☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 59-3553710 | |
(State or Other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
Title of class | Trading Symbol(s) | Name of exchange on which registered | ||
Common Stock, $0.001 par value | AGTC | Nasdaq Global Market |
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging growth company | ☐ |
APPLIED GENETIC TECHNOLOGIES CORPORATION
FORM
FOR THE QUARTER ENDED MARCH 31,SEPTEMBER 30, 2022
TABLE OF CONTENTS
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ITEM 2. | ||||||
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ITEM 1. | ||||||
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ITEM 1A. | 28 | |||||
ITEM 2. | 31 | |||||
ITEM 6. | 31 | |||||
33 |
ITEM 1. | FINANCIAL STATEMENTS |
In thousands, except per share data | March 31, 2022 | June 30, 2021 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 67,849 | $ | 105,052 | ||||
Investments | — | 2,000 | ||||||
Prepaid and other current assets | 2,678 | 2,655 | ||||||
Total current assets | 70,527 | 109,707 | ||||||
Property and equipment, net | 4,244 | 4,658 | ||||||
Intangible assets, net | 1,381 | 1,287 | ||||||
Investment in Bionic Sight, LLC | 7,884 | 8,000 | ||||||
Right-of-use | 3,029 | 3,167 | ||||||
Right-of-use | — | 34 | ||||||
Other assets | 126 | 113 | ||||||
Total assets | $ | 87,191 | $ | 126,966 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 3,561 | $ | 1,879 | ||||
Accrued and other liabilities | 11,946 | 14,500 | ||||||
Lease liabilities - operating | 1,232 | 1,116 | ||||||
Lease liability - finance | — | 38 | ||||||
Current portion of long-term debt | 9,070 | 2,181 | ||||||
Total current liabilities | 25,809 | 19,714 | ||||||
Lease liabilities - operating, net of current portion | 2,900 | 3,418 | ||||||
Long-term debt, net of debt discounts and deferred financing fees | 11,358 | 17,727 | ||||||
Other liabilities | 97 | 299 | ||||||
Total liabilities | 40,164 | 41,158 | ||||||
Stockholders’ equity: | ||||||||
Preferred stock, par value $0.001 per share, 5,000 shares authorized; 0shares issued and outstanding | 0 | 0— | ||||||
Common stock, par value $0.001 per share, 150,000 shares authorized; 50,786 and 42,835 shares issued; 50,732 and 42,794 shares outstanding at March 31, 2022 and June 30, 2021, respectively | 51 | 43 | ||||||
Additional paid-in capital | 337,058 | 325,245 | ||||||
Treasury stock at cost; 54 and 41 shares at March 31, 2022 and June 30, 2021, respectively | (256 | ) | (211 | ) | ||||
Accumulated deficit | (289,826 | ) | (239,269 | ) | ||||
Total stockholders’ equity | 47,027 | 85,808 | ||||||
Total liabilities and stockholders’ equity | $ | 87,191 | $ | 126,966 | ||||
In thousands, except per share data | September 30, 2022 | June 30, 2022 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 34,241 | $ | 46,366 | ||||
Prepaid and other current assets | 2,998 | 3,195 | ||||||
Total current assets | 37,239 | 49,561 | ||||||
Restricted cash | 2,921 | — | ||||||
Property and equipment, net | 4,884 | 4,714 | ||||||
Intangible assets, net | 1,541 | 1,433 | ||||||
Investment in Bionic Sight, Inc. | 7,732 | 7,807 | ||||||
Right-of-use assets—operating leases | 2,890 | 3,043 | ||||||
Other assets | 126 | 126 | ||||||
Total assets | $ | 57,333 | $ | 66,684 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 4,043 | $ | 2,911 | ||||
Accrued and other liabilities | 11,753 | 11,727 | ||||||
Lease liabilities—operating | 1,276 | 1,271 | ||||||
Current portion of long-term debt | 9,532 | 9,298 | ||||||
Total current liabilities | 26,604 | 25,207 | ||||||
Lease liabilities—operating, net of current portion | 2,530 | 2,780 | ||||||
Long-term debt, net of debt discounts and deferred financing fees | 6,812 | 9,122 | ||||||
Derivative liability—warrants | 3,642 | — | ||||||
Other liabilities | 99 | 98 | ||||||
Total liabilities | 39,687 | 37,207 | ||||||
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; 67,686 and 51,011 shares issued; 67,632 and 50,957 shares outstanding at September 30, 2022 and June 30, 2022, respectively | 68 | 51 | ||||||
Additional paid-in capital | 344,456 | 337,894 | ||||||
Treasury stock at cost; 54 shares at both September 30, 2022 and June 30, 2022 | (256 | ) | (256 | ) | ||||
Accumulated deficit | (326,622 | ) | (308,212 | ) | ||||
Total stockholders’ equity | 17,646 | 29,477 | ||||||
Total liabilities and stockholders’ equity | $ | 57,333 | $ | 66,684 | ||||
Three Months Ended March 31, | Nine Months Ended March 31, | |||||||||||||||
In thousands, except per share data | 2022 | 2021 | 2022 | 2021 | ||||||||||||
Revenue | $ | 0 | $ | 0 | $ | 0 | $ | 0 | ||||||||
Operating expenses: | ||||||||||||||||
Research and development | 9,162 | 10,960 | 35,941 | 34,397 | ||||||||||||
General and administrative and other | 4,421 | 3,528 | 12,510 | 10,268 | ||||||||||||
Total operating expenses | 13,583 | 14,488 | 48,451 | 44,665 | ||||||||||||
Loss from operations | (13,583 | ) | (14,488 | ) | (48,451 | ) | (44,665 | ) | ||||||||
Other income (expense), net: | ||||||||||||||||
Investment income, net | 9 | 13 | 21 | 106 | ||||||||||||
Interest expense | (667 | ) | (330 | ) | (2,011 | ) | (997 | ) | ||||||||
Total other income (expense), net | (658 | ) | (317 | ) | (1,990 | ) | (891 | ) | ||||||||
Loss before provision for income taxes | (14,241 | ) | (14,805 | ) | (50,441 | ) | (45,556 | ) | ||||||||
Provision for income taxes | 0 | 21 | 0 | 62 | ||||||||||||
Loss before equity in net losses of an affiliate | (14,241 | ) | (14,826 | ) | (50,441 | ) | (45,618 | ) | ||||||||
Equity in net losses of an affiliate | (53 | ) | (25 | ) | (116 | ) | (75 | ) | ||||||||
Net loss | $ | (14,294 | ) | $ | (14,851 | ) | $ | (50,557 | ) | $ | (45,693 | ) | ||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 43,639 | 36,751 | 43,112 | 29,431 | ||||||||||||
Diluted | 43,639 | 36,751 | 43,112 | 29,431 | ||||||||||||
Net loss per common share: | ||||||||||||||||
Basic | $ | (0.33 | ) | $ | (0.40 | ) | $ | (1.17 | ) | $ | (1.55 | ) | ||||
Diluted | $ | (0.33 | ) | $ | (0.40 | ) | $ | (1.17 | ) | $ | (1.55 | ) |
Three Months Ended September 30, | ||||||||
In thousands, except per share data | 2022 | 2021 | ||||||
Revenue | $ | — | $ | — | ||||
Operating expenses: | ||||||||
Research and development | 12,884 | 12,325 | ||||||
General and administrative and other | 4,460 | 4,100 | ||||||
| ||||||||
Total operating expenses | 17,344 | 16,425 | ||||||
Loss from operations | (17,344 | ) | (16,425 | ) | ||||
Other income (expense), net: | ||||||||
Investment income, net | 189 | 6 | ||||||
Interest expense | (657 | ) | (669 | ) | ||||
Costs attributable to the issuance of freestanding warrants | (331 | ) | — | |||||
Change in fair value of derivative liability—warrants | (192 | ) | — | |||||
Total other income (expense), net | (991 | ) | (663 | ) | ||||
Loss before equity in net losses of an affiliate | (18,335 | ) | (17,088 | ) | ||||
Equity in net losses of an affiliate | (75 | ) | (31 | ) | ||||
Net loss | $ | (18,410 | ) | $ | (17,119 | ) | ||
Weighted average shares outstanding: | ||||||||
Basic | 64,911 | 42,823 | ||||||
Diluted | 64,911 | 42,823 | ||||||
Net loss per common share: | ||||||||
Basic | $ | (0.28 | ) | $ | (0.40 | ) | ||
Diluted | $ | (0.28 | ) | $ | (0.40 | ) |
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
In thousands | Outstanding Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Totals | |||||||||||||||||||||
Balances at June 30, 2021 | 42,794 | $ | 43 | 41 | $ | (211 | ) | $ | 325,245 | $ | (239,269 | ) | $ | 85,808 | ||||||||||||||
Share-based compensation expense | — | — | — | — | 810 | — | 810 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 65 | — | 13 | (45 | ) | 71 | — | 26 | ||||||||||||||||||||
Net loss | — | — | — | — | — | (17,119 | ) | (17,119 | ) | |||||||||||||||||||
Balances at September 30, 2021 | 42,859 | 43 | 54 | (256 | ) | 326,126 | (256,388 | ) | 69,525 | |||||||||||||||||||
Issuance of common stock, net of issuance costs | 56 | — | — | — | 143 | — | 143 | |||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 946 | — | 946 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 6 | — | — | — | 20 | — | 20 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (19,144 | ) | (19,144 | ) | |||||||||||||||||||
Balances at December 31, 2021 | 42,921 | 43 | 54 | (256 | ) | 327,235 | (275,532 | ) | 51,490 | |||||||||||||||||||
Issuance of common stock, net of issuance costs | 7,690 | 8 | — | — | 8,938 | — | 8,946 | |||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 843 | — | 843 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 121 | — | — | — | 42 | — | 42 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (14,294 | ) | (14,294 | ) | |||||||||||||||||||
Balances at March 31, 2022 | 50,732 | $ | 51 | 54 | $ | (256 | ) | $ | 337,058 | $ | (289,826 | ) | $ | 47,027 | ||||||||||||||
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
In thousands | Outstanding Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Totals | |||||||||||||||||||||
Balances at June 30, 2022 | 50,957 | $ | 51 | 54 | $ | (256 | ) | $ | 337,894 | $ | (308,212 | ) | $ | 29,477 | ||||||||||||||
Share-based compensation expense | — | — | — | — | 651 | — | 651 | |||||||||||||||||||||
Issuance of common stock and accompanying warrants, net of issuance costs | 16,675 | 17 | — | — | 5,911 | — | 5,928 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (18,410 | ) | (18,410 | ) | |||||||||||||||||||
Balances at September 30, 2022 | 67,632 | $ | 68 | 54 | $ | (256 | ) | $ | 344,456 | $ | (326,622 | ) | $ | 17,646 | ||||||||||||||
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
In thousands | Outstanding Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Totals | |||||||||||||||||||||
Balances at June 30, 2021 | 42,794 | $ | 43 | 41 | $ | (211 | ) | $ | 325,245 | $ | (239,269 | ) | $ | 85,808 | ||||||||||||||
Share-based compensation expense | — | — | — | — | 810 | — | 810 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 65 | — | 13 | (45 | ) | 71 | — | 26 | ||||||||||||||||||||
Net loss | — | — | — | — | — | (17,119 | ) | (17,119 | ) | |||||||||||||||||||
Balances at September 30, 2021 | 42,859 | $ | 43 | 54 | $ | (256 | ) | $ | 326,126 | $ | (256,388 | ) | $ | 69,525 | ||||||||||||||
Common Stock | Treasury Stock | |||||||||||||||||||||||||||
In thousands | Outstanding Shares | Amount | Shares | Amount | Additional Paid-in Capital | Accumulated Deficit | Totals | |||||||||||||||||||||
Balances at June 30, 2020 | 25,793 | $ | 25 | 20 | $ | (88 | ) | $ | 252,519 | $ | (181,440 | ) | $ | 71,016 | ||||||||||||||
Share-based compensation expense | — | — | — | — | 646 | — | 646 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 67 | — | 21 | (123 | ) | 43 | — | (80 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (15,380 | ) | (15,380 | ) | |||||||||||||||||||
Balances at September 30, 2020 | 25,860 | 25 | 41 | (211 | ) | 253,208 | (196,820 | ) | 56,202 | |||||||||||||||||||
Share-based compensation expense | — | — | — | — | 624 | — | 624 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 45 | — | — | — | 158 | — | 158 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (15,462 | ) | (15,462 | ) | |||||||||||||||||||
Balances at December 31, 2020 | 25,905 | 25 | 41 | (211 | ) | 253,990 | (212,282 | ) | 41,522 | |||||||||||||||||||
Issuance of common stock and accompanying warrants, net of issuance costs | 16,742 | 17 | — | — | 69,244 | — | 69,261 | |||||||||||||||||||||
Share-based compensation expense | — | — | — | — | 595 | — | 595 | |||||||||||||||||||||
Shares issued under employee plans and related share repurchases | 108 | — | — | — | 473 | — | 473 | |||||||||||||||||||||
Net loss | — | — | — | — | — | (14,851 | ) | (14,851 | ) | |||||||||||||||||||
Balances at March 31, 2021 | 42,755 | $ | 42 | 41 | $ | (211 | ) | $ | 324,302 | $ | (227,133 | ) | $ | 97,000 | ||||||||||||||
Nine Months Ended March 31, | ||||||||
In thousands | 2022 | 2021 | ||||||
Operating activities: | ||||||||
Net loss | $ | (50,557 | ) | $ | (45,693 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share-based compensation expense | 2,599 | 1,865 | ||||||
Expense for shares of common stock issued to a vendor | 27 | — | ||||||
Depreciation and amortization | 1,130 | 1,123 | ||||||
Investment discount accretion, net | — | (10 | ) | |||||
Amortization of debt discounts and deferred financing fees | 520 | 252 | ||||||
Reduction in the carrying amount of operating lease right-of-use | 381 | 264 | ||||||
Equity in net losses of an affiliate | 116 | 75 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid and other assets | (36 | ) | 975 | |||||
Accounts payable | 1,569 | 571 | ||||||
Operating lease liabilities | (645 | ) | (516 | ) | ||||
Accrued and other liabilities | (2,594 | ) | 3,356 | |||||
Cash used in operating activities | (47,490 | ) | (37,738 | ) | ||||
Investing activities: | ||||||||
Purchases of property and equipment | (900 | ) | (987 | ) | ||||
Purchases of and capitalized costs related to intangible assets | (254 | ) | (363 | ) | ||||
Maturities of investments | 2,000 | 41,500 | ||||||
Purchases of investments | — | (20,992 | ) | |||||
Cash provided by investing activities | 846 | 19,158 | ||||||
Financing activities: | ||||||||
Proceeds from the issuance of common stock and accompanying warrants, net of issuance costs | 9,391 | 69,261 | ||||||
Proceeds from exercises of common stock options | 133 | 674 | ||||||
Payments for deferred financing fees | — | (129 | ) | |||||
Taxes paid related to equity awards | (45 | ) | (123 | ) | ||||
Principal payments on a finance lease | (38 | ) | (35 | ) | ||||
Cash provided by financing activities | 9,441 | 69,648 | ||||||
Net increase (decrease) in cash and cash equivalents | (37,203 | ) | 51,068 | |||||
Cash and cash equivalents, beginning of the period | 105,052 | 38,463 | ||||||
Cash and cash equivalents, end of the period | $ | 67,849 | $ | 89,531 | ||||
Supplemental non-cash information: | ||||||||
Costs for purchases of property and equipment included in accounts payable | $ | 82 | $ | — | ||||
Costs for intangible assets included in accrued and other liabilities | 14 | 27 | ||||||
Right-of-use | 243 | — |
Three Months Ended September 30, | ||||||||
In thousands | 2022 | 2021 | ||||||
Operating activities: | ||||||||
Net loss | $ | (18,410 | ) | $ | (17,119 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Share-based compensation expense | 651 | 810 | ||||||
Expense for shares of common stock issued to a vendor | 4 | — | ||||||
Depreciation and amortization | 372 | 364 | ||||||
Change in fair value of derivative liability—warrants | 192 | — | ||||||
Amortization of debt discounts and deferred financing fees | 161 | 169 | ||||||
Reduction in the carrying amount of operating lease right-of-use | 153 | 108 | ||||||
Equity in net losses of an affiliate | 75 | 31 | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid and other assets | 505 | (224 | ) | |||||
Accounts payable | 456 | 135 | ||||||
Operating lease liabilities | (245 | ) | (195 | ) | ||||
Accrued and other liabilities | 49 | (15 | ) | |||||
Cash used in operating activities | (16,037 | ) | (15,936 | ) | ||||
Investing activities: | ||||||||
Purchases of property and equipment | (183 | ) | (545 | ) | ||||
Purchases of and capitalized costs related to intangible assets | (121 | ) | (70 | ) | ||||
Maturities of investments | — | 2,000 | ||||||
Cash provided by (used in) investing activities | (304 | ) | 1,385 | |||||
Financing activities: | ||||||||
Proceeds from the issuance of common stock and accompanying warrants, net of issuance costs | 9,019 | — | ||||||
Proceeds from the exercise of pre-funded warrants | 355 | — | ||||||
Proceeds from exercises of common stock options | — | 71 | ||||||
Principal payments on long-term debt | (2,237 | ) | — | |||||
Taxes paid related to equity awards | — | (45 | ) | |||||
Principal payments on a finance lease | — | (12 | ) | |||||
Cash provided by financing activities | 7,137 | 14 | ||||||
Net decrease in cash and cash equivalents and restricted cash | (9,204 | ) | (14,537 | ) | ||||
Cash and cash equivalents and restricted cash, beginning of the period | 46,366 | 105,052 | ||||||
Cash and cash equivalents and restricted cash, end of the period | $ | 37,162 | $ | 90,515 | ||||
Supplemental information: | ||||||||
Prepaid assets included in accounts payable | $ | 393 | $ | — | ||||
Costs for purchases of property and equipment included in accounts payable | $ | 338 | $ | 96 | ||||
Costs for intangible assets included in accounts payable/accrued and other liabilities | $ | 64 | $ | 25 |
1. | Organization and Operations |
2. | Summary of Significant Accounting Policies |
3. | Share-based Compensation Plans |
Nine Months Ended March 31, | Three Months Ended September 30, | |||||||||||||||||||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||||||||||||||||||
(In thousands, except per share amounts) | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | Shares | Weighted Average Exercise Price | ||||||||||||||||||||||||
Outstanding at the beginning of the period | 4,186 | $ | 7.69 | 3,846 | $ | 7.82 | 5,551 | $ | 5.58 | 4,186 | $ | 7.69 | ||||||||||||||||||||
Granted | 2,444 | 3.07 | 1,280 | 5.26 | 1,201 | 0.40 | 1,467 | 3.62 | ||||||||||||||||||||||||
Exercised | (150 | ) | 0.89 | (165 | ) | 4.10 | — | — | (24 | ) | 3.00 | |||||||||||||||||||||
Forfeited | (339 | ) | 4.13 | (539 | ) | 4.38 | (97 | ) | 3.95 | (234 | ) | 4.27 | ||||||||||||||||||||
Expired | (602 | ) | 10.82 | (87 | ) | 10.29 | (66 | ) | 8.53 | (348 | ) | 12.93 | ||||||||||||||||||||
Outstanding at the end of the period | 5,539 | $ | 5.71 | 4,335 | $ | 7.58 | 6,589 | $ | 4.63 | 5,047 | $ | 6.32 | ||||||||||||||||||||
Exercisable at the end of the period | 2,680 | 2,757 | 3,048 | 2,667 | ||||||||||||||||||||||||||||
Weighted average fair value of options granted during the period | $ | 2.17 | $ | 3.79 | $ | 0.29 | $ | 2.55 | ||||||||||||||||||||||||
Nine Months Ended March 31, | ||||||||
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 1.80 | % | 0.30% to 1.08 | % | ||||
Expected volatility | 82.51 | % | 82.60 | % |
Three Months Ended September 30, | ||||||||
Assumption | 2022 | 2021 | ||||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Expected term | 6.25 years | 6.00 to 6.25 years | ||||||
Risk-free interest rate | 2.88% to 3.45% | 0.80% to 0.96% | ||||||
Expected volatility | 82.59 | % | 82.51 | % |
4. | Investments and Fair Values of Financial Instruments |
In thousands | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
September 30, 2022 | ||||||||||||||||
Cash and cash equivalents | $ | 34,241 | $ | — | $ | — | $ | 34,241 | ||||||||
Restricted cash | 2,921 | — | — | 2,921 | ||||||||||||
Total assets | $ | 37,162 | $ | — | $ | — | $ | 37,162 | ||||||||
June 30, 2022 | ||||||||||||||||
Cash and cash equivalents | $ | 46,366 | $ | — | $ | — | $ | 46,366 | ||||||||
In thousands | Level 1 | Level 2 | Level 3 | Total Fair Value | ||||||||||||
March 31, 2022 | ||||||||||||||||
Cash and cash equivalents | $ | 67,849 | $ | — | $ | — | $ | 67,849 | ||||||||
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. | Debt |
6. | Collaboration Agreements and Contract Liabilities |
7. | Stockholders’ Equity |
8. | Commitments and Contingencies |
Lease Months | Annual Base Rent | |||
1 | $ | 0 | ||
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. |
Notwithstanding the development and rollout of certain vaccines, it is unknown: (i) how
Legal Matters
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.
Subsequent to September 30, 2022, five complaints have been filed in federal court by purported stockholders of the Company regarding the proposed merger that is described in Note 9 to these Notes to Unaudited Condensed Financial Statements. The complaints generally allege that the Solicitation/Recommendation Statement on Schedule 14D-9, filed by the Company with the Securities and Exchange Commission on October 26, 2022 in connection with the proposed merger (the “Schedule 14D-9”), contains omissions and misrepresentations that render it materially deficient and misleading. On November 2, 2022, Pavanello Simona filed a complaint against the Company and its board of directors in the United States District Court in the Southern District of New York, captioned Pavanello Simona v. Applied Genetic Technologies Corporation, et al., Case No. 1:22-cv-09402; on November 8, 2022, Eric Sabatini filed a complaint against the Company and its board of directors in the United States District Court in the Southern District of New York, captioned Eric Sabatini v. Applied Genetic Technologies Corporation, et al., Case No. 1:22-cv-09529; on November 8, 2022, Patrick Plumley filed a complaint against the Company and its board of directors in the United States District Court in the District of Delaware, captioned Patrick Plumley v. Applied Genetic Technologies Corporation, et al., Case No. 1:22-cv-01470-UNA; on November 10, 2022, Sholom Keller filed a complaint against the Company and its board of directors in the United States District Court in the Southern District of New York, captioned Sholom Keller v. Applied Genetic Technologies Corporation, et al., Case No. 1:22-cv-09615; and on November 14, 2022, Rauf Osman filed a complaint against the Company and its board of directors in the United States District Court in the Southern District of New York, captioned Rauf Osman v. Applied Genetic Technologies Corporation, et al., Case No. 1:22-cv-09707.
Specifically, the five complaints filed in the above-referenced actions allege, among other things, that the Company and its board of directors violated Sections 14(d), 14(e) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14d-9 promulgated thereunder. As relief, the complaints seek, among other things, (i) to enjoin the Company from consummating the merger, (ii) to enjoin the Company from filing an amendment to the Schedule 14D-9 unless certain information, as requested in the complaints, is included in such amendment, (iii) in the event the merger is consummated, to rescind it, or award rescissory damages, (iv) to declare that the Company and its board of directors violated Sections 14(a) and/or 20(a) of the Exchange Act, (v) an award of costs and expenses related to the actions, and (vi) other relief as the courts may deem just and proper. The Company and its board of directors believe that the complaints lack merit.
As of November 21, 2022, the Company has also received six stockholder demand letters, which generally seek to include certain alleged omitted information in the Schedule 14D-9. The Company believes that the allegations and claims asserted in the demand letters are without merit.
Management intends to vigorously defend the Company against the allegations in these litigation and demand letter matters. However, due to uncertainties inherent in litigation, management can provide no assurances as to the final outcome thereof, and additional lawsuits arising out of or relating to the proposed merger, the tender offer that is described in Note 9 to these Notes to Unaudited Condensed Financial Statements, or the Schedule 14D-9, may be filed in the future. Should an unfavorable outcome occur in some or all of these matters, there could be an adverse effect on the Company’s operating results, financial position and cash flows.
9. | Subsequent Events |
Plan of Merger
On October 23, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alliance Holdco Limited, a private limited company organized under the laws of England and Wales (the “Parent”), and Alliance Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Parent (the “Purchaser”). The Merger Agreement provides for the acquisition of the Company by the Parent through a tender offer (the “Offer”) by the Purchaser for all of the Company’s outstanding shares of common stock (“Common Stock”) for: (1) $0.34 per share of Common Stock (the “Cash Consideration”); and (2) one contingent value right (each a “CVR”) per share of Common Stock representing the right to receive potential milestone payments pursuant to and subject to the terms of the CVR Agreement (as defined below) (the Cash Consideration plus one CVR, collectively, as such amount may be increased in accordance with the terms of the Merger Agreement, the “Offer Price”).
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The Company’s board of directors unanimously approved the Merger (as defined below) and the Merger Agreement and recommended that the Company’s stockholders accept the Offer and tender their shares of Common Stock pursuant to the Offer. Under the Merger Agreement, the Purchaser commenced the Offer on October 26, 2022. The Offer will expire at 5:00 p.m. Eastern Time on November 28, 2022, unless otherwise agreed to in writing by the Parent and the Company, or extended under certain circumstances as described in the Merger Agreement.
Pursuant to the terms of the Merger Agreement, as of the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of the holders: (i) each issued and outstanding share of Common Stock, other than any shares owned by the Parent, the Purchaser or the Company, or owned by a stockholder who has properly exercised and perfected such stockholder’s demands for appraisal in accordance with Delaware law, will be converted into the right to receive the Offer Price, without interest; (ii) each option to purchase shares of Common Stock from the Company (“Company Options”) with a per share exercise price that is less than the Cash Consideration, whether vested or unvested, will, automatically and without any required action on the part of the holder thereof, be cancelled and converted into only the right to receive (without interest and subject to applicable withholding), as soon as reasonably practicable following the Effective Time, (I) an amount in cash equal to the product of (1) the excess of (A) the Cash Consideration over (B) the exercise price per share of such Company Option and (2) the number of shares of Common Stock underlying such Company Option and (II) one CVR for each share of Common Stock subject to such Company Option, in accordance with and subject to the CVR Agreement and will be of no further force and effect; and (iii) each outstanding and unvested restricted stock unit (“Company RSU”) will, automatically and without any required action on the part of the holder thereof, vest in full and be cancelled and will entitle the holder of such Company RSU to receive (without interest and subject to applicable withholding) as soon as reasonably practicable following the Effective Time, (I) an amount in cash equal to (x) the number of shares of Common Stock subject to such Company RSU immediately prior to the Effective Time multiplied by (y) the Cash Consideration and (II) one CVR for each share of Common Stock subject to such Company RSU in accordance with and subject to the CVR Agreement. Each Company Option that has a per share exercise price that is equal to or exceeds the Cash Consideration shall be cancelled and terminated without any payment or delivery being made in respect thereof (whether in the form of cash or a CVR) and the holder of any such Company Option shall have no further rights with respect thereto.
Under the Merger Agreement, prior to the Effective Time, the Company shall satisfy all of its notification requirements under the terms of each outstanding and unexercised warrant to purchase shares of Common Stock (the “Company Warrants”). The Company Warrants shall each be treated in accordance with their respective terms.
The Purchaser’s obligation to accept shares of Common Stock tendered in the Offer is subject to certain closing conditions, including: (a) that the number of shares of Common Stock validly tendered (and not validly withdrawn) equals at least one share more than 50% of the total number of all shares of Common Stock then outstanding (treating as outstanding the shares of Common Stock underlying the outstanding Company RSUs) plus the aggregate number of shares of Common Stock issuable to holders of Company Options and Company Warrants from which the Company has received notices of exercise prior to expiration of the Offer; (b) the absence of any injunction or legal restraint that has the effect of prohibiting the consummation of the Offer or the Merger or making the Offer or the Merger illegal or prohibiting or making illegal the acquisition of or payment for shares of Common Stock pursuant to the Offer or the consummation of the Merger; (c) that, since the date of the Merger Agreement, there shall not have occurred any Company Material Adverse Effect (as defined in the Merger Agreement); (d) compliance by the Company with its obligations, covenants and agreements under the Merger Agreement; (e) the accuracy of representations and warranties made by the Company in the Merger Agreement; (f) the absence of any pending legal proceeding in which a governmental body is a party challenging the Offer or the Merger; (g) that the aggregate liability of the Company for the Black-Scholes Value (as defined in the warrants issued by the Company in July 2022) potentially payable to holders of the Company Warrants issued in July 2022 shall not exceed $9.5 million as of the time the Offer expires and (h) other customary conditions. The obligations of the Parent and the Purchaser to consummate the Offer and the Merger under the Merger Agreement are not subject to a financing condition.
Following the completion of the Offer, subject to the absence of injunctions or other legal restraints preventing the consummation of the Merger, the Purchaser will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of the Parent, pursuant to the procedure provided for under Section 251(h) of the Delaware General Corporation Law, without any additional stockholder approvals (the “Merger”). The Merger will be effected as soon as practicable following the time of purchase by the Purchaser of shares of Common Stock validly tendered and not withdrawn in the Offer. As a result of the consummation of the Merger, the Company will cease to be a publicly traded company.
The Merger Agreement contains customary representations and warranties from both the Company, on the one hand, and the Parent and the Purchaser, on the other hand. It also contains customary covenants, including covenants providing for the Company to: (i) use commercially reasonable efforts to cause the Company to conduct its business and operations in the ordinary course and in accordance
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in all material respects with past practice and all applicable legal requirements; (ii) not to solicit proposals or, subject to certain exceptions, engage in discussions relating to alternative acquisition proposals or change the recommendation of the board of directors to the Company’s stockholders regarding the Merger Agreement; and (iii) use commercially reasonable efforts to preserve intact the material components of its current business organization, keep available the services of its officers and employees and maintain its relations and goodwill with all governmental bodies, suppliers, vendors, licensors, licensees, manufacturers, collaboration partners and other business partners with which it has material business dealings.
The Merger Agreement contains customary termination rights for both the Parent and the Purchaser, on the one hand, and the Company, on the other hand, including, among others, for failure to consummate the Offer on or before February 28, 2023. If the Merger Agreement is terminated under certain circumstances specified in the Merger Agreement (including under specified circumstances in connection with the Company’s entry into an agreement with respect to a superior offer), the Company will be required to pay the Parent a termination fee of $1.5 million.
The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which has been filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K that was filed with the Securities and Exchange Commission on October 24, 2022.
Contingent Value Rights Agreement
At or prior to the Acceptance Time (as defined in the Merger Agreement), the Parent will enter into a Contingent Value Rights Agreement (the “CVR Agreement”) with a duly qualified rights agent acceptable to both the Parent and the Company (the “Rights Agent”). The CVRs represent the right to receive contingent payments, payable to the Rights Agent for the benefit of the holders of CVRs, of up to $50.0 million in the aggregate, payable in cash, without interest and less any applicable withholding taxes, and allocated among the outstanding CVRs, if the following milestones are achieved:
• | Milestone 1. The Parent will be obligated to pay up to $12.5 million, in the aggregate, upon the (a) sale, license, transfer, spin-off of, or the occurrence of any other monetizing event, whether in a single or multiple transactions, involving, all or any part of the Non-RPGR Assets (as defined in the CVR Agreement), (b) the sale or transfer of the Bionic Sight Equity (as defined in the CVR Agreement) and/or (c) the sale, lease or transfer of the Manufacturing Assets (as defined in the CVR Agreement), in each case, that closes on or prior to the date that is eighteen months after the date of the closing of the Merger. The aggregate amount payable in connection with such milestone will be equal to the amount by which the sum of (i) 60% of the Gross Proceeds (as defined in the CVR Agreement) attributable to the Non-RPGR Assets and/or (ii) 100% of the Gross Proceeds attributable to the Bionic Sight Equity and/or (iii) 100% of the Gross Proceeds attributable to the Manufacturing Assets (reduced by the amount of certain taxes and expenses as more particularly described in the CVR Agreement), collectively, exceeds $5.0 million; |
• | Milestone 2. The Parent will be obligated to pay an aggregate amount equal to $12.5 million upon obtaining United States Food and Drug Administration (the “FDA”) approval of a Biologics License Application for AGTC-501, the Company’s lead gene therapy development program for the treatment of X-linked retinitis pigmentosa (“XLRP), to treat patients with XLRP caused by mutations in the Retinitis Pigmentosa GTPase Regulator (“RPGR”) gene, as evidenced by the written notice of such approval by the FDA, which approval (a) must be consistent with the patient population, at a minimum, as established by the inclusion/exclusion criteria of patients studied in the pivotal clinical trial, (b) may be subject to conditions of use, contraindications, or otherwise limited, and (c) may contain a commitment to conduct a post-approval study or clinical trial (the “Marketing Approval”); |
• | Milestone 3. The Parent will be obligated to pay an aggregate amount equal to $12.5 million if, as of the date of the Marketing Approval, no other adeno-associated virus gene therapy product expressing the RPGR protein (including any derivative or shortened version of the RPGR protein) has received a marketing approval from the FDA; and |
• | Milestone 4. The Parent will be obligated to pay an aggregate amount equal to $12.5 million the first time that Net Sales (as defined in the CVR Agreement) of AGTC-501 in any calendar year is equal to or exceeds $100.0 million. |
The right to the contingent consideration as evidenced by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement.
The foregoing description of the CVR Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the CVR Agreement, which has been filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K that was filed with the Securities and Exchange Commission on October 24, 2022.
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ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis providesprovide an overview of our financial condition as of March 31,September 30, 2022 and our results of operations for the three and nine months ended March 31,September 30, 2022 and 2021. This discussion should be read in conjunction with the Unaudited Condensed Financial Statements and related notes included in this Quarterly Report
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 our proprietary gene therapy platform technology to develop transformational genetic therapies for people suffering from rare and debilitating diseases. Our initial focus is in the field of ophthalmology, where we have wholly owned clinical-stage
On October 23, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alliance Holdco Limited, a private limited company organized under the laws of England and Wales (the “Parent”), and Alliance Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Parent (the “Purchaser”). The Merger Agreement provides for the acquisition of us by the Parent through a tender offer by the Purchaser for all of our outstanding shares of common stock (“Common Stock”) for (1) $0.34 per share of Common Stock (the “Cash Consideration”), without interest and less any applicable withholding taxes, and (2) one contingent value right (each a “CVR”) per share of Common Stock representing the right to receive potential milestone payments. Additional information about the pending merger can be found in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
Since our inception, we have devoted substantially all of our resources to the development of our clinical and preclinical programs in ophthalmology, otology and CNS, including manufacturing product candidates in compliance with good manufacturing practices, preparing to conduct and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. To date, we have funded our operations primarily through public offerings of our common stock and warrants to purchase our common stock, private placements of our preferred stock, collateralized borrowing and collaborations. We have also been the recipient, either independently or with our collaborators, of grant funding administered through federal, state, and local governments and agencies and by patient advocacy groups such as The Foundation Fighting Blindness.
We have incurred losses from operations in each year since inception, except for fiscal year 2017, wherein we reported net income of $0.4 million due, in part, to profits from a collaboration agreement that was ultimately terminated in March 2019. For the ninethree months ended March 31,September 30, 2022 and 2021, we reported net losses of $50.6$18.4 million and $45.7$17.1 million, respectively. Substantially all our net losses resulted from costs incurred in connection with our research and development programs and general and administrative and other expenses associated with our operations. 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 March 31,September 30, 2022, we had cash and cash equivalents totaling $67.8$34.2 million. We do not expect to generate revenue from product sales unless and until we successfully complete development of and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and which we believe is subject to significant uncertainty. We believe that our available cash and cash equivalents will be sufficient to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs intothrough calendar year 2023.2022. We will require substantial additional funding to completecontinue our XLRP Phase 2/3 (“Vista”) trial, move our ACHMB3 product candidate forward, obtain regulatory approval for our lead product candidates, build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, and execute our plan to open and operate a leased current Good Manufacturing Practices (“cGMP”) manufacturing and quality control facility. However,
Given our limited cash resources and the current operating plan may change asbusiness and financing environment, we do not believe that we have sufficient funds to allow us to generate additional clinical data from AGTC-501, our product candidate in development for the potential treatment of XLRP, with sufficient time to subsequently seek a suitable collaboration or financing arrangement. As a result, of many factors currently unknownwe entered into the Merger Agreement that is described above and in Note 9 to us, andthe Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. If the transaction contemplated by the Merger Agreement is unsuccessful, we maywill likely need to seek additional funds sooner than planned,pursue an orderly wind down of the Company 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. 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.
Program Updates and Recent Developments
AGTC-501
AGTC-501,
We are currently conducting multiple clinical trials of
The Skyline trial is a 14 patient multi-site, Phase 2 trial in which patients are randomized to either a high dose of
Similar to safety results reported for the first portion of the Phase 1/2 trial,Horizon, safety results to date for the Skyline trial support that
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Demographic and baseline characteristics were well balanced between the two dose groups in the Skyline trial. Notably, compared to the Phase 1/2 trial,Horizon, patients in the Skyline trial were younger, with better baseline visual sensitivity and visual acuity.
Improvements in visual sensitivity, the primary efficacy endpoint in the Skyline trial, were observed in both dose groups at three months. We define responders as patients who have at least 5 loci increase by at least 7 dB. The response rate in Dose Group A was 25% (1 of 4 patients, as one patient in this group was unevaluable) and in Dose Group B was 62.5% (5 of 8 patients), representing a clear difference between the two groups. Notably, while we did not observe an increase in visual sensitivity of at least 7 dB in 5
The 13 patients in the Skyline trial had better baseline best corrected visual acuity, a mean of 66.9 ETDRS letters on an eye chart, which correlates to a Snellen visual acuity equivalent of approximately 20/40. Because these patients started with better visual acuity, we believe that there was less ability for them to improve relative to patients in the Phase 1/2Horizon trial.
In addition, there was a correlation between visual sensitivity improvements and trends for patients able to complete the maze more rapidly and with fewer errors. We are working with the maze vendor on potential adjustments to account for the fact that only one eye was treated in this analysis, whereas previous use of the maze has been for patients treated in both eyes. It is possible that the better visual acuity of the patients in the Skyline trial at baseline affected the interpretation of the maze results.
The Vista trial is a multi-site, Phase 2/3 clinical trial expected to include approximately 60 patients randomized across three
To date, we have released a significant amount of preclinical and clinical data including improvements in visual sensitivity and visual acuity, as well as improvements in retinal health that we believe support both the potential safety and biological activity of
Given the efficacy and safety data generated to date, we believe that
AGTC-401 and
We have been developing two gene therapy product candidates for the treatment of ACHM. The product candidates are designed to use the same engineered AAV vector to insert a stabilized and functional copy of the Cyclic Nucleotide Gated Channel Subunit Beta 3 (CNGB3) gene in the case of
We are currently conducting a Phase 1/2 clinical trial of
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AGTC-402
In the Phase 1/2 dose escalation study of
The two other pediatric patients in the 1.1E+12 vg/mL dose group and three pediatric patients ages 7 years and younger in the 3.2E+12 vg/mL dose group (total n=5) could not sufficiently concentrate and consistently complete the visual sensitivity testing. Similar to other trials where endpoints are adapted for young children, we plan to work closely with clinicians and regulators to develop potential adaptations for younger patients for visual sensitivity testing. Despite their inability to complete the tests, we received anecdotal feedback from certain patients that indicate improvements in visual sensitivity. Based on the totality of data generated to date, we believe that the 1.1E+12 vg/mL dose has been well tolerated and has potential in both adult and pediatric patients.
We also reported updated interim
As previously reported, in both the ACHMB3 and ACHMA3 trials, treatment with the highest dose (3.2 E+12vg/ml) of
We recently had a collaborative and productive End of Phase 2 (“EOP2”) meeting with the FDA to discuss the potential future development of
Build-To-Suit Manufacturing
In May 2021, we signed
Additional information regarding our new cGMP manufacturing and quality control facility can be found in Note 83 to the Unaudited CondensedNotes to Financial Statements included in this Quarterly Report
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Strategic Collaborations and Preclinical Pipeline
Bionic Sight
During February 2017, we entered into a strategic research and development collaboration agreement with Bionic Sight to develop product candidates for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding. The collaboration agreement grants to us, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire: (i) a majority equity interest in Bionic Sight; (ii) the Bionic Sight assets to which the collaboration agreement relates; or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.
In March 2021, Bionic Sight, which has responsibility for conducting the clinical trial, reported promising results in its first two cohorts of patients in the Phase 1/2 retinitis pigmentosa optogenetics study. Bionic Sight reported that these patients, all of whom have complete or near-complete blindness, can now see light and motion, and, in two cases, can detect the direction of motion. Bionic Sight also announced that the product candidate was well-tolerated and that it is continuing to enroll patients at higher doses.
Otonomy
During October 2019, we entered into a strategic collaboration agreement with Otonomy
Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 6 to the Unaudited Condensed Financial Statements included in this Quarterly Report
Preclinical Pipeline
We also have three wholly-owned product candidates in preclinical testing, including
Critical Accounting Policies and Estimates
Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on
Other than accounting for a certain warrant derivative liability, which required the nine months ended March 31, 2022,use of judgment and estimation techniques, there were no significant changes to our critical accounting policies during the three months ended September 30, 2022. Our warrant derivative liability accounting and estimates.related assumptions are further discussed at Note 2, Note 4 and Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. For a description of ourthe other accounting policies that, in our opinion, involve the most significant application of judgment or involve complex estimations and which could, if different judgments or estimates were made, materially affect our reported results of operations, financial position and cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the
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Financial Operations Review
Revenue
We generate revenue primarily through: (i) collaboration agreements; (ii) sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates; (iii) federal research and development grant programs; and (iv) licensing arrangements. However, we did not recognize any revenue during the three and nine months ended March 31,September 30, 2022 or the same periodsperiod in the prior year. In the future, we may generate revenue from product sales (if any products are approved), license fees, milestone payments, development services, research and development grants, or from collaboration and royalty payments for the sales of products developed under licenses of our intellectual property.
We expect that any revenue we generate will fluctuate from quarter to quarter as a result of the timing and amount of license fees, research and development programs, manufacturing efforts and reimbursements, collaboration milestone payments, and the sale of our products, to the extent that any are approved and successfully commercialized. We do not expect to generate revenue from product sales for the foreseeable future, if at all. If we or our collaborators fail to complete the development of our product candidates in a timely manner or obtain regulatory approval for them, our ability to generate future revenue and our results of operations, financial position and cash flows would be materially adversely affected.
Research and development expenses
Research and development expenses consist primarily of costs incurred for the development of our product candidates and include:
employee-related expenses, including salaries, benefits, travel and share-based compensation expense;
expenses incurred under agreements with academic research centers, contract research organizations and investigative sites that conduct our clinical trials;
license and sublicense fees and collaboration expenses;
costs of acquiring, developing and manufacturing clinical trial materials; and
facilities, depreciation and other expenses, which include direct and allocated expenses for rent and maintenance of facilities, insurance and other supplies.
Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress toward completion of specific tasks, using information and data provided to us by our vendors and our clinical sites.
We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates or if, when, or to what extent we will generate revenue from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:
the scope, rate of progress and expense of our ongoing clinical trials, as well as any additional clinical trials that we are required to, or decide to, initiate and other research and development activities;
the timing and level of activity as determined by us or jointly with our partners;
the level of funding, if any, received from our partners;
whether or not we elect to cost share with our collaborators;
future clinical trial results;
• | uncertainties in clinical trial enrollment rates or drop-out or discontinuation rates of patients; |
• | increased cost and delay associated with manufacturing or testing issues, including ongoing quality assurance, qualifying new vendors and developing in-house capabilities through, among other things, our lease of a new cGMP build-to-suit manufacturing and quality control facility; |
the countries in which trials are conducted;
potential additional safety monitoring or other studies requested by regulatory agencies or elected as best practice by us;
significant and changing government regulation;
the timing and receipt of any regulatory approvals; and
broader market forces, such as inflation and wage/salary growth.
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Changes in any of these variables over time with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in or execution of any of our clinical trials, which could be adversely impacted
From our inception and through March 31,September 30, 2022, we have incurred approximately $318.6$345.0 million in research and development expenses. We expect our research and development expenses to increase forremain stable in the foreseeable futuresecond quarter of our fiscal year as we continue theare not currently enrolling any additional patients in our clinical trials and have worked to reduce our research and development of our product candidates, explore potential applications of our gene therapy platform in other indications and execute our plan to open and operate a leased cGMP manufacturing and quality control facility.
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.roles. Other general and administrative expenses include costs to support employee training and development, board of directors’ costs, depreciation, insurance, facility-related costs not otherwise included in research and development expenses, professional fees for legal services, patent-related expenses, and accounting, investor relations, corporate communications and information technology services. We anticipate that our general and administrative and other expenses will continue to increase in the future as we hire additional employeessecond quarter of our fiscal year due to the activities to support our researchthe negotiation and development efforts, collaboration arrangements, and the potential commercializationexecution of our product candidates, if approved. Inflationproposed merger with the Purchaser, as described above and wage/salary growth could also contribute to higher future costs. 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 relatesNote 9 to the sales and marketing of any such product candidate. Our general and administrative expenses are also expected to increase as we execute our plan to open and operate a leased cGMP manufacturing and quality control facility.
Investment income, net
Investment income, net consists of interest earned on cash and cash
Interest expense
Interest expense during the three and nine months ended March 31,September 30, 2022 increaseddeclined by $0.3 million and $1.0 million, respectively,$12,000 when compared to the same periods in the prior year. These increases wereThis decrease was primarily due to highera lower average outstanding balancesbalance under our collateralized term loan agreement during each of the three and nine months ended March 31, 2022.September 30, 2022, partially offset by higher interest rates. Additional information regarding our long-term loan agreement can be found in Note 5 to the Unaudited Condensed Financial Statements included in this Quarterly Report
On May 4,November 2, 2022, the Federal Reserve Board announced an increase of 0.50%0.75% in the federal funds rate and indicated that further rate increases will be announced in the short-term to combat risingpersistently high inflation in the United States. When the prime rate reported in
Costs attributable to the issuance of freestanding warrants
As described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q, we closed an underwritten public offering of the Company’s common stock, together with accompanying warrants, on July 15, 2022. In connection with that equity offering, we expensed $0.3 million of costs that were allocated to the issuance of the warrants.
Change in fair value of derivative liability – warrants
We concluded that the warrants issued on July 15, 2022 met the definition of a derivative and required bifurcation from the related common stock on the date of warrant issuance and thereafter. Accordingly, the corresponding warrant liability is remeasured and recorded at fair value at the end of each reporting period with any adjustment recognized in our statement of operations. For the three months ended September 30, 2022, the related expense was $0.2 million.
Additional information regarding our warrant and the related derivative accounting can be found in Note 2, Note 4 and Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q.
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Provision for (benefit from) income taxes
There was no provision for (benefit from) income taxes during each of the three and nine months ended March 31,September 30, 2022 and 2021 because, among other things, during those reporting periods, (i) the Company had no uncertain tax positions during those reporting periods.
Results of Operations
Comparison of the three months ended March 31,September 30, 2022 and 2021
Research and development expenses
The table below summarizes our research and development expenses by product candidate or program for the periods indicated.
Three Months Ended March 31, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
External research and development expenses: | ||||||||||||||||
XLRP | $ | 984 | $ | 3,201 | $ | (2,217 | ) | (69 | )% | |||||||
ACHM | 748 | 1,147 | (399 | ) | (35 | )% | ||||||||||
Research and discovery programs and X-linked retinoschisis | 189 | 1,358 | (1,169 | ) | (86 | )% | ||||||||||
Total external research and development expenses | 1,921 | 5,706 | (3,785 | ) | (66 | )% | ||||||||||
Internal research and development expenses: | ||||||||||||||||
Employee-related costs | 4,377 | 3,051 | 1,326 | 43 | % | |||||||||||
Share-based compensation | 412 | 280 | 132 | 47 | % | |||||||||||
Other | 2,452 | 1,923 | 529 | 28 | % | |||||||||||
Total internal research and development expenses | 7,241 | 5,254 | 1,987 | 38 | % | |||||||||||
Total research and development expenses | $ | 9,162 | $ | 10,960 | $ | (1,798 | ) | (16 | )% | |||||||
Three Months Ended September 30, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
External research and development expenses: | ||||||||||||||||
XLRP | $ | 3,189 | $ | 4,651 | $ | (1,462 | ) | (31 | )% | |||||||
ACHM | 598 | 793 | (195 | ) | (25 | )% | ||||||||||
Research and discovery programs | 1,971 | 911 | 1,060 | >100 | % | |||||||||||
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Total external research and development expenses | 5,758 | 6,355 | (597 | ) | (9 | )% | ||||||||||
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Internal research and development expenses: | ||||||||||||||||
Employee-related costs | 4,257 | 3,716 | 541 | 15 | % | |||||||||||
Share-based compensation | 323 | 431 | (108 | ) | (25 | )% | ||||||||||
Other | 2,546 | 1,823 | 723 | 40 | % | |||||||||||
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Total internal research and development expenses | 7,126 | 5,970 | 1,156 | 19 | % | |||||||||||
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Total research and development expenses | $ | 12,884 | $ | 12,325 | $ | 559 | 5 | % | ||||||||
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External research and development expenses consist of collaboration, licensing, manufacturing, testing and other miscellaneous costs that are directly attributable to our most advanced product candidates and discovery programs. We do not allocate employee-related costs, including share-based compensation, costs associated with broad technology platform improvements or other indirect costs, to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as internal research and development expenses in the table above.
As part of the process of preparing our financial statements, estimates of accrued expenses are necessary. The estimation process involves reviewing quotations and contracts, identifying services that have been performed on our behalf, and determining the level of services performed and associated costs incurred for services for which we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice monthly in arrears for services performed or when contractual milestones are
Research and development expenses for the three months ended March 31,September 30, 2022 and 2021 were $9.2$12.9 million and $11.0$12.3 million, respectively, a decreasean increase of $1.8$0.6 million, or 16%5%. The year-over-year declineincrease was due to various factors, including: (i) planned temporary reductionsincreased external spending for our research and discovery programs, which was primarily for toxicology studies in support of our preclinical programs (i.e., AGTC-701 for the treatment of dAMD and AGTC-601 for the treatment of FTD); (ii) higher employee-related costs that were primarily attributable to increased headcount and routine pay increases; and (iii) an increase in internal research and development expenses related to certain assays for the AGTC-501 development program that we are now conducting in-house, as well as higher costs for consultants. These increases in research and development expenses were partially offset by (i) a year-over-year reduction in manufacturing activities relating to our XLRPfor Vista clinical trial materials and preclinical product candidates; (ii) lower external spending related to ourdecreases in Skyline trial for which we are not activating new sites and/or enrolling new patients; (iii) a decrease inand ACHM expenses due to reduced site activity as our twothose clinical studies have progressed to a point where they are no longer activating new sites or enrolling new patients; and (iv) lower costs in connection with the wind-down
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General and administrative and other expenses
The table below summarizes our general and administrative and other expenses for the periods indicated.
Three Months Ended March 31, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
Employee-related costs | $ | 1,961 | $ | 1,241 | $ | 720 | 58 | % | ||||||||
Share-based compensation | 431 | 315 | 116 | 37 | % | |||||||||||
Legal and professional fees | 102 | 329 | (227 | ) | (69 | )% | ||||||||||
Other | 1,927 | 1,643 | 284 | 17 | % | |||||||||||
Total general and administrative and other expenses | $ | 4,421 | $ | 3,528 | $ | 893 | 25 | % | ||||||||
Three Months Ended September 30, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
Employee-related costs | $ | 1,789 | $ | 1,221 | $ | 568 | 47 | % | ||||||||
Share-based compensation | 328 | 379 | (51 | ) | (13 | )% | ||||||||||
Legal and professional fees | 251 | 422 | (171 | ) | (41 | )% | ||||||||||
Other | 2,092 | 2,078 | 14 | 1 | % | |||||||||||
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Total general and administrative and other expenses | $ | 4,460 | $ | 4,100 | $ | 360 | 9 | % | ||||||||
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General and administrative and other expenses for the three months ended March 31,September 30, 2022 and 2021 were $4.4$4.5 million and $3.5$4.1 million, respectively, an increase of $0.9$0.4 million, or 25%9%. SuchThe increase was primarily due to: (i) compensation for new employees; (ii) recruiting costs for new employees; (iii) incremental share-based compensation costs for the 2021 RSUs; and (iv) higher operating and business development costs pertaining to our recurring operations as we execute our strategic plans. Lower legal fees during the three months ended March 31, 2022 were due to reduced use of external legal counsel.
Nine Months Ended March 31, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
External research and development expenses: | ||||||||||||||||
XLRP | $ | 10,085 | $ | 11,930 | $ | (1,845 | ) | (15 | )% | |||||||
ACHM | 2,639 | 3,997 | (1,358 | ) | (34 | )% | ||||||||||
Research and discovery programs and X-linked retinoschisis | 3,402 | 2,527 | 875 | 35 | % | |||||||||||
Total external research and development expenses | 16,126 | 18,454 | (2,328 | ) | (13 | )% | ||||||||||
Internal research and development expenses: | ||||||||||||||||
Employee-related costs | 12,307 | 9,466 | 2,841 | 30 | % | |||||||||||
Share-based compensation | 1,302 | 866 | 436 | 50 | % | |||||||||||
Other | 6,206 | 5,611 | 595 | 11 | % | |||||||||||
Total internal research and development expenses | 19,815 | 15,943 | 3,872 | 24 | % | |||||||||||
Total research and development expenses | $ | 35,941 | $ | 34,397 | $ | 1,544 | 4 | % | ||||||||
Nine Months Ended March 31, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
Employee-related costs | $ | 4,549 | $ | 3,675 | $ | 874 | 24 | % | ||||||||
Share-based compensation | 1,297 | 999 | 298 | 30 | % | |||||||||||
Legal and professional fees | 688 | 1,238 | (550 | ) | (44 | )% | ||||||||||
Other | 5,976 | 4,356 | 1,620 | 37 | % | |||||||||||
Total general and administrative and other expenses | $ | 12,510 | $ | 10,268 | $ | 2,242 | 22 | % | ||||||||
Liquidity and Capital Resources
We have incurred cumulative losses and negative cash flows from operations since our inception and, as of March 31,September 30, 2022, we had an accumulated deficit of $289.8$326.6 million. It will be several years, if ever, before we have a product candidate ready for commercialization. We expectbelieve 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 development expensesdiscovery programs for a period exceeding 12 months from the date of this filing with the Securities and general and administrative and other expenses will continue to increase and, as a result,Exchange Commission. Additionally, we anticipatebelieve that we will require additional capitalincur losses and generate negative operating cash flows for the foreseeable future. As such, these circumstances collectively raise substantial doubt about our ability to fund our operations, whichcontinue as a going concern. We are actively seeking to consummate the proposed merger that is described in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q; however, we may raisebe unable to successfully close that pending transaction. If the proposed merger is not completed within a reasonable period of time, or at all, management will likely pursue an orderly wind down of the Company through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.
Most recently, we receivedreceived: (i) net proceeds of $9.4$9.0 million and $69.3 million during the nine months ended March 31, 2022 and 2021, respectively, from an underwritten public offerings and sellingoffering of our common stock, through an “at-the-market offering” program,together with accompanying warrants, during the three months ended September 30, 2022, which areis described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q10-Q; (ii) net proceeds of $9.2 million and (ii)$69.3 million during the years ended June 30, 2022 and 2021, respectively, from underwritten public offerings and selling our common stock through an “at-the-market offering” program, which are described in Note 13 to the Notes to Financial Statements in the 2022 Form 10-K; and (iii) $9.9 million of loan proceeds, net of debt discounts, in May 2021. Moreover, through a tenant improvement allowance and tiered rental rates, we have structured the third-party leasing costs for our build-to-suit manufacturing and quality control facility in Alachua, Florida in a way that will not significantly impact our cash runway until the fiscal year ending June 30, 2024. Notwithstanding the foregoing, we plan to useused our available cash and cash equivalents to fund approximately $2.9 million of tenant fit out work at such facility in August 2022, which representsrepresented our required contribution pursuant to a recent lease amendment whereby the funding must be completed within 30 days of May 3, 2022.amendment. Additional information regarding our long-term loan agreement and new manufacturing and quality control facility and long-term loan agreement can be found in Notes 53 and 8,7, respectively, to the Unaudited CondensedNotes to Financial Statements included in this Quarterly Report onthe 2022 Form 10-Q.
We are closely monitoring ongoing developments in connection with
Cash in excess of immediate requirements is invested in accordance with our investment policy, which primarily seeks to maintain adequate liquidity and preserve capital by generally limiting investments to certificates of deposit and investment-grade debt securities that mature within twelve months. As of March 31,September 30, 2022, our cash and cash equivalents were held in bank accounts and money market funds.
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Cash flows
The table below sets forth the primary sources and uses of cash, including cash equivalents and restricted cash, for the periods indicated.
Nine Months Ended March 31, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operating activities | $ | (47,490 | ) | $ | (37,738 | ) | $ | (9,752 | ) | (26)% | ||||||
Investing activities | 846 | 19,158 | (18,312 | ) | (96)% | |||||||||||
Financing activities | 9,441 | 69,648 | (60,207 | ) | (86)% | |||||||||||
Net increase (decrease) in cash and cash equivalents | $ | (37,203 | ) | $ | 51,068 | $ | (88,271 | ) | >(100)% | |||||||
Three Months Ended September 30, | Increase | % Increase | ||||||||||||||
In thousands | 2022 | 2021 | (Decrease) | (Decrease) | ||||||||||||
Cash provided by (used in): | ||||||||||||||||
Operating activities | $ | (16,037 | ) | $ | (15,936 | ) | $ | (101 | ) | (1)% | ||||||
Investing activities | (304 | ) | 1,385 | (1,689 | ) | >(100)% | ||||||||||
Financing activities | 7,137 | 14 | 7,123 | >100% | ||||||||||||
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Net decrease in cash and cash equivalents and restricted cash | $ | (9,204 | ) | $ | (14,537 | ) | $ | 5,333 | (37)% | |||||||
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Operating activities.
Investing activities. Cash used in operatinginvesting activities of $37.7$0.3 million during the ninethree months ended March 31, 2021 was due to a net lossSeptember 30, 2022 consisted of $45.7 million, partially
Financing activities.
Operating capital requirements
We believe that our available cash and cash equivalents, which totaled $67.8$34.2 million on March 31,September 30, 2022, will be sufficient toonly allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs intothrough calendar year 2023. However,2022. As a result, we entered into the Merger Agreement that is described in Note 9 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q. If the merger is not consummated, we will require substantial additional funding to: (i) finish our Vista trial; (ii) move our ACHMB3 product candidate forward; (iii) complete the process necessarylikely need to seek regulatory approval for our lead product candidates; (iv) build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved; and (v) execute our plan to open and operate a leased cGMP manufacturing and quality control facility.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are a smaller reporting company, as defined by
ITEM 4. | CONTROLS AND PROCEDURES |
a) | Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures |
Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in
b) | Changes in Internal Control over Financial Reporting |
There were no changes in our internal control over financial reporting (as defined in
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS |
Due to the nature of our business, we may be subject to lawsuits or other claims arising at any particular time in the ordinary course of business, and we expect thatbusiness. For a description of our legal proceedings, see Note 8 to the Unaudited Condensed Financial Statements included in this situation will continue to beQuarterly Report on Form 10-Q under the case in the future.
ITEM 1A. | RISK FACTORS |
Refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on
Risks Related to the Pending Transaction with Alliance Holdco Limited and events that raise substantial doubt about our ability to continue as a going concern.
We may be forced to amend, delay, limit, reduce or terminate the scope of our clinical and preclinical programs and/or limit or cease our operations if we are unable to obtain additional funding. As of March 31, 2022, we had cash and cash equivalents totaling $67.8 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 Quarterly Report on Form10-Q.During such12-monthperiod, our future liquidity needs will be primarily based on the: (i) success and progression of our product candidates; (ii) repayment obligations under our long-term debt agreement; and (iii) costs to operate our leasedbuild-to-suitmanufacturing and quality control facility. We will also require substantial additional funding to: (i) finish our Vista trial; (ii) move our ACHMB3 product candidate forward; (iii)not complete the process necessary to seek regulatory approval for our lead product candidates;pending transaction with Alliance Holdco Limited and (iv) buildAlliance Acquisition Sub, Inc. within the sales, marketing and distribution infrastructure thattime frame we believe will be necessary to commercialize our lead product candidates, if approved. To provide the maximum degree of financial flexibility, we may consider various potential opportunities to fund future operations and/or modulate liquidity needs, including: (i) raising new capital through equity or debt financings or other sources, including our“at-the-marketoffering” program; (ii) amending our long-term debt agreement;(iii) out-licensingthe rights to certain of our product candidates; (iv) entering into one or more collaborations to offset the costs of our leased manufacturing and quality control facility; and (v) reducing our expenditures on research and development activities and/or restructuring our operations. However, we may be unable to successfully execute any of the plans described above, or raise additional funds or enter into such other arrangements when needed on favorable terms,anticipate or at all. On May 4, 2022, the Federal Reserve Board announced an increase of 0.50% in the federal 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 mayall, which could have an adverse impact on our ability to raise funds through the offering of our securities or through the issuance of debt due to higher debt capital costs, diminished credit
On October 23, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alliance Holdco Limited, a private limited company organized under the laws of England and Wales (the “Parent”), and Alliance Acquisition Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of the Parent (the “Purchaser”). The Merger Agreement provides for, among other things and on the terms and subject to the conditions set forth therein, a two-step transaction in which the first step is a tender offer (the “Offer”) by the Purchaser to purchase all of the Company’s issued and outstanding shares of common stock (“Common Stock”) for (1) $0.34 per share of Common Stock (the “Cash Consideration”), without interest and less any applicable withholding taxes, plus (2) one contingent value right (each a “CVR”) representing the right to receive certain consideration based on the achievement of certain milestones, in an aggregate amount of up to $50.0 million for all Shares, payable in cash, without interest and net of applicable withholding taxes (the Cash Consideration plus one CVR, collectively, as such amount may be increased in accordance with the terms of the Merger Agreement, the “Offer Price”), subject to and in accordance with the terms and conditions of a Contingent Value Rights Agreement (the “CVR Agreement”) to be entered into by the Parent and a duly qualified rights agent acceptable to both the Parent and us (the “Rights Agent”). The Merger Agreement provides that, among other things, as soon as practicable after the consummation of the tender offer, and subject to the satisfaction or waiver of the conditions to the merger, and in accordance with the General Corporation Law of the State of Delaware (the “DGCL”), the Purchaser will be merged with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of the Parent. Because the Merger will be governed by Section 251(h) of the DGCL, assuming the requirements of Section 251(h) of the DGCL are met, no stockholder vote by our stockholders will be required to consummate the Merger. We currently expect the Offer and the Merger to be completed in the fourth quarter of calendar year 2022.
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If the transaction is not completed within the expected time frame or at all, we may be subject to a number of material risks in addition to the risks of continuing to operate our business. The price of our Common Stock may decline to the extent that current market prices of our Common Stock reflect a market assumption that the Merger will be completed on a timely basis. We could be required to pay the Parent a termination fee of $1.5 million if the Merger Agreement is terminated under specific circumstances described in the Merger Agreement. The failure to complete the transaction also may result in negative publicity and negatively affect our relationship with our stockholders, employees, strategic partners, suppliers and lender. We may also be required to devote significant time and resources to litigation related to any failure to complete the Merger or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement.
Our ability to complete the Merger is subject to certain closing conditions that could adversely affect us or cause the Merger to be abandoned.
The Purchaser’s obligation to accept shares of Common Stock tendered in the Offer is subject to certain closing conditions, including: (a) that the number of shares of Common Stock validly tendered (and not validly withdrawn) equals at least one share more than 50% of the total number of all shares of Common Stock then outstanding (treating as outstanding the shares of Common Stock underlying the outstanding and unvested restrict stock unit (“Company RSUs”)) plus the aggregate number of shares of Common Stock issuable to holders of each option to purchase shares of Common Stock from the Company (“Company Options”) and each outstanding and unexercised warrant to purchase shares of Common Stock (“Company Warrants”) from which we have received notices of exercise prior to expiration of the Offer; (b) the absence of any injunction or legal restraint that has the effect of prohibiting the consummation of the Offer or the Merger or making the Offer or the Merger illegal or prohibiting or making illegal the acquisition of or payment for shares of Common Stock pursuant to the Offer or the consummation of the Merger; (c) that, since the date of the Merger Agreement, there shall not have occurred any Company Material Adverse Effect (as defined in the Merger Agreement); (d) compliance by the Company with its obligations, covenants and agreements under the Merger Agreement; (e) the accuracy of representations and warranties made by us in the Merger Agreement; (f) the absence of any pending legal proceeding in which a governmental body is a party challenging the Offer or the Merger; (g) that the aggregate liability of the Company for the Black-Scholes Value (as defined in the warrants issued by the Company in July 2022) potentially payable to holders of the Company Warrants issued in July 2022 shall not exceed $9.5 million as of the time the Offer expires and (h) other customary conditions. We cannot provide any assurance that the conditions to the consummation of the Merger will be satisfied or waived, or will not result in the abandonment or delay of the Merger.
The pendency of the transaction with the Parent and the Purchaser could adversely affect our business, financial results and/or operations.
Our efforts to complete the transaction with the Parent and the Purchaser could cause substantial disruptions in, and create uncertainty surrounding, our business, which may materially adversely affect our results of operation and our business. Uncertainty as to whether the transaction will be completed may affect our ability to retain and motivate employees. Employee retention may be particularly challenging while the transaction is pending because employees may experience uncertainty about their roles following consummation of the transaction. A substantial amount of our management’s and employees’ attention is being directed toward the completion of the transaction and thus is being diverted from our day-to-day operations. Uncertainty as to our future could adversely affect our business and our relationship with strategic partners, suppliers and our lender. Changes to or termination of existing business relationships could adversely affect our results of operations and financial condition, and would jeopardize our ability to continue our operations. These factors raise substantial doubt about our ability to continue as a going concern.
Stockholder litigation could prevent or delay the consummation of the Offer and the Merger or otherwise negatively impact our business, operating results and financial condition.
We may incur additional costs in connection with the defense or settlement of existing and any future stockholder litigation and demands in connection with the Offer and the Merger. In connection with the Offer and related transactions, as of November 21, 2022, five complaints have been filed by certain of our purported stockholders alleging that the Schedule 14D-9, which we filed with the Securities and Exchange Commission on October 26, 2022 in connection with the Offer and the Merger (the “Schedule 14D-9”), contains omissions and misrepresentations that render it materially deficient and misleading. Specifically, these complaints allege, among other things, that we violated Sections 14(d), 14(e) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 14d-9 promulgated thereunder. As relief, the complaints seek, among other things, (i) to enjoin us from consummating the Merger, (ii) to enjoin us from filing an amendment to the Schedule 14D-9 unless certain information, as requested in the complaints, is included in such amendment, (iii) in the event the Merger is consummated, to rescind it, or award rescissory damages, (iv) to declare that we and our board of directors violated Sections 14(a) and/or 20(a) of the Exchange Act, (v) an award of costs and expenses related to the actions, and (vi) other relief as the courts may deem just and proper. Additionally, as of November 21, 2022, we have received six stockholder demand letters, which generally seek to include certain alleged omitted information in the Schedule 14D-9. We and our board of directors believe that the complaints and demand letters lack merit; however, these complaints and demands or other future litigation may adversely affect our ability to complete the Offer and the Merger. We could incur significant costs in connection with any such litigation and demands, including costs associated with the indemnification
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of our directors and officers and settlement payments. Furthermore, one of the conditions to the consummation of the Offer and the Merger is the absence of any injunction or legal restraint that has the effect of prohibiting the consummation of the Offer or the Merger or making the Offer or the Merger illegal or prohibiting or making illegal the acquisition of or payment for shares of Common Stock pursuant to the Offer or the consummation of the Merger. Consequently, if a plaintiff were to close belowsecure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the required minimum $1.00 per share for 30 consecutive business days, we may receive a deficiency notice from Nasdaq regarding our failure to comply with Nasdaq Marketplace Rule 5450(a)(1). If we receive such a notice, pursuant to Marketplace Rule 5810(c)(3)(A), we will be afforded a compliance period of 180 calendar days to regain compliance with Rule 5450(a)(1). If at any time during the
If the Merger occurs, our intent to cure the minimum bid price deficiency. However, if it appears to Nasdaq staff that westockholders will not be able to cureparticipate in any financial upside to our business after the deficiency, we doMerger other than through the CVRs; if the required milestones under the CVRs are not meetachieved, stockholders will not realize any value from the other listing standardsCVRs.
Upon consummation of the Merger, each issued and outstanding share will be converted into the right to receive the Offer Price. The CVRs represent the right to receive contingent payments, payable to the Rights Agent for the benefit of the holders of CVRs, of up to $50.0 million in the aggregate, payable in cash, without interest and less any applicable withholding taxes, and allocated among the outstanding CVRs, if the following milestones are achieved:
• | Milestone 1. The Parent will be obligated to pay up to $12.5 million, in the aggregate, upon the (a) sale, license, transfer, spin-off of, or the occurrence of any other monetizing event, whether in a single or multiple transactions, involving, all or any part of the Non-RPGR Assets (as defined in the CVR Agreement), (b) the sale or transfer of the Bionic Sight Equity (as defined in the CVR Agreement) and/or (c) the sale, lease or transfer of the Manufacturing Assets (as defined in the CVR Agreement), in each case, that closes on or prior to the date that is eighteen months after the date of the closing of the Merger. The aggregate amount payable in connection with such milestone will be equal to the amount by which the sum of (i) 60% of the Gross Proceeds (as defined in the CVR Agreement) attributable to the Non-RPGR Assets and/or (ii) 100% of the Gross Proceeds attributable to the Bionic Sight Equity and/or (iii) 100% of the Gross Proceeds attributable to the Manufacturing Assets (reduced by the amount of certain taxes and expenses as more particularly described in the CVR Agreement), collectively, exceeds $5.0 million; |
• | Milestone 2. The Parent will be obligated to pay an aggregate amount equal to $12.5 million upon obtaining United States Food and Drug Administration (“FDA”) approval of a Biologics License Application for AGTC-501, our lead gene therapy development program for the treatment of XLRP, to treat patients with XLRP caused by mutations in the RPGR gene, as evidenced by the written notice of such approval by the FDA, which approval (a) must be consistent with the patient population, at a minimum, as established by the inclusion/exclusion criteria of patients studied in the pivotal clinical trial, (b) may be subject to conditions of use, contraindications, or otherwise limited, and (c) may contain a commitment to conduct a post-approval study or clinical trial (the “Marketing Approval”); |
• | Milestone 3. The Parent will be obligated to pay an aggregate amount equal to $12.5 million if, as of the date of the Marketing Approval, no other adeno-associated virus gene therapy product expressing the RPGR protein (including any derivative or shortened version of the RPGR protein) has received a marketing approval from the FDA; and |
• | Milestone 4. The Parent will be obligated to pay an aggregate amount equal to $12.5 million the first time that Net Sales (as defined in the CVR Agreement) of AGTC-501 in any calendar year is equal to or exceeds $100.0 million. |
No interest will accrue or we failbe payable in respect of any of the amounts that may become payable on the CVRs. There can be no assurance that any of the milestones will be achieved and the Parent has no obligation to regain compliancecause any of the milestones to be achieved. If a milestone is not achieved, the associated payment will not be payable to the holders of the CVRs and, if no milestones are achieved, the CVRs will expire valueless.
We have incurred, and will continue to incur, direct and indirect costs as a result of the pending transaction with the Nasdaq continued listing standards followingParent.
We have incurred, and will continue to incur, significant costs and expenses, including fees for professional services and other transaction costs, in connection with the second
While the Merger Agreement is in effect, we are subject to delisting. We would be entitledrestrictions on our business activities.
The Merger Agreement includes restrictions on the conduct of our business prior to appeal such a delisting determinationthe completion of the Merger, generally requiring us to conduct our business and operations in the ordinary course and in accordance, in all material respects, with past practice and all applicable legal requirements, and otherwise in accordance with the Merger Agreement. Without limiting the generality of the foregoing, we are subject to a Nasdaq hearing panelvariety of specified restrictions. Unless we obtain the Parent’s prior written consent and except (i) as expressly permitted by the delistingMerger Agreement, (ii) as required by applicable law, or (iii) as set forth in the disclosure schedule
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delivered by us to the Parent, we may be stayed pending the panel’s determination. To the extent that we are unablenot, among other things and subject to resolve a listing deficiency, there is a risk that our commoncertain exceptions, pay dividends, complete any stock may be delisted from Nasdaq, which would adversely impact the liquiditysplits or combinations, issue additional shares of our common stock, hire or terminate any employees, amend our certificate of incorporation or bylaws, form any subsidiaries, enter into any joint venture, partnership, limited liability corporation or similar agreement, acquire or dispose of any rights or assets other than in the ordinary course of business or that are immaterial to our business, make any pledge or mortgage of any material assets, commence any legal proceeding, settle or release certain legal actions or proceedings, commence any new clinical trials or terminate clinical trials in progress, qualify any new site for manufacturing of any product candidate, make any submissions to any governmental body relating to our business, or make or authorize any capital expenditure, including with respect to the purchase of reagent and potentiallyother materials, except for such expenditures that fall under certain dollar thresholds. We may find that these and other contractual restrictions in the Merger Agreement delay or prevent us from responding, or limit our ability to respond, effectively to competitive pressures, industry developments and future business opportunities that may arise during such period, even if our management believes they may be advisable. If any of these effects were to occur, it could materially and adversely impact our operating results, financial position, cash flows and/or the price of our common stock.
The Merger Agreement limits our ability to pursue alternative transactions, which could deter a third party from proposing an alternative transaction.
The Merger Agreement contains provisions that, subject to certain exceptions, preclude us from soliciting alternative Acquisition Proposals (as defined in the Merger Agreement). It is possible that these or other provisions in the Merger Agreement might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of the outstanding shares of our common stock from considering or proposing an acquisition or might result in evena potential competing acquirer proposing to pay a lower bid prices forper share price to acquire our common stock.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
Pursuant to a letter agreement dated as of November 15, 2021, we agreed to issue 30,000 shares of its common stock to Corporate Profile LLC as partial consideration for investor relations services, which shares were issued in three tranches: 15,000 shares were issued on March 10, 2022, 7,500 shares were issued on May 16, 2022 and 7,500 shares were issued on August 15, 2022. Such issuances were deemed to be exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereunder as transactions by an issuer not involving a public offering. The recipient of the securities in these transactions acquired the securities for investment only and not with a view toward the resale or distribution to others, and appropriate legends were affixed to the securities issued in these transactions.
ITEM 6. | EXHIBITS |
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31.1* | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
31.2* | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1** | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
101.INS* | 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 | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | The cover page for the Company’s Quarterly Report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
* | Filed herewith. |
** | Furnished herewith. |
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
APPLIED GENETIC TECHNOLOGIES CORPORATION (Registrant) | ||
By: | /s/ Jonathan I. Lieber | |
Jonathan I. Lieber, Chief Financial Officer | ||
Date: |
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