The company’s revenue is comprised of the following related to the dateBiogen Agreement:
| | | | | | | | | | | | | | | | |
| | | For the Three
Months Ended
December 31, | | | For the Six Months
Ended December 31, | |
In thousands, | | 2018 | | | 2017 | | | 2018 | | | 2017 | |
Collaboration revenue | | | | | | | | | | | | | | | | |
Licenses and related services | | $ | 4,362 | | | $ | 3,735 | | | $ | 8,981 | | | $ | 13,489 | |
Development services | | | 903 | | | | 1,096 | | | | 1,961 | | | | 1,650 | |
Milestone revenue | | | 630 | | | | — | | | | 8,978 | | | | — | |
| | | | | | | | | | | | | | | | |
Total collaboration revenue | | $ | 5,895 | | | $ | 4,831 | | | | 19,920 | | | $ | 15,139 | |
| | | | | | | | | | | | | | | | |
License and related services revenue is comprised of revenue related to the Company’s completion of performance obligations that Bionic Sight hascontain the delivery of licenses andPre-Funded Activities. Development services revenue relates to the delivery of Post Funded Activities. Milestone revenue relates to the portion of milestone payments received both IND clearance fromthat are recognized as revenue based on the FDAproportional performance of the underlying performance obligation.
Summary of Contract Assets and receiptLiabilities
The following table presents changes in the balances of written approval from an internal review board to conduct clinical trials from at least one clinical site for that product (the “IND Trigger”.) Forour contract assets and liabilities during the three and ninesix months ended MarchDecember 31, 2018 payments(in thousands):
| | | | | | | | | | | | | | | | |
| | | Balance at
Beginning
of Period | | | Additions | | | Deductions | | | Balance at
End of
Period | |
Three months ended December 31, 2018 | | | | | | | | | | | | | | | | |
Contract assets | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Contract liabilities: | | | | | | | | | | | | | | | | |
Deferred revenue | | $ | 25,425 | | | $ | — | | | $ | 4,993 | | | $ | 20,432 | |
| | | | | | | | | | | | | | | | |
| | | Balance at
Beginning
of Period | | | Additions | | | Deductions | | | Balance at
End of
Period | |
Six months ended December 31, 2018 | | | | | | | | | | | | | | | | |
Contract assets | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Contract liabilities: | | | | | | | | | | | | | | | | |
Deferred revenue | | $ | 29,521 | | | $ | 10,000 | | | $ | 19,089 | | | $ | 20,432 | |
The Company recorded an entry to increase deferred revenue and in-kind contributions were approximately $0.2accumulated deficit for $22.6 million and $0.8as of July 1, 2018 related to the adoption of Topic 606. The impact of the adoption of Topic 606 is reflected within the beginning of period balance for the six months ended December 31, 2018. Additions for the six months ended December 31, 2018 include the $10 million respectively.
Ifmilestone payment received associated with the IND Trigger is attained, AGTC will receive additional equity, based onXLRP program. Deductions from deferred revenue for the valuation in placethree months ended December 31, 2018 represent revenue recognized related to the deferred revenue balance at the beginning of the agreement,period. Deductions from deferred revenue for the AGTC Ongoing R&D Support payments and in-kind contributions, and will be obligated to purchase additional equity in Bionic Sight for $4.0 million, at a pre-determined valuation. Duesix months ended December 31, 2018 include revenue recognized related to the uncertaintydeferred revenue balance of achieving the IND Trigger, the Company is expensing the AGTC Ongoing R&D Support payments$9.6 million, revenue recognized related to additions to deferred revenue of $8.3 million (of which $7.8 million relates to performance in prior quarters) and in-kind contributions made under the collaboration agreement. Such amounts are included as a component$1.1 million of research and development expenses in the Company’s financial statements.
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 on the Company’s balance sheet. During the three-month period ending March 31, 2018, the Company recorded a reduction of its investment in Bionic Sight of $5,061 and an investment loss on the
statement of operations to reflect its equity interest in the net loss of this affiliate. The ongoing research and development costs and contributions will be recorded as a periodic cost until such time when or if the IND Trigger is achieved.
The collaboration agreement grants to AGTC, subject to achievement by Bionic Sight of certain development milestones, an option to exclusively negotiate for a limited period of time to 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.
7.
| Revision of Prior Period Financial Statements
|
In the fourth quarter of fiscal 2017, the Company became aware of an immaterial error regarding the calculation of the income tax provision for the first three quarters of fiscal 2017. An assessment concludedvariable consideration that the error was not material to any prior period financial statements. As such, in accordance with ASC 250 (SAB No. 108, Considering Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the prior period financial statements have been revised (the "Revision") in the applicable financial statements. Periods not presented herein will be revised, as applicable, in future filings. Although management has determined that the error was not material to prior periods, the financial statements for the three and nine months ended March 31, 2017, included herein, have been revised to correct for the impact of this item. Unless otherwise indicated, the financial information as of and for the three and nine months ended March 31, 2017 presented in this Quarterly Report on Form 10-Q reflects this revision.constrained.
The following table summarize the effect of the Revision on the Statement of Operations for the three and nine months ended March 31, 2017:
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| | For the Three Months Ended March 31, 2017 | |
In thousands | | 2017 | | | Adjustment | | | 2017 Adjusted | |
Loss before provision for income taxes | | $ | (600 | ) | | | | | | $ | (600 | ) |
Provision for Income Taxes | | | 221 | | | | 379 | | | | 600 | |
Net loss | | $ | (821 | ) | | | | | | $ | (1,200 | ) |
Net loss per share, basic | | $ | (0.05 | ) | | | | | | $ | (0.07 | ) |
Net loss per share, diluted | | $ | (0.05 | ) | | | | | | $ | (0.07 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | For the Nine Months Ended March 31, 2017 | |
In thousands | | 2017 | | | Adjustment | | | 2017 Adjusted | |
Income before provision for income taxes | | $ | 5,405 | | | | | | | $ | 5,405 | |
Provision for Income Taxes | | | 519 | | | | 1,281 | | | | 1,800 | |
Net income | | $ | 4,886 | | | | | | | $ | 3,605 | |
Net earnings per share, basic | | $ | 0.27 | | | | | | | $ | 0.20 | |
Net earnings per share, diluted | | $ | 0.27 | | | | | | | $ | 0.20 | |
The following table summarize the effect of the Revision on the Statement of Cash Flows for the nine months ended March 31, 2017:
| | For the Nine Months Ended March 31, 2017 | |
In thousands | | 2017 | | | Adjustment | | | 2017 Adjusted | |
Net income | | $ | 4,886 | | | | (1,281 | ) | | $ | 3,605 | |
Changes in operating assets and liabilities | | | | | | | | | | | | |
Accrued and other liabilities | | | (142 | ) | | | 1,281 | | | | 1,139 | |
Net cash (used in) operating activities | | $ | (21,007 | ) | | | | | | $ | (21,007 | ) |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
8.
ITEM 2. | Subsequent eventsMANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
In April 2018, the Company earned a $2.5 million milestone payment from Biogen due to dosing of the first patient in the XLRP Phase 1/2 clinical trial. The company owes sublicensing fees of approximately 23% to certain collaborators associated with this milestone payment.
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 MarchDecember 31, 2018, and results of operations for the three and ninesix months ended MarchDecember 31, 2018 and 2017. This discussion should be read in conjunction with the accompanying Unaudited Condensed Financial Statements and accompanying notes, as well as our Annual Report onForm 10-K for the year ended June 30, 2017, as amended,2018, (“June 2017 2018Form 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 2017 2018Form 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 inX-linked retinoschisis (XLRS), achromatopsia (ACHM) andX-linked retinitis pigmentosa (XLRP), and a preclinical program in optogenetics. In addition to ophthalmology, we have recently initiatedhaveinitiated preclinical programs in adrenoleukodystrophy (ALD) and otology. 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 4D Molecular Therapeutics (4DMT), 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. Finally, our partnership with Biogen, which includes our clinical XLRS and XLRP programs, our discovery program in ALD and two ophthalmology programs, validates our approach and technology.
Since our inception in 1999, we have devoted substantially all of our resources to development efforts relating to ourproof-of-concept programs in ophthalmology andalpha-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. To date, weWe have funded our operations to date primarily through thepublic offering of our common stock, private placement of preferred stock, common stock, convertible notes and warrants to purchase preferred stock, through our public offerings consummated in April 2014 and July/August 2014, and through development services, upfront and milestone payments from our partners.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 theAlpha-1 Foundation.
Although we recorded income from operations of $1.9 million for the year ended June 30, 2017 due in part to the amortization of revenue associated with our collaboration agreement with Biogen, weWe have incurred losses from operations in each other year since inception.inception except for fiscal 2017. Our net incomeloss for thesix-month period ended December 31, 2018 was $3.0 million while the net loss for the fiscal year ended June 30, 20172018 was $0.4$21.3 million, compared to net lossesincome of $1.4$0.4 million and $24.3net loss of $1.4 million for each of the fiscal years ended June 30, 20162017 and 2015,2016, respectively. Substantially all 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:
conduct preclinical studies and clinical trials for our XLRS, ACHM and XLRP product candidates;
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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
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 MarchDecember 31, 2018, we had cash and cash equivalents and investments totaling $111.8$96.1 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 at MarchDecember 31, 2018, will be sufficient to allow us to generate data from our ongoing clinical programs, to move ourpre-clinical optogenetic program in collaboration with Bionic Sight into the clinic and to fund our currently planned research and discovery programs for at least the next two years. In order to complete the process of obtaining regulatory approval for our lead product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, we will require substantial additional funding. 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 products.
On December 7, 2018, we received written notice from Biogen MA Inc. (Biogen), a wholly owned subsidiary of Biogen Inc., that Biogen has elected to terminate the Collaboration and License Agreement between Biogen and us effective as of March 8, 2019. Upon expected termination of the Collaboration Agreement, we will receive 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. As we reported on December 12, 2018, based on topline interimsix-month data from our Phase 1/2 clinical trial of our XLRS product candidate that showed no clinical activity atsix-months, we will complete patient monitoring activities on the XLRS program according to the clinical protocol, but we will not further develop our XLRS product candidate. We plan to continue to advance our XLRP and ACHM product candidates, as we believe the general safety and tolerability of our gene delivery platform is supported by our XLRS clinical data, and we are evaluating next steps for our discovery programs.
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. generally accepted accounting principles. 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 2017 2018Form 10-K. 10-K, for the year ended June 30, 2018.
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