
| $ | 930 |
|
Licenses |
|
| 1,240 |
|
|
| (981 | ) |
|
| 259 |
|
Other |
|
| 54 |
|
|
| (24 | ) |
|
| 30 |
|
Intangible assets, net |
| $ | 3,429 |
|
| $ | (2,210 | ) |
| $ | 1,219 |
|
June 30, 2022 | ||||||||||||
In thousands | Cost | Accumulated Amortization | Intangible Assets, net | |||||||||
Patents | $ | 3,334 | $ | (1,974 | ) | $ | 1,360 | |||||
Licenses | 289 | (244 | ) | 45 | ||||||||
Other | 66 | (38 | ) | 28 | ||||||||
Totals | $ | 3,689 | $ | (2,256 | ) | $ | 1,433 | |||||
|
| At June 30, 2016 |
| |||||||||
|
|
|
|
|
|
|
|
|
| Net of |
| |
|
|
|
|
|
| Accumulated |
|
| Accumulated |
| ||
In thousands |
| Cost |
|
| Amortization |
|
| Amortization |
| |||
Patents |
| $ | 1,982 |
|
| $ | (1,035 | ) |
| $ | 947 |
|
Licenses |
|
| 1,240 |
|
|
| (907 | ) |
|
| 333 |
|
Other |
|
| 87 |
|
|
| (46 | ) |
|
| 41 |
|
Intangible assets, net |
| $ | 3,309 |
|
| $ | (1,988 | ) |
| $ | 1,321 |
|
Amortization
June 30, 2021 | ||||||||||||
In thousands | Cost | Accumulated Amortization | Intangible Assets, net | |||||||||
Patents | $ | 3,001 | $ | (1,809 | ) | $ | 1,192 | |||||
Licenses | 289 | (229 | ) | 60 | ||||||||
Other | 66 | (31 | ) | 35 | ||||||||
Totals | $ | 3,356 | $ | (2,069 | ) | $ | 1,287 | |||||
Fiscal Year Ending June 30, |
| Amount |
| |
2018 |
| $ | 246 |
|
2019 |
|
| 202 |
|
2020 |
|
| 203 |
|
2021 |
|
| 179 |
|
2022 |
|
| 71 |
|
Thereafter |
|
| 318 |
|
|
| $ | 1,219 |
|
97
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE
In thousands | ||||
2023 | $ | 106 | ||
2024 | 72 | |||
2025 | 62 | |||
2026 | 62 | |||
2027 | 61 | |||
Thereafter | 1,047 | |||
| $1,410 | ||||
7. | Debt |
|
|
Biogen
On July 1, 2015,2020, the Company entered into a CollaborationLoan and Security Agreement (as subsequently amended, the “Loan Agreement”) with Biogen, pursuantseveral banks and other financial institutions or entities from time to whichtime parties to the CompanyLoan Agreement (collectively, referred to as the “Lenders”) and Biogen will collaborate to develop, seek regulatory approvalHercules Capital, Inc., in its capacity as administrative agent and collateral agent for itself and commercialize gene therapy products to treat XLRS, XLRP, and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. Lenders (in such capacity, the “Agent”).
Under the Collaboration Agreement, the Company will conduct all development activities through regulatory approval in the United States for the XLRS program (with activities through Phase 1/2 completion being pre-funded under the agreement and any further activities subject to incremental consideration), and all development activities through the completion of the first in human clinical trial for the XLRP program (with activities through filing the IND being pre-funded under the agreement and any further activities subject to incremental consideration). In addition, the CollaborationLoan Agreement provides for discovery programs targeting three indications wherebya term loan in an aggregate principal amount of up to $25.0
The Company has granted to Biogen with respect to the XLRS and XLRP programs, and upon exercise of the option for the applicable discovery program, an exclusive, royalty-bearing license, withhad the right to grant sublicenses,request that the Lenders make additional term loan advances in an aggregate principal amount of up to use adeno-associated virus vector technology$15.0 million prior to January 1, 2022.
Activities under the Collaboration Agreement were evaluated under ASC 605-25, Revenue Recognition—Multiple Element Arrangements, as amended by ASU 2009-13, Revenue Recognition ("ASC 605-25"), to determine if they represented a multiple element revenue arrangement. The Collaboration Agreement includes the following significant deliverables:
(1) for each of the XLRS and XLRP programs, exclusive, royalty-bearing licenses, with the right to grant sublicenses, to use adeno-associated virus vector technology and other technology controlled by the Company for the purpose of researching, developing, manufacturing and commercializing licensed products developed under the arrangement (the “License Deliverables”);
(2) for each of the discovery programs, exercisable options to obtain exclusive licenses to develop, seek regulatory approval for and commercialize any of the designated clinical candidates under such discovery programs (the “Option Deliverables”); and
(3) the performance obligations to conduct research and development activities through (a) regulatory approval in the United States, in the case of the XLRS program; (b) completion of the first in human clinical trial, in the case of the XLRP program; and (c) the stage of clinical candidate designation, in the case of each of the discovery programs (the “R&D Activity Deliverables”).
The R&D Activity Deliverables for each program are further segmented by those that are “Pre-Funded Activities” and those that are “Post-Funding Development Activities”. Pre-Funded Activities are those R&D activities for which the Company has primary responsibility and the consideration to be received under the agreement was received at the inception of the arrangement. Post-Funding Development Activities are those activities that may occur after the Pre-Funded Activities and for which the Company is entitled to additional compensation under the agreement from Biogen. Biogen has final decision-making authority for all matters related to the conduct of the Post-Funding Development Activities. Because Biogen is not contractually obligated to continue the programs beyond the Pre-Funded Activities, and due to the uncertain outcome of the discovery, research and development activities, the Post-Funding Development Activities are not considered deliverables at the inception of the arrangement and the associated fees and milestones are not included in the allocable arrangement consideration. The Company has determined that the additional fees it could receive under the arrangement for Post-Funding Development Activities are not priced at a significant and incremental discount.
The Company determined that both the License Deliverables and Option Deliverables do not have stand-alone value and do not meet the criteria to be accounted for as separate units of accounting under ASC 605-25. The factors considered by the Company in making this determination included, among other things, the unique and specialized nature of its proprietary technology and
98
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
intellectual property, and the development stages of each of the XLRS, XLRP and the discovery programs targeting three indications. Accordingly, the License Deliverables under each of the XLRS and XLRP programs and the Option Deliverables under each of the discovery programs have been combined with the initial, Pre-Funded Activities deliverables associated with each related program and as a result, the Company’s separate units of accounting under its collaboration with Biogen, comprise the XLRS program, the XLRP program, and each of the discovery programs.
Under the Collaboration Agreement, the Company received a non-refundable upfront payment of $94.0 million in August 2015 which it recorded as deferred revenue. This upfront payment of $94.0 million was allocated among the separate units of accounting discussed above using the relative selling price method. In addition to the Collaboration Agreement,availability on JulyApril 1, 2015, the Company also entered into an equity agreement with Biogen. Under the terms of this equity agreement, Biogen purchased 1,453,957 shares of the Company’s common stock at a price of $20.63 per share, for an aggregate cash purchase price of $30.0 million which the Company also received in August 2015. The shares issued to Biogen represented approximately 8.1% of the Company’s outstanding common stock on a post-issuance basis, calculated on the number of shares that were outstanding at June 30, 2015, and constitute restricted securities that may not be resold by Biogen other than in a transaction registered under, or pursuant to an exemption from the registration requirements of, the Securities Act of 1933, as amended.
Accounting standards for multiple element arrangements contain a presumption that separate contracts negotiated or entered into at or near to the same time with the same entity were likely negotiated as a package and should be evaluated as a single agreement. The Company determined that the price of $20.63 paid by Biogen included a premium of $7.45 per share over the fair value of the company’s stock price, calculated based upon the stock price on the date of close of the agreement and adjusted for lack of marketability due to restrictions. Accordingly, the total premium of $10.8 million was also recorded as deferred revenue and, together with the $94.0 million, allocated to the separate units of accounting identified above using the relative selling price method as discussed in Note 2 to these financial statements. The Company will record revenue based on the revenue recognition criteria applicable to each separate unit of accounting. For amounts received up-front and initially deferred, the Company will recognize the deferred revenue on a straight-line basis over the estimated service periods in which it is required to perform the research and development activities associated with each unit of accounting. At the inception of the Collaboration Agreement, the Company initially estimate the service periods to range between 2 and 3 years. However, due to certain delays which have extended our estimated period of performance, the estimated service periods are currently anticipated to be between 2 and 4 years from the inception of the Collaboration Agreement.
During the fiscal years ended June 30, 2017 and 2016, the Company recognized revenue of approximately $39.3 million and $46.8 million, respectively from its collaboration with Biogen. Below is a summary of the components of the collaboration revenue:
|
| Fiscal year ended June 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| (dollars in thousands) |
| |||||
Amortization of non-refundable upfront fees |
| $ | 38,230 |
|
| $ | 41,166 |
|
Milestone revenue |
|
| — |
|
|
| 5,000 |
|
Other |
|
| 1,052 |
|
|
| 585 |
|
Total collaboration revenue |
| $ | 39,282 |
|
| $ | 46,751 |
|
During the fiscal year ended June 30, 2016, the Company recorded and received $5.0 million of milestone revenue after having achieved a patient enrollment-based milestone under the Collaboration Agreement. Other revenue is primarily comprised of reimbursable costs for post-funding development activities that were conducted by the Company during the fiscal year.
99
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company is also eligiblethat are broadly marketed to receive payments ofmultiple investors, in an amount up to $467.5$2.0 million, based on the successful achievement of future milestones under its XLRSsame terms, conditions and XLRP programs. For XLRS,pricing afforded to other investors participating in any such offering.
Biogen will also pay revenue-based royalties for each licensed product at tiered rates ranging from high single digit to mid-teen percentages of annual net sales of the XLRS or XLRP products and at rates ranging from mid-single digit to low-teen percentages of annual net sales for the discovery products. The Company has elected to apply the guidance in ASC 605-28 to the milestones. These milestones, if achieved, are substantive as they relate solely to past performance, are commensurate with estimated enhancement of value associated with the achievement of each milestone as a resultamount of the Company’s accounts payable not paid after the 120
year ending June 30, 2024.
8. | Collaboration Agreements, Revenue and Contract Liabilities |
Inc.
Under the agreement, AGTC made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. This initial investment represents an approximate 5% equity interest in Bionic Sight. In addition to the initial investment, AGTC will contribute to ongoing research and development support costs through additional payments or other in-kind contributions (AGTC Ongoing R&D Support). The AGTC Ongoing R&D Support payments and in-kind contributions will be made over time, up to the date that Bionic Sight has received both IND clearance from the FDA and receipt of written approval from an internal review board to conduct clinical trials from at least one clinical site for that product (the “IND Trigger”.)
If the IND Trigger is attained, AGTC will receive additional equity, based on the valuation in place at the beginning of the agreement, for the AGTC Ongoing R&D Support payments and in-kind contributions, and will be obligated to purchase additional equity in Bionic Sight for $4.0 million, at a pre-determined valuation. Due to the uncertainty of achieving the IND Trigger, the Company is expensing the AGTC Ongoing R&D Support payments and in-kind contributions made under the collaboration agreement. Such amounts are included as a component of research and development expenses in the Company’s financial statements.
100
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company recorded its initial $2.0 million investment in Bionic Sight using the cost method of accounting for investments, which is recorded as its own line item on the Company’s balance sheet. The ongoing research and development costs and contributions will be recorded as a periodic cost until such time when or if the IND Trigger is achieved.
The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquireacquire: (i) a majority equity interest in Bionic Sight,Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates,relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.
9. |
Share-Based Compensation |
1,592,820. See Note 13 in these Notes to Financial Statements for an increase in the shares available for issuance under such plan subsequent to June 30, 2022. Currently, the Company issues new shares of common stock upon the exercise, release or settlement of share-based compensation awards.
A summary
Year Ended June 30, | ||||||||||||||||
2022 | 2021 | |||||||||||||||
(In thousands, except per share amounts) | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||
Outstanding at the beginning of the year | 4,186 | $ | 7.69 | 3,846 | $ | 7.82 | ||||||||||
Granted | 2,641 | 2.90 | 1,456 | 5.15 | ||||||||||||
Exercised | (150 | ) | 0.89 | (204 | ) | 3.94 | ||||||||||
Forfeited | (496 | ) | 4.13 | (794 | ) | 4.44 | ||||||||||
Expired | (630 | ) | 10.64 | (118 | ) | 8.99 | ||||||||||
Outstanding at the end of the year | 5,551 | $ | 5.58 | 4,186 | $ | 7.69 | ||||||||||
Exercisable at the end of the year | 2,843 | 2,866 | ||||||||||||||
Weighted average fair value of options granted during the year | $ | 2.05 | $ | 3.67 | ||||||||||||
|
| For the years ended June 30, |
| |||||||||||||||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||||||||||||||
In thousands, except per share amounts |
| Shares |
|
| Weighted Average Exercise Price |
|
| Shares |
|
| Weighted Average Exercise Price |
|
| Shares |
|
| Weighted Average Exercise Price |
| ||||||
Outstanding, beginning of year |
|
| 2,037 |
|
| $ | 13.71 |
|
|
| 1,484 |
|
| $ | 11.83 |
|
|
| 1,024 |
|
| $ | 6.21 |
|
Granted |
|
| 842 |
|
|
| 10.92 |
|
|
| 675 |
|
|
| 17.08 |
|
|
| 615 |
|
|
| 19.58 |
|
Exercised |
|
| (31 | ) |
|
| 0.91 |
|
|
| (59 | ) |
|
| 4.77 |
|
|
| (46 | ) |
|
| 3.24 |
|
Forfeited |
|
| (101 | ) |
|
| 13.97 |
|
|
| (57 | ) |
|
| 13.90 |
|
|
|
|
|
|
|
|
|
Expired |
|
| (31 | ) |
|
| 16.17 |
|
|
| (6 | ) |
|
| 15.50 |
|
|
| (109 | ) |
|
| 6.43 |
|
Outstanding, end of year |
|
| 2,716 |
|
| $ | 12.95 |
|
|
| 2,037 |
|
| $ | 13.71 |
|
|
| 1,484 |
|
| $ | 11.83 |
|
Exercisable, end of year |
|
| 1,431 |
|
|
|
|
|
|
| 872 |
|
|
|
|
|
|
| 424 |
|
|
|
|
|
Weighted average fair value of options granted during the year |
| $ | 7.54 |
|
|
|
|
|
| $ | 11.83 |
|
|
|
|
|
| $ | 14.39 |
|
|
|
|
|
101
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNEoptions that vested during the years ended June 30, 2017, 2016 AND 2015
2022 and 2021 was $2.1 million and $2.3 million, respectively.
|
| At June 30, |
| |||||||||||||
(Number of options in thousands; remaining lives in years) |
| 2017 |
|
| 2016 |
| ||||||||||
|
|
|
|
|
| Weighted |
|
|
|
|
|
| Weighted |
| ||
|
|
|
|
|
| Average |
|
|
|
|
|
| Average |
| ||
|
| Number of |
|
| Contractual Life |
|
| Number of |
|
| Contractual Life |
| ||||
Exercise Price |
| Options |
|
| Remaining |
|
| Options |
|
| Remaining |
| ||||
$0.35 to $4.90 |
|
| 475 |
|
|
| 5.57 |
|
|
| 509 |
|
|
| 6.48 |
|
$4.95 to $10.55 |
|
| 467 |
|
|
| 9.48 |
|
|
| — |
|
|
| — |
|
$12.00 to $15.90 |
|
| 744 |
|
|
| 8.11 |
|
|
| 412 |
|
|
| 8.35 |
|
$16.00 to $19.87 |
|
| 864 |
|
|
| 7.83 |
|
|
| 940 |
|
|
| 8.89 |
|
$20.00 to $24.62 |
|
| 166 |
|
|
| 7.57 |
|
|
| 176 |
|
|
| 8.58 |
|
|
|
| 2,716 |
|
|
|
|
|
|
| 2,037 |
|
|
|
|
|
The following table summarizes information about stock options exercisable:
|
| At June 30, |
| |||||
|
| 2017 |
|
| 2016 |
| ||
|
| Number of Options |
| |||||
Exercise Price |
| (in thousands) |
| |||||
$0.35 to $4.90 |
|
| 460 |
|
|
| 396 |
|
$4.95 to $10.55 |
|
| 24 |
|
|
| — |
|
$12.00 to $15.90 |
|
| 355 |
|
|
| 160 |
|
$16.00 to $19.87 |
|
| 482 |
|
|
| 239 |
|
$20.00 to $24.62 |
|
| 110 |
|
|
| 77 |
|
|
|
| 1,431 |
|
|
| 872 |
|
As(i) vested and expected to vest and (ii) exercisable as of June 30, 2017,2022.
(In thousands, except per share amounts) | Shares | Weighted Average Exercise Price | Aggregate Intrinsic Value | Weighted Average Contractual Life (in years) | ||||||||||||
Vested and expected to vest | 5,074 | $ | 5.82 | $ | 7 | 6.69 | ||||||||||
Exercisable | 2,843 | 7.87 | 6 | 4.84 | ||||||||||||
Unrecognized compensation expense related to non-vested employee stock options amounted to $11.2 million assecond anniversaries of the date of grant, assuming continuing service by the grantee. As of June 30, 2016. Such compensation expense is expected to be recognized over a weighted-average period of 2.40 years.
In accounting for2022, 217,625 and 162,250 restricted stock options to non-employees, theunits have vested and been forfeited, respectively. The fair value of serviceseach restricted stock unit awarded was determined based on the market value of the Company’s common stock on the date of grant and the related expense is being recognized using a graded vesting schedule that is aligned with the grantees’ vesting dates.
102
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
Share-based compensation expense relatedpertaining to restricted shares of common stock units awarded to employees and consultants amounted to $5,000, $167,000totaled $1.1 million and $524,000$0.2 million for the fiscal years ended June 30, 2017, 20162022 and 2015, 2021,
Total
| For the fiscal years ended June 30, |
| |||||||||
In thousands | 2017 |
|
| 2016 |
|
| 2015 |
| |||
General and administrative | $ | 3,136 |
|
| $ | 2,860 |
|
| $ | 1,912 |
|
Research and development |
| 2,470 |
|
|
| 2,147 |
|
|
| 908 |
|
| $ | 5,606 |
|
| $ | 5,007 |
|
| $ | 2,820 |
|
Year Ended June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Research and development | $ | 1,685 | $ | 1,110 | ||||
General and administrative and other | 1,740 | 1,568 | ||||||
Totals | $ | 3,425 | $ | 2,678 | ||||
| Fiscal Years Ended June 30, |
| |||||||||
Assumption | 2017 |
|
| 2016 |
|
| 2015 |
| |||
Dividend yield |
| 0.00 | % |
|
| 0.00 | % |
|
| 0.00 | % |
Expected term | 6.00 to 6.25 years |
|
| 6.00 to 6.25 years |
|
| 6.00 to 10.00 years |
| |||
Risk-free interest rate | 1.08% to 2.11% |
|
| 1.41% to 1.86% |
|
| 2.04% to 2.31% |
| |||
Expected volatility |
| 79.18 | % |
|
| 78.85 | % |
|
| 85.68 | % |
Year Ended June 30, | ||||||||
Assumption | 2022 | 2021 | ||||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected term | 6.00 to 6.25 years | 6.00 to 6.25 years | ||||||
Risk-free interest rate | 0.80% to 3.53% | 0.30% to 1.08% | ||||||
Expected volatility | 82.51 | % | 82.60 | % | ||||
103
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE
10. |
Income Taxes |
Operating Leases
Alachua, Florida
June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Deferred tax assets: | ||||||||
Net operating loss carryforwards | $ | 61,867 | $ | 44,141 | ||||
Tax credit carryforwards | 38,877 | 35,563 | ||||||
Share-based compensation | 2,866 | 3,470 | ||||||
Lease liabilities—operating | 1,031 | 1,133 | ||||||
Accruals and other | 831 | 720 | ||||||
Gross deferred tax assets | 105,472 | 85,027 | ||||||
Deferred tax asset valuation allowance | (104,513 | ) | (83,980 | ) | ||||
Total deferred tax assets, net of valuation allowance | 959 | 1,047 | ||||||
Deferred tax liabilities: | ||||||||
Right-of-use assets—operating leases | (775 | ) | (791 | ) | ||||
Depreciation and amortization | (184 | ) | (256 | ) | ||||
Total deferred tax liabilities | (959 | ) | (1,047 | ) | ||||
Net deferred tax asset (liability) | $ | — | $ | — | ||||
Year Ended June 30, | ||||||||
2022 | 2021 | |||||||
Federal income tax benefit at statutory rate | 21 | % | 21 | % | ||||
State income taxes, net of federal benefit | 3 | 3 | ||||||
Permanent differences- primarily share-based compensation | (1 | ) | — | |||||
Research and development tax credits | 6 | 8 | ||||||
Reversal of the liability for uncertain tax positions | — | 4 | ||||||
Other | — | 1 | ||||||
Change in valuation allowance | (29 | ) | (33 | ) | ||||
Effective income tax rate | — | % | 4 | % | ||||
Year Ended June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Balance at the beginning of the year | $ | — | $ | 1,611 | ||||
Reduction for expiration of statutes of limitations | — | (1,611 | ) | |||||
Balance at the end of the year | $ | — | $ | — | ||||
11. | Accrued and Other Liabilities |
June 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Research and development and related items | $ | 7,475 | $ | 11,045 | ||||
Compensation | 3,449 | 2,890 | ||||||
General and administrative and other | 803 | 565 | ||||||
Total accrued and other liabilities | $ | 11,727 | $ | 14,500 | ||||
12. | Defined Contribution Plan |
13. | Stockholders’ Equity and Related Matters |
Cambridge, Massachusetts
In August 2015,underlying warrant agreements are not modified or amended.
For the fiscal years endedfuture issuance as of June 30, 2017, 2016,2022.
Stock options issued and outstanding, including those with performance milestones | 5,566,728 | |||
Restricted stock units | 199,625 | |||
Authorized for future grant under the 2013 Employee Stock Purchase Plan | 128,571 | |||
Authorized for future grant under the 2013 Equity and Incentive Plan | 1,592,820 | |||
Warrants | 8,370,786 | |||
Total shares of common stock reserved for future issuance | 15,858,530 | |||
Fiscal Year Ending June 30, |
| Amount |
| |
2018 |
| $ | 1,157 |
|
2019 |
|
| 1,478 |
|
2020 |
|
| 1,505 |
|
2021 |
|
| 1,533 |
|
2022 |
|
| 1,561 |
|
Thereafter |
|
| 5,787 |
|
|
| $ | 13,021 |
|
14. | Commitments and Contingencies |
104
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
milestones and, as such, they may not be achieved.The Company may terminate its license agreements with zero to ninety daysupon providing prior written notice depending uponin accordance with the terms of each specific agreement.
The Company’s expense associated with annual royalty and milestone payments was $54,000, $963,000 and $122,000 for
The Company enters into standardCompany’s license agreements with UFRF include indemnification agreements in the ordinary course of business. Pursuantprovisions pursuant to these agreements,which the Company indemnifies, holds harmless and agrees to reimburse the indemnified partyUFRF, certain of its affiliates and their respective directors, officers, employees and agents for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products.product candidates. The termterms of these indemnification agreements isare generally perpetual. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
15. |
Subsequent Events |
For the fiscal years ended June 30, 2016 and 2015,
|
| At June 30, |
| |||||
In thousands |
| 2017 |
|
| 2016 |
| ||
Current provision: |
|
|
|
|
|
|
|
|
Federal |
| $ | 13,706 |
|
| $ | 1,199 |
|
State |
|
| 1,774 |
|
|
| 127 |
|
|
|
| 15,480 |
|
|
| 1,326 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Federal |
|
| (12,949 | ) |
|
| (1,199 | ) |
State |
|
| (131) |
|
|
| (127 | ) |
|
|
| (13,080 | ) |
|
| (1,326 | ) |
Provision for income taxes |
| $ | 2,400 |
|
| $ | — |
|
Deferred taxes are recognized for temporary differences between the basisclosed an underwritten public offering of assets and liabilities for financial statement and income tax purposes. The significant components(i) 16,075,000 shares of the Company’s deferred tax assets (liabilities) are comprised of the following:
|
| At June 30, |
| |||||
In thousands |
| 2017 |
|
| 2016 |
| ||
Deferred tax assets: |
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
| $ | 9,124 |
|
| $ | 27,103 |
|
Tax credit carryforwards |
|
| 19,195 |
|
|
| 8,771 |
|
Accruals and other |
|
| 11,987 |
|
|
| 1,599 |
|
Gross deferred tax assets |
|
| 40,306 |
|
|
| 37,473 |
|
Deferred tax asset valuation allowance |
|
| (40,303 | ) |
|
| (37,412 | ) |
Total deferred tax assets, net of valuation allowance |
|
| 3 |
|
|
| 61 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (3 | ) |
|
| (61 | ) |
Total deferred tax liabilities |
|
| (3 | ) |
|
| (61 | ) |
Net deferred tax asset (liability) |
| $ | — |
|
| $ | — |
|
105
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
As of June 30, 2017, the Company had net operating losses of approximately $24.0 million that may be applied against future taxable income and expire in various years ranging from 2022common stock, together with accompanying warrants to 2037. As of June 30, 2017, the Company also had research and development tax credits of approximately $18.4 million that may provide future tax benefits and expire from 2027purchase up to 2046, and alternative minimum tax credits of approximately $0.7 million, that may provide future tax benefits.
The Company has evaluated the positive and negative evidence bearing upon the realizability16,075,000 shares of its deferred tax assets. Based on its historycommon stock, at a combined offering price of operating losses, the Company has concluded that as of June 30, 2017, it is more likely than not that the benefit of its deferred tax assets will not be realized. Therefore, any tax benefits $0.60 per share and
A reconciliation of income tax expense computed at the statutory federal income tax rate to income taxes as reflected in the financial statements is as follows:
| For the years ended June 30, |
| |||||||||
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Federal income tax benefit at statutory rate |
| 34 | % |
|
| (34 | )% |
|
| (34 | )% |
State income tax, net of federal benefit |
| 4 | % |
|
| (4 | )% |
|
| (4 | )% |
Permanent differences |
| 130 | % |
|
| 52 | % |
|
| 9 | % |
Research and development tax credits |
| (240 | )% |
|
| (60 | )% |
|
| (18 | )% |
Other |
| 416 | % |
|
| 85 | % |
|
| 1 | % |
Change in valuation allowance |
| (259 | )% |
|
| (39 | )% |
|
| 46 | % |
Effective income tax rate |
| 85 | % |
|
| 0 | % |
|
| 0 | % |
Under the provisions of the Internal Revenue Code, the Company’s net operating loss and tax credit carry forwards are subject to review and possible adjustment by the Internal Revenue Service and state tax authorities. Net operating loss and tax credit carry forwards may become subject to an annual limitation in the event of certain cumulative changes in the ownership interest of significant shareholders over a three-year period in excess of 50 percent, as defined under Sections 382 and 383 of the Internal Revenue Code, respectively, as well as similar state provisions. This could limit the amount of tax attributes that can be utilized annually to offset future taxable income or tax liabilities. The amount of the annual limitation is determined based on the valueunderlying common stock of the Company immediately priorand (ii) the underwriter exercised its option to purchase additional warrants, at a purchase price of
16. | Quarterly Financial Information (Unaudited) |
For fiscal years through June 30, 2017, the Company generated research credits but has not conducted a study to document the qualified activities. This study may result in an adjustment to the Company’s research and development tax credit carry forwards; however, until a study is completed and any adjustment is known, no amounts are being presented as an uncertain tax position at June 30, 2017 or 2016. A full valuation allowance has been provided against the Company’s research and development tax credits and, if an adjustment were to be required, this adjustment would be offset by an adjustment to the deferred tax asset established for the tax credit carry forwards and the valuation allowance.
The Company files income tax returns in the United States and in multiple states. The federal and state returns are generally subject to tax examinations for the tax years ended June 30, 2013 through June 30, 2017. To the extent the Company has tax attribute carry forwards, the tax years in which the attribute was generated may still be adjusted upon examination by the Internal Revenue Service, or state authorities, to the extent such attributes are utilized in a future period. On December 28, 2015, the United States Internal Revenue Service, or IRS, notified the Company of an income tax audit for the tax period ending June 30, 2014. As of June 30, 2017, the IRS audit was closed and the Company incurred no penalties or payment liabilities for its income tax positions.
106
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The Company recognizes a tax benefit from an uncertain tax position when it is more likely than not that the position will be sustained upon examination. For the year ended June 30, 2017, the Company recorded an uncertain tax position reserve of $950,000. No similar reserve was recorded for the years ended June 30, 20162022 and 2015. The entire amount of the reserve would reduce the annual effective tax rate if recognized. The Company does not anticipate that the amount of unrecognized tax benefits as of June 30, 2017 will significantly change within the next twelve months. The Company’s practice is to recognize interest and/or penalties related to uncertain income tax positions in income tax expense. The Company had no interest and/or penalties accrued on the Company’s balance sheets at June 30, 2017 and 2016, and the Company did not recognize any interest and/or penalties in the statement of operations for the years ended June 30, 2017, 2016 and 2015 related to uncertain tax positions.
The following table provides a reconciliation of changes in unrecognized tax benefits (in thousands):
|
| Years Ended June 30, |
| |||||||||
|
| 2017 |
|
| 2016 |
|
| 2015 |
| |||
Balance at beginning of period |
| $ | — |
|
| $ | — |
|
| $ | — |
|
Additions related to current period tax positions |
|
| 950 |
|
|
| — |
|
|
| — |
|
Additions related to prior period tax positions |
|
| — |
|
|
| — |
|
|
| — |
|
Reductions related to prior period tax positions |
|
| — |
|
|
| — |
|
|
| — |
|
Reductions related to lapse of statute of limitations |
|
| — |
|
|
| — |
|
|
| — |
|
Balance at end of period |
| $ | 950 |
|
| $ | — |
|
| $ | — |
|
Fiscal Year 2022 by Quarter | ||||||||||||||||
In thousands, except per share data | First | Second | Third | Fourth | ||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | 325 | ||||||||
Loss from operations | (16,425 | ) | (18,443 | ) | (13,583 | ) | (17,724 | ) | ||||||||
Net loss | (17,119 | ) | (19,144 | ) | (14,294 | ) | (18,386 | ) | ||||||||
Net loss per common share, basic | $ | (0.40 | ) | $ | (0.45 | ) | $ | (0.33 | ) | $ | (0.36 | ) | ||||
Net loss per common share, diluted | (0.40 | ) | (0.45 | ) | (0.33 | ) | (0.36 | ) | ||||||||
|
|
Accrued expenses as of June 30, 2017 and 2016 consisted of the following:
|
| At June 30, |
| |||||
In thousands |
| 2017 |
|
| 2016 |
| ||
Research and development-related |
| $ | 2,868 |
|
| $ | 4,923 |
|
Compensation-related |
|
| 1,780 |
|
|
| 1,591 |
|
Accrued tax liabilities |
|
| 1,514 |
|
|
| — |
|
|
| $ | 6,162 |
|
| $ | 6,514 |
|
|
|
The Company sponsors an employee 401(k) salary deferral plan (“401(k) Plan”) that covers substantially all of its employees and is administered through its staff leasing company. Under the 401(k) Plan, employees may elect to defer up to 25% of their compensation per year (subject to a maximum limit prescribed by federal tax law) and the Company matches a portion of such employee contributions up to a maximum of 4% of the eligible salary. The Company’s matching contributions to the 401(k) Plan amounted to $235,000, $162,000 and $90,000 for each of the fiscal years ended June 30, 2017, 2016 and 2015, respectively.
|
|
Common Stock
In connection with its entry into the Collaboration Agreement with Biogen described in Note 7 of these financial statements, the Company also entered into an equity agreement with Biogen on July 1, 2015. Under the terms of this equity agreement, Biogen purchased 1,453,957 shares of the Company’s common stock, at a price of $20.63 per share, for an aggregate cash purchase price of $30.0 million. These cash proceeds were received from Biogen in August 2015. The shares issued to Biogen constitute restricted securities that may not be resold by Biogen other than in a transaction registered under the Securities Act of 1933, as amended, or pursuant to an exemption from such registration requirement.
As of June 30, 2017, there were 150,000,000 shares of $0.001 par value common stock that were authorized to be issued. As of that date, a total of 18,087,785 shares of common stock were issued and outstanding.
107
APPLIED GENETIC TECHNOLOGIES CORPORATION
NOTES TO FINANCIAL STATEMENTS— (Continued)
FOR THE YEARS ENDED JUNE 30, 2017, 2016 AND 2015
The following shares of common stock were reserved for future issuance as of June 30, 2017:
|
| |||
|
| |||
|
| |||
|
| |||
|
| |||
| ||||
|
|
Summarized quarterly information for the two fiscal years ended June 30, 2017 and 2016, respectively, is as follows:
Fiscal Year 2021 by Quarter | ||||||||||||||||
In thousands, except per share data | First | Second | Third | Fourth | ||||||||||||
Revenue | $ | — | $ | — | $ | — | $ | 500 | ||||||||
Loss from operations | (15,062 | ) | (15,115 | ) | (14,488 | ) | (13,786 | ) | ||||||||
Net loss | (15,380 | ) | (15,462 | ) | (14,851 | ) | (12,136 | ) | ||||||||
Net loss per common share, basic | $ | (0.60 | ) | $ | (0.60 | ) | $ | (0.40 | ) | $ | (0.28 | ) | ||||
Net loss per common share, diluted | (0.60 | ) | (0.60 | ) | (0.40 | ) | (0.28 | ) | ||||||||
|
| Fiscal Year 2017 by Quarter: |
| |||||||||||||
In thousands, except per share data |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Revenue |
| $ | 11,806 |
|
| $ | 10,933 |
|
| $ | 8,388 |
|
| $ | 8,345 |
|
Income (loss) from operations |
| $ | 3,625 |
|
| $ | 2,379 |
|
| $ | (600 | ) |
| $ | (2,597 | ) |
Net income (loss) |
| $ | 3,025 |
|
| $ | 1,779 |
|
| $ | (1,200 | ) |
| $ | (3,197 | ) |
Net earnings (loss) per common share, basic |
| $ | 0.17 |
|
| $ | 0.10 |
|
| $ | (0.07 | ) |
| $ | (0.18 | ) |
Net earnings (loss) per common share, diluted |
| $ | 0.16 |
|
| $ | 0.10 |
|
| $ | (0.07 | ) |
| $ | (0.18 | ) |
|
| Fiscal Year 2016 by Quarter: |
| |||||||||||||
In thousands, except per share data |
| First |
|
| Second |
|
| Third |
|
| Fourth |
| ||||
Revenue |
| $ | 11,062 |
|
| $ | 12,189 |
|
| $ | 11,997 |
|
| $ | 12,113 |
|
Income (loss) from operations |
| $ | (9,213 | ) |
| $ | 2,870 |
|
| $ | 1,767 |
|
| $ | 2,487 |
|
Net income (loss) |
| $ | (9,123 | ) |
| $ | 3,045 |
|
| $ | 1,969 |
|
| $ | 2,728 |
|
Net earnings (loss) per common share, basic |
| $ | (0.53 | ) |
| $ | 0.17 |
|
| $ | 0.11 |
|
| $ | 0.15 |
|
Net earnings (loss) per common share, diluted |
| $ | (0.53 | ) |
|
| 0.17 |
|
|
| 0.11 |
|
|
| 0.15 |
|
108
ITEM 9. |
|
ITEM 9A. | CONTROLS AND PROCEDURES |
As required by Rule 13a-15(b) under the Exchange Act, an evaluation ofprincipal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
2022.
We2022. As a
Material Weaknesses2002.
109
2022 that this material weakness in our internal control over financial reporting was due to the fact that we did not have the appropriate resources with the appropriate level of experience and technical expertise to oversee our closing and financial reporting processes.
In order to address this material weakness, we took the following actions in fiscal year 2017:
we hired an additional employee during the second half of fiscal year 2017 to provide further support to our finance and accounting team. The finance and accounting team now comprises of a total of eight employees, including our Chief Financial Officer and our Controller;
we restructured our finance team to better align the functional areas to the overall strategy of the company, while at the same time providing more focus for the accounting team in maintaining proper control over the financial reporting process commensurate to support standalone external financial reporting under public company or SEC requirements;
we continued to provide functional and system training to employees and to prepare detailed documentation to clearly define key tasks and actions, as well as the positions responsible for those tasks and actions. During fiscal year 2017, we also engaged the services of a consulting firm to assist in documenting and formalizing our accounting policies and internal control processes and to help strengthen supervisory reviews by our management; and
we continued to design and implement monthly manual controls to manage our financial reporting close processes and to help ensure an adequate level of segregation of duties within our finance and accounting function. We are also designing additional controls around identification, documentation and application of technical accounting guidance with particular emphasis on events outside the ordinary course of business. These controls include the implementation of additional supervision and review activities by qualified personnel, the preparation of formal accounting memoranda to support our conclusions on technical accounting matters, and the development and use of checklists and research tools to assist in compliance with GAAP with regard to complex accounting issues.
We have completed the documentation and review of the corrective actions described above and, as of June 30, 2017, our management has concluded that there still existed significant flaws in the design and operation of our closing and financial reporting processes and therefore that this previously identified material weakness had not been fully remediated as of June 30, 2017. In order to fully remediate this material weakness, we will continue to implement the corrective actions described above, including additional procedures to improve the capture, review, approval, and recording of all transactions in the appropriate accounting period. Management will also continue to review and make necessary changes to the overall design of our internal control environment, and implement policies and procedures that improve the overall effectiveness of our internal controls over financial reporting.
Changes in Internal Control over Financial Reporting
Except for those remedial actions described above, there was no change in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the period covered by this report that has materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
We are also required under Item 405 of Regulation S-K
ITEM 11. | EXECUTIVE COMPENSATION |
110
|
The information required by this item will be set forth under the captions “Executive Officers—Executive Compensation” in our Annual Report Amendment and is incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
|
| Number of securities to be |
|
|
|
|
|
| Number of securities |
|
| ||
|
| issued upon exercise of |
|
|
|
|
|
| remaining available for |
|
| ||
|
| outstanding options, |
|
|
|
|
|
| future issuance under equity |
|
| ||
|
| warrants and rights, and |
|
| Weighted-average exercise |
|
| compensation plans |
|
| |||
|
| vesting of outstanding |
|
| price of outstanding options, |
|
| (excluding securities reflected |
|
| |||
Plan category |
| restricted stock units |
|
| warrants and rights |
|
| in column (a)) |
|
| |||
|
| (a) |
|
| (b) |
|
| (c) |
|
| |||
Equity compensation plans approved by security holders |
|
| 2,714,602 |
|
| $ | 12.96 |
|
|
| 672,197 |
| (1) |
Equity compensation plans not approved by security holders |
|
| — |
|
| $ | — |
|
|
| — |
|
|
Total |
|
| 2,714,602 |
|
| $ | 12.96 |
|
|
| 672,197 |
|
|
Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights, and vesting of outstanding restricted stock units | Weighted average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) | |||||||||
(a) | (b) | (c) | ||||||||||
Equity compensation plans approved by security holders | 5,766,353 | (1) | $ | 5.57 | (2) | 1,721,391 | (3) | |||||
Equity compensation plans not approved by security holders | — | — | — | |||||||||
Total | 5,766,353 | $ | 5.57 | 1,721,391 | ||||||||
(1) | Includes |
| (2) | The calculation of the weighted average exercise price does not include outstanding restricted stock unit awards. |
| (3) | Includes 1,592,820 shares issuable under our 2013 Equity and Incentive Plan, which may be issued in the form of stock options, restricted stock, unrestricted stock, performance share awards or other equity-based awards, and 128,571 shares issuable under our 2013 Employee Stock Purchase Plan. This number includes the automatic increase in shares to our 2013 Equity and Incentive Plan by its terms, added July 1 of each year and calculated as a 4% increase of the number of shares of our common stock issued and outstanding |
| on the immediately preceding June 30 or such lesser number of shares of our common stock as determined by our compensation committee. |
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND |
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
(1) Financial Statements —See Index to Financial Statements and Financial Statement Schedule at Item 8 on page 104 of this Annual Report on Form 10-K.
(2) Financial Statement Schedules —See Index to Financial Statements and Financial Statement Schedule at Item 8 on page 104 of this Annual Report on Form 10-K. All other schedules are omitted because they are not applicable or not required.
111
| (1) |
Financial Statements 10-K. |
(2) | Financial Statement Schedules |
(3) | Index to Exhibits. |
112
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| Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document | |
| Inline XBRL Taxonomy Extension Schema Document | |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| Inline XBRL Taxonomy Extension Label Linkbase Document | |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104^ | The cover page for the Company’s Annual Report on Form 10-K has been formatted in Inline XBRL and contained in Exhibit 101 | |
* | Management contract or compensatory plan or |
| Filed |
| Furnished herewith. |
| † | We have omitted portions of this exhibit, for which confidential treatment has been granted. |
115
ITEM 16. | FORM 10-K SUMMARY |
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In thousands |
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Deferred Tax Valuation Allowance |
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Year 2017 |
| $ | 37,412 |
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| $ | 2,891 |
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| $ | — |
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| $ | — |
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| $ | 40,303 |
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Year 2016 |
| $ | 36,845 |
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| $ | 567 |
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| $ | — |
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| $ | — |
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| $ | 37,412 |
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Year 2015 |
| $ | 24,086 |
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| $ | 12,759 |
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| $ | — |
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| $ | — |
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| $ | 36,845 |
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| APPLIED GENETIC TECHNOLOGIES CORPORATION | ||
By: | /s/ Susan B. Washer | |
Susan B. Washer | ||
President and Chief Executive Officer | ||
Date: | September | |
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Signature | Title | Date | ||
/s/ Susan B. Washer Susan B. Washer | Chief Executive Officer, President and Director (Principal Executive Officer) | September | ||
/s/
Jonathan I. Lieber | Chief Financial Officer (Principal Financial | September | ||
/s/ Gerald A. Reynolds Gerald A. Reynolds | Chief Accounting Officer (Principal Accounting Officer) | September 27, 2022 | ||
/s/ Scott Koenig Scott Koenig | Director | September | ||
/s/
William Aliski | Director | September | ||
/s/ Ed Hurwitz Ed Hurwitz | Director | September | ||
/s/
James Robinson | Director | September | ||
/s/ Anne VanLent Anne VanLent | Director | September | ||
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/s/ James Rosen James Rosen | Director | September | ||
/s/ Yehia Hashad Yehia Hashad | Director | September 27, 2022 | ||
117