UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2020March 31, 2021

OR

Commission File Number: 001-36370

APPLIED GENETIC

TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

14193 NW 119^th Terrace, Suite 10, Alachua, Florida 32615

(Address of Principal Executive Offices, Including Zip Code)

(386) 462-2204

(Registrant’s Telephone Number, Including Area Code)

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

Securities registered pursuant to Section 12(g) of the Act: None

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

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

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

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

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

The number of shares of the registrant’s common stock outstanding as of November 11, 2020May 13, 2021 was 25,889,625.42,754,792.

APPLIED GENETIC TECHNOLOGIES CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED SEPTEMBER 30, 2020MARCH 31, 2021

TABLE OF CONTENTS

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PART I. FINANCIAL INFORMATION

APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED BALANCE SHEETS

(Unaudited)

The accompanying notes are an integral part of these Unaudited Condensed Financial Statements.

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APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

The accompanying notes are an integral part of these Unaudited Condensed Financial Statements.

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APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2021 AND 2020 AND 2019

(Unaudited)

The accompanying notes are an integral part of these Unaudited Condensed Financial Statements.

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APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

The accompanying notes are an integral part of these Unaudited Condensed Financial Statements.

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APPLIED GENETIC TECHNOLOGIES CORPORATION

NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

1.

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 patientspeople suffering from rare and debilitating diseases.

On February 11, 2020, the Company closed an underwritten public offering of 6.5 million shares of its common stock at $5.00 per share, generating gross proceeds of $32.5 million, before deducting underwriting discounts, commissionsophthalmic, otologic and other offering expenses payable by the Company. Additionally, the underwriters exercised their option to purchase an additional 975,000 shares of common stock to cover over-allotments. Such transaction closed on February 13, 2020 and generated additional gross proceeds of $4.9 million.

On June 30, 2020, the Company entered into a loan agreement for a term loan in the aggregate principal amount of up to $25.0 million. On that date, the Company received net loan proceeds of $9.9 million, before consideration of any related debt financing fees. The loan agreement is further discussed at Note 6 in these Notes to Unaudited Condensed Financial Statements.central nervous system diseases.

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 the ability to transition to large-scale production of products.

As of September 30, 2020,March 31, 2021, the Company had (i) an accumulated deficit of $196.8$227.1 million and (ii) cash and cash equivalents and liquid investments of $66.6$111.0 million. Management believes that there is sufficient funding on handavailable to allow the Company to generate data from its ongoing and planned clinical programs initiate and advance its clinical trials and fund currently planned research and discovery programs for a period exceeding one year from the date of this filing with the Securities and Exchange Commission.programs. While the Company expects to continue to generate some revenue from partnering, sponsored research, grants and licensing of its intellectual property, management believes that the Company will incur losses for the foreseeable future. The Company has funded its operations to date primarily through public offerings of its common stock and warrants to purchase its common stock, private placements of its preferred stock, collateralized borrowing and collaborations.

The Company’s future liquidity needs will be determined based on the success of its operations relative to the progression of its product candidates. To provide the maximum degree of financial flexibility, management’s near-term plans consider various opportunities to fund the Company’s future operations, including: (i) the out-licensing of rights to certain products or product candidates, including manufacturing capabilities, pursuant to which the Company could potentially receive cash milestone and other related payments; (ii) raising capital through equity or debt financings or other sources; (iii) reduced spending on research and development activities, which could potentially lead to curtailing, delaying or discontinuing one or more of the Company’s research or development programs; and/or (iv) restructuring the Company’s operations to modify its overhead structure. However, management may be unable to (i) successfully execute any of the plans described herein or (ii) raise additional funds or enter into such other arrangements when needed on favorable terms, or at all.

Basis of presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in accordance with (i) U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and (ii) the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, such financial statements do not include all the information and footnotes required by U.S. GAAP for a complete set of financial statements. In the opinion of management, the Unaudited Condensed Financial Statements include all adjustments, consisting of normal recurring accruals and other adjustments, considered necessary for a fair statement of the Company’s financial position, results of operations, stockholders’ equity and cash flows as of and for the periods presented. The accompanying Condensed Balance Sheet as of June 30, 2020 was derived from the Company’s audited financial statements at that date but does not include all of the footnote disclosures required by U.S. GAAP.

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Net income or loss per share

Basic net income or loss per share is calculated by dividing net income or loss by the weighted average shares outstanding during the period, without consideration of common stock equivalents. Diluted net income or loss per share is calculated by adjusting the weighted average shares outstanding for the dilutive effects of common stock equivalents outstanding during the period, determined using the treasury stock method. For purposes of diluted net income or loss per share calculations, warrants to purchase the Company’s common stock, stock options, restricted stock awards and performance service awards are considered to be common stock equivalents if they are dilutive. The dilutive impact of common stock equivalents for (i) each of the three and nine months ended September 30, 2020 and 2019March 31, 2021 was approximately 0.50.4 million shares and 0.1(ii) the three and nine months ended March 31, 2020 was approximately 0.4 million shares and 0.2 million shares, respectively. However, the dilutive impact of common stock equivalents was excluded from the calculations of diluted net loss per share for each of theall periods ended September 30, 2020 and 2019presented herein because their effects were anti-dilutive.

The abovementioned dilutive impact of common stock equivalents for the three and nine months ended March 31, 2021 excluded certain warrants to purchase the Company’s common stock, which are described at Note 9 in these Notes to Unaudited Condensed Financial Statements, because the exercise price of such warrants was greater than the average market price of the Company’s common stock for the related periods.

New Accounting Pronouncements

Adopted during the threenine months ended September 30, 2020March 31, 2021

Fair Value Measurement

In August 2018, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new standard eliminates, adds and modifies certain disclosure requirements for fair value measurement as part of the FASB’s disclosure framework project. Under the new standard, the amount and reason for a transfer between Level 1 and Level 2 of the fair value hierarchy (as described at Note 5 in these Notes to Unaudited Condensed Financial Statements) are no longer required to be disclosed, but public companies are required to disclose a range and weighted average of significant unobservable inputs for Level 3 fair value measurements. The Company adopted the new standard on July 1, 2020; however, it did not have a significant impact on the Company’s financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“Topic 606”), when the counterparty is a customer. The new standard also precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The guidance amends ASC Topic 808, Collaborative Arrangements (“Topic 808”), to refer to the unit-of-account guidance in Topic 606 and requires it to be used only when assessing whether a transaction is in the scope of Topic 606. The Company adopted the new standard on July 1, 2020; however, it did not have a significant impact on the Company’s financial statements.

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principles in Topic 740 and increasing consistency and clarity for the users of financial statements. This standard will be effective for the Company on July 1, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

Investments – Equity Securities, Investments – Equity Method and Joint Ventures, and Derivatives and Hedging

In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815)—Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. The new standard addresses interactions between the guidance to account for certain equity securities under ASC Topic 321, the guidance to account for investments under the equity method of accounting in ASC Topic 323 and the guidance in ASC Topic 815, which could change how an entity accounts for an equity security under the measurement alternative or a forward contract or purchased option to purchase securities that, upon settlement of the forward contract or exercise of the purchased option, would be accounted for under the equity method of accounting or the fair value option in accordance with ASC Topic 825, Financial Instruments. These amendments improve current U.S. GAAP by reducing diversity in practice and increasing comparability of the accounting for any such interactions. This standard will be effective for the Company on July 1, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

3.

The Company uses stock options, performance service awards, restricted stock awards and restricted stock units to provide long-term incentives to its employees, non-employee directors and certain consultants. The Company has two equity compensation plans under which awards are currently authorized for issuance: the 2013 Employee Stock Purchase Plan and the 2013 Equity and Incentive Plan. No awards have been issued to date under the 2013 Employee Stock Purchase Plan and, as such, all of the 128,571 shares previously authorized under that plan remain available for issuance.

Information about the Company’s stock options that do not have performance conditions is provided below.

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award. If any of the performance criteria are not satisfied, that corresponding tranche will be forfeited. As of September 30, 2020,March 31, 2021, one of the six performance criteria has been met. The Company used thea Black-Scholes stock option pricing model to estimate the grant date fair value of each option to be $2.58; however, determining the appropriate periodic share-based compensation expense for this award requires management to estimate the likelihood of the achievement of the performance targets.

During August 2019, 175,500 restricted stock units, which included a market-based vesting condition related to the trading price of the Company’s common stock, were granted to certain employees under the 2013 Equity and Incentive Plan with a weighted average grant date fair value of $2.56. Prior to June 30, 2020, the market condition embedded in the award was met. On August 15, 2020, 76,500 restricted stock units vested and, through September 30, 2020,March 31, 2021, a total of 22,50025,000 awards have been forfeited. Assuming continuing service by the grantees, the remaining restricted stock units that are outstanding will vest on August 15, 2021. The fair value of each restricted stock unit awarded was estimated on the grant date using a Monte Carlo simulation pricing model, which incorporated the probability of satisfying the related market-based vesting condition.

Share-based compensation expense for the three and nine months ended September 30, 2020 and 2019March 31, 2021 was $0.6 million and $0.8$1.9 million, respectively, compared to $0.9 million and $2.4 million for the three and nine months ended March 31, 2020, respectively.

4.

Cash in excess of immediate requirements is invested in accordance with the Company’s investment policy, which primarily seeks to maintain adequate liquidity and preserve capital. At both September 30, 2020March 31, 2021 and June 30, 2020, the Company’s investments consisted entirely of held-to-maturity debt securities that were due in one year or less from the respective balance sheet dates.

The Company’s debt securities that are classified as held-to-maturity are summarized below.

The Company expects to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At the end of each reporting period, the Company evaluates its securities for impairment, if and when, the fair value of an investment is less than its amortized cost. In the event that the fair value of an investment is less than its amortized cost, the Company will evaluate the underlying credit quality and credit ratings of the issuer. Specifically, the Company believes that the unrealized losses at June 30, 2020 that are disclosed in the above table were primarily driven by interest rate changes rather than by unfavorable changes in the credit ratings associated with those securities. The Company does not intend to sell any of its investments before recovering its amortized cost, base, which may be at maturity.

5.

The Company is required to disclose information regarding all assets and liabilities reported at fair value that enables an assessment of the inputs used when determining the reported fair values. ASC Topic 820, Fair Value Measurements and Disclosures, establishes a

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To the extent that a 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 when determining fair value is greatest for financial 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.

Certain assets and liabilities are measured at fair value in the Company’s financial statements or have fair values disclosed in these Notes to Unaudited Condensed Financial Statements. Such assets and liabilities are classified into one of the three levels of the fair value hierarchy. 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 methods and assumptions described below were used to estimate fair values and determine the fair value hierarchy classification of each class of financial instrument held by the Company.

Cash and Cash Equivalents. The carrying value of cash and cash equivalents approximates fair value because the maturities thereof are less than three months.

Debt securities—held-to-maturity. The Company’s investments in debt securities classified as held-to-maturity consist of U.S. Treasury securities that are valued using quoted market prices. Valuation adjustments are not applied.

The fair value hierarchy table below provides information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis or disclosed at fair value in these Notes to Unaudited Condensed Financial Statements.

The Company’s financial instruments also include its variable-rate borrowing under a debt agreement that is described at Note 6 in these Notes to Unaudited Condensed Financial Statements. The Company believes that the carrying amount forof such debt of $9.8(i.e., $9.9 million and $9.7 million at September 30, 2020March 31, 2021 and June 30, 2020, respectively,respectively) reasonably approximates its fair value because the rate of interest on such borrowing reflects current market rates of interest for similar instruments with comparable maturities and risk profiles. This assessment primarily uses Level 2 inputs under the fair value hierarchy.

The following discussion of the Company’s debt should be read in conjunction with Note 8 to the Notes to Financial Statements in the 2020 Form 10-K.

On June 30, 2020, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with several banks and other financial institutions or entities from time to time parties to the Loan Agreement (collectively, referred to as the “Lenders”) and Hercules Capital, Inc. in its capacity as administrative agent and collateral agent for itself and the Lenders.

The Loan Agreement provides for a term loan in an aggregate principal amount of up to $25.0 million to be delivered in multiple tranches.tranches (the “Term Loan”). The tranches consistfirst tranche consisted of (i) aan initial term loan advance of $10.0 million on June 30, 2020 (the “Closing Date”) and (ii). Thereafter, subject to the Lenders’ investment committee’s sole discretion, the Company hashad the right to request that the Lenders make additional term loan advances in an aggregate principal amount of up to $15.0 million prior to January 1, 2022.

Effective May 13, 2021, the Loan Agreement was amended (the “Amendment”) whereby, among other things, (i) a second term loan advance of $10.0 million was authorized by the Lenders and advanced to the Company on such date and (ii) the period of time to request additional discretionary term loan advances of up to $5.0 million was changed to be prior to April 1, 2022 or, if certain conditions are satisfied, then Julyprior to January 1, 2022. There2023. However, there can be no assurances that any term loan advances will be funded by the Lenders in the future.

The Amendment also extended (i) the period that the Company will make interest-only payments on outstanding borrowings from December 31, 2021 to March 31, 2022, with the possibility to extend the interest-only period to December 31, 2022 upon the Company’s achievement of certain performance milestones, and (ii) the maturity date of the Term Loan from December 1, 2023 to April 1, 2024; provided that, in the event that the Company meets certain conditions, including achievement of performance milestones, then the Term Loan maturity date will be July 1, 2024. There were no other material changes to the Loan Agreement as a result of the Amendment.

Pursuant to the Amendment, no principal payments are due on the Term Loan until April 1, 2022. Accordingly, as of March 31, 2021, the Company classified the outstanding balance under the Loan Agreement as a long-term liability.

As of September 30, 2020,March 31, 2021, the Company hashad not borrowed any amount under the Loan Agreement other than the initial term loan advance on the Closing Date.Date, which resulted in net loan proceeds to the Company of $9.9 million, before consideration of any related debt financing fees. As a result of the Amendment and the Company’s additional borrowing on May 13, 2021, future minimum principal payments of the outstanding term loan advances, excluding certain end of term charges, are now as follows: $2.2 million in the year ending June 30, 2022; $9.3 million in the year ending June 30, 2023; and $8.5 million in the year ending June 30, 2024.

As of both September 30, 2020March 31, 2021 and June 30, 2020, the variable contractual interest rate on the Term Loan was 9.75% per annum and the effective rate on the Term Loan was 13.53%.

As of September 30, 2020,March 31, 2021, the Company was in full compliance with all covenants of the Loan Agreement.

7.

Bionic Sight

On February 2, 2017, the Company entered into a strategic research and development collaboration agreement with Bionic Sight, LLC (“Bionic Sight”) to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire: (i) a majority equity interest in Bionic Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.

Under the agreement, AGTC made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. This initial investment represented an equity interest of approximately 5% in Bionic Sight. In addition to the initial investment, AGTC contributed ongoing research and development support costs through additional payments and other in-kind contributions (the “AGTC Ongoing R&D Support”). The AGTC Ongoing R&D Support payments and in-kind contributions were made over time and continued until December 2019, the month that Bionic Sight received both Investigational New Drug (“IND”) clearance from the United States Food and Drug Administration (the “FDA”) and receipt of written approval from an internal review board to conduct clinical trials at one clinical site for that product candidate (the “IND Trigger”). Prior to the achievement of the IND Trigger, the Company had incurred approximately $2.2 million of research and development support costs and in-kind contributions, which were reported as research and development expenses in the Company’s financial statements.

Upon achievement of the IND Trigger, AGTC was (i) entitled to receive additional equity in Bionic Sight, based on a valuation that was in place at the beginning of the agreement, for the AGTC Ongoing R&D Support payments and in-kind contributions, and (ii) obligated to purchase additional equity in Bionic Sight for $4.0 million based on certain pre-determined valuation criteria. The Company made the $4.0 million payment to Bionic Sight in January 2020 and received the incremental shares during March 2020 upon the execution of a subscription agreement between the parties. The Company’s equity interest in Bionic Sight increased to approximately 15.5% upon the issuance of the additional shares. AGTC is not obligated to purchase additional equity in Bionic Sight or make any additional in-kind contributions under the agreement.

The Company concluded that the AGTC Ongoing R&D Support was within the scope of Topic 606 because the services rendered represented a distinct service delivered to a counterparty that meets the definition of a customer. The Company further concluded that those services represented one combined performance obligation. Because the consideration that the Company was entitled to was contingent upon achievement of the IND Trigger, that consideration was determined to be variable and the amount was fully constrained until achievement of the IND Trigger. As a result of achieving the IND Trigger, in December 2019, the Company recognized $2.2 million of collaboration revenue during the three months ended December 31, 2019. With regard to the obligation to purchase additional equity in Bionic Sight, the Company concluded at contract inception that such option represented a forward

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agreement and determined the value to be de minimis. As the forward contract did not have a readily determinable fair value, the Company elected to use a measurement alternative for all subsequent measurements of the financial instrument. Under such measurement alternative, the forward contract was remeasured at fair value when observable transactions involving the underlying equity securities or impairment of those securities occurred. As noted above, the Company made a supplemental investment of $4.0 million in Bionic Sight and the underlying equity interests were delivered in March 2020, resulting in the settlement of the forward contract at that time. From the inception of the Bionic Sight arrangement and through the settlement date in March 2020, no observable transactions or impairment involving the underlying equity securities had occurred.

The Company recorded its initial investment in Bionic Sight using the equity method of accounting for investments. Upon receipt of additional shares in March 2020, the Company concluded that equity method accounting was still appropriate. Given thatBecause the conversion price used to calculate the number of additional shares that the Company was to receive was based on contractually fixed valuation amounts, the Company assessed whether there was a difference between the cost of the investment and the underlying equity in the net assets of Bionic Sight. The Company concluded that any such difference was not material to the Company’s financial statements and, therefore, recorded its additional investment in Bionic Sight at $6.2 million during March 2020.

Otonomy, Inc.

During October 2019, the Company entered into a strategic collaboration agreement with Otonomy, Inc. (“Otonomy”) to co-develop and co-commercialize an AAV-based adeno-associated virus-based gene therapy to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene (GJB2)(“GJB2”) – the most common cause of congenital hearing loss. Mutations in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation can have severe-to-profound deafness in both ears that is identified in screening tests routinely performed on newborns. Under the collaboration agreement, the parties began equally sharing the program costs and proceeds in January 2020 and can include additional genetic hearing loss targets in the future.

The Company concluded that the Otonomy collaboration agreement is within the scope of Topic 808, which defines collaborative arrangements and addresses the presentation of transactions between the two parties in the incomean entity’s statement of operations and the related disclosures. However, Topic 808 does not provide guidance on the recognition of consideration exchanged or accounting for the obligations that may arise between the parties. The Company concluded that ASC Topic 730, Research and Development, should be applied by analogy to payments between the parties during the development activities. As such, payments made to or received from Otonomy for development activities are recorded as research and development expenses. For each of the threenine months ended September 30,March 31, 2021 and 2020, settlement activity between the parties under the Otonomy agreement had an immaterial effect on the Company’s research and development expenses.

Contract Liabilities

As of both September 30, 2020March 31, 2021 and June 30, 2020, accrued and other liabilities on the Condensed Balance Sheets included $374,000 and $149,000, respectively, of deferred revenue.revenue, which did not pertain to either the Bionic Sight or Otonomy collaboration agreements. The deferred revenue balance at March 31, 2021 included $225,000 that was billed to a customer but remained uncollected as of such date. Management is unable to estimate when the Company will satisfy the performance obligations pertaining to suchits deferred revenue which does not pertain to either the Bionic Sight or Otonomy collaboration agreements.at March 31, 2021.

8.

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 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. Interest and penalties related to uncertain tax positions are reflected in the provision for income taxes.

The Company’s provisionIncome tax expense for income taxesthe three and nine months ended March 31, 2021 was $21,000 and $62,000, respectively, compared to $21,000 and $63,000 for each of the three and nine months ended September 30,March 31, 2020, and 2019. In bothrespectively. During those periods, the income tax expense was entirelyprimarily attributable to estimated interest and penalties on uncertain tax positions. The Company’s aggregate reserve for uncertain tax positions was $2.2 million and $2.1 million at both September 30, 2020on March 31, 2021 and June 30, 2020, respectively, including aggregate interest and penalties of $0.6 million on March 31, 2021 and $0.5 million on each such date.June 30, 2020. For the threenine months ended September 30, 2020,March 31, 2021, the Company’s gross unrecognized tax benefits, excluding interest and penalties, was unchanged at $1.6 million. If recognized, the entire amount of the uncertain tax position liability at September 30, 2020 would reduce the Company’s annual effective tax rate. It is reasonably possible that the Company’s gross unrecognized tax benefits as of September 30, 2020, which relate to certain state tax matters, will decline by approximately $1.6 million during the next twelve months due to the expiration of certain statutes of limitations. Any such decline would also affect the then-outstanding balance of accrued interest and penalties. The Company’s liability for uncertain tax positions is included in other long-term liabilities on its Condensed Balance Sheets.

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9. Subsequent to March 31, 2021, the statutes of limitations pertaining to the state tax matters that gave rise to the aforementioned uncertain tax positions expired with no payments being required by the Company and no action taken by any tax authority. As such, the Company’s entire uncertain tax position liability, including accrued interest and penalties, will be reversed. This accounting treatment will favorably affect the Company’s income tax expense or benefit and its annual effective tax rate for the three months and year ending June 30, 2021.

February 2021 Public Offering of AGTC Equity Securities

On February 1, 2021, the Company closed an underwritten public offering of 16,741,573 shares of its common stock, together with accompanying warrants to purchase 8,370,786 shares of its common stock. The combined offering price of each share of common stock and accompanying warrant was $4.45, generating gross proceeds of $74.5 million, before deducting underwriting discounts, commissions and other offering expenses payable by the Company, which totaled $5.2 million. The Company intends to use the net proceeds from the offering, together with other available funds, to fund ongoing clinical trials in its X-linked retinitis pigmentosa program and ongoing Phase 1/2 clinical trials in its achromatopsia program, and for working capital and other general corporate purposes.

The warrants have an exercise price of $6.00 per share (subject to certain adjustments), are immediately exercisable and expire on February 1, 2026. The warrants are legally detachable from the common stock that was issued on February 1, 2021 and are separately exercisable by the warrant holders. While the warrants are outstanding (but unexercised), the warrant holders will participate in any dividend or other distribution of the Company’s assets to its common stockholders by way of return of capital or otherwise.

The warrants have been evaluated to determine the appropriate accounting and classification pursuant to ASC Topic 480, Distinguishing Liabilities from Equity, and ASC Topic 815, Derivatives and Hedging. Generally, freestanding warrants should be classified as (i) liabilities if the warrant terms allow settlement of the warrant exercise in cash and (ii) equity if the warrant terms only allow settlement in shares of common stock. Based on the terms of the Company’s warrants, management concluded that they should be classified as equity with no subsequent remeasurement as long as the underlying warrant agreements are not modified or amended.

February 2020 Public Offering of AGTC Common Stock

On February 11, 2020, the Company closed an underwritten public offering of 6.5 million shares of its common stock at $5.00 per share, generating gross proceeds of $32.5 million, before deducting underwriting discounts, commissions and other offering expenses payable by the Company. Additionally, the underwriters exercised their option to purchase an additional 975,000 shares of common stock to cover over-allotments. Such transaction closed on February 13, 2020 and generated additional gross proceeds of $4.9 million. Issuance costs totaling $138,000 were unpaid on March 31, 2020 and were included in the Company’s accounts payable on such date.

COVID-19 Pandemic

On January 30, 2020, the World Health Organization (“WHO”) announced a global health emergency because of a new strain of coronavirus originating in Wuhan, China (“COVID-19”) and the risks to the international community as the virus spreadsspread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in exposure globally. National, state and local governments in affected regions have implemented, and are likely to continue to implement, safety precautions, including quarantines, border closures, increased border controls, travel restrictions, shelter in place orders and shutdowns, business closures, cancellations of public gatherings and other measures. Organizations and individuals are taking additional steps to avoid or reduce infection, including limiting travel and staying home from work.

The worldwide spread of COVID-19 led to a global slowdown of economic activity and decreased demand for a broad variety of goods and services, while also disrupting sales channels and marketing activities and precipitating many corporate bankruptcy filings. As a result of the COVID-19 outbreak, the Company has experienced delays in enrollment of pediatric patients in the dose escalation portions of certain of its clinical trials for achromatopsia. The Company could also experience delays resulting from critical follow-up visits required under clinical trial protocols, which could increase the cost of those trials and also impact their expected timelines. Management’s ability to fully interpret the trial outcomes and the ability of certain lab-based employees to perform their jobs due to stay-at-home orders or other restrictions related to COVID-19 could also result in delays and increase the Company’s operating expenses. Furthermore, third-party vendors, such as raw material suppliers and contracted manufacturing, testing or research organizations, could also be impacted by COVID-19, which could result in unavoidable delays and/or increases in the Company’s operating costs.

Notwithstanding the rapid development and rollout of certain vaccines, it is unknown how long the COVID-19 outbreak will continue before the virus, including newly identified strains and variants, is adequately contained, the severity of the virus and the effectiveness of actions to contain and treat those who have contracted the virus. The extent to which the COVID-19 outbreak may impact the Company’s financial condition, results of operations or cash flows is uncertain; however, as of the date of these financial statements, management is not aware of any specific event or circumstance that would require the Company to update its estimates or judgments, or reviseadjust the carrying values of its assets or liabilities. Because future events are subject to change, management’s best estimates and judgments may require future modification. Therefore, actual results could differ materially from current estimates. Management is closely monitoring the evolving impact of the pandemic on all aspects of the Company’s business and periodically evaluates its estimates, which are adjusted prospectively based on such evaluations.

General

From time to time, the Company may be involved in claims and legal actions that arise in the normal course of business. Management has no reason to believe that the outcome of any such legal actions would have a significant adverse effect on the Company’s financial position, results of operations or cash flows.

14At-The-Market Offering Program

On April 2, 2021, the Company entered into a Controlled Equity Offering^SM Sales Agreement (the “Sales Agreement”) with Cantor Fitzgerald & Co. (“Cantor”) as sales agent to sell shares of the Company’s common stock, from time to time, through an “at-the-market offering” program having an aggregate offering price of up to $50.0 million. However, the Company is not obligated to sell any shares under the Sales Agreement. Cantor will be entitled to aggregate compensation equal to 3.0% of the gross sales price of the shares sold through it pursuant to the Sales Agreement.

Licensing Agreement

Effective April 13, 2021, the Company entered into an agreement that licenses certain of its proprietary technology to SparingVision SAS, a genomic medicine company developing vision-saving treatments for ocular diseases. Under the terms of the agreement, SparingVision SAS receives nonexclusive rights to the Company’s proprietary cone-specific promoter technology for use in the development of two non-competing products with an opportunity to obtain rights to use the promoter for one additional product in the future. The Company is entitled to an upfront fee and will be eligible to receive milestone payments for successful clinical development and royalties on future sales on a per product basis (if any products are approved).

Build-To-Suit Manufacturing and Quality Control Facility in Alachua, Florida

On May 13, 2021, the Company entered into a non-cancelable long-term lease for a to-be-constructedbuild-to-suit single story facility of approximately 21,250 square feet in Alachua, Florida (the “Premises”) for office, research and development, laboratory, light pharmaceutical and medical systems manufacturing and fabrication and distribution use. The new facility will be adjacent to the Company’s corporate headquarters. The landlord will be responsible for all permitting, site and infrastructure preparation work and construction of the shell and core of the building and the quality control laboratory portion of the building. The Company will be responsible for completion of the remaining tenant fit out work. The landlord will be responsible for the cost of the base building work and will contribute approximately $6.0 million towards the tenant fit out work, with the Company responsible for all costs in excess of such amount.

The lease will commence upon substantial completion of the Premises, including the tenant fit out work, estimated to be completed in the second half of calendar year 2022 (the “Commencement Date”), and the rent commencement date will occur simultaneous with the Commencement Date. The initial lease term is 20 years from the Commencement Date (the “Term”). Under the lease, the Company will pay annual base rent during the Term (beginning on the Commencement Date) as set forth below.

During the Term, the Company will also pay its share of operating expenses, taxes and any other expenses payable under the lease. The lease includes three extension options of five years each at an annual base rent rate of the greater of a 1.5% increase from the previous year or pursuant to the increase in the Consumer Price Index for the applicable prior year.

In addition, the lease provides the Company with a one-time option to terminate the lease after year 16.5 by providing notice of such termination prior to the end of the 15^th lease year and paying a termination fee of $3.3 million. The Company has the further option to expand the facility to double the initial square footage during the first five years of the Term.

The lease also includes customary representations, warranties and covenants on behalf of the parties and provides for certain customary mutual indemnities. No security deposit is required upon lease execution, provided that the landlord reserves the right to instate a security deposit if the Company defaults in its lease obligations.

The following discussion and analysis provides an overview of our financial condition as of September 30, 2020March 31, 2021 and our results of operations for the three and nine months ended September 30, 2020March 31, 2021 and 2019.2020. This discussion should be read in conjunction with the Unaudited Condensed Financial Statements and related notes included in this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the year ended June 30, 2020 (the “2020 Form 10-K”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below under the heading “Risk Factors” in Part II, Item 1A, and elsewhere in this report, as well as those set forth in Part I, Item 1A, “Risk Factors,” of the 2020 Form 10-K. Forward-looking statements include information concerning our possible or assumed future results of operations, including results and timing of our clinical trials and planned clinical trials, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition, as well as assumptions relating to the foregoing. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “hopes,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

As used herein, except as otherwise indicated by context, references to “we,” “us,” “our,” “AGTC” or the “Company” refer to Applied Genetic Technologies Corporation.

Overview

We are a clinical-stage biotechnology company that uses a proprietary gene therapy platform to develop transformational genetic therapies for patientspeople suffering from rare and debilitating diseases. Our initial focus is in the field of ophthalmology, where we have active clinical programs in X-linked retinitis pigmentosa (“XLRP”), achromatopsia (“ACHM”), and optogenetics, as well as preclinical programs in Stargardt disease and age-related macular degeneration (“AMD”). In addition to ophthalmology, we have initiated one preclinical program in otology and threetwo preclinical programs targeting central nervous system disorders (“CNS”), including adrenoleukodystrophy (“ALD”), frontotemporal dementia (“FTD”) and amyotrophic lateral sclerosis (“ALS”). Our optogenetics program is being developed in collaboration with Bionic Sight, LLC (“Bionic Sight”) and our otology program is being developed in collaboration with Otonomy, Inc. (“Otonomy”). With a number of important potential clinical milestones on the horizon, we believe that we are well positioned to advance multiple programs toward pivotal studies. In addition to our product pipeline, we have also developed broad technological and manufacturing capabilities utilizing both our internal scientific resources and collaborations with others, such as our efforts with Synpromics Limited, which was acquired by AskBio (a unit of Bayer AG) and provides expertise in synthetic promoter development and optimization, and the University of Florida, which provides us with expertise in vector design and access to novel capsids.

Since our inception, we have devoted substantially all of our resources to development efforts relating to our proof-of-concept programs in ophthalmology, otology, CNS, and alpha-1 antitrypsin deficiency, an inherited orphan lung disease, including manufacturing product in compliance with good manufacturing practices, preparing to conduct and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily through public offeringofferings of our common stock and warrants to purchase our common stock, private placementplacements of our preferred stock, collateralized borrowing and collaborations. We have also been the recipient, either independently or with our collaborators, of grant funding administered through federal, state, and local governments and agencies, including the United States Food and Drug Administration, or the FDA, and by patient advocacy groups such as The Foundation Fighting Blindness and the Alpha-1 Foundation.

We have incurred losses from operations in each year since inception, except for fiscal year 2017, wherein we reported net income of $0.4 million due, in part, to profits from a collaboration agreement that was ultimately terminated in March 2019. For the threenine months ended September 30,March 31, 2021 and 2020, and 2019, we reported net losses of $15.4$45.7 million and $11.6$31.4 million, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and general and administrative and other expenses associated with our operations. We expect to continue to incur significant operating expenses for at least the next several years and anticipate that such expenses will increase substantially in connection with our ongoing activities as we:

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As of September 30, 2020,March 31, 2021, we had cash and cash equivalents and liquid investments totaling $66.6$111.0 million. We do not expect to generate revenue from product sales unless and until we successfully complete development 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 as of September 30, 2020 will be sufficient to allow us to generate data from our ongoing and planned clinical programs initiate a Phase 2/3 trial for XLRP and fund currently planned research and discovery programs into the fourth quarter of calendar year 2021.2023. In order to complete the XLRP Phase 2/3 trial, obtain regulatory approval for our lead product candidates and 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. Also, our current operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements, acquisitions or other business development activities, or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates and continue our research and development efforts.

Recent Developments

XLRP

In JulyNovember 2020, we announced a modification to the primary endpoint for our updated development plans for the XLRP clinical program, including the dosing of additional patients in our currentPhase 2/3 (“Vista”) and Phase 1/2 trial to collect more functional data, which expansion trial we refer to as Skyline, and our planned startExpansion (“Skyline”) trials based on comments received from the FDA. The design of a Phase 2/3 trial, which we refer to as our XLRP Vista trial duringis expected to include approximately 60 patients randomized across three arms: a low-dose group (the 1.2E+11 vg/mL Group 2 dose from the first quarter of calendar year 2021.

In September 2020, we reported interim results from our XLRPongoing Phase 1/2 trial that 7 of 15 evaluable patients in centrally dosed Groups trial), a high-dose group (the 1.1E+12 vg/mL Group 5 dose from the ongoing Phase 1/2 4trial) and 5 were responders at Month 6 (Month 3 in one case). We define an improvement ofuntreated control group. The primary endpoint will be visual sensitivity defined as having at least a 7 decibelsdecibel improvement in visual sensitivity in at least 5 pre-specified loci withinat Month 12. Together with a third-party vendor, we have developed a machine learning algorithm that, on a patient-by-patient basis, predicts the central 36 loci as a responder inmost likely to improve through evaluation of baseline visual sensitivity. The algorithm was developed using the microperimetry data available to date from the Phase 1/2 trial. Focusing on the Phase 1/2 Group 5 dose group, 4 of 7 patients met this responder criteria. If we apply the planned inclusion criteria for baselineescalation study. Secondary endpoints include mean change in visual sensitivity, for our XLRP Vistaimprovements in visual acuity and improvements in performance on a visual navigation course. We also plan to include a masked interim analysis at Month 6, with that data expected to be released in the fourth quarter of calendar year 2022, which may provide us with the opportunity to adjust the trial, one Phase 1/2 Group 5 patient would be removed so that the responder rate would be 4 of 6, or 67%.if necessary, to optimize outcomes.

In November 2020, we also provided additional data from our XLRP Phase 1/2 trial that indicated 2 of 8 evaluable centrally dosed patients in Groups 2 and 4 were responders at Month 12. A third patient, who was a responder at Month 6, fell just below the responder criterion. All 8eight evaluable patients also showed stable or improving visual acuity. In addition, we provided six-month data data for the 11 centrally dosed patients in Groups 5 and 6 and reported that 5 of 11 patients were responders at Month 6. Nine of these patients also had stable or improving visual acuity. If we apply the planned XLRP Vista trial inclusion criteria, 3 of the 11 patients in Groups 5 and 6 would be removed from the analysis, and 5 of 8 patients, or 62%, would be considered responders. We do not currently have a complete set of Month 12 data available nor do we have a control arm in the Phase 1/2 trial, both of which will be part of our planned XLRP Vista trial and necessary to evaluate efficacy.

In addition, in November 2020May 2021, we also announced a modification to the primary endpoint for our proposed XLRP Vista trial based on comments receivedprovided 12-month data from the FDA. The proposed design of our XLRP Vista trial is expected to include approximately 60 patients randomized across three arms: a low-dose group (the 1.2E+11 vg/mL Group 2 dose from the ongoing Phase 1/2 trial), a high-dose group (the 1.1E+12 vg/mLtrial from seven patients in Group 5 dose fromand four patients in Group 6. One patient in Group 5 and two patients in Group 6 would not meet the ongoing Phase 1/2 trial),inclusion criteria for the Skyline and an untreated control group. The primary endpoint will be based on visual sensitivity defined as havingVista trials, resulting in a total of eight patients who were included in the responder analysis. Four of these eight patients (50%) were considered responders, all four of whom met the strict criteria of at least a 7 decibel improvement in at least 5 loci. One additional patient did not meet these criteria but had a statistically significant improvement in retinal sensitivity in the treated eye compared with the untreated eye at 12 months.

Consistent with previously reported 6-month data from Groups 2, 4, 5 and 6, assessment of Best Corrected Visual Acuity (“BCVA”) in these groups at 12 months continues to provide supportive evidence of improved visual sensitivityacuity in these patients; the difference between treated and untreated eyes is statistically significant. We believe that these data, together with the favorable safety profile, have the potential to differentiate our XLRP candidate from competitors.

Data from three of the seven Group 4 patients were available for analysis at Month 24, including two who were responders at Month 12 (one by the 7 decibel change in at least 5 pre-specifiedloci response criteria and the other based on improved retinal sensitivity in the treated eye compared with the untreated eye). These two patients are still responders at Month 12. Previously, we did24 according to the same criteria; the third patient who has reached Month 24 was not plana responder at Month 12 or Month 24. To the best of our knowledge, this is the first XLRP gene therapy clinical trial to require pre-specificationdemonstrate continued durability of which loci would respondresponse at this time point.

Data from all 28 patients across six dose groups in the primary endpoint for our proposed XLRP Vista trial and we did not pre-specify loci in our Phase 1/2 trial. Wetrial continue to engagedemonstrate a favorable safety profile with the FDA on the Vista trial design and may make further modificationsno dose-limiting inflammatory responses observed. This safety profile, which has shown no clinically significant inflammation not manageable with steroids, continues to our plans based on the feedbackbe observed out to 24 months.

We believe that we receive.have a best-in-class XLRP product candidate that may provide significant benefits to patients with XLRP. We currently plan to initiate enrollmentexpect to:

patients as young as 4 years of age and to include both fMRIfunctional magnetic resonance imaging (“fMRI”) and improved color brightness tests. We are hopeful that these changes, combined with longer follow-up times, will contributeadd to the fulldeveloping body of evidence and potentially support the anecdotal patient-reported outcomes.

Due We expect to report 12-month data from the positive XLRP data that we recently reported, we are prioritizing our XLRP program moving forward into our Skyline and Vistaadult patients in both trials and look forward to longer-term, younger patient data in the second quarter of calendar year 2021, and preliminary 3-month data from the pediatric patients in both trials are anticipated in the fourth quarter of calendar year 2021.

Build-To-Suit Manufacturing and Quality Control Facility in Alachua, Florida

In May 2021, we announced that we initiated plans to determine forward progresslease a build-to-suit 21,250 square foot current Good Manufacturing Practices (“cGMP”) manufacturing and quality control facility adjacent to our Florida facility to prepare for late-stage development of our XLRP and ACHM trials.programs. Leasing this cGMP facility is part of our strategy to enable more rapid filing of a Biologics Licensing Application and commercial launch of our XLRP candidate upon potential FDA approval. The cGMP facility is also expected to support more rapid advancement of our product pipeline while providing supply chain redundancy and reducing manufacturing risk. We anticipate that the build-out of the new manufacturing and quality control facility will be completed during the second half of calendar year 2022.

Additional information regarding our new cGMP manufacturing and quality control facility can be found in Note 11 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Underwritten Public Offering

On February 1, 2021, we closed an underwritten public offering of 16,741,573 shares of our common stock, together with accompanying warrants to purchase 8,370,786 shares of our common stock. The combined offering price of each share of common stock and accompanying warrant was $4.45, generating gross proceeds of $74.5 million, before deducting underwriting discounts, commissions and other offering expenses payable by us, which totaled $5.2 million. The warrants have an exercise price of $6.00 per share (subject to certain adjustments), are immediately exercisable and expire on February 1, 2026.

We intend to use the net proceeds from the offering, together with other available funds, to fund our ongoing Skyline trial and XLRP Vista trial and our ongoing Phase 1/2 clinical trials in our ACHMB3 and ACHMA3 programs, and for working capital and other general corporate purposes.

At-The-Market Offering Program

On April 2, 2021, we entered into a Controlled Equity Offering^SM Sales Agreement with Cantor Fitzgerald & Co. as sales agent to sell shares of our common stock, from time to time, through an “at-the-market offering” program having an aggregate offering price of up to $50.0 million. However, we are not obligated to sell any shares under the agreement.

Long-Term Debt Agreement

Effective May 13, 2021, our long-term loan agreement was amended (the “Amendment”) whereby, among other things: (i) a term loan advance of $10.0 million was authorized by the lenders and advanced to us on such date; (ii) the period that we will make interest-only payments on outstanding borrowings was extended to March 31, 2022; and (iii) the maturity date of the facility was extended from December 1, 2023 to April 1, 2024. Subject to certain conditions provided in the Amendment, the interest-only period and the maturity date can be further extended. Subject to the lenders’ investment committee’s sole discretion, we have the right to request that the lenders make additional term loan advances in an aggregate principal amount of up to $5.0 million. However, there can be no assurances that any term loan advances will be funded by the lenders in the future.

Additional information regarding our long-term loan agreement and the Amendment can be found in Note 6 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Strategic Collaborations

Bionic Sight

During February 2017, we entered into a strategic research and development collaboration agreement with Bionic Sight to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to us, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquireacquire: (i) a majority equity interest in Bionic Sight,Sight; (ii) the Bionic Sight assets to which the collaboration agreement relatesrelates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.

Otonomy

InDuring October 2019, we entered into a strategic collaboration agreement with Otonomy to co-develop and co-commercialize an and co-commercialize an AAV-basedadeno-associated virus-based gene therapy to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene (GJB2)(“GJB2”) – the most common cause of congenital hearing loss. Mutations in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation can have severe-to-profound deafness in both ears that is identified in screening tests routinely performed in newborns. Under the collaboration agreement, the parties began equally sharing the program costs and proceeds in January 2020 and can include additional genetic hearing loss targets in the future.

Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.

Critical Accounting Policies and Estimates

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 8 of Regulation S-X. The preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses

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Research and development expenses

Research and development expenses consist primarily of costs incurred for the development of our product candidates whichand include:

Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress toward completion of specific tasks, using information and data provided to us by our vendors and our clinical sites.

We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

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General and administrative and other expenses

General and administrative and other expenses primarily consist of salaries and related costs for personnel, including share-based compensation and travel expenses for our employees in executive, operational, legal, business development, finance and human resource functions. Other general and administrative expenses include costs to support employee training and development, board of directors’ costs, depreciation, insurance, facility-related costs not otherwise included in research and development expenses, professional fees for legal services, including patent-related expenses, and accounting, investor relations, corporate communications and information technology services. We anticipate that our general and administrative and other expenses will continue to increase in the future as we hire additional employees to support our continued research and development efforts, collaboration arrangements, and the potential commercialization of our product candidates. Additionally, if and when we believe that regulatory approval of our first product candidate appears likely, we anticipate an increase in payroll and related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidates.

Investment income, net

Investment income, net consists of interest earned on cash and cash equivalents and held-to-maturity investments in debt securities. During the three and nine months ended March 31, 2021, investment income, net declined by $0.3 million and $1.0 million, respectively, when compared to the comparable periods in the prior year. Such reductions in investment income, net were primarily due to lower interest rates in the marketplace.

Interest expense

Interest expense during the three and nine months ended September 30, 2020 isMarch 31, 2021 was primarily attributable to the loan agreement that we entered into on June 30, 2020.

Provision for income taxes

Income tax expense for each of the three and nine months ended September 30,March 31, 2021 was $21,000 and $62,000, respectively, compared to $21,000 and $63,000 for the three and nine months ended March 31, 2020, and 2019 was $21,000.respectively. During boththose periods, income tax expense was entirelyprimarily due to estimated interest and penalties on our uncertain tax positions. See Note 8 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q for information regarding significant changes to our uncertain tax positions subsequent to March 31, 2021 and the corresponding favorable effect on our future income tax expense or benefit.

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