APPLIED GENETIC TECHNOLOGIES CORP - Quarter Report: 2021 December (Form 10-Q)

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

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

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

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

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

				Page
		PART I. FINANCIAL INFORMATION		3
ITEM 1.		FINANCIAL STATEMENTS (Unaudited)		3
		Condensed Balance Sheets as of December 31, 2021 and June 30, 2021		3
		Condensed Statements of Operations for the three and six months ended December 31, 2021 and 2020		4
		Condensed Statements of Stockholders’ Equity for the three and six months ended December 31, 2021 and 2020		5
		Condensed Statements of Cash Flows for the six months ended December 31, 2021 and 2020		6
		Notes to Condensed Financial Statements		7
ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		15
ITEM 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		25
ITEM 4.		CONTROLS AND PROCEDURES		25
		PART II. OTHER INFORMATION		25
ITEM 1.		LEGAL PROCEEDINGS		25
ITEM 1A.		RISK FACTORS		25
ITEM 6.		EXHIBITS		26
		SIGNATURE		27

ITEM 1.

FINANCIAL STATEMENTS

In thousands, except per share data		December 31, 2021				June 30, 2021
ASSETS
Current assets:
Cash and cash equivalents		$	72,771			$	105,052
Investments			—				2,000
Prepaid and other current assets			2,597				2,655
Total current assets			75,368				109,707
Property and equipment, net			4,416				4,658
Intangible assets, net			1,345				1,287
Investment in Bionic Sight, LLC			7,937				8,000
Right-of-use assets—operating leases			3,167				3,167
Right-of-use asset—financing lease			11				34
Other assets			126				113
Total assets		$	92,370			$	126,966
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	1,674			$	1,879
Accrued and other liabilities			14,486				14,500
Lease liabilities—operating			1,227				1,116
Lease liability—finance			13				38
Current portion of long-term debt			6,714				2,181
Total current liabilities			24,114				19,714
Lease liabilities—operating, net of current portion			3,133				3,418
Long-term debt, net of debt discounts and deferred financing fees			13,538				17,727
Other liabilities			95				299
Total liabilities			40,880				41,158
Stockholders’ equity:
Preferred stock, par value $0.001 per share, 5,000 shares authorized; no shares issued and outstanding			—				—
Common stock, par value $0.001 per share, 150,000 shares authorized; 42,975 and 42,835 shares issued; 42,921 and 42,794 shares outstanding at December 31, 2021 and June 30, 2021, respectively			43				43
Additional paid-in capital			327,235				325,245
Treasury stock at cost; 54 and 41 shares at December 31, 2021 and June 30, 2021, respectively			(256	)			(211	)
Accumulated deficit			(275,532	)			(239,269	)
Total stockholders’ equity			51,490				85,808
Total liabilities and stockholders’ equity		$	92,370			$	126,966

		Three Months Ended December 31,								Six Months Ended December 31,
In thousands, except per share data		2021				2020				2021				2020
Revenue		$	—			$	—			$	—			$	—
Operating expenses:
Research and development			14,454				11,811				26,779				23,437
General and administrative and other			3,989				3,304				8,089				6,740
Total operating expenses			18,443				15,115				34,868				30,177
Loss from operations			(18,443	)			(15,115	)			(34,868	)			(30,177	)
Other income (expense), net:
Investment income, net			6				29				12				93
Interest expense			(675	)			(335	)			(1,344	)			(667	)
Total other income (expense), net			(669	)			(306	)			(1,332	)			(574	)
Loss before provision for income taxes			(19,112	)			(15,421	)			(36,200	)			(30,751	)
Provision for income taxes			—				20				—				41
Loss before equity in net losses of an affiliate			(19,112	)			(15,441	)			(36,200	)			(30,792	)
Equity in net losses of an affiliate			(32	)			(21	)			(63	)			(50	)
Net loss		$	(19,144	)		$	(15,462	)		$	(36,263	)		$	(30,842	)
Weighted average shares outstanding:
Basic			42,886				25,883				42,855				25,850
Diluted			42,886				25,883				42,855				25,850
Net loss per common share:
Basic		$	(0.45	)		$	(0.60	)		$	(0.85	)		$	(1.19	)
Diluted		$	(0.45	)		$	(0.60	)		$	(0.85	)		$	(1.19	)

		Six Months Ended December 31,
In thousands		2021				2020
Operating activities:
Net loss		$	(36,263	)		$	(30,842	)
Adjustments to reconcile net loss to net cash used in operating activities:
Share-based compensation expense			1,756				1,270
Depreciation and amortization			751				771
Investment discount accretion, net			—				(2	)
Amortization of debt discounts and deferred financing fees			344				167
Reduction in the carrying amount of operating lease right-of-use assets			243				173
Equity in net losses of an affiliate			63				50
Changes in operating assets and liabilities:
Prepaid and other assets			120				623
Accounts payable			(215	)			420
Operating lease liabilities			(417	)			(338	)
Accrued and other liabilities			125				1,400
Cash used in operating activities			(33,493	)			(26,308	)
Investing activities:
Purchases of property and equipment			(821	)			(768	)
Purchases of and capitalized costs related to intangible assets			(131	)			(213	)
Maturities of investments			2,000				27,000
Purchases of investments			—				(18,992	)
Cash provided by investing activities			1,048				7,027
Financing activities:
Proceeds from the issuance of common stock, net of issuance costs			143				—
Proceeds from exercises of common stock options			91				201
Payments for deferred financing fees			—				(129	)
Taxes paid related to equity awards			(45	)			(123	)
Principal payments on a finance lease			(25	)			(23	)
Cash provided by (used in) financing activities			164				(74	)
Net decrease in cash and cash equivalents			(32,281	)			(19,355	)
Cash and cash equivalents, beginning of the period			105,052				38,463
Cash and cash equivalents, end of the period		$	72,771			$	19,108
Supplemental non-cash information:
Costs for purchases of property and equipment included in accounts payable		$	9			$	—
Costs for intangible assets included in accounts payable/accrued and other liabilities			57				33
Right-of-use assets obtained in exchange for new operating lease liabilities			243				—

1.	Organization and Operations

2.	Summary of Significant Accounting Policies

In December 2019, the FASB issued . The new standard includes several provisions that simplify the 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. The Company adopted the new standard on July 1, 2021; however, it did not have a significant impact on the Company’s financial statements.

In addition to the stock option activity described above, the Company also granted 100,000 performance-based stock options to a senior officer during July 2019 with an exercise price of $3.91. That award: (i) was issued under the 2013 Equity and Incentive Plan; (ii) has a term of ten years; and (iii) includes six separate tranches with performance criteria that will each vest 25% upon their achievement, with the remaining 75% of the tranche vesting on a monthly basis over a period of three years subsequent to achieving the underlying performance objective (assuming continued service by the awardee). Each tranche the total award. If any of the performance criteria are not satisfied, that corresponding tranche will be forfeited. As of December 31, 2021, one of the six performance criteria has been met and one criterion will likely never be met. The Company used a Black-Scholes stock option pricing model to estimate the grant date fair value of each option to be $2.58; however, determining the appropriate periodic share-based compensation expense for this award requires management to estimate the likelihood of the achievement of the performance targets.

Cash in excess of immediate requirements is invested in accordance with the Company’s investment policy, which primarily seeks to maintain adequate liquidity and preserve capital. At June 30, 2021, the Company’s investments consisted of security that matured in July 2021 (the $2.0 million amortized cost of that investment approximated its fair value on such date). The Company held no investments at December 31, 2021.

In thousands		Level 1				Level 2				Level 3				Total Fair Value
December 31, 2021
Cash and cash equivalents		$	72,771			$	—			$	—			$	72,771
June 30, 2021
Cash and cash equivalents		$	105,052			$	—			$	—			$	105,052
Held-to-maturity investment (U.S. Treasury security)			2,000				—				—				2,000
Total assets		$	107,052			$	—			$	—			$	107,052

5.

Debt

6.	Collaboration Agreements and Contract Liabilities

7.	Stockholders’ Equity

8.	Commitments and Contingencies

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

We are a clinical-stage biotechnology company that uses our proprietary gene therapy platform technology to develop transformational genetic therapies for people suffering from rare and debilitating diseases. Our initial focus is in the field of ophthalmology, where we have wholly owned clinical-stage (“XLRP”) and achromatopsia (“ACHM”) and an optogenetics program through our collaboration with Bionic Sight, LLC (“Bionic Sight”). Our preclinical pipeline includes a program in dry (“dAMD”), two programs targeting central nervous system (“CNS”) disorders, including frontotemporal dementia (“FTD”) and amyotrophic lateral sclerosis (“ALS”), and a program in otology through our collaboration with Otonomy, Inc. (“Otonomy”). With a number of important clinical milestones on the horizon, we believe that we are well positioned to advance multiple programs toward pivotal studies. In addition to our product pipeline, we have also developed broad technological and manufacturing capabilities utilizing both our internal scientific resources and through collaborations with others.

our lead gene therapy development program for the treatment of XLRP, uses an engineered adeno-associated virus (“AAV’) vector to insert a stabilized and functional copy of the Retinitis Pigmentosa GTSase Regulator (“RPGR”) gene into a patient’s photoreceptor cells. is comprised of a stabilized RPGR gene and a promoter that was specifically selected due to its ability to drive efficient gene expression in primate rods and cones, maintain photoreceptor function and delay disease progression in preclinical models of disease. In addition, published primate studies have demonstrated that AGTC’s proprietary AAV capsid has as much as twice the transfection efficiency in photoreceptors when compared to capsids used in competing programs.

We are currently conducting multiple clinical trials of that are intended to support the potential filing of a Biologics License Application (“BLA”). The Skyline trial is a 14 patient multi-site, Phase 2 trial in which patients are randomized to either a high or low dose of with the primary objective of identifying the proportion of treated eyes that demonstrate improvement from baseline in visual sensitivity and visual acuity as well as a patient’s ability to navigate a mobility maze more successfully under varying light and challenge conditions. The Skyline trial has the same overall design as the Vista clinical trial and is the first trial we are conducting that has the potential to demonstrate a correlation between visual sensitivity and visual acuity with a mobility maze, which is a key secondary/functional endpoint in the Vista trial. We completed enrollment in the Skyline trial in the first quarter of calendar year 2022 and plan to report interim results for the Skyline trial in the second quarter of calendar year 2022.

The Vista trial is a multi-site, Phase 2/3 clinical trial expected to include approximately 60 patients randomized across three 1.2E+11 vg/mL Group 2 dose from the ongoing Phase 1/2 and Skyline trials), a high-dose group (the 1.1E+12 vg/mL Group 5 dose from the ongoing Phase 1/2 and Skyline trials) and an untreated control group. The primary endpoint will be improvement in visual sensitivity, defined as having at least a 7 decibel increase in visual sensitivity in at Month 12. Together with a third-party vendor, we have developed a machine learning algorithm based on the available microperimetry data from our Phase 1/2 dose escalation trial that, the loci most likely to improve through evaluation of baseline visual sensitivity. Secondary endpoints in the Vista trial include mean change in visual sensitivity, improvements in visual acuity and performance on the mobility maze as well as structural improvements in retinal health as measured by changes in the ellipsoid zone (the “EZ”), a defined region within the photoreceptor layer of the retina that degenerates over time and is eventually lost in patients with XLRP. We plan to complete a masked interim analysis, with the data expected to be released in the first half of calendar year 2023. The interim analysis, together with data from the Phase 1/2 and Skyline trials, may provide us with the opportunity to discuss with the United States Food and Drug Administration (the “FDA”) potential adjustments to the Vista trial, if necessary, that may accelerate a potential BLA filing or optimize the outcome of the trial.

To date, we have released a significant amount of preclinical and clinical data that we believe demonstrate both the safety and biological activity of Most recently, in September 2021, Dr. Paul Yang, Assistant Professor of Ophthalmology at the Casey Eye Institute, Oregon Health & Science University and one of our study investigators, presented data from the ongoing Phase

Given the activity and safety data generated to date, we believe that is a potential candidate that may provide significant benefits to patients with XLRP. We expect to achieve the following milestones, subject to any continuing impact of the pandemic:

We have two gene therapy product candidates in development to treat ACHM. The product candidates use the same engineered AAV vector to insert a stabilized and functional copy of the Cyclic Nucleotide Gated Channel Subunit Beta 3 (CNGB3) gene in the case of and a stabilized and functional copy of the Cyclic Nucleotide Gated Channel Subunit Alpha 3 (CNGA3) gene in the case of The product candidates use the same proprietary cone-specific promoter that was designed to maximize gene expression into a patient’s photoreceptor cells. We chose the promoter based on data from preclinical studies that demonstrated an ability to drive efficient gene expression in all three types of primate cone photoreceptors and restore cone photoreceptor function in dog, mouse and sheep models of ACHM.

We are currently conducting two Phase 1/2 clinical trials in ACHM patients at multiple clinical sites that specialize in inherited retinal diseases. The primary objective of these trials is to identify a well-tolerated dose that provides clinical benefit to patients. To date, we have enrolled a total of 31 adult and pediatric patients into the ACHMB3 trial and 24 adult and pediatric patients in the ACHMA3 trial and do not currently plan to enroll any additional patients in either trial. We have data from a portion of the patients in these trials up to 24 months after treatment, including our most recent release in February 2022 of data for the two highest dose groups of ACHMB3 and ACHMA3 pediatric patients that also included updated adult safety data. These data are consistent with the data previously released in adult and pediatric ACHMB3 and ACHMA3 patients.

In the Phase 1/2 dose escalation study of in ACHMB3 patients, a total of 21 adults were treated over a dose range in five groups and a total of 10 pediatric patients were treated at the three highest dose groups. Secondary outcome measures evaluating efficacy were assessed by standard visual function tests, such as perimetry. We defined two pediatric patients (17 and 7 years old) in the 1.1E+12 vg/mL dose group as responders based on improvements in visual sensitivity. Therefore, of the three adults and four children (total n=7) in the 1.1E+12 vg/mL dose group, four (>50%) are responders based on improvements in visual sensitivity. These patients also had improvements in quality of life as measured by a patient reported outcome survey developed specifically for patients with ACHM.

Subject to receiving feedback from the FDA at an 2 meeting planned for the first half of calendar year 2022, we intend to advance the clinical development of Our plan is based on the favorable risk benefit profile of the 1.1E+12 vg/mL dose, which had a generally safe and well tolerated safety profile across all patients and signs of biologic response based on improvements in visual sensitivity and other measures of visual function.

We also reported updated interim pediatric results and adult and pediatric safety results for the 24 patients enrolled in a parallel study of targeting CNGA3 mutations in patients with ACHMA3. Data from the five pediatric patients in the two highest dose groups are consistent with previously reported results, indicating no evidence of clinical improvements, and do not

support further clinical development. Most patients with CNGA3 mutations express a mutant protein that is not typically found in patients with CNGB3 mutations, which we believe may have impacted the results seen in patients that received We will continue to follow the ACHMA3 patients for long-term safety observations.

As previously reported, in both the ACHMB3 and ACHMA3 trials, treatment with the highest dose (3.2 E+12vg/ml) of and respectively, led to three cases of severe ocular inflammation in pediatric patients, which were reported as Suspected Unexpected Serious Adverse Reactions, or SUSARs. No new additional SUSARs in any adult or pediatric patients have been reported and the inflammation in all previously reported SUSARs improved with an adjusted steroid regimen. Two SUSARs (one in ACHMA3 and one in ACHMB3) have since fully resolved and one (ACHMA3) continues to resolve, with all three patients’ best corrected visual acuity returning to baseline. Importantly, we did not see any comparable inflammation in any of our XLRP clinical trials.

In May 2021, we signed for square foot cGMP manufacturing and quality control facility adjacent to our existing Florida facility to prepare for late-stage development of our XLRP and ACHM programs. Leasing this cGMP facility is part of our strategy to enable more rapid filing of a BLA and commercial launch of our XLRP candidate upon potential FDA approval. The cGMP facility is also expected to support more rapid advancement of our product pipeline while providing supply chain redundancy, reducing manufacturing risk and enhancing quality controls. We anticipate that the new manufacturing and quality control facility will be completed during the second half of calendar year 2022.

Additional information regarding our new cGMP manufacturing and quality control facility can be found in Note 8 to the Unaudited Condensed Financial Statements included in this Quarterly Report under the heading “Lease Commitment.”

During October 2019, we entered into a strategic collaboration agreement with Otonomy gene therapy to restore hearing in patients with sensorineural hearing loss caused by a mutation in the gap junction protein beta 2 gene (“GJB2”) – the most common cause of congenital hearing loss. Mutations in GJB2 account for approximately 30% of all genetic hearing loss cases. Patients with this mutation both ears that is identified in screening tests routinely performed in newborns. Under the collaboration agreement, the parties began equally sharing the program costs and any proceeds from potential licensing transactions in January 2020 and can include additional genetic hearing loss targets in the future. Effective January 1, 2022, we amended the Otonomy collaboration agreement to increase Otonomy’s responsibility for the overall development and commercialization of the program, which resulted in (i) a reduction in our share of future product development costs and (ii) our potential receipt of future payments, and royalties on any product sales in lieu of equal sharing of any potential profits or proceeds related to the program.

We and Otonomy announced promising preclinical data at the American Society of Gene and Cell Therapy meeting in May 2021, demonstrating the rescue of hearing loss and cochlear morphology in two independent mouse models. Collectively, we are conducting investigational new drug (“IND”)-enabling activities based feedback from the FDA, with an IND filing anticipated in the first half of calendar year 2023.

Additional information regarding the Bionic Sight and Otonomy collaborative agreements can be found in Note 6 to the Unaudited Condensed Financial Statements included in this Quarterly Report

We also have three wholly-owned product candidates in preclinical testing, including for the treatment of dAMD, for the treatment of FTD and for the treatment of ALS.

Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on based on our financial statements, which have been prepared assuming that the Company will continue as a going concern and in accordance with (i) U.S. generally accepted accounting principles for interim financial information and (ii) the instructions to Article 8 of preparation of those financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates, judgments and methodologies, including those related to accrued expenses and share-based compensation. We base our estimates on historical experience, current conditions, known trends and events, and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from our estimates under different assumptions or conditions. Moreover, we may need to change the assumptions underlying our estimates due to risks and uncertainties related to or otherwise and those changes could have a material adverse effect on our statements of operations, financial condition and cash flows.

During the six months ended December 31, 2021, there were no significant changes to our critical accounting policies and estimates. For a description of our accounting policies that, in our opinion, involve the most significant application of judgment or involve complex estimations and which could, if different judgments or estimates were made, materially affect our reported results of operations, financial position and cash flows, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in the

Refer to Note 2 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form for further information about recently issued accounting standards.

Changes in any of these variables over time with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development of a product candidate or if we experience significant delays in enrollment in or execution of any of our clinical trials, which could be adversely impacted by the pandemic, we could be required to expend significant additional financial resources and time on the completion of clinical trial activities and development of our product candidates.

Investment income, net consists of interest earned on cash and cash debt securities. During the three and six months ended December 31, 2021, investment income, net declined by $23,000 and $81,000, respectively, when compared to the same periods in the prior year, primarily due to a smaller investment portfolio in the current period.

Interest expense during the three and six months ended December 31, 2021 increased by $0.3 million and $0.7 million, respectively, when compared to the same periods in the prior year. These increases were primarily due to higher average outstanding balances under our collateralized term loan agreement during the 2021 periods. Additional information regarding our long-term loan agreement can be found in Note 5 to the Unaudited Condensed Financial Statements included in this Quarterly Report

 

Such increases were partially offset by $1.3 million of lower external spending for our Vista trial, which was primarily due to a year-over-year reduction in manufacturing activities for clinical trial materials. The decrease of $0.1 million in ACHM expenses was primarily due to reduced site activity as our two clinical studies have progressed to a point where they are no longer processing new site activations or enrolling new study participants. Additionally, there was a nominal decrease in research and development expenses in connection with the wind-down program.

The table below summarizes our general and administrative and other expenses for the periods indicated.

 

General and administrative and other expenses for the three months ended December 31, 2021 and 2020 were $4.0 million and $3.3 million, respectively, an increase of $0.7 million, or 21%. Such increase was primarily due to: (i) compensation for new employees; (ii) incremental share-based compensation costs for the 2021 RSUs; and (iii) higher operating and business development costs pertaining to our recurring operations as we execute our strategic plans. Lower legal fees during the three months ended December 31, 2021 were due to reduced use of external legal counsel. Total general and administrative and other expenses for the three months ended December 31, 2021 were consistent with those for the three months ended September 30, 2021.

The table below summarizes our research and development expenses by product candidate or program for the periods indicated.

 

Research and development expenses for the six months ended December 31, 2021 and 2020 were $26.8 million and $23.4 million, respectively, an increase of $3.3 million, or 14%. The increase was primarily attributable to:

 

 

 

22

 

Such increases were partially offset by $1.2 million and $0.1 million of lower external spending for our Vista and ongoing XLRP Phase 1/2 trials, respectively. The decline in the Vista expenses was primarily due to a year-over-year reduction in manufacturing activities for clinical trial materials. The decrease of $1.0 million in ACHM expenses was primarily due to reduced site activity as our two clinical studies have progressed to a point where they are no longer processing new site activations or enrolling new study participants. Additionally, there was a nominal decrease in research and development expenses in connection with XLRS program.

The table below summarizes our general and administrative and other expenses for the periods indicated.

 

General and administrative and other expenses for the six months ended December 31, 2021 and 2020 were $8.1 million and $6.7 million, respectively, an increase of $1.3 million, or 20%. Such increase was primarily due to: (i) compensation for new employees; (ii) incremental share-based compensation costs for the 2021 RSUs; and (iii) higher operating and business development costs pertaining to our recurring operations as we execute our strategic plans. Lower legal fees during the six months ended December 31, 2021 were due to reduced use of external legal counsel. Total general and administrative and other expenses for the six months ended December 31, 2021 were consistent with those for the six months ended June 30, 2021.

Liquidity and Capital Resources

We have incurred cumulative losses and negative cash flows from operations since our inception and, as of December 31, 2021, we had an accumulated deficit of $275.5 million. It will be several years, if ever, before we have a product candidate ready for commercialization. We expect that our research and development expenses and general and administrative and other 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.

Most recently, we received: (i) net proceeds of $143,000 in November 2021 from selling our common stock through an offering” program that is described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report on Form (ii) $9.9 million of loan proceeds, net of debt discounts, in May 2021; and (iii) net proceeds of $69.3 million in February 2021 from the underwritten public offering that is described in Note 7 to the Unaudited Condensed Financial Statements included in this Quarterly Report Among other things, the May 2021 loan proceeds are expected to partially fund certain equipment and shared building fit out costs, as well as new employee hires, in connection with our lease and operation of a cGMP manufacturing and quality control facility in Alachua, Florida. Importantly, through a tenant improvement allowance and tiered rental rates, we have structured our third-party leasing costs for this facility in a way that will not significantly impact our cash runway until the fiscal year ending June 30, 2024. Additional information regarding our long-term loan agreement and new manufacturing and quality control facility can be found in Notes 5 and 8, respectively, to the Unaudited Condensed Financial Statements included in this Quarterly Report

We are closely monitoring ongoing developments in connection with which may negatively impact our projected cash position and access to capital. We will continue to assess our cash position and, if circumstances warrant, make appropriate adjustments to our operating plan.

Cash in excess of immediate requirements is invested in accordance with our investment policy, which primarily seeks to maintain adequate liquidity and preserve capital by generally limiting investments to certificates of deposit and investment-grade debt securities that mature within twelve months. As of December 31, 2021, our cash and cash equivalents were held in bank accounts and money market funds.

 

23

The table below sets forth the primary sources and uses of cash for the periods indicated.

 

For both the six months ended December 31, 2021 and 2020, cash used in operating activities was primarily the result of research and development expenses and general and administrative and other expenses incurred in conducting normal business operations. Specifically, the cash used in operating activities of $33.5 million during the six months ended December 31, 2021 was due to a net loss of $36.3 million and unfavorable changes in our operating assets and liabilities of $0.4 million, partially offset in our statement of operations of $3.2 million. The cash used in operating activities of $26.3 million during the six months ended December 31, 2020 was due to a net loss of $30.8 million, partially our statement of operations of $2.4 million and favorable changes in our operating assets and liabilities of $2.1 million.

Cash provided by investing activities of $1.0 million during the six months ended December 31, 2021 consisted primarily of cash proceeds of $2.0 million from maturities of investments, partially offset by purchases of property and equipment of $0.8 million and intellectual property costs of $0.1 million. Cash provided by investing activities of $7.0 million during the six months ended December 31, 2020 consisted primarily of cash proceeds of $27.0 million from maturities of investments, net of investment purchases of $19.0 million, partially offset by purchases of property and equipment of $0.8 million and intellectual property costs of $0.2 million.

Cash provided by financing activities of $0.2 million during the six months ended December 31, 2021 consisted of proceeds from issuances of our common stock, net of issuance costs, and exercises of common stock options, partially offset by (i) payments for taxes related to equity awards and (ii) principal payments on a finance lease. Cash used in financing activities of $0.1 million during the six months ended December 31, 2020 consisted of (i) payments for deferred financing fees and taxes related to equity awards and (ii) principal payments on a finance lease, partially offset by proceeds from exercises of common stock options.

We have not generated any revenue from product sales and we do not know when, or if, we will generate such revenue. We do not expect to have 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 available cash and cash equivalents, which totaled $72.8 million on December 31, 2021, will be sufficient to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs into calendar year 2023. However, we will require substantial additional funding to: (i) finish our Vista trial; (ii) move our ACHMB3 product candidate forward; (iii) complete the process necessary to seek regulatory approval for our lead product candidates; (iv) build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved; and (v) execute our plan to open and operate a leased cGMP manufacturing and quality control facility.

To provide the maximum degree of financial flexibility, we may consider various potential opportunities to fund future operations and/or modulate liquidity needs including: (i) raising new capital through equity or debt financings or other sources, including our offering” program; (ii) amending our long-term debt agreement; the rights to certain of our product candidates; (iv) entering into one or more collaborations to offset the costs of our leased manufacturing and quality control facility; and (v) reducing our expenditures on research and development activities and/or restructuring our operations. However, we may be unable to successfully execute any of the plans described above, or raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. Additional information regarding our liquidity and related matters can be found in Note 1 to the Unaudited Condensed Financial Statements included in this Quarterly Report under the heading ”Liquidity and Financial Condition.”

 

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We are a smaller reporting company, as defined by the Securities Exchange Act of 1934, as amended, and are not required to provide this information.

 

 

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in and 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, our principal executive officer and principal financial officer concluded that these disclosure controls and procedures were effective as of December 31, 2021.

 

There were no changes in our internal control over financial reporting (as defined in the Securities Exchange Act of 1934, as amended) during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

 

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

 

Refer to Part I, Item 1A, “Risk Factors,” of our Annual Report on the year ended June 30, 2021 (the “2021 Form for information regarding our risk factors. Except as noted below, there have been no material changes in the risk factors included in the 2021 Form

We may be forced to amend, delay, limit, reduce or terminate the scope of our clinical and preclinical programs and/or limit or cease our operations if we are unable to obtain additional funding. As of December 31, 2021, we had cash and cash equivalents totaling $72.8 million. We believe that there is presently insufficient funding available to allow us to generate data from our ongoing and planned clinical programs and fund currently planned research and discovery programs for a period exceeding 12 months from the date of filing this Quarterly Report on Form During such period, our future liquidity needs will be primarily based on the: (i) success and progression of our product candidates; (ii) repayment obligations under our long-term debt agreement; and (iii) costs to operate our leased manufacturing and quality control facility. We will also require substantial additional funding to: (i) finish our Vista trial; (ii) move our ACHMB3 product candidate forward; (iii) complete the process necessary to seek regulatory approval for our lead product candidates; and (iv) build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved. To provide the maximum degree of financial flexibility, we may consider various potential opportunities to fund future operations and/or modulate liquidity needs, including: (i) raising new capital through equity or debt financings or other sources, including our offering” program; (ii) amending our long-term debt agreement; the rights to certain of our product candidates; (iv) entering into one or more collaborations to offset the costs of our leased manufacturing and quality control facility; and (v) reducing our expenditures on research and development activities and/or restructuring our operations. However, we may be unable to successfully execute any of the plans described above, or raise additional funds or enter into such other arrangements when needed on favorable terms, or at all. The failure to obtain sufficient funds on commercially acceptable terms when needed would have a material adverse effect on our business, results of operations and financial condition and would jeopardize our ability to continue our operations. These factors raise substantial doubt about our ability to continue as a going concern.

Additional information regarding our ability to continue as a going concern can be found in Note 1 to the Unaudited Condensed Financial Statements included in this Quarterly Report under the heading ”Liquidity and Financial Condition.”

 

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APPLIED GENETIC TECHNOLOGIES CORPORATION (Registrant)
By:		/s/ Jonathan I. Lieber
		Jonathan I. Lieber, Chief Financial Officer
		Date: February 14, 2022