APPLIED GENETIC TECHNOLOGIES CORP - Quarter Report: 2019 December (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

 

FORM 10-Q

 

 

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended December 31, 2019

OR

 

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-36370

 

 

 

APPLIED GENETIC

TECHNOLOGIES CORPORATION

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware		59-3553710
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

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

(Address of Principal Executive Offices, Including Zip Code)

(386) 462-2204

(Registrant’s Telephone Number, Including Area Code)

 

 

 

Title of class		Trading Symbol(s)		Name of exchange on which registered
Common Stock, $0.001 par value		AGTC		Nasdaq Global Market

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

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

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

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

 

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☐

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

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

The number of shares of the registrant’s common stock outstanding as of February 4, 2020 was 18,275,408.

 

 

 

APPLIED GENETIC TECHNOLOGIES CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED December 31, 2019

TABLE OF CONTENTS

 

				Pages
		PART I. FINANCIAL INFORMATION
ITEM 1.		FINANCIAL STATEMENTS (Unaudited)			3
		Condensed Balance Sheets as of December 31, 2019 and June 30, 2019			3
		Condensed Statements of Operations for the three and six months ended December 31, 2019 and 2018			4
		Condensed Statements of Stockholders’ Equity for the three and six months ended December 31, 2019 and 2018			5
		Condensed Statements of Cash Flows for six months ended December 31, 2019 and 2018			6
		Notes to Condensed Financial Statements			7
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			20
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			29
ITEM 4.		CONTROLS AND PROCEDURES			29
		PART II. OTHER INFORMATION
ITEM 1.		LEGAL PROCEEDINGS			30
ITEM 1A.		RISK FACTORS			30
ITEM 6.		EXHIBITS			31
		SIGNATURE			32

 

2

PART I. FINANCIAL INFORMATION

 

ITEM 1.

FINANCIAL STATEMENTS

APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED BALANCE SHEETS

(Unaudited)

 

In thousands, except per share data		December 31, 2019				June 30, 2019
ASSETS
Current assets:
Cash and cash equivalents		$	18,076			$	26,703
Investments			44,479				55,292
Grants receivable			169				13
Prepaid and other current assets			1,993				2,276
Total current assets			64,717				84,284
Property and equipment, net			4,053				4,430
Intangible assets, net			1,127				1,013
Investment in Bionic Sight			1,930				1,945
Right of use asset – operating lease			3,580				—
Right of use asset – finance lease			103				—
Other assets			6,741				544
Total assets		$	82,251			$	92,216
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	5,713			$	1,331
Accrued and other liabilities			8,513				8,024
Lease liability – operating			659				—
Lease liability – finance			46				—
Total current liabilities			14,931				9,355
Lease liability – operating, net of current portion			4,882				—
Lease liability – finance, net of current portion			63				—
Other liabilities			2,336				4,152
Total liabilities			22,212				13,507
Stockholders’ equity:
Preferred stock, par value $.001 per share, 5,000 shares authorized; no shares issued and outstanding			—				—
Common stock, par value $.001 per share, 150,000 shares authorized; 18,239 and 18,226 shares issued; 18,219 and 18,207 shares outstanding at December 31, 2019 and June 30, 2019, respectively			18				18
Additional paid-in capital			215,857				214,324
Shares held in treasury of 20 and 19 at December 31, 2019 and June 30, 2019, respectively			(88	)			(85	)
Accumulated deficit			(155,748	)			(135,548	)
Total stockholders’ equity			60,039				78,709
Total liabilities and stockholders’ equity		$	82,251			$	92,216

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

 

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APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

		Three Months Ended December 31,								Six Months Ended December 31,
In thousands, except per share amounts		2019				2018				2019				2018
Revenue:
Collaboration revenue		$	2,297			$	5,895			$	2,297			$	19,920
Grant and other revenue			156				39				156				48
Total revenue			2,453				5,934				2,453				19,968
Operating expenses:
Research and development			8,375				7,583				17,017				17,648
General and administrative and other			3,008				3,022				6,356				6,235
Total operating expenses			11,383				10,605				23,373				23,883
Loss from operations			(8,930	)			(4,671	)			(20,920	)			(3,915	)
Other income:
Investment income, net			336				520				782				991
Other expense			(2	)			—				(4	)			—
Total other income, net			334				520				778				991
Loss before provision for income taxes			(8,596	)			(4,151	)			(20,142	)			(2,924	)
Provision for income taxes			21				19				42				38
Loss before equity in net losses of affiliate			(8,617	)			(4,170	)			(20,184	)			(2,962	)
Total other loss, net			(6	)			(11	)			(16	)			(19	)
Net loss		$	(8,623	)		$	(4,181	)		$	(20,200	)		$	(2,981	)
Weighted Average Shares Outstanding
Basic			18,219				18,094				18,215				18,140
Diluted			18,219				18,094				18,215				18,140
Net loss per common share
Basic		$	(0.47	)		$	(0.23	)		$	(1.11	)		$	(0.16	)
Diluted		$	(0.47	)		$	(0.23	)		$	(1.11	)		$	(0.16	)

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

 

4

APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

 

		Common Stock								Treasury Stock								Additional Paid-in Capital				Accumulated Deficit				Total
In thousands		Outstanding Shares				Amount				Outstanding Shares				Amount
Balance, June 30, 2019			18,207			$	18				19			$	(85	)		$	214,324			$	(135,548	)		$	78,709
Share based compensation expense			—				—				—				—				810				—				810
Shares issued under employee plans			11				—				1				(3	)			34				—				31
Net loss			—				—				—				—				—				(11,577	)			(11,577	)
Balance, September 30, 2019			18,218				18				20				(88	)			215,168				(147,125	)			67,973
Share based compensation expense			—				—				—				—				689				—				689
Shares issued under employee plans			1				—				—				—				—				—				—
Net loss			—				—				—				—				—				(8,623	)			(8,623	)
Balance, December 31, 2019			18,219			$	18				20			$	(88	)		$	215,857			$	(155,748	)		$	60,039
		Common Stock								Treasury Stock								Additional Paid-in Capital				Accumulated Deficit				Total
In thousands		Outstanding Shares				Amount				Outstanding Shares				Amount
Balance, June 30, 2018			18,126			$	18				11			$	(49	)		$	210,139			$	(110,926	)		$	99,182
Cumulative impact of adopting Topic 606			—				—				—				—				—				(22,616	)			(22,616	)
Share based compensation expense			—				—				—				—				1,181				—				1,181
Shares issued under employee plans			4				—				2				(8	)			—				—				(8	)
Net income			—				—				—				—				—				1,200				1,200
Balance, September 30, 2018			18,130				18				13				(57	)			211,320				(132,342	)			78,939
Share based compensation expense			—				—				—				—				1,094				—				1,094
Shares issued under employee plans			34				—				2				(13	)			136				—				123
Net loss			—				—				—				—				—				(4,181	)			(4,181	)
Balance, December 31, 2018			18,164			$	18				15			$	(70	)		$	212,550			$	(136,523	)		$	75,975

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

 

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APPLIED GENETIC TECHNOLOGIES CORPORATION

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		Six Months Ended December 31,
In thousands		2019				2018
Cash flows from operating activities:
Net loss		$	(20,200	)		$	(2,981	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense			1,499				2,275
Depreciation and amortization			649				639
Recovery of bad debts			—				(258	)
Investment discount accretion			(278	)			(353	)
Non-cash lease expense			145				—
Non-cash interest on lease liabilities			240				—
Collaboration revenue from Bionic Sight			(2,197	)			—
Equity in net losses of affiliate			16				19
Changes in operating assets and liabilities:
Grants receivable			(156	)			(17	)
Prepaid and other assets			289				291
Deferred revenues			—				(7,960	)
Accounts payable			441				719
Operating lease liabilities			(541	)			—
Accrued and other liabilities			1,057				(1,350	)
Net cash used in operating activities			(19,036	)			(8,976	)
Cash flows from investing activities:
Purchase of property and equipment			(434	)			(81	)
Purchase of and capitalized cost related to intangible assets			(257	)			(68	)
Maturities of investments			40,500				46,619
Purchases of investments			(29,409	)			(44,523	)
Net cash provided by investing activities			10,400				1,947
Cash flows from financing activities:
Proceeds from exercise of common stock options			34				136
Taxes paid related to equity awards			(3	)			—
Deferred offering costs			—				(168	)
Payments made toward finance lease liability			(22	)			(26	)
Net cash provided by (used in) financing activities			9				(58	)
Net change in cash and cash equivalents			(8,627	)			(7,087	)
Cash and cash equivalents, beginning of period			26,703				31,065
Cash and cash equivalents, end of period		$	18,076			$	23,978
Supplemental information:
Payable related to Bionic Sight investment receivable (see Note 7)		$	4,000			$	—
Cash paid for interest		$	4			$	—
Shares issued for no consideration		$	3			$	21

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

 

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APPLIED GENETIC TECHNOLOGIES CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

1.	Organization and Operations

Applied Genetic Technologies Corporation (the “Company” or “AGTC”) was incorporated as a Florida corporation on January 19, 1999 and reincorporated as a Delaware corporation on October 24, 2003. The Company is a clinical-stage biotechnology company that uses a proprietary gene therapy platform to develop transformational genetic therapies for patients suffering from rare and debilitating diseases.

In July 2015, the Company entered into a collaboration agreement (the “Collaboration Agreement”) with Biogen MA, Inc., a wholly owned subsidiary of Biogen Inc. (“Biogen”), pursuant to which the Company and Biogen collaborated to develop, seek regulatory approval for and commercialize gene therapy products to treat X-linked retinoschisis (“XLRS”), X-linked retinitis pigmentosa (“XLRP”), and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. The Collaboration Agreement became effective in August 2015. On December 7, 2018, the Company received notice from Biogen that it had elected to terminate the Collaboration Agreement, which became effective on March 8, 2019. The Collaboration Agreement and other transactions with Biogen are discussed further in Note 7 to these Unaudited Condensed Financial Statements.

The Company has devoted substantially all of its efforts to research and development, including clinical trials. The Company has not completed the development of any products. The Company has generated revenue from collaboration agreements, sponsored research payments and grants, but has not generated product revenue to date and is subject to a number of risks similar to those of other early stage companies in the biotechnology industry, including dependence on key individuals, the difficulties inherent in the development of commercially viable products, the need to obtain additional capital necessary to fund the development of its products, development by the Company or its competitors of technological innovations, risks of failure of clinical studies, protection of proprietary technology, compliance with government regulations and ability to transition to large-scale production of products. As of December 31, 2019, the Company had an accumulated deficit of $155.8 million. While the Company expects to continue to generate some revenue from partnering, the Company expects to incur losses for the foreseeable future. The Company has funded its operations to date primarily through public offerings of its common stock, private placements of its preferred stock, and collaborations. As of December 31, 2019, the Company had cash and cash equivalents and liquid investments of $62.6 million. Existing cash and cash equivalents and investments as of December 31, 2019, will be sufficient to allow the Company to generate data from ongoing clinical programs, to move pre-clinical optogenetic program in collaboration with Bionic Sight into the clinical and to fund currently planned research and discovery programs for a period exceeding one year from the date that these financial statements were filed with the U.S. Securities and Exchange Commission (“SEC”).

 

2.	Summary of Significant Accounting Policies

Basis of presentation

The accompanying Unaudited Condensed Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and, in the opinion of management, include all adjustments necessary for a fair presentation of the Company’s financial position, results of operations, stockholders’ equity and cash flows for the periods presented.

The adjustments referred to above are of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to SEC rules and regulations for interim reporting.

The Condensed Balance Sheet as of June 30, 2019 was derived from audited financial statements but does not include all disclosures required by U.S. GAAP. These Unaudited Condensed Financial Statements should be read in conjunction with the audited financial statements included in the Company’s 2019 Annual Report on Form 10-K (“June 30, 2019 Form 10-K”). Results of operations for the three and six months ended December 31, 2019 are not necessarily indicative of the results to be expected for the full year or any other interim period.

Segment reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker in making decisions regarding resource allocation and assessing performance. To date, we have viewed our operations and managed our business as one segment.

 

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Use of estimates

The preparation of financial statements in conformity with U.S. GAAP and SEC regulations, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and cash equivalents

Cash consists of funds held in bank accounts. Cash equivalents consist of short-term, highly liquid investments with original maturities of 90 days or less at the time of purchase and generally include money market accounts.

Investments

The Company’s investments consist of certificates of deposit and debt securities classified as held-to maturity. Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation as of each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest on securities classified as held-to-maturity is included in investment income.

The Company uses the specific identification method to determine the cost basis of securities sold.

Investments are considered to be impaired when a decline in fair value is judged to be other-than-temporary. The Company evaluates an investment for impairment by considering the length of time and extent to which market value has been less than cost or amortized cost, the financial condition and near-term prospects of the issuer as well as specific events or circumstances that may influence the operations of the issuer and the Company’s intent to sell the security or the likelihood that it will be required to sell the security before recovery of the entire amortized cost. Once a decline in fair value is determined to be other-than-temporary, an impairment charge is recorded to investment income (expense) and a new cost basis in the investment is established.

Fair value of financial instruments

The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) 820, Fair Value Measurements and Disclosures, establishes a hierarchy of inputs used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of financial instruments and is not a measure of the investment credit quality. The three levels of the fair value hierarchy are described below:

Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.

Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.

Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Revenue recognition

Effective July 1, 2018, the Company adopted the provisions of ASC Topic 606, Revenue from Contracts with Customers, (“Topic 606”), using the modified retrospective transition method. Under this method, the Company recorded the cumulative effect of initially applying the new standard to all contracts in process as of the date of adoption. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards.

 

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The adoption of the new revenue recognition guidance resulted in an increase of $22.6 million in deferred revenue and accumulated deficit as of July 1, 2018.

The Company may enter into collaboration agreements which are within the scope of Topic 606, under which the Company licenses rights to its technology and certain of the Company’s product candidates and performs research and development services for third parties. The terms of these arrangements typically may include payment of one or more of the following: non-refundable, up-front fees; reimbursement of research and development costs; development, regulatory and commercial milestone payments; and royalties on net sales of licensed products.

Under Topic 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, the Company performs the following five steps: (i) identification of the contract; (ii) determination of whether the promised goods or services are performance obligations; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) the Company satisfies each performance obligation. The Company only applies the five-step model to contracts when it is probable that the entity will collect consideration it is entitled to in exchange for the goods or services it transfers to the customer.

Performance obligations are promises to transfer distinct goods or services to the customer. Promised goods or services are considered distinct when (i) the customer can benefit from the good or service on its own or together with other readily available resources and (ii) the promised good or service is separately identifiable from other promises in the contract. In assessing whether promised good or services are distinct, the Company considers factors such as the stage of development of the underlying intellectual property, the capabilities of the customer to develop the intellectual property on their own or whether the required expertise is readily available.

The Company estimates the transaction price based on the amount expected to be received for transferring the promised goods or services in the contract. The consideration may include both fixed consideration or variable consideration. At the inception of an arrangement that includes variable consideration and at each reporting period, the Company evaluates the amount of potential payment and the likelihood that the payments will be received. The Company utilizes either the most likely amount method or expected amount method to estimate the amount to be received based on which method better predicts the amount expected to be received. If it is probable that a significant revenue reversal would not occur, the variable consideration is included in the transaction price. The Company will assess its revenue generating arrangements in order to determine whether a significant financing component exists and conclude that a significant financing component does not exist in any of its arrangements if: (a) the promised consideration approximates the cash selling price of the promised goods and services or any significant difference is due to factors other than financing; and (b) timing of payment approximates the transfer of goods and services and performance is over a relatively short period of time within the context of the entire term of the contract.

The Company’s contracts will often include development and regulatory milestone payments. At contract inception and at each reporting period, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company’s control or the customer’s control, such as regulatory approvals, are not included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment.

For arrangements that may include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of the Company’s collaboration arrangements.

The Company allocates the transaction price based on the estimated standalone selling price of the underlying performance obligations or in the case of certain variable consideration to one or more performance obligations. The Company must develop assumptions that require judgment to determine the stand-alone selling price for each performance obligation identified in the contract. The Company utilizes key assumptions to determine the stand-alone selling price, which may include other comparable transactions, pricing considered in negotiating the transaction and the estimated costs to complete the respective performance obligation. Certain variable consideration is allocated specifically to one or more performance obligations in a contract when the terms of the variable consideration relate to the satisfaction of the performance obligation and the resulting amounts allocated to each performance obligation are consistent with the amounts the Company would expect to receive for each performance obligation.

For performance obligations consisting of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-

 

9

front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company will recognize revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.

The Company receives payments from its customers based on billing terms established in each contract. Such billings generally have 30-day payment terms. Upfront payments and fees are recorded as deferred revenue upon receipt or when due until the Company performs its obligations under these arrangements. Amounts are recorded as accounts receivable when the right to consideration is unconditional.

Collaboration revenue

To date, the Company’s collaboration revenue has been generated from its collaboration arrangement with Biogen and Bionic Sight as further described in Note 7, “Collaboration Agreements”.

The Company analyzes its collaboration arrangements to assess whether they are within the scope of ASC 808, Collaborative Arrangements (“ASC 808”) to determine whether such arrangements involve joint operating activities performed by parties that are both active participants in the activities and exposed to significant risks and rewards dependent on the commercial success of such activities. This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement. For collaboration arrangements within the scope of ASC 808 that contain multiple elements, the Company first determines which elements of the collaboration are deemed to be within the scope of ASC 808 and those that are more reflective of a vendor-customer relationship and therefore within the scope of ASC 606. For elements of collaboration arrangements that are accounted for pursuant to ASC 808, an appropriate recognition method is determined and applied consistently, generally by analogy to ASC 606.

Income taxes

The Company uses the asset and liability method for accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred tax assets and liabilities are measured using enacted rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.

The Tax Cut and Jobs Act (the “Tax Act”) was enacted on December 22, 2017. The Tax Act contains several key provisions including, among other things, reducing the U.S. federal corporate tax rate from 35% to 21%. In addition, federal net operating losses (“NOLs”) will be carried forward indefinitely but will be subject to an 80% utilization against taxable income. As required by U.S. GAAP, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. Any interest and penalties related to uncertain tax positions will be reflected in income tax expense. The Company is subject to examination of its income tax returns in the federal and state income tax jurisdictions in which it operates for the tax years ended June 30, 2016 through 2019.

For the three and six months ended December 31, 2019, the Company’s tax expense included an increase in the uncertain tax position liability of $21,000 and $42,000, respectively, related to interest on the uncertain tax position, compared to $19,000 and $38,000, respectively, for the three and six months ended December 31, 2018. The uncertain tax position liability as of December 31, 2019 and June 30, 2019 was $2,077,000 and $2,035,000, respectively.

Research and development

Research and development costs include costs incurred in identifying, developing and testing product candidates and generally comprise compensation and related benefits and non-cash share-based compensation to research related employees; laboratory costs; animal and laboratory maintenance and supplies; rent; utilities; clinical and pre-clinical expenses; and payments for sponsored research, scientific and regulatory consulting fees and testing.

As part of the process of preparing its financial statements, the Company is required to estimate its accrued expenses. This process involves reviewing quotations and contracts, identifying services that have been performed on its behalf and estimating the level of service performed and the associated cost incurred for services for which the Company has not yet been invoiced or otherwise notified

 

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of the actual cost. The majority of the Company’s service providers invoice the Company monthly in arrears for services performed or when contractual milestones are met. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known to it at that time. The significant estimates in the Company’s accrued research and development expenses are related to expenses incurred with respect to academic research centers, contract research organizations, and other vendors in connection with research and development activities for which it has not yet been invoiced.

There may be instances in which the Company’s service providers require advance payments at the inception of a contract or in which payments made to these vendors will exceed the level of services provided, resulting in a prepayment of the research and development expense. Such prepayments are charged to research and development expense as and when the service is provided or when a specific milestone outlined in the contract is reached.

Prepayments related to research and development activities were $0.8 million and $0.7 million at December 31, 2019 and June 30, 2019, respectively, and are included within the prepaid and other current assets line item in these Unaudited Condensed Balance Sheets.

Share-based compensation

The Company accounts for share-based awards issued to employees in accordance with ASC Topic 718, Compensation—Stock Compensation and generally recognizes share-based compensation expense on a straight-line basis over the periods during which the employees are required to provide service in exchange for the award. In addition, the Company issues stock options and restricted shares of common stock to non-employees in exchange for consulting services. As noted in the Company’s fiscal year 2019 Annual Report on Form 10-K, the Company historically accounted for these in accordance with the provisions of ASC Subtopic 505-50, Equity-Based Payments to Non-employees (“ASC 505-50”). Under ASC 505-50, share-based awards to non-employees were subject to periodic fair value re-measurement over their vesting terms. As discussed below under “Adopted in the current period” section, in the first fiscal quarter of 2020 the Company adopted ASU No. 2018-07, “Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” (“ASU 2018-07”). As a result, the accounting for non-employee awards will be generally consistent with that of employee awards. The measurement date for non-employee awards is the date of grant without changes in the fair value of the award. Stock-based compensation costs for non-employees are recognized as expense over the vesting period on a straight-line basis.

For purposes of calculating stock-based compensation, the Company uses Monte Carlo simulation model to determine the fair value of restricted stock units and Black-Scholes model to determine the fair value of stock options. The Monte Carlo simulation model incorporates probability of satisfying a market condition and uses transaction details such as the Company’s stock price, contractual terms, maturity, risk free rates, as well as, volatility. The Black-Scholes model is affected by the Company’s stock price at the grant date and incorporates a number of assumptions, including expected volatility, expected term, risk-free interest rate and expected dividends.

Net loss per share

Basic net loss per share is calculated by dividing net loss by the weighted average shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting weighted average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method. For purposes of the diluted loss per share calculations, stock options, restricted stock awards and performance service awards are considered to be common stock equivalents if they are dilutive. If applicable, the dilutive impact of common stock equivalents for the three and six months ended December 31, 2019 would be 0.3 million shares and for the three and six months ended December 31, 2018 would be 0.2 million shares, respectively.

The dilutive impact of stock options has been excluded from the calculation of diluted net loss per share for the three and six months ended December 31, 2019 and 2018 as their effect would be anti-dilutive. Therefore, for the three and six months ended December 31, 2019 and 2018 basic and diluted net loss per share were the same.

Comprehensive loss

Comprehensive loss consists of net loss and changes in equity during a period from transactions and other equity and circumstances generated from non-owner sources. The Company’s net loss equals comprehensive loss for all periods presented.

 

11

New Accounting Pronouncements

Adopted in the current period

Leases

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which superseded FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new accounting guidance requires recognition of all long-term lease assets and lease liabilities by lessees and sets forth new disclosure requirements for those lease assets and liabilities. The standard requires lessees to recognize right-of-use assets and lease liabilities on the balance sheet using a modified retrospective approach at the beginning of the earliest comparative period in the financial statements. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The FASB subsequently issued several ASUs amending the new standard. The Company adopted the new standard effective July 1, 2019 using the required modified retrospective approach. As a result, prior periods are presented in accordance with the previous guidance in ASC 840.

ASU 2016-02 provides a number of optional practical expedients in transition. The Company elected the ‘package of practical expedients’, which permits the Company to (i) not reassess whether any expired or existing contracts are or contain leases (ii) not reassess the lease classification for any expired or existing leases and (iii) not reassess initial direct costs for any existing leases. The Company will continue to differentiate between finance leases (previously referred to as capital leases) and operating leases using classification criteria that are substantially similar to the previous guidance. Adoption of this standard resulted in the recognition of a right-of-use asset and a lease liability on the Company’s July 1, 2019 Unaudited Condensed Balance Sheet of $3.7 million and $5.8 million, respectively. There was no material impact on the Company’s Unaudited Condensed Statement of Operations for the three and six months ended December 31, 2019. For leases with terms greater than 12 months, the Company records the related right-of-use asset and lease liability at the present value of lease payments over the term. As the Company’s leases do not provide readily determinable implicit interest rates, the Company used incremental borrowing rates commensurate with the respective terms of the leases to discount the lease payments. The application of the new standard required netting of unamortized balance of lease incentives and deferred lease obligation to the right-of-use asset at the adoption date. The Company’s operating leases include rental escalation clauses that are factored into the determination of lease payments when appropriate. The Company does not separate lease and non-lease components of contracts. Refer to Note 3, Leases within these Unaudited Condensed Financial Statements for additional information.

Share-Based Compensation

In June 2018, the FASB issued ASU No. 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The new standard aligns the measurement and classification guidance for share-based payments to nonemployees with the guidance for share-based payments to employees, with certain exceptions. Under the guidance, the measurement of equity-classified nonemployee awards will be fixed at the grant date, which may lower their cost and reduce volatility in the income statement. The Company adopted ASU 2018-07 on July 1, 2019 using a cumulative effect adjustment as of the date of adoption. The adoption of this standard did not have an impact on the Company’s financial position or results of operations upon adoption.

To be adopted in future periods

Financial Instruments—Credit Losses

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost basis to be presented at the net amount expected to be collected and separately measure an allowance for credit losses that is deducted from the amortized cost basis of the financial assets. This standard will be effective for the Company on July 1, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The new standard eliminates, adds and modifies certain disclosure requirements for fair value measurement as part of its disclosure framework project. The amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy will no longer be required to be disclosed, but public companies will be required to

 

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disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. This standard will be effective for the Company on July 1, 2020. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

Collaborative Arrangements

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction between Topic 808 and Topic 606. The new standard clarifies that certain transactions between participants in a collaborative arrangement should be accounted for under ASC 606 when the counterparty is a customer. It precludes an entity from presenting consideration from a transaction in a collaborative arrangement as revenue from contracts with customers if the counterparty is not a customer for that transaction. The guidance amends ASC 808 to refer to the unit-of-account guidance in ASC 606 and requires it to be used only when assessing whether a transaction is in the scope of ASC 606. This standard will be effective for the Company on July 1, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

Income Taxes

In December 2019, the FASB issued ASU No. 2019 -12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The new standard includes several provisions which simplify accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and increasing consistency and clarity for the users of financial statements. This standard will be effective for the Company on July 1, 2021. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company’s financial statements.

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

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

 

3.

Leases

The Company leases certain laboratory and office space under operating leases, which consist of the following:

Alachua, Florida

The Company’s corporate headquarters are located in Alachua, Florida. In January 2016, the Company moved into a new combined-use facility consisting of approximately 21,500 square feet of laboratory and office space. The initial lease term for this facility is 12 years with options to extend the term of the lease for three additional five-year periods.

Cambridge, Massachusetts

In August 2015, the Company entered into a two-year lease to occupy approximately 3,000 square feet of laboratory and office space in Cambridge, Massachusetts. On July 31, 2017, the Company entered into a new lease to increase laboratory and office space in Cambridge by approximately 5,000 square feet to a total of approximately 8,000 square feet and extend the term of the lease for an additional seven years, with an option to further extend the lease for one additional three-year term.

In addition, the Company leases certain office equipment under a finance lease.

As part of the Company’s assessment of the lease term, the Company did not elect the hindsight practical expedient, which allows companies to use current knowledge and expectations when determining the likelihood to extend lease options. By not electing this practical expedient, the Company will not re-assess the lease term for any leases identified under ASC 840.

 

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Summary of all lease costs recognized under ASC 842

The following table contains a summary of the lease costs recognized under ASC 842 and other information pertaining to the Company’s operating and finance leases:

 

In thousands		Three months ended December 31, 2019				Six months ended December 31, 2019
Lease Cost:
Finance lease cost
Amortization of right-of-use asset		$	11				22
Interest on lease liabilities			2				4
Operating lease cost			193				386
Variable lease cost			85				176
Total lease cost		$	291				588
Other Information:
Weighted-average remaining lease term - operating leases (in years)							6.6
Weighted-average remaining lease term - financing leases (in years)							2.3
Weighted-average discount rate - operating leases							8.5	%
Weighted-average discount rate - financing leases							6.9	%

Amortization of right-of-used asset is included within the general and administrative and other caption in these Unaudited Condensed Statements of Operations. Operating lease cost and variable lease cost are included in rent expense within the general and administrative and other caption, and the research and development caption in these Unaudited Condensed Statements of Operations.

As of December 31, 2019, future minimum commitments under the ASC 842 for the Company’s operating and financing leases were as follows:

 

In thousands		As of December 31, 2019
Maturity of operating lease liabilities:
2020 (excluding the six months ended December 31, 2019)		$	548
2021			1,108
2022			1,127
2023			1,146
2024 and thereafter			3,311
Present value adjustment			(1,699	)
Operating lease liabilities		$	5,541
Maturity of finance lease liabilities:
2020 (excluding the six months ended December 31, 2019)		$	31
2021			53
2022 and thereafter			39
Present value adjustment			(14	)
Finance lease liability		$	109

 

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4.	Share-based Compensation Plans

The Company uses stock options, performance service awards, restricted stock awards and restricted stock units to provide long-term incentives for its employees, non-employee directors and certain consultants. The Company has two equity compensation plans under which awards are currently authorized for issuance, the 2013 Employee Stock Purchase Plan and the 2013 Equity and Incentive Plan. No awards have been issued to date under the 2013 Employee Stock Purchase Plan and all of the 128,571 shares previously authorized under this plan remain available for issuance. A summary of the stock option activity for the six months ended December 31, 2019 and 2018 is as follows:

 

		Six Months Ended December 31,
		2019								2018
(In thousands, except per share amounts)		Shares				Weighted Average Exercise Price				Shares				Weighted Average Exercise Price
Outstanding at June 30,			3,585			$	9.19				3,107			$	10.93
Granted			984				3.09				983				4.59
Exercised			(10	)			3.2				(29	)			4.52
Forfeited			(244	)			4.0				(213	)			7.41
Expired			(299	)			11.5				(184	)			13.40
Outstanding at December 31			4,016			$	7.84				3,664			$	9.37
Exercisable at December 31,			2,267								2,034
Weighted average fair value of options granted during the period		$	2.00							$	2.38

The fair value of each option granted is estimated on the grant date using the Black-Scholes stock option pricing model. The following assumptions were made in estimating fair value:

 

Assumption		Six months ended December 31, 2019				Six months ended December 31, 2018
Dividend yield			0.00	%			0.00	%
Expected term			6.00 to 6.25 years				6.00 to 6.25 years
Risk-free interest rate			1.45% to 1.90	%			2.77% to 2.99	%
Expected Volatility			71.2	%			69.22	%

For the six months ended December 31, 2019, 175,500 restricted stock units, which included a market-based vesting condition related to the trading price of our common stock, were granted to the Company’s employees under the 2013 Equity and Incentive Plan with weighted average grant date fair value of $2.56. None of the restricted units were vested as of December 31, 2019. The fair value of each option granted was estimated on the grant date using the Monte Carlo simulation pricing model, which incorporated the probability of satisfying the related market-based vesting condition.

Share-based compensation expense for the three and six months ended December 31, 2019 was $0.7 million and $1.5 million, respectively, compared to $1.1 million and $2.3 million, respectively, for the three and six months ended December 31, 2018.

5. Investments

Cash in excess of immediate requirements is invested in accordance with the Company’s investment policy that primarily seeks to maintain adequate liquidity and preserve capital. The net carrying amounts of the Company’s investments by category consisted of debt securities held-to-maturity (due in one year or less). As of December 31, 2019, and June 30, 2019 the Company had investments amounting to $44.5 million and $55.3 million, respectively.

A summary of the Company’s debt securities classified as held-to-maturity is as follows:

 

In thousands		December 31, 2019				June 30, 2019
U.S. Treasury Securities:
Amortized cost		$	44,479			$	55,292
Gross unrealized gains			21				78
Gross unrealized losses			—				—
Fair Value		$	44,500			$	55,370

 

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The Company continues to expect to collect the principal and interest due on its debt securities that have an amortized cost in excess of fair value. At each reporting period, the Company evaluates securities for impairment, if and when, the fair value of the investment is less than its amortized cost. The Company evaluated the underlying credit quality and credit ratings of the issuers, noting neither a significant deterioration since purchase nor other factors leading to other-than-temporary impairment. The Company does not intend to sell its investments before recovery of their amortized cost bases which may be at maturity.

 

6.	Fair Value of Financial Instruments and Investments

Certain assets and liabilities are measured at fair value in the Company’s financial statements or have fair values disclosed in the notes to the financial statements. These assets and liabilities are classified into one of three levels of a hierarchy defined by U.S. GAAP. The Company’s assessment of the significance of a particular item to the fair value measurement in its entirety requires judgment, including the consideration of inputs specific to the asset or liability.

The following methods and assumptions were used to estimate the fair value and determine the fair value hierarchy classification of each class of financial instrument included in the table below.

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

Debt securities—held-to-maturity. The Company’s investments in debt securities classified as held-to-maturity include U.S. Treasury Securities, which are valued using quoted market prices. Valuation adjustments are not applied. Accordingly, U.S. Treasury Securities are considered Level 1 of the fair value hierarchy. The following fair value hierarchy table presents information about each major category of the Company’s financial assets and liabilities measured at fair value on a recurring basis:

 

In thousands		(Level 1)				(Level 2)				(Level 3)				Total Fair Value
December 31, 2019
Cash and cash equivalents		$	18,076			$	—			$	—			$	18,076
Held-to-maturity investments:
U.S. Treasury Securities			44,500				—				—				44,500
Total assets		$	62,576			$	—			$	—			$	62,576
June 30, 2019
Cash and cash equivalents		$	26,703			$	—			$	—			$	26,703
Held-to-maturity investments:
U.S. Treasury Securities			55,370				—				—				55,370
Total assets		$	82,073			$	—			$	—			$	82,073

 

7.	Collaboration Agreements

Biogen

On July 1, 2015, the Company entered into a Collaboration Agreement with Biogen, pursuant to which the Company and Biogen collaborated to develop, seek regulatory approval for and commercialize gene therapy products to treat XLRS, XLRP, and discovery programs targeting three indications based on the Company’s adeno-associated virus vector technologies. Effective March 8, 2019, Biogen terminated the Collaboration Agreement. Upon termination, the Company received back the exclusive license rights to develop, manufacture and commercialize the product candidates for all of our partnered programs including our XLRP program, XLRS program and our three discovery programs.

Accounting Analysis

The performance obligations and the allocated transaction price as of the date of initial application of Topic 606 were as follows:

 

In thousands		Allocated Transaction Price
XLRS License and Pre-Funded Activities		$	52,060
XLRP License and Pre-Funded Activities			43,570
Pre-Funded Activities associated with the Discovery Programs			16,700
		$	112,330

 

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The Pre-Funded Activities associated with the Discovery Programs amount is comprised of four distinct performance obligations based on the separate development plans for discovery candidates at contract inception. The Company concluded that the delivered license was not distinct from the Pre-Funded Activities as Biogen cannot obtain the benefit of the license without the related services. Further, each of the license and related Pre-Funded Activities performance obligation is considered a distinct performance obligation as each development plan is pursued independent of every other development plan.

The Company concluded that Post-Funded Activities represent customer options that are not material rights as any services requested by Biogen and provided by the Company are reimbursed at a rate that reflects the estimated standalone selling price for the services. As such, the Company recognized revenue related to Post-Funded Activities as the services were provided.

The Company concluded that the option to receive i) commercial licenses for the Discovery Programs that achieve clinical candidate designation, as defined in the Collaboration Agreement and ii) manufacturing licenses for up to six genes pursuant to the Manufacturing Agreement represent customer options that were not material rights as the exercise price for such options reflects the estimated standalone selling price for such option. As such, the Company accounted for such option if and when the options were exercised.

As of the date of the initial application of Topic 606, the total transaction price for the Biogen Agreement was $112.3 million which included a $5.0 million milestone payment for initiation of dosing of XLRS and a $2.5 million milestone payment for initiation of dosing of XLRP. The Company used the most-likely method to determine the amount of variable consideration in the Biogen Agreement. The Company believes that any estimated amount of variable consideration related to clinical and regulatory milestone payments should be fully constrained as the achievement of such milestones was highly susceptible to factors outside of the Company’s control. The Company determined that the commercial milestones and sales-based royalties would be recognized when the related sales occurred as they were deemed to relate predominately to the license granted and therefore were also excluded from the transaction price.

In the quarter ended September 30, 2018, the Company received a $10.0 million milestone payment related to XLRP which increased the transaction price. Based on an understanding between the parties in the quarter ended September 30, 2018, the Company also reallocated $1.1 million of Pre-Funded amounts to cover Post-Funded Activities which resulted in a decrease to the transaction price and deferred revenue of $1.1 million in the quarter ended September 30, 2018. Additionally, the Company reallocated $1.8 million of variable consideration between Pre-Funded Activities associated with Discovery Programs performance obligations based on changes to the underlying development plans of the product candidates. The total transaction price did not change in the quarter ended December 31, 2018.

The reallocation between Discovery Programs generated an insignificant cumulative catch up adjustment to revenue in the quarter ended September 30, 2018.

The transaction price was allocated to the performance obligations based on the relative estimated standalone selling price of each performance obligation or, in the case of certain variable consideration, to one or more performance obligations. The estimated standalone selling prices for performance obligations, that include a license and Pre-Funded Activities, were developed using the estimated selling price of the license and an estimate of the overall effort to perform the Pre-Funded Activities. The estimated selling price of the licenses were determined using a discounted cash flow valuation utilizing forecasted revenues and costs for the Company’s product candidate licenses.

The Company recognized revenue related to the performance obligations which included a license and Pre-Funded Activities over the estimated period of the research and development services using a proportional performance model. The Company measured proportional performance based on the costs incurred relative to the total costs expected to be incurred to satisfy the performance obligation. Management believes that recognizing revenue on a proportional performance basis based on costs incurred faithfully depicts the transfer of goods and services to the customer because the customer consumed the Company’s services as such services were performed. The Company accounted for the termination of the Collaboration Agreement upon the effective date of the termination and updated its total costs incurred to satisfy the performance obligations as of June 30, 2019; including any impact of the termination.

As a result of the termination of the Collaboration Agreement with Biogen effective March 8, 2019, the Company recognized the remaining deferred revenue balance as of the termination date.

 

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The company’s revenue related to the Biogen Agreement for the three and six months ended December 31, 2018 is comprised of the following:

 

In thousands		Three months ended December 31, 2018				Six months ended December 31, 2018
Collaboration revenue:
Licenses and related services		$	4,362			$	8,981
Development services			903				1,961
Milestone revenue			630				8,978
Total collaboration revenue		$	5,895			$	19,920

License and related services revenue comprise of revenue related to the Company’s completion of performance obligations that contained the delivery of licenses and Pre-Funded Activities. Development services revenue relate to the delivery of Post Funded Activities. Milestone revenue relate to the portion of milestone payments received that were recognized as revenue based on the proportional performance of the underlying performance obligation.

For a more detailed description of the Company’s collaboration agreement with Biogen refer to Note 7, Collaboration Agreements, of AGTC’s Annual Report on Form 10-K for the fiscal year ended June 30, 2019.

Bionic Sight

On February 2, 2017, the Company entered into a strategic research and development collaboration agreement with Bionic Sight, LLC (“Bionic Sight”), to develop therapies for patients with visual deficits and blindness due to retinal disease. Through the AGTC-Bionic Sight collaboration, the companies seek to develop a new optogenetic therapy that leverages AGTC’s deep experience in gene therapy and ophthalmology and Bionic Sight’s innovative neuro-prosthetic device and algorithm for retinal coding.

Under the agreement, AGTC made an initial $2.0 million payment to Bionic Sight for an equity interest in that company. This initial investment represents an approximate 5% equity interest in Bionic Sight. In addition to the initial investment, AGTC contributed ongoing research and development support costs through additional payments and other in-kind contributions (AGTC Ongoing R&D Support). The AGTC Ongoing R&D Support payments and in-kind contributions were made over time and continued until December 2019, the month Bionic Sight received both IND clearance from the FDA and receipt of written approval from an internal review board to conduct clinical trials from at least one clinical site for that product candidate (the “IND Trigger”). Until December 2019 the Company had incurred approximately $2.2 million in ongoing research and development support costs and in-kind contributions, which were reported as periodic cost as a component of research and development expense in the Company’s financial statements. No ongoing research and development support costs were incurred after the IND Trigger.

Due to achievement of the IND Trigger, AGTC will (i) be entitled to receive additional equity, based on the valuation in place at the beginning of the agreement, for the AGTC Ongoing R&D Support payments and in-kind contributions, and (ii) be obligated to purchase additional equity in Bionic Sight for $4.0 million, at a pre-determined valuation. Thereafter, AGTC will not be obligated to purchase additional equity or make additional in-kind contributions. As of December 31, 2019, the shares that AGTC was entitled to receive had not been transferred and the required payment for the additional equity in Bionic Sight had not been made. The Company has concluded that the AGTC Ongoing R&D Support is within the scope of ASC 606, Revenue from Contracts with Customers, as the services rendered represent a distinct service delivered to a counterparty that meets the definition of a customer. The Company considered these services to represent one combined performance obligation. Given that the consideration that the Company was entitled to was contingent upon achievement of the IND Trigger, the consideration was determined to be variable and the amount was fully constrained until the achievement of the IND Trigger. As a result of the IND Trigger achievement in December 2019, the Company recognized $2.2 million, for the three and six months ended December 31, 2019, which is included within collaboration revenue in these Unaudited Condensed Statements of Operations. A corresponding asset in the amount of $2.2 million was recognized within other assets in these Unaudited Condensed Balance Sheets as of December 31, 2019 as the Company did not yet have the benefits of ownership of the additional equity to be received in Bionic Sight until such time that the shares settle, which did not occur as of December 31, 2019. With regard to the obligation to purchase additional equity in Bionic Sight for $4.0 million, the Company concluded at contract inception that this represents a forward contract to be accounted for within the scope of ASC 321, Investments—Equity Securities. The Company assessed the fair value of this forward contract at inception of the Bionic Sight agreement and determined the value to be de minimis. As the forward contract does not have a readily determinable fair value, the Company has elected to use the measurement alternative for the subsequent measurement of this instrument. Under the measurement alternative, the forward contract will be remeasured at fair value when observable transactions involving the underlying equity securities or impairment of those securities occur. As noted previously, due to the fact that the shares did not yet settle as of December 31, 2019, the forward contract remains in place and no such observable transactions or impairment involving the underlying equity securities

 

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have occurred since the inception of the arrangement. However, due to achievement of the IND Trigger prior to December 31, 2019 and prior to the settlement of additional equity, the Company determined that a liability had been incurred in the amount of $4.0 million, which is included within accounts payable in these Unaudited Condensed Balance Sheets as of December 31, 2019. A corresponding asset in the amount of $4.0 million was recognized within other assets in these Unaudited Condensed Balance Sheets as of December 31, 2019 as the Company did not yet have the benefits of ownership of the additional equity to be received in Bionic Sight until such time that the shares settle, which did not occur as of December 31, 2019.

The Company recorded its initial $2.0 million investment in Bionic Sight using the equity method of accounting for investments, which is recorded as its own line item in these Unaudited Condensed Balance Sheets. For the three and six months ended December 31, 2019, the Company recorded a reduction of its investment in Bionic Sight of $6,000 and $16,000, respectively, and an investment loss in these Unaudited Statements of Operations to reflect its equity interest in the net loss of this affiliate. As of December 31, 2019, the amount of the Company’s underlying equity in net assets of Bionic Sight is not representative of the amount at which the investment is carried due to retained losses experienced by Bionic Sight prior to the Company’s investment.

The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to acquire (i) a majority equity interest in Bionic Sight, (ii) the Bionic Sight assets to which the collaboration agreement relates, or (iii) an exclusive license with respect to the product to which the collaboration agreement relates.

 

8.	Subsequent Events

In January 2020, the Company paid $4.0 million for additional equity in Bionic Sight in connection with Bionic Sight’s achievement of the IND Trigger in December 2019. Following the Company’s acquisition of this additional equity and conversion of In-Kind Contributions into equity upon settlement, AGTC will hold an increased ownership percentage in Bionic Sight.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis provides an overview of our financial condition as of December 31, 2019, and results of operations for the three and six months ended December 31, 2019 and 2018. This discussion should be read in conjunction with the accompanying Unaudited Condensed Financial Statements and accompanying notes, as well as our Annual Report on Form 10-K for the year ended June 30, 2019, as amended (“June 2019 Form 10-K”). In addition to historical financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, assumptions and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this report as well as those set forth in Part I, Item 1A, “Risk Factors” of the June 2019 Form 10-K. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies and operations, financing plans, potential growth opportunities, potential market opportunities and the effects of competition. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates,” “believes,” “could,” “seeks,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “should,” “will,” “would” or similar expressions and the negatives of those terms. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Also, forward-looking statements represent our management’s plans, estimates, assumptions and beliefs only as of the date of this report. Except as required by law, we assume no obligation to update these forward-looking statements publicly or to update the reasons actual results could differ materially from those anticipated in these forward-looking statements, even if new information becomes available in the future.

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

Overview

We are a clinical-stage biotechnology company that uses a proprietary gene therapy platform to develop transformational genetic therapies for patients suffering from rare and debilitating diseases. Our initial focus is in the field of ophthalmology, where we have active clinical programs in X-linked retinitis pigmentosa (XLRP) and achromatopsia (ACHM) and preclinical programs in optogenetics, Stargardt disease, and age-related macular degeneration (AMD). In addition to ophthalmology, we have initiated one preclinical program in otology and three preclinical programs targeting central nervous system disorders (CNS), including adrenoleukodystrophy (ALD), frontotemporal dementia (FTD) and amyotrophic lateral sclerosis (ALS). Our optogenetics program is being developed in collaboration with Bionic Sight and our otology program is being developed in collaboration with Otonomy. With a number of important clinical milestones on the horizon, we believe we are well positioned to advance multiple programs towards pivotal studies. In addition to our product pipeline, we have also developed broad technological capabilities through our collaborations with Synpromics Limited (Synpromics) and the University of Florida, which provide us with expertise in vector design and manufacturing as well as synthetic promoter development and optimization.

Since our inception in 1999, we have devoted substantially all of our resources to development efforts relating to our proof-of-concept programs in ophthalmology and alpha-1 antitrypsin deficiency, or AAT deficiency, an inherited orphan lung disease, including activities to manufacture product in compliance with good manufacturing practices, preparing to conduct and conducting clinical trials of our product candidates, providing general and administrative support for these operations and protecting our intellectual property. We do not have any products approved for sale and have not generated any revenue from product sales. We have funded our operations to date primarily through public offering of our common stock, private placement of preferred stock, and collaborations. We have also been the recipient, either independently or with our collaborators, of grant funding administered through federal, state, and local governments and agencies, including the United States Food and Drug Administration, or FDA, and by patient advocacy groups such as The Foundation Fighting Blindness, or FFB, and the Alpha-1 Foundation.

We have incurred losses from operations in each year since inception, except for fiscal 2017, in which we reported net income of $0.4 million due in part to the amortization associated with our collaboration agreement with Biogen. For the six months ended December 31, 2019 and 2018, we reported a net loss of $20.2 million and $3.0 million, respectively. Substantially all of our net losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs 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:

 

•

continue to conduct preclinical studies and clinical trials for our XLRP and ACHM product candidates and preclinical studies for our other ophthalmology, otology and CNS product candidates;

 

•

continue our research and development efforts, including exploration through early preclinical studies of potential applications of our gene therapy platform in:

 

•

orphan ophthalmology indications;

 

•

non-orphan ophthalmology indications including wet AMD and other inherited retinal diseases; and

 

20

•

other inherited diseases, such as otology and CNS indications.

 

•

manufacture clinical trial materials and develop larger-scale manufacturing capabilities;

 

•

seek regulatory approval for our product candidates;

 

•

further develop our gene therapy platform;

 

•

add personnel to support our collaboration, product development and commercialization efforts; and

 

•

continue to operate as a public company.

As of December 31, 2019, we had cash and cash equivalents and investments totaling $62.6 million.

We do not expect to generate revenue from product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and which we believe is subject to significant uncertainty. We believe that our existing cash and cash equivalents and investments as of December 31, 2019, will be sufficient to allow us to generate data from our ongoing clinical programs, to move our pre-clinical optogenetic program in collaboration with Bionic Sight into the clinic and to fund our currently planned research and discovery programs for a period exceeding one year from the date that these financial statements were filed with the SEC. In order to complete the process of obtaining regulatory approval for our lead product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, we will require substantial additional funding. Also, our current operating plan may change as a result of many factors currently unknown to us, and we may need to seek additional funds sooner than planned, through public or private equity or debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements or a combination of these approaches. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

Recent Developments

In September of 2019 we released positive interim six-month data from our ongoing phase 1/2 clinical program in XLRP for an initial set of patients dosed peripherally. The data showed that for nine patients dosed peripherally in dose groups 1-3 that their visual sensitivity as measured by perimetry was stable over the six months of follow-up especially for the high dose group patients. We also released three month data on eight patients dosed centrally showing improved retinal sensitivity.

In January of 2020 we released a second set of positive interim six-month data from our ongoing phase 1/2 clinical program in XLRP. The data showed that of the nine patients dosed centrally – two patients in the 2^nd dose group and seven patients in the 4^th dose group – improved retinal sensitivity (as measured by microperimetry) was observed in 50% (4/8) of evaluable patients through six months, and importantly, these data are consistent with the previous data reported at three months. In addition to retinal sensitivity we have observed stable and, in some cases, improving trends in visual acuity.

In both data releases the company reported that the study drug was safe and well-tolerated: we have dosed 26 patients as of January 24, 2020 and we have not observed dose limiting toxicity. We will continue to monitor patients for safety and efficacy and will release additional data on two new higher dose groups – as well as 12-month data on the first four dose groups – in the second half of 2020.

We plan to hold an end of Phase II meeting with the FDA in the second quarter of 2020 at which we hope to reach final agreement with the FDA on pivotal trial design. If successful, this would position us to potentially initiate that XLRP pivotal trial in the second half of 2020.

On January 23, 2020, we announced encouraging interim six-month data from the dose-escalation cohorts of our ongoing phase 1/2 clinical programs in patients with achromatopsia due to mutation in the CNGB3 or CNGA3 genes. The studies’ primary endpoint is safety, with various secondary efficacy endpoints, including light discomfort. The study agent was found to have a favorable safety profile, with no serious study drug-related adverse events. On the secondary efficacy endpoints, we saw preliminary signs of biologic activity based on light discomfort testing at month 3. Light discomfort is a clinically relevant symptom for these patients. On the additional secondary efficacy endpoints, we did not see consistent improvements, but we will continue to monitor these patients over time at higher doses and in younger patient groups. We will be treating two new groups of adult patients at higher doses, as well as three new groups of pediatric patients across both trials, enrolling a total of 32 new patients. Of these 32 new patients, we have already enrolled more than half of these patients as of January 24, 2020. Interim data from these additional patients is expected to be reported in the second half of 2020.

 

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Critical Accounting Policies

Our management’s discussion and analysis of our financial condition and results of operations are based on our financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

For a description of our accounting policies that, in our opinion, involve the most significant application of judgment or involve complex estimation and which could, if different judgments or estimates were made, materially affect our reported results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our June 2019 Form 10-K.

The Company adopted ASC 842 on July 1, 2019. See Note 2 in these Unaudited Condensed Financial Statements included in this Quarterly Report on Form 10-Q for a description of our lease accounting policies.

New Accounting Pronouncements

Refer to Note 2 to these Unaudited Condensed Financial Statements included in this quarterly report for further information on recently issued accounting standards.

Financial operations review

Revenue

We primarily generate revenue through collaboration agreements, sponsored research arrangements with nonprofit organizations for the development and commercialization of product candidates and from federal research and development grant programs. In December 2019, Bionic Sight notified the Company that it had achieved IND Trigger. As a result of the IND Trigger achievement and in connection with the In-Kind Contribution payments made, the Company recognized revenue of $2.2 million, for the three and six months ended December 31, 2019, which is included within collaboration revenue in these Unaudited Condensed Statements of Operations. Thereafter no additional collaboration revenue related to the Collaboration Agreement with Bionic Sight will be recognized. In the future, we may generate revenue from a combination of: product sales, license fees, milestone payments, development services, research and development grants, and 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 any are 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, our results of operations and financial position would be materially adversely affected. Following the termination of the Collaboration Agreement, we do not expect to receive any material collaboration related payments in the near term.

Research and development expenses

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

 

•

employee-related expenses, including salaries, benefits, travel and share-based compensation expense;

 

•

expenses incurred under agreements with academic research centers, contract research organizations, or CROs, and investigative sites that conduct our clinical trials;

 

•

license and sublicense fees and collaboration expenses;

 

•

the cost 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.

 

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Research and development costs are expensed as incurred. Costs for certain development activities are recognized based on an evaluation of the progress to 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 revenues 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 as well as any additional clinical trials 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 received from our partners;

 

•

whether or not we elect to cost share with our collaborators;

 

•

the countries in which trials are conducted;

 

•

future clinical trial results;

 

•

uncertainties in clinical trial enrollment rates or drop-out or discontinuation rates of patients;

 

•

potential additional safety monitoring or other studies requested by regulatory agencies or elected as best practice by us;

 

•

increased cost and delay associated with manufacturing or testing issues, including ongoing quality assurance, qualifying new vendors and developing in-house capabilities;

 

•

significant and changing government regulation; and

 

•

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables 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, we could be required to expend significant additional financial resources and time on the completion of clinical development.

From inception through December 31, 2019, we have incurred approximately $219.4 million in research and development expenses. We expect our research and development expenses to increase for the foreseeable future as we continue the development of our product candidates and explore potential applications of our gene therapy platform in other indications.

General and administrative expenses

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

Other income (expense), net

Other income and expense consists primarily of interest earned on cash and cash equivalents and our held-to-maturity investments.

 

23

Provision for income taxes

Income tax expense for the three and six months ended December 31, 2019 was $21,000 and $42,000 compared to $19,000 and $38,000 for the three and six months ended December 31, 2018. The income tax expense for the three and six months ended December 31, 2019, was primarily driven by interest expense related to the Company’s uncertain tax position.

Results of Operations

Comparison of the three months ended December 31, 2019 to the three months ended December 31, 2018

Revenue

The following table summarizes our revenue for the three months ended December 31, 2019 and 2018 (in thousands):

 

		Three Months Ended December 31,								Increase				%Increase
		2019				2018				(Decrease)				(Decrease)
Collaboration revenue
Licenses and related services		$	—			$	4,362			$	(4,362	)			nm	%
Development services			—				903				(903	)			nm	%
Non-cash consideration			2,197				—				2,197				nm	%
Milestone revenue			100				630				(530	)			(84	)%
Total collaboration revenue			2,297				5,895				(3,598	)			(61	)%
Grant revenue			156				39				117				300	%
Total revenue		$	2,453			$	5,934			$	(3,481	)			(59	)%

Collaboration revenue for the three months ended December 31, 2018 was related to the Collaboration Agreement with Biogen, which was terminated effective March 8, 2019. As a result, the Company recognized in collaboration revenue the remaining deferred revenue balance as of the termination date. Thereafter, no additional collaboration revenue was recognized.

In December 2019, Bionic Sight attained IND Trigger and as a result, the Company recognized $2.2 million of non-cash consideration revenue in connection with in-kind contributions made since inception of the collaboration agreement with Bionic Sight.

 

24

Research and development expense

The following table summarizes our research and development expenses by product candidate or program for the three months ended December 31, 2019 and 2018 (in thousands):

 

		Three Months Ended December 31,								Increase				%Increase
		2019				2018				(Decrease)				(Decrease)
External research and development expenses
ACHM		$	2,142			$	955			$	1,187				124	%
XLRS			221				433				(212	)			(49	)%
XLRP			799				336				463				138	%
Research and discovery programs			483				1,158				(675	)			(58	)%
Total external research and development expenses			3,645				2,882				763				26	%
Internal research and development expenses
Employee-related costs			2,830				2,624				206				8	%
Share-based compensation			312				541				(229	)			(42	)%
Other			1,588				1,536				52				3	%
Total internal research and development expenses			4,730				4,701				29				1	%
Total research and development expense		$	8,375			$	7,583			$	792				10	%

External research and development costs consist of collaboration, licensing, manufacturing, testing, and other miscellaneous expenses that are directly attributable to our most advanced product candidates and discovery programs. We do not allocate personnel-related costs, including stock-based compensation, costs associated with broad technology platform improvements or other indirect costs, to specific programs, as they are deployed across multiple projects under development and, as such, are separately classified as internal research and development expenses in the table above.

Research and development expenses for the three months ended December 31, 2019 were $8.4 million, compared to $7.6 million for the three months ended December 31, 2018, an increase of $0.8 million, or 10%. The increase was primarily due to increased external spending of $0.8 million. The increase in external spending was attributed to:

 

•

increased spending related to ACHM primarily associated with patient enrollment and new site activations: and

 

•

increased XLRP spending associated with patient enrollment.

These increases were partially offset by:

 

•

decreased XLRS spending due to completion of enrollment of the XLRS Phase 1/2 trial in April of 2018 and the decision to stop further development of our XLRS product candidate; and

 

•

decreased spending attributed to discovery spending associated with our pre-clinical ophthalmology programs.

The increase in internal spending was primarily due to hiring of additional employees to support clinical trial execution and research and development activities, partially offset by decreased share-based compensation as a result of lower fair value of awards granted in 2019.

General and administrative expense

The following table summarizes our general and administrative expenses for the three months ended December 31, 2019 and 2018 (in thousands):

 

		Three Months Ended December 31,								Increase				%Increase
		2019				2018				(Decrease)				(Decrease)
Employee-related costs		$	1,342			$	1,046			$	296				28	%
Share-based compensation			376				553				(177	)			(32	)%
Legal and professional fees			73				82				(9	)			(11	)%
Other			1,217				1,341				(124	)			(9	)%
Total general and administrative expense		$	3,008			$	3,022			$	(14	)			—	%

 

25

General and administrative expense for the three months ended December 31, 2019 and 2018 was $3.0 million. For the three months ended December 31, 2019 employee-related cost increased by of $0.3 million primarily associated with new employee hires, partially offset by decreased share-based compensation of $0.2 million as result of lower fair value of awards granted in 2019 and decreased other general and administrative expenses incurred during normal business operations.

Comparison of the six months ended December 31, 2019 to the six months ended December 31, 2018

Revenue

The following table summarizes our revenue for the six months ended December 31, 2019 and 2018 (in thousands):

 

		Six Months Ended December 31,								Increase				% Increase
		2019				2018				(Decrease)				(Decrease)
Collaboration revenue
Licenses and related services		$	—			$	8,981			$	(8,981	)			nm	%
Development services			—				1,961				(1,961	)			nm	%
Non-cash consideration			2,197				—				2,197				nm	%
Milestone revenue			100				8,978				(8,878	)			(99	)%
Total collaboration revenue			2,297				19,920				(17,623	)			(88	)%
Grant revenue			156				48				108				225	%
Total revenue		$	2,453			$	19,968			$	(17,515	)			(88	)%

Collaboration revenue for the six months ended December 31, 2018 was related to the Collaboration Agreement with Biogen, which was terminated effective March 8, 2019. As a result, the Company recognized in collaboration revenue the remaining deferred revenue balance as of the termination date. Thereafter, no additional collaboration revenue was recognized.

In December 2019, Bionic Sight attained IND Trigger and as a result, the Company recognized $2.2 million of non-cash consideration collaboration revenue in connection with in-kind contributions made since inception of the collaboration agreement with Bionic Sight.

 

26

Research and development expense

The following table summarizes our research and development expenses by product candidate or program for the six months ended December 31, 2019 and 2018 (in thousands):

 

		Six Months Ended December 31,								Increase				% Increase
		2019				2018				(Decrease)				(Decrease)
External research and development expenses
ACHM		$	3,406			$	1,997			$	1,409				71	%
XLRS			440				864				(424	)			(49	)%
XLRP			1,571				3,095				(1,524	)			(49	)%
Research and discovery programs			1,114				2,035				(921	)			(45	)%
Total external research and development expenses			6,531				7,991				(1,460	)			(18	)%
Internal research and development expenses
Employee-related costs			6,294				5,213				1,081				21	%
Share-based compensation			675				1,025				(350	)			(34	)%
Other			3,517				3,419				97				3	%
Total internal research and development expenses			10,486				9,657				829				9	%
Total research and development expense		$	17,017			$	17,648			$	(631	)			(4	)%

Research and development expenses for the six months ended December 31, 2019 were $17.0 million, compared to $17.6 million for the six months ended December 31, 2018, a decrease of $0.6 million, or 4%. This decrease was primarily attributable to:

 

•

$1.5 million of decreased external spending related to XLRP primarily due to decreased sublicense expenses associated with receiving a $10.0 million XLRP milestone payment from Biogen in September 2018;

 

•

$0.9 million of decreased research and discovery spending primarily due to decreased otology and pre-clinical opthamology activities;

 

•

$0.4 million of decreased external XLRS expenses primarily due to reaching full enrollment on Phase 1/2 clinical trial and the decision to stop further development of our XLRS product candidate; and

 

•

$0.3 million of decreased in internal spending costs primarily related due lower fair value of awards granted in 2019.

These decreases were partially offset by:

 

•

$1.4 million of increased external spending related to ACHM primarily due to increase in patient enrollment; and

 

•

$1.1 million of increased employee-related costs primarily associated with the hiring of new employees to support clinical trial execution and research and development activities.

General and administrative expense

The following table summarizes our general and administrative expenses for the six months ended December 31, 2019 and 2018 (in thousands):

 

		Six Months Ended December 31,								Increase				% Increase
		2019				2018				(Decrease)				(Decrease)
Employee-related costs		$	2,737			$	2,323			$	414				18	%
Share-based compensation			824				1,250				(426	)			(34	)%
Legal and professional fees			233				241				(8	)			(3	)%
Other			2,562				2,421				141				6	%
Total general and administrative expense		$	6,356			$	6,235			$	121				2	%

General and administrative expense for the six months ended December 31, 2019 increased by $0.1 million to $6.4 million compared to the same period in 2018. The increase was primarily driven by $0.4 million in higher employee-related costs and increased other general and administrative expenses of $0.1 million associated with normal business operations, partially offset by decreased share based compensation related to lower fair value of awards granted for the six months ended December 31, 2019 compared to the six month ended December 31, 2018.

 

27

Liquidity and capital resources

We have incurred cumulative losses and negative cash flows from operations since our inception in 1999, and as of December 31, 2019, we had an accumulated deficit of $155.7 million. It will be several years, if ever, before we have a product candidate ready for commercialization. We expect that our research and development and general and administrative expenses will continue to increase and as a result, we anticipate that we will require additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

As of December 31, 2019, we had cash, cash equivalents, and investments totaling $62.6 million. In January 2020, we paid $4.0 million for additional equity interest in Bionic Sight, in connection with Bionic Sight’s achievement of IND Trigger in December 2019, for its optogenetic product. We believe that our existing cash, cash equivalents, and investments at December 31, 2019 will be sufficient to enable us to advance planned preclinical studies and clinical trials for our lead product candidates for a period exceeding one year from the date that these financial statements were filed with the SEC.

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 12 months. As of December 31, 2019, our cash and cash equivalents were held in bank accounts and money market funds, while our investments consisted of US Treasury securities, none of which mature more than 12 months after the balance sheet date, consistent with our investment policy that seeks to maintain adequate liquidity and preserve capital.

Cash flows

The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

 

		Six Months Ended December 31,								Increase				% Increase
		2019				2018				(Decrease)				(Decrease)
Net cash provided by (used in):
Operating activities		$	(19,036	)		$	(8,976	)		$	(10,060	)			(112	)%
Investing activities			10,400				1,947				8,453				434	%
Financing activities			9				(58	)			67				116	%
Net decrease in cash and cash equivalents:		$	(8,627	)		$	(7,087	)		$	(1,540	)			(22	)%

Operating activities. For the six months ended December 31, 2019, net cash used in operating activities was primarily the result of research and development and general and administrative expenses incurred in conducting normal business operations, and the impact of changes in our working capital accounts. For the six months ended December 31, 2018, net used in operating activities was primarily the result of research and development and general and administrative expenses incurred in conducting normal business operations, partially offset by, cash received from the collaboration with Biogen, and the impact of changes in our working capital accounts.

Investing activities. Net cash provided by investing activities for the six months ended December 31, 2019 consisted primarily of cash proceeds of $40.5 million from the maturity of investments, net of investment repurchases of $29.4 million and the purchase of property and equipment of $0.4 million and intellectual property of $0.3 million. Net cash used in investing activities for the six months ended December 31, 2018 consisted primarily of cash proceeds of $46.6 million from the maturity of investments, net of investment repurchases of $44.5 million.

Financing activities. Net cash used in financing activities during the six months ended December 31, 2019 consisted primarily of proceeds from the exercise of common stock options, partially offset by payments toward finance lease obligation. Net cash used in financing activities during the six months ended December 31, 2018 consisted primarily of payments for deferred offering costs.

 

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Operating capital requirements

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future as we continue the development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are subject to all of the risks incident in the development of new gene therapy products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business.

We believe that our existing cash and cash equivalents and investments as of December 31, 2019, will be sufficient to allow us to generate data from our ongoing clinical programs, to move our pre-clinical optogenetic program in collaboration with Bionic Sight into the clinic and to fund our currently planned research and discovery programs for a period exceeding one year from the date that these financial statements were filed with the SEC. In order to complete the process of obtaining regulatory approval for our lead product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, we will require substantial additional funding.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not Applicable

 

ITEM 4.

CONTROLS AND PROCEDURES

 

a)	Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15e and 15d-15e under the Securities Exchange Act of 1934, as amended as of the end of the period covered by this quarterly report). Based on this evaluation the Chief Executive Officer and Chief Financial Officer concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, summarized and reported within the requisite time periods.

 

b)	Changes in Internal Control over Financial Reporting

During the quarter ended December 31, 2019, we implemented certain internal controls in connection with our adoption of ASC 842. There were no other changes in our internal control over financial reporting during the first fiscal quarter of 2020 (as defined in Rules 13a-15f and 15d-15f under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings. However, because of the nature of our business, we may be subject at any particular time to lawsuits or other claims arising in the ordinary course of our business, and we expect that this will continue to be the case in the future.

 

ITEM 1A.

RISK FACTORS

Refer to Part I, Item 1A, “Risk Factors,” in our Annual Report on Form 10-K for the year ended June 30, 2019 for a listing of our risk factors. There has been no material change in such risk factors since June 30, 2019.

 

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ITEM 6.

EXHIBITS

 

Exhibit Number		Description
3.1		Fifth Amended and Restated Certificate of Incorporation of Applied Genetic Technologies Corporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K, event date March 26, 2014, filed on April 1, 2014)
3.2		Amended and Restated Bylaws of Applied Genetic Technologies Corporation (incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K, event date March 26, 2014, filed on April 1, 2014)
31.1*		Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer of Applied Genetic Technologies Corporation
31.2*		Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer of Applied Genetic Technologies Corporation
32.1**		Section 1350 Certification of Principal Executive Officer and Principal Financial Officer of Applied Genetic Technologies Corporation
101*		Interactive Data Files pursuant to Rule 405 of Regulation S-T (XBRL)

 

*	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.

 

 

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